When the economy was booming in the mid- to late-'90s, folks started to do crazy things with their money. Investors handed millions over to twentysomething computer geeks, Internet startups popped up with the frequency of Bill Clinton's wiener, and the "greed is good" mantra of Wall Street's Gordon Gecko again became resonant.
Count radio behemoth Clear Channel among the many who got carried away. It was during this period that the company went on a major buying spree, acquiring hundreds of radio stations, many of which were purchased at exorbitant costs of 18 to 20 times their cash flow, according to industry insiders. But a slumping economy has brought everybody crashing down, right along with the Dow Jones. Many of the dot-comers are out of business, their investors having to settle for retirements in Florida rather than Fiji. As for Clear Channel, well, its business strategy is looking less and less feasible.
Recently, the company made another round of cuts in Cleveland, letting go eight on-air employees and other staffers -- the second time it's done so this year. The firings came less than a week before news that the company suffered a third-quarter revenue loss of 11.5 percent -- exceeding the 10 percent drop analysts had expected. The previous quarter, Clear Channel was hit with a net loss of $237 million, its stock down 30 percent from last year.
Of course, Clear Channel's troubles are a reflection, in part, of the wartime belt-tightening that has befallen every industry. Still, the company's woes are among the worst in radio. "The economy is part of it, September 11 is part of it, our anxiety about what's going to happen in the future is part of it," says Kevin Metheny, director of programming for Clear Channel Cleveland, which operates WMJI, WGAR, WMVX, WMMS, WTAM, and WAKS. "In light of the economic downturn, we were compelled to dramatically reduce expenses, including reduction of payroll. What's unclear about that?"
Well, that depends on who you ask.
"They're blaming the revenue reduction on the economy, on September 11, and in many respects, I certainly don't believe it's all that," says Peter Salant, a Connecticut-based radio consultant who has worked with Clear Channel. "When they overpaid for these stations, they seemed to have forgotten Economics 101: That things can change for the worse in the world, and that it might be harder and harder for them to pay the $12,000 a week in interest payments that each of the 1,200-plus stations have to contribute to the banks. What's going to happen is that they're all going to have to start selling off properties."
In the meantime, workers are being bid adieu. Clear Channel has streamlined its workforce and spread its labor as thinly as possible. Programming and management have become much more centralized, with the same broadcasts being carried in several markets and programmers becoming responsible for multiple stations. This has led to a dilution of talent, both on and off the airwaves. Some critics say it has created a homogenized and ultimately inferior product. The company has also beefed up commercial time on its stations. That's pushed channel-surfing to an all-time high, thus frustrating advertisers and hurting sales. All of which calls into question the viability of a conglomerate of this magnitude.
"No radio group really knows how to operate all these radio stations," says Jerry De Colliano, publisher of the Inside Radio trade publication. "It's more than we've ever had before. We have no core competencies in our business to run any more than 14 AM and 14 FM stations. When deregulation allowed more, the economy was booming, and you had to be pretty stupid to screw it up. But once the economy sputtered, we found that we had a hard time running these clusters and that the demand wasn't as great. It's not that consolidation can't work; it's that [Clear Channel] is more interested in economies of scale than generating revenue, and this recession has made them so fearful that they're cutting key people and having economies of scale that are dangerous. I think they're killing the goose that laid the golden egg."
So what does this mean to the listener?
"I think the listener loses. How could the listener win?" De Colliano asks. "You're going to get a jock from another city on a radio station that's plastic. The listener doesn't come out ahead with consolidation."
Adds Salant: "I'm not sure that these companies really care about the listeners at all; they just care about their stockholders. They don't see that, if they don't have any more listeners, they won't have any more stockholders."