I am not sure I have ever been more embarrassed for an industry than I am for broadcast radio. You know, that thing they call AM and FM that you dial via carrier pigeon in your car. It's right next to the "SAT" button, which I think stands for Sirius XM (SIRI).
While terrestrial radio (that's another name for this antiquated "technology") looks a heck of a lot livelier than it did while on its beginning of the century death bed, as a collective entity, it's still sitting around waiting to be bought and sold. I am not sure if I should laugh or cry when I read the (what amounts to) propaganda the broadcast radio lobby churns out on a day-to-day basis.
The gloves are off
Time for radio to get aggressive
Radio could use a little mojo, a little groove ... a little confidence
And, meantime, what do broadcast radio sales departments across the nation do? Sit around and wait for the political ad dollars to roll in to artificially inflate 2012's numbers. As they sit and wait, they rationalize their meager existences by pointing to the television side, which "takes a beating in off-election years, as you're about to see in the CBS numbers."
Yeah, we saw the CBS (CBS) numbers. In spots, they weren't so hot. It's time for radio to get giddy because it was mentioned by name a total of three whole times during yesterday's CBS conference call.
I guess radio missed the Disney (DIS) and Time Warner (TWX) reports from earlier in the month. Pay networks such as ESPN, TBS and CNN lead the way alongside rapidly expanding TV Everywhere efforts. Maybe radio executives heard those calls, but just ignored them. Or maybe they still just do not get it. Life exists beyond CBS, NBC, ABC and the CW.
As much as I hate to lump excellent Clear Channel (OTCQB:CCMO) CEO Bob Pittman (and others in radio who I know and respect) into radio's gaggle of ineptness, it's becoming increasingly difficult not to. Pandora (P) co-founder Tim Westergren summed up encroachments onto his company's turf quite nicely:
Each new entrant into Internet radio is to me further validation that this is where the future is ...
Radio is going through a massive change, which I think is irreversible ... I think it's just evidence that this is where radio is going. The largest broadcaster (Clear Channel) clearly sees that and I think it's just validation of what we're doing.
He forgot to mention that every other broadcaster in the free world continues to jump onto Clear Channel's iHeart Radio. It's akin to folks hastily diving off of a sinking ship to what amounts to a transitional life boat. The other thing Westergren did not mention - and it's painfully obvious if you watch how Pittman operates - is that it's not simply about Clear Channel seeing the future. They saw nothing; Pandora took care of that. It's more about the company putting a big old "For Sale" sign on its forehead.
One of the primary reasons CCMO.PK makes for a lousy investment is, of course, that .PK after its ticker, low trading volume and, more importantly, a frightening balance sheet. There's no way on Earth Clear Channel can survive as things stand. The company sports about $20 billion worth of debt. Have a look at Clear Channel's latest 10-Q. It's a minefield of startling proportions.
iHeart Radio and Clear Channel's recent rebranding are not novel. They're obvious strategic choices that should have been made years and years ago. Instead, Pandora and a handful of others led the way, prompting everybody from Clear Channel to Sirius XM to follow with their own less-than knock-offs. Pittman knows how to play this game. And, for my money, he's sitting back waiting for some sucker to take the whole operation or, at the very least, parts of it off of his hands. He needs that to happen because Clear Channel must answer to private equity, such as Bain Capital (hello, Mitt Romney).
Cats like that do not have the long-term vision that a company like Pandora has. For all intents and purposes, they do not have many retail shareholders to worry about. It's a big money group made of private equity and people like Pittman. They'll get theirs as soon as somebody deems a package that includes this "exciting" digital property, iHeart, Rush Limbaugh and Ryan Seacrest attractive enough to overpay for.
If you own CCMO.PK (burst of laughter) or the billboard side of the company (CCO), you'll likely be left holding the bag when the smoke, mirrors and dust settles. If you want to invest in the broad media space (and I pack all creators and purveyors of content together), you need to look for the companies that (A) are not looking to sell out and (B) dictate the future, rather than imitate those actively producing it.
The reasoning behind P, DIS and TWX should be pretty clear. If not, simply search my Seeking Alpha article history on the three tickers. Each company visions the future, while acting accordingly and aggressively. Pandora dominates Internet radio and is eating away at ad dollars once reserved exclusively for broadcast radio. And Disney and Time Warner both have incredibly diverse businesses that act as hedges against one another. Both companies have shed the old guard image and embraced the new, on-demand multi-platform new media world.
The article makes my thoughts on Clear Channel clear. Unless you invested millions in a private deal, you will see nothing from a stake in CCMO.PK whether there's a fire sale or not. And, not surprisingly, CBS and Sirius XM share similar cultures. They're both somewhat reluctantly stepping into worlds that Pandora has been in for more than a decade (they, along with Apple (AAPL), helped create this world) and Disney and Time Warner have aggressively taken charge of.
If CBS thinks flipping FM radio stations to sports talk and welcoming political attack ads while producing shows for Netflix (NFLX) is the future, they're sadly mistaken. If nothing else, Sirius XM's stagnant stock price after an earnings report that told investors more of the same should convince you to take profits. But, looking ahead, the future simply does not lie in paying $20 a month for content you can, by and large, get elsewhere delivered over out-dated and expensive satellites, clunky retail radios with "car kits" or somebody else's idea.
Additional disclosure: I am long NFLX June $40 put options. I am also long Cumulus Media (CMLS) simply on expected momentum from political ad season. I have a target of roughly $4.00 on the stock.