For the past several months, I have been writing about radio on Seeking Alpha. Today, that word encompasses much more than just AM and FM. While terrestrial radio still commands the most listeners, emerging threats-- and in some cases, already arrived ones, such as Sirius XM (NASDAQ:SIRI) satellite radio and Internet radio from companies like Pandora (NYSE:P) -- have forced terrestrial out of its decades-old comfort zone.
In an effort to provide more than my own analysis and opinion to Seeking Alpha readers, I continue to reach out to experts in the areas I write about. Some folks get back to me and agree to "chat," others don't. I know some of the people I request interviews from, others I have no personal connection to. I believe this approach allows me to add a diversity to my contributions that would not come to the surface if I chose to go it completely alone.
In this article, I give the floor to Jim Meltzer of Meltzer Media Management. I worked for Jim when I first started out in radio. He was my general manager at WGR in Buffalo, New York, in the mid-1990s when I was a young pup of barely 18 years old. Jim also served as a VP at Clear Channel between 1997 and 2005. Because I know Jim, I trust that unleasing him on the Seeking Alpha audience makes sense. He does not need my endorsement, as one look at Jim's track record proves he knows the radio business. I believe his insights prove valuable for investors already in or considering the space.
Rocco Pendola: Provide a short bio.
Jim Meltzer: I am the Owner of Meltzer Media Management, a broadcast management, sales, Internet and organizational consulting firm founded in August 2008. I have over 30 years of experience as an executive in the radio broadcasting industry, mostly for publicly traded companies in line General Management, Regional Exec and at the C level.
My experience is in directing turnarounds, radio station operations, Internet, digital convergence, sales, marketing, content development, integrating acquisitions and managing industry change. Consulting clients range from Media Sales Organizations, a MLB team, to many Private Equity Firms and Lenders. In addition to retainer and hourly consulting, I am a Partner/COO of American Eagle Media, LLC. American Eagle was founded to acquire media companies and create new platform opportunities in the media sector.
RP: Before we get into programming issues and the prospects for the business, a big question on many investors' minds involves Clear Channel (CCMO.PK). How do you see things shaking out for them over the next several years, particularly in relation to their debt load?
JM: Bain [Capital] and Lee [Partners] are doing a very good job in operating CC. They are making strategic long term investments and managing costs. It is also one of the best radio/ media companies in the terms of understanding the importance of Radio’s digital future.
That said, with about 20 billion in debt hanging over the company, there have to be some events next year. Even with all the free cashflow Radio generates, Clear Channel will be forced to sell some assets before the company bumps into its covenants.
RP: Which radio companies appear strongest today and going forward? As an investor, where would you consider putting your money?
JM: My two favorite public companies are CBS (NYSE:CBS) and Entercom (NYSE:ETM). [CBS Radio President and CEO] Dan Mason has done a tremendous job positioning CBS for long term growth. With its sheer size I am also looking at Cumulus (NASDAQ:CMLS), especially after the Citadel (OTC:CDELA) acquisition. Citadel is a fantastic turn around opportunity with hidden values-- I'm not sure how many folks realize that. As far as private companies, Oak Tree's Townsquare / Triton combo is state of the art. Other very well run privates are Hubbard, Greater Media and Cox. For the purpose of full disclosure I have investments in Entercom & Radio One (NASDAQ:ROIAK).
RP: How much more consolidation in terrestrial radio do you think we might see?
JM: I don’t see much more. Leverage is the problem. My guess is that we will see more in the way of strategic additions to existing platforms before another large deal. If the government revises cross ownership rules, that could drive additional consolidation in that area.
RP: Everybody has an opinion on this one... Take us through the last 5-10 years or so in terrestrial radio. What do you believe have been the biggest contributors to the declines it has experienced, particularly in revenue and its perceived relevance?
JM: Short answer: Trying to make 10-18X deals work in a bad economy in combination with an evolution of media.
In many markets Radio advertising is sold and purchased as a commodity. A “buyer’s market” is nothing new --- even before the recession media buyers knew about our leverage and played one overleveraged company against another for the cheapest rates. The smartest broadcasters rejected some of that business, but that was the exception. Add a soft economy to an industry with perishable inventory and it gets worse. The good news is just last month most broadcasters saw an average rate increase of about 10%.
Perceived relevance is a totally different matter but has many of the same drivers. Radio is in the entertainment and information business. People don’t listen for anything other than content. As companies cut expenses, a common result is less compelling content. Radio still reaches a huge percentage (93%) of the country. Unfortunately, with all the other sources of information and entertainment, people are not spending as much time with radio as before. That’s logical and understandable. Many stations including WTOP-FM in DC and WINS in NY are as relevant as ever. The key on that front is still content.
Also on that subject, when power was down in the South last week during the storms, car radios and Smart phones were tuned to local radio for the best and most complete coverage. I changed planes in Chicago Sunday evening while returning from LA. At the gate I saw the CNN broadcast promoting the President’s upcoming address. I immediately got out my Blackberry, found a CBS Radio news station, boarded my flight, and was listening until the flight attendant closed the door.
Back to revenue for a moment. Great content over multiple platforms will drive revenue. Non compelling content is hard to sell.
RP: How deep should / will terrestrial radio have to get into the digital / Internet game? Is it required for its survival and / or relevance?
JM: Terrestrial MUST get totally involved into all things digital and Internet to guarantee LONG TERM survival and relevance. Many companies are in the R&D stages of their digital strategies and others have their collective heads in the sand. Radio has been in the content and marketing (for advertisers) business for many years. As more people migrate to digital (Internet / mobile) for entertainment and information, Radio has the ability to develop compelling, unique and addictive content for that space… and the ability to drive their terrestrial users at no cost. Radio also has strong relationships with local advertising decision makers. As more ad dollars flow to the digital space, those radio sellers can still deliver solutions over the air, the net, mobile or all three-- if they have the right content in place.
Digital will not destroy good radio, it will be complementary. The challenge to broadcasters is to offer that compelling content mentioned above in any form necessary to be easily received on any device by their users. Just streaming is not enough.
RP: How has radio's reliance on national programming and strategies such as voicetracking -- the practice of announcers pre-programming content for their own or out-of-town markets -- hurt it, if you think it has? Does radio need to primarily local to compete effectively going forward?
JM: Let’s look at national first. I think of two words: Rush and Howard. I also remember Paul Harvey. What do they have in common? They all are / were compelling, unique and addictive. With talent that strong it never mattered where their studios were.
When [former Clear Channel executive and Tribune CEO] Randy Michaels launched voice tracking at the old Jacor Communications, the concept was designed to deliver more professional and compelling programming from larger markets to smaller markets. The driving factors were to get better content to markets that couldn’t afford it, save money, and keep it local sounding and seamless. It was the responsibility of the receiving market (the spoke) to get daily local information to the announcer in the larger market (the hub). In the beginning the execution went as planned. Years later, voice tracking became just a cost saver with average content and little, if any, local flavor.
Here’s an example of how hub and spoke worked successfully. I used to manage the Jacor/Clear Channel cluster in Cleveland. Our news room supplied most of the news for the Milwaukee cluster of stations. One year one of our Milwaukee stations won a local award for BEST LOCAL NEWSCAST. No one knew that it originated from Cleveland.
When you look at the importance of localism I go back to the content bucket. In order to be successful financially you have to provide a relatively unique service. Compelling local content is necessary moving forward. It’s very hard to get local content on the Internet or satellite. For music stations to succeed they must go back to their local roots. The successful operators are either doing that or about to bring back entertaining, local on-air personalities. It will once again be the cost of operating a successful business.
RP: What do you see in Sirius XM's future?
JM: I see continued short term success as Mel introduces 2.0. My concern is the cost. Terrestrial is free, Internet bandwidth prices should decrease, and that leaves Sirius XM as the most expensive provider. Younger demos will not pay for music over the air… in fact they’ve learned how to get music for free! The key, once again, will be content.
RP: What do you see as the biggest competitive threats going forward to terrestrial and satellite radio?
JM: On the user side: More available content and choice.
For a granular look on the advertising front I am concerned about losing some local revenue to the coupon providers. If radio continues to offer couponing, internally and managed locally or through fulfillment companies like Media Web Connect, it will still be a good, high margin, revenue source.
Generally, all other forms of media threaten radio’s revenue stream.
RP: What do you make of the Howard Stern lawsuit?
JM: I don’t.
RP: Right now, in America, name some of the best radio stations going? The ones the industry should strive to emulate, at least in philosophy. Why are they the best?
JM: WTOP-FM in Washington DC (2010’s highest billing station in the country)
WINS in NY
WCBS-FM in NY
KISS-FM – LA
KSL – Salt Lake City
All of them focus on their listeners. In addition, WTOP, KSL and WEEI have built outstanding digital assets.
RP: Why do you think several high profile talent opted for satellite and Internet radio over terrestrial? Stern is the obvious name, but there are others. I am sure Tom Leykis could have landed somewhere. And there are the Kid Kellys and Human Numans of the world who could have undoubtedly landed top 10 market gigs, possibly even in programming.
JM: Short answer: for the most part many radio companies cut back in order to service the debt they incurred when they over paid for properties. There have been many layoffs, salary reductions, or non renewals of contracts. The result has been more homologized radio like Sirius XM. Not sure about Leykis, but know that Kid Kelly is quite happy as a content exec for Sirius XM after a great on-air run in NY.
RP: Are radio sales departments creative enough? Are they missing the boat on revenue somewhere?
JM: Many companies do not provide the training or tools needed to maximize sales results. Most companies have not mastered cross platform solution selling. Clear Channel had a fantastic division called Clear Channel University that focused on sales and management development. The company closed that a few years ago. On the creative front, Clear Channel has an outstanding Creative Services Division that helps local stations. Personally I feel it should have both, but most operators don’t have either.
Unfortunately, unless a commercial is produced by an agency, it is frequently written by a radio sales person and then polished by someone in the production dept. On the upside you hear more and more live “endorsement” spots delivered by local talent. They are very effective, generate premium revenue for the station, and put some additional dollars in the pockets of the announcers.
RP: Are radio programmers creative enough? Are they missing the boat in terms of innovation? Do they simply react to new media as opposed to working aggressively and taking it to them? Are their hands simply tied by corporate?
JM: Rocco, you’ve nailed it here and play right into my earlier statements about content. Instead of answering each question, here are the reasons behind your questions:
- With consolidation AND the soft economy more programmers have to focus on multiple stations. Staffs were cut and all are wearing more hats.
- For the same reason, more decisions are being made at Corporate Headquarters. That is not necessarily bad, but will stifle creativity and risk taking.
- I truly feel that more radio execs look at new media seriously than are given credit. Unfortunately new media will not clean up a balance sheet.
- The great companies will continue to embrace digital as a long term strategy that must be addressed NOW.
- Consolidation created a less competitive environment.
JM: On the contrary, Rick is a great talent. Many in LA grew up with him. He is a great communicator, is creative and entertaining. He will attract a certain demographic and do well. After seeing him speak on a panel last week in LA I am curious how he hasn’t aged much since he released Disco Duck. Bringing back talented personalities IS something innovative.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.