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Greed and Consolidation Trigger Another Bankruptcy in Radioland

On Friday the Wall Street Journal reported news that’s no surprise to radio industry watchers, that the third largest radio owners in the country, Citadel Communications, is about to declare bankruptcy in a deal pre-arranged with its creditors. The loudest critic of Citadel has been industry-insider Jerry Del Colliano who predicted last week that the company would declare Chapter 11 ahead of a January debt hearing.

Citadel's 5-year Stock Price Performance

Citadel's 5-year Stock Price Performance

Citadel used to be a player in small and mid-size markets–which are comparatively healthy–until buying the ABC radio network from Disney in 2006. That enormous purchase was worth $2.7 billion, with $1.6 billion of it in cash. The deal made it a much bigger nationwide player, especially in the largest markets, along with saddling the company with massive debt just before the commercial radio industry peaked and the economy tanked.

Various reports attribute responsibility to the overall decline in the radio industry, combined with the loss of two major personalities: Paul Harvey, who died in March, and Sean Hannity who was lured to Clear Channel’s Premiere Radio Network. Certainly these events didn’t help Citadel along. But I side with Del Colliano in attributing the true responsibility to the disease of consolidation. Well, that and lame-brained business practices, like cutting off non-Citadel stations from carrying ABC network news, and the typical consolidator practice of firing local personnel and moving to voice tracking.

At this point in the economic crisis I am having a much harder time swallowing the line that radio is a uniquely dying business than I did even in 2006. Instead, the largest radio owners were a perverse type of innovator, way ahead of the curve in hollowing out their own companies by taking on mammoth quantities of debt based on the pipe dream that the industry–and the economy–would only continue on a steep upward climb. They weren’t alone, as we all know, since real estate, banking, insurance and other industries would follow in their tracks some 12 – 18 months later.
Frankly, the situation isn’t that different for newspapers–where the owners of companies like Tribune took on massive crippling debt in order to acquire and consolidate. Different industries with slightly different modus operandi, but otherwise the same disease of greed and consolidation.

Without a doubt the loosening of radio ownership rules in the Telecomm Act of 1996 provided the perfect storm for the creation of Clear Channel and Citadel, but that is not the only impetus. Indeed, the same investors and financial managers taking tokes off the same pipe filled with greed who created radio’s consolidated wasteland are those who who also engineered the financial collapse of 2008. Each had their own set of wet-kisses from Washington in the form of relaxed regulations, lax regulators and overheated enthusiasm. But the root cause is the same.

Unfortunately there’s nothing unique about the Citadel bankruptcy; it might as well be Chrysler. The radio lover’s best hope is a fire sale that might return some of these stations to local ownership.

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