Georgetown Partners' Latest Radio Proposal Raises Many Questions

 |  Includes: CCU-OLD, EVC, SIRI
by: Spencer Osborne

Months ago, when Georgetown Partners began their quest for 20% of the SDARS spectrum, I composed a list of questions that I felt should be answered. Among those questions was whether Georgetown was looking to build their own satellite radio company, or merely going to act as an “auctioneer” of channels to terrestrial radio broadcasters.

What I noted then was that Davenport lacked radio experience. I found it odd that someone would seek 20% of the SDARS spectrum (about 60 channels), and not have a plan as to how to fill that spectrum with content. I alleged at that time that perhaps the plan was to grab the channels, and then go to terrestrial radio giants like Clear Channel (CCU-OLD), CBS (NYSE:CBS), etc. and offer them blocks of channels that would be available in every market.

I also found it odd that the National Association of Broadcasters and terrestrial radio stations were dead silent on this issue, despite the fact that Georgetown was having meetings with the FCC at breakneck pace. Had Sirius (NASDAQ:SIRI) or XM (XMSR) proposed 60 channels of free commercial supported radio, the NAB and terrestrial radio giants would have filed complaint after complaint with the FCC. Somehow, though, the proposals of Georgetown Partners got no response at all from terrestrial radio.

Now, in the eleventh hour, Georgetown’s Chester Davenport has announced that he is prepared to partner with Entravision (NYSE:EVC) to help fill all of the channels he is seeking. Entravision is a Spanish language-based media company with 48 terrestrial radio stations, 41 of which are located in the top 50 Spanish markets in the United States.

Perhaps the most interesting item to note is that Entravision is NOT minority owned. It is a publicly traded company just like Sirius and XM. Entravision is traded on the NYSE under symbol EVC. Literally, from an ownership standpoint, the shareholders represent the owners of the company. Entravision simply has a business model that is based on minority programming. The fact of the matter is that “minority ownership” of Entravision may be more or less than Sirius and/or XM. It all boils down to the demographics of the investors. The fact of the matter is that there is nothing stopping Sirius and XM from offering diverse programming….. In fact, they already do.

It would appear that what we have here is a minority businessman, Chester Davenport, who simply wants to act as a middleman. Being a minority would give him certain competitive edges in obtaining the rights to spectrum, but in reality, the operations of the business may well have nothing at all to do with Georgetown Partners if they are simply a “paper owner”.

For clarity, I have nothing at all against having minority programming. Entravision delivers quality content, and it would be wonderful to see their business expand. The question is why Mr. Davenport is even needed in this situation. Is it simply to “qualify” as a minority owner? What is more important - the ownership, or the content delivered to consumers?

Davenport argues that the seizure of 20% of the spectrum would only impact 2% of the subscribers of Sirius or XM. He supports this by stating that subscribers only “listen to” a finite set of channels on SDARS. That argument falls flat because one of the compelling aspects of SDARS subscribers is the ability to have a wide variety of content. Stripping 60 channels out of the SDARS line-up is not a 2% impact. See what happens with SDARS subscribers if 60 channels suddenly fell from the line-up. Do you think customers would complain? You bet they would.

Further, the primary products of Entravision are three channels. They broadcast through a centralized production facility and their leading products are music formats:

  • Super Estrella, a music-driven, pop and alternative Spanish rock format.
  • Radio Tricolor, a personality-driven, Mexican country-style format.
  • Jose, a mix of Spanish-language adult contemporary hits from the 1970’s to the present.

This would use 3, and maybe as much as 6, of the proposed 60 channels. What has Davenport promised for the rest? To quote from his own filings, “Family friendly commercial supported programming that meets FCC decency standards”. News flash……When Howard Stern was on the terrestrial air waves, his programming was “family friendly programming that met FCC decency standards.”

For Georgetown Partners, bringing out Entravision could well be an attempt to state that the 20% would be African American as well as Hispanic based. I do not buy it. Not for a second. If Davenport ever wanted to make money on a national basis, he would need mainstream programming. Whether rap, country, rock, or talk, the breadwinner type programming needs to be a part of the mix. In my opinion, Georgetown Partners is simply hiding this bit of information.

What value would having KISS FM on in every market carry for a terrestrial radio giant? Think about the most popular formats being available on terrestrial, HD, as well as satellite all under the control of a Clear Channel or a CBS? Program the show and broadcast it in every medium. Don’t forget Internet radio. All of the big boys also broadcast globally on the net.

Chester Davenport is a smart man. He was smart enough to ask for and receive meetings. He was smart enough to bring in consultants with relationships to Martin. He is smart enough to play the minority ownership card in such a way that limits other minority competition. He was smart enough to keep his plans veiled. He was smart enough to not answer the questions raised by Sirius Buzz, and he was smart enough to avoid daily calls from this writer for weeks on end. Did we see something that Davenport did not want us to see?

Davenport will not get what he wants. What he is seeking is a merger deal-breaker. While his efforts have been less than transparent, a bit of reading between the lines will get anyone to the motives behind the Georgetown Partners proposal.

I am not against minority programming or ownership. From a consumer perspective, all I care about is what programming is delivered, and whether programming exists on the service that meets my taste. From an investor perspective, the same is true. I do not care whether SIRI, XM, or EVC are invested in by any race. It simply does not matter. What I am against is a spectrum grab under the flag of “minority” when we have not been ensured that such ownership would center their business around that concept.

Simply stated, the Georgetown Partners latest proposal raises more questions than ever before, and perhaps sheds a bit of light on what exactly is being put on the table.

Georgetown Partners FCC Filing

Position - Long Sirius, Long XM, No Position Clear Channel, CBS or Entravision