Citadel On Death Row

Citadel CEO Farid "Fagreed" Suleman will become a D-lister on March 6th.

That's when The New York Stock Exchange will delist Citadel and basically relegate it to some type of over-the-counter trading.

This is major.

If you're a Citadel shareholder, my sympathies. What took you so long to realize what has been unfolding for years?

The big question for everyone else is -- what will happen to Citadel now.

Just a little context -- first.

Citadel was warned by the NYSE that it faced delisting after its stock dropped to below the $1 per share threshold last Fall. The NYSE does not condone penny stocks and companies that trade under $1 a share are vulnerable to manipulation.

The NYSE gave Fagreed a chance to submit a plan on how Citadel was going to once again return to a $1 stock. This sounds so surreal, but it's true. Just get the stock back to $1.

Fagreed submitted the plan and the NYSE, once they reviewed it, was apparently underwhelmed. By kicking Citadel to the street, the NYSE was in effect saying that Citadel was a lost cause. Here's how Bloomberg explained it:

The NYSE will make the appropriate filings with the Securities and Exchange Commission pending the completion of its applicable procedures, as the Company has informed the NYSE that it will not challenge this determination. The NYSE noted that it may, at any time, suspend a security if it believes that continued dealings in the security on the NYSE are not advisable.

Not advisable.

So what's ahead for a company that closed at 14 cents a share yesterday?

Bankruptcy?

If Citadel continues to experience a downturn in revenue, it will probably be a goner.

Companies without a lot of debt (such as Saga) can ride out the economic hard times hoping for a revival of the ad market. But not the big consolidators such as Citadel. They are held hostage to the debt they've run up because although Citadel throws off significant cash flow even now, most of it goes to paying off an impossible amount of debt.

You don't have to look too far to see bankruptcy looming in the media business.

Mel Karmazin came this close with Sirius XM until he found John Malone's Liberty Media money.

Denver's Rocky Mountain News is going to stop publishing -- it is worse than bankrupt. It's broke.

Gannett has cut its dividend to shareholders by a whopping 90% -- to redirect that money to paying down debt as it eyes the same uncertain ad market that plagues radio.

Late last year credit markets froze up. That led to some of the current problems radio consolidators discovered where they were not able to refinance their debt. So, just like you, me and everyone else in America, they work hard for their money but most of it goes for paying what they owe.

What used to be low cost debt is now high cost debt and with diminishing cash flow and a gradual move to new media -- you have the perfect storm for economic destruction.

You can't believe radio CEOs when they say this is just a cyclical downturn. It's that, too. But much more which helps one understand the real problem that Citadel and other charge-happy consolidators face.

One thing Citadel may have going for it is that it does not have a lump sum debt payment due until approximately 2012. So it could just hobble along -- cutting expenses, firing people and diminishing its product between now and then.

But, if Citadel profitability declines too far before that time --if profit as a percentage of debt service or revenue falls too low -- they may be in violation of their lender's debt covenants.

This may sound like gobbledygook but it matters.

Creditors (the lending banks and bondholders) can then renegotiate the terms of the debt. This would allow Citadel to live on death row while it waits for a huge turnaround in the ad market which most experts believe is not coming for traditional media.

And here's the catch -- the creditors get to raise the interest rate on the debt that is already choking Citadel.

Nice guys on Wall Street, eh? They always get their money.

But, as Ron Popeil used to say when selling the Showtime Rotisserie on TV -- "but there's more".

The creditors are bluffing.

You see, they don't want to take Citadel stations back and they want to avoid pushing Citadel into bankruptcy because at that point they will only make pennies on their investment dollar.

In the end, it will be Chapter 11, however, if time runs out and the ad market doesn't return as that great motivational sales speaker Fagreed Suleman contends it will.

If the ad market rebounded and they could continue playing the game they got caught playing which is renegotiating debt, then this 14 cent a share business could survive.

Not likely.

Citadel won't come back at the previous growth levels of terrestrial radio going forward.

Meanwhile, Fagreed will continue to be overpaid ($11 million tax free in 2007. More the year before. Think he's going to starve when the 2008 compensation is made public?)

Fagreed bought a couple of more weeks to figure out how to spin Citadel's fourth quarter results and his compensation by getting delisted from the NYSE but then he's got to reveal the numbers.

To borrow another phrase from that TV hawkster (which only seems appropriate here) Ron Popeil, Citadel is just going to "set it and forget it".

There is no "Hail Mary" pass for Fagreed.

Every time Fagreed fails, he fires.

So, I'm predicting more cuts faster than the speed of sound.

I'm hearing veteran ABC Dallas network personalities Jonathan Doll, John Lacey, and several others are being put out to pasture by Citadel.

Overnight and weekend shows on ABC's 24/7 networks will now be voice tracked, joining their Classic Rock, Timeless and True Oldies formats, which are completely pre-recorded. Many of their affiliate stations signed on to have a "live" network show when they can't be live. Tough luck, I guess.

Citadel is cutting many GM’s and doing without as much as possible.

Is it possible to go that low?

Fagreed and the other greedy consolidators remind me of those old movies about death row where the person sentenced to death does everything to stave off execution.

The telephone (you know, the kind you see on Turner Classic Movies that actually makes an old-fashioned ringing sound) is hard wired between the governors office and the warden just in case a stay of execution comes down seconds before midnight.

The "governor" in Citadel's case is actually a group of lenders who have the authority to carry out the cessation of corporate life.

But Fagreed is appealing to The Supreme Court to see if he can win a stay of execution for Citadel.

He'll try anything and everything no matter how dim the prospects -- after all, it's a matter of life and death.

For his last meal Fagreed requests foie gras.

The phone rings and it's his lawyer, RAB CEO Jeff Haley, who breaks the bad news: "no return to pre-recession ad spending is possible for terrestrial radio".

Fagreed walks to the death chamber -- his boardroom -- and announces to the puppet board of directors that the company is seeking Chapter 11 protection.

The lights dim momentarily -- and seconds later return to full brilliance as the switch is pulled and Citadel finds itself in bankruptcy heaven with Circuit City.

Then he boards a private plane to a secret destination to count the money he earned from the financially ailing Citadel during the company's long goodbye and...

is forever banished to hell -- or what I call Wall Street -- where he immediately finds another job with excessive compensation and benefits.

They like his resume.

This scenario may sound a bit far-fetched but it has a better chance of coming true than Citadel becoming a viable consolidated radio company.

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The Right Way To Fire A Radio Employee

The other night while President Obama was speaking to the nation before a joint session of Congress about the troubled U.S. economy, he praised a corporate executive for his unselfishness.

Listen up Fagreed, Marky Mark Mays, Slogan Hogan, Tricky Dickey, David Field and the other CEOs who make up the big eight Octobombs we call radio consolidators.

In his speech, President Obama gave praise to a corporate executive who shared his multi-million dollar bonuses with his employees and former employees.

Can you imagine anyone in radio sharing even a $50 bill with a present or past employee?

That got me to thinking about all the good and great companies out there who are experiencing the same miserable economic conditions that we are in the media business, but they are using a gentle hand and sympathetic approach to handling a difficult situation.

Later today, for example, when Citadel CEO Fagreed Suleman conducts Citadel's quarterly earnings report (or as I call it -- a wake), you won't see him resign.

Or offer to resign for failing to navigate the troubled waters.

Or share his pay and excessive bonuses -- over $11 million last year alone.

Or offer any praise to the hard working individuals who have to work for a stumble bum CEO who helped Citadel get into the mess it's in.

What Fagreed will likely do is promise more cutbacks -- a broken record that stopped playing a long time ago with investors.

Public companies are required to report earnings after the stock market closes, but sly fox Fagreed is doing it way after the market closes -- after 6 -- that's martini time on Wall Street. Hell, no one is paying attention.

Oh really?

Fagreed unfortunately is not the only CEO who doesn't know how to treat people. He and the other usual suspects almost seem to relish their role of chief executioner as if to say to Wall Street, "don't worry, we'll get rid of more of these vermin, but we need me".

There is no one in radio who doesn't know the economy is tanking and, face it, you can't pull the wool over anyone's eyes that radio didn't ask for the ass whooping it is getting.

Too much debt -- this one is on the CEOs and their investment banks.

Left out of the digital future -- not one had a game plan.

The dumbing down of local radio by corporate suits some of whom have never run a radio station and some of whom were handed theirs from daddy -- like a silver spoon.

The remarkable and incredibly shortsighted decision to cut radio's sales force when the industry badly needed to find new blood, more advertisers and sell its best story of cheap, quick and efficient advertising for local companies who also need a hand up.

Too many hands in the company's financial cookie jar in an unfair, unethical and criminal decision to loot the treasury to compensate the top guns even as they are firing their assets -- the talent that makes local radio work.

But, as I often say, it didn't have to turn out this way.

There is a right way to fire a radio person -- if, indeed, they must be fired.

First, you sit down and offer to keep them employed at a reduced rate. They may not like it, but I can tell you from my mail, many would have snapped up that offer. The reason such a proposal never came is because consolidators are not -- I repeat not -- interested in running what they bought by leveraging themselves into debt.

They never intended to operate -- they wanted to consolidate -- and now it seems they may even have to liquidate.

But here's my proposed Bill of Rights that should be a starter for radio groups who are ravaging local radio and needlessly hurting the very people who built up the assets that they lusted after, purchased and subsequently ruined.

I realize there are a few radio groups that do treat their employees with respect and dignity. Emmis, Lincoln Financial, Bonneville, Cox come to mind. And there are some outstanding managers even at the Evil Empire that try to handle firing with the dignity it deserves.

But for everybody else, try these on for size:

• Stop firing people and escorting them out of the building. I know Wall Street likes to do this. I know lawyers recommend it. These are good people who did no wrong. If you had any bad apples in the bunch you probably got rid of them many quarterly reports ago when you started house cleaning. These fine folks deserve the dignity of being treated with more respect and stop treating them like a sex offender.

• Say something nice about them on the way out the door. KGO's very able and classy GM Mickey Luckoff, forced to part with his lifelong assistant, wrote a moving, humble and sincere letter that he circulated to the staff and posted on line. He said he'd hire her again. Just because corporate CEOs can't figure out how to balance the budget, they don't have to denigrate the people they are cutting loose or let them leave their employ in shame.

• Make these dear departed welcome at your stations. If they are air talent, give them a place to make auditions. If they need a copy machine, offer yours. Need a reference, give one. Need to know who may be hiring or where they could look, help them -- after all, it could be you next. Fagreed and his ilk will be the last men standing among the rubble we call local radio.

• Six months to a year of paid COBRA health benefits. Don't dare cut anyone loose without allowing them to keep coverage for their families. Can you be that insensitive? Of course you can -- but you shouldn't. All you do by pillaging people is scare the survivors -- not good management strategy.

• Of course, pay severance based on length of employment and try to imagine what it must be like to go home and tell your son and daughter they cannot continue their education next semester. Generous severance is a necessary heads up to employees and families who got caught in your cutbacks.

• Be upfront about firings as some successful companies do -- announce the intended moves by email, Twitter and/or CEO blogs. Zappos, the still-profitable online shoe company, had a CEO who could teach Mark Mays something. He had to fire 124 employees out of 1,500 -- their venture capital company demanded financial concessions and he won kudos from employees for being direct, sensitive and respectful. Employees, according to a recent Fortune article, even thanked him for the best opportunities of their lives.

• Even the mighty Google, faced with cutting back 1,000 loyal employees, let the fired stay on for four weeks to take care of personal needs and say goodbye to their colleagues. That's dignity.

• Go on Twitter to keep your employees and former employees informed. Let them interact and follow. Zappos CEO had 30,000 followers at the time the company was featured in Fortune's "The 100 Best Companies to Work For".

• When and if it's time for radio groups to rehire, assure those employees you let go that you will notify them of any future openings and be sincere about hiring them back if possible.

It's awful that the radio industry has come to this -- the mass firing of qualified people. That act alone is reprehensible enough if it weren't for that fact that no good can come from it.

The cutbacks have not made radio a growth industry again (and I am speaking about before the recession).

Smaller staffs have not served their listeners well -- less local radio, more Repeater Radio.

Dismissing talented people who could be helping radio operators make a transition to the digital future shows everyone their original intentions -- accumulate and sell.

Radio has always weathered past recessions because small groups and mom and pop owners weren't out to wreck the business for a one-time profit.

At least on the way down, radio groups should have the decency to fire any employee they must let go with fairness, dignity and respect for them and for their families.

Anything else is just -- unacceptable.

If good karma comes back to you as good and bad as bad, radio consolidators are in for big trouble not only for their failed policies and poor decisions but for the way they have conducted themselves.

Meanwhile, watch Mr. Warmth, Fagreed Suleman, tap dance around his latest three months of failure tonight -- after 6 pm, remember?

He's representative of how consolidators think.

In sports, you can't fire the team when it is not successful, you have to fire the manager.

In radio, you fire the team and keep the manager no matter how inept he or she may be.

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The Local Radio Crisis

There is disturbing new research out that confirms what we have all feared -- that as consolidators move away from purely local radio, listeners become more dissatisfied.

I say disturbing because the study I am about to mention was taken before the recent move by radio consolidators to further blur the line between local personalities, shows and news and national syndication ("Repeater Radio").

Michael Saffran, one of our radio brethren and an adjunct professor at Rochester Institute of Technology conducted the research with 830 in-tab respondents in Binghamton, Buffalo, Dallas-Fort Worth, Ithaca, Middlesex-Somerset-Union (NJ) and Rochester.

Keep in mind that over 50% of the sample was between 35-54 years old -- presumably a group of "available" radio listeners not easily lured away by an iPod or smart phone.

Almost 40 percent of those surveyed expressed their satisfaction with local radio programming as "not at all" or "very little". Some 14.8% expressed satisfaction "to a great extent". And remember, these are older "available" radio listeners.

So let's cut to the chase.

What's eating the audience about local radio especially because we know that consolidators are in the process of amping up their efforts to deliver "Repeater Radio" to their local markets as a cost-cutting initiative.

• Listeners want music from local bands and local artists.

A whopping 78.1% of respondents report perceptions about the amount of music by local artists and bands aired on local radio stations as "none" or "very little". That's over three-quarters of all respondents.

Radio CEOs think I'm nuts when I encourage them to tell the record labels to shove their licensed music where the sun don't shine. Stop being afraid of repealing radio's performance tax exemption. It will be like chicken soup -- good for you.

And this research shows that the older leaning survey base wants what radio companies in their infinite wisdom do not want to deliver to their audience -- local bands, local music.

I've heard arguments like, "nice idea, Jerry, but as a former PD you know that you can't get ratings without playing the hits". Maybe we need to rethink what is a hit. Steve Jobs now makes the hits when he picks an obscure artist to be featured on an Apple TV commercial.

The Big Four labels don't have a monopoly on new music. In fact, they aren't even in the new music discovery business. They sell CDs and publish music.

Yet, if the 35-54 year old audience overwhelmingly craves local music on their local stations, can you imagine what younger listeners want? After all, they walked out on radio's stubborn decision to play the same 30 "hits" over and over again. It may have worked for previous generations, but times have changed and the next generation has it's own Victrola -- the iPod.

I wish someone would shut me up and try this:

Have a music discovery weekend -- one weekend.

No Rihanna, no Kanye, no Lady GaGa. Give them a rest. Go find local artists and bands and play them from 5 am Saturday morning until midnight on Sunday. Cut the usual radio b.s. out at the same time and make it sound real. See how fast the word travels.

They want local music and local artists.

• Listeners want live, accessible radio personalities.

More than 75% of the respondents in the Rochester Institute of Technology study said they were occasionally unable to contact a radio dj via telephone and 50% were "never" or "rarely" successful.

This is radio's inbred shameful secret.

At local radio stations there is no one there -- in more ways than one.

Hell, I can't even get through to Big Jay Sorenson when he's doing a great job Sunday night on CBS-FM in New York because no one answers the phones (and believe me, I've tried).

Who do we think we're kidding?

We've become legends in our own minds -- sure of what the audience wants even though radio research studies for years have been saying the same things. And that was before consolidation.

I'm afraid this one is on us. All the financial failures are on Fagreed, Tricky Dickey and John Slogan Hogan and their pals.

Listeners always wanted to be able to talk to the jocks.

When I did the Drake format for Paul Drew in Philly, listeners were able to call in and get the jock on the phone. I even found a few listeners sitting in my car when I left to go home. Scary. Maybe? But the audience craved contact with the on-air jock. I learned to lock my car, but I also learned that listeners want to be connected to radio people.

Consolidators have sanitized that one, too.

We've got lots of ways to direct our listeners to someone other than the person playing the music. And don't get me started on texting. Radio stations by and large don't understand how to use texting in a way consistent with how their audience uses it. It is not a blatant promotional tool even if you think it is. To them, it is social connection.

Someone needs to be home.

That brings us back to the ludicrous move by consolidators to empty the radio station of local talent, play only what Ryan Seacrest plays and call it the hits. Well, I've got a lot of research in my files (and you may have in yours) from years gone by that warn us to make radio personal, accessible and local.

Hell, I still do everything like a radio program director.

You can reach me -- and hundreds do every day. I'll answer as soon as possible. No stock phrases. Direct response. I respond to email, Facebook, Twitter, skywriting -- you name it just as I tried to stay in touch when I worked for Paul Drew.

Most successful radio people did the same thing and they'd be happy to testify about it.

One-third of all the topics I write about come directly from that input. And I learn from my readers (as I learned from my listeners what they wanted to hear and why).

None of this has ever changed in spite of the fact that radio consolidators have created a giant disconnect between the local audience and the stations they overpayed for.

A few days ago one of my readers asked me to make more suggestions on how radio (and the record industry) could improve based on some of the criticisms I have pointed out.

So let me do that now.

What's the take home pay?

The most powerful radio stations not only appeal to the audience, they reflect the audience. In fact, they are the audience.

There are many such stations in radio's past. You've probably got your own favorite example but one case study I think you'll be interested in was how WMMR-FM in Philadelphia took an audience and grew with it musically and socially.

Now if John Slogan Hogan is still reading this right now -- stop! I'm not mentioning your name any more today. This is about the rest of us and how we relate our stations to the audience and how they pay us back with loyalty.

WMMR-FM was owned by a media conglomerate -- Metromedia, John Kluge's little radio and TV empire. And when I say little I mean he had to abide by the 7-7-7- ownership rules.

WMMR was a middle of the road adult music station by day and then at night (back in the Sixties), management let a guy named Dave Herman go on the air and break format, play what was then called progressive rock and what to their surprise did they find -- an audience.

Eventually, the station went all-progression rock.

It toked when anti-war listeners smoked. It passionately protested the war in Vietnam even if their chairman and CEO may have been for it. They got involved in the civil rights movement. Grew local artists and bands who in many cases then found a national platform but they were started in Philly.

There was no hype.

No contests.

Tickets and music stuff but nothing that would be offensive to the emerging hippies. Meanwhile, at sister station WNEW in New York future hippie Mel Karmazin was working as a salesman.

The entire station reeked of incense -- for good reason.

The receptionist (they had them then) looked like a hippie who was living in a commune.

They didn't repeat music like their top 40 competitors WFIL and WIBG did.

Their jocks were non-personalities but when I say that I don't mean to imply that they were not personalities.

The station had a long generational life span and it is living off some of the residue of those early days even today when I'm sure no one in the station understands what made it so special.

You know that I am not telling you to run out and switch to progressive rock.

Or to not repeat any music during the day.

No. No. No.

I am saying radio needs to be local. Stations need to find and reflect their audience, their causes and their technology. There will have to be a digital blueprint today -- transmitters and towers are not the only way to reach an audience.

Gen Y, for example, wants to know everything about the artists of their time. They want them to have causes. Green is a favorite color for obvious reasons. They are connected through a social network and a station the nature of which I am describing must have their own special social network not just use Twitter to show they're cool.

Radio listeners have been asking us for decades to listen to them.

We got out of that habit.

And today, consolidators listen to bean counters and investment banks. Local radio stations are "assets" not "franchises". They can plug anyone in and they think it is radio. When in reality, they are only creating stations from hell.

The ones that drive listeners from the radio.

We cannot control them, but we can control what we do.

So, if you have the ability to still make decisions without getting fired, give it some thought. I'm available for brainstorming or consult a mentor that you know who can help you unlock the ideas I know you have -- the things that made radio addictive.

It is still possible.

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Cumulus on the Brink

As Morningstar stock rating service puts it "We think Cumulus' debt burden leaves shareholders at risk of total loss".

The rating service gives Cumulus one star (out of five) -- their worst rating.

But Cumulus isn't the only radio consolidator standing at the great abyss.

Most of them are.

The question is not whether these groups will go bankrupt because they are already trading as a bankrupt stock.

What's of interest is -- can they avoid dissolution?

Can consolidators find a way out in the worst economy since the Great Depression?

How much more collateral damage will there be as far as employee firings and the like?

Let's dig in.

Cumulus does not have the capital structure to sustain bankruptcy.

It is a company that caught the wave of growth during consolidation but, like many other consolidators, got buried with unserviceable debt. Basically, there is nothing there but debt.

Morningstar reduced the fair value of a common share of Cumulus stock from a paltry $1 to nothing. That's zero on the low side.

And the independent rating service doesn't like a lot of other things about the company:

Management: We think Cumulus’ corporate governance practices need improvement. CEO Lewis W. Dickey Jr. doubles as chairman of the board of directors, a dual role that creates potential conflicts of interest, in our view. We prefer to see these positions occupied by different
individuals. Dickey’s brother, John W. Dickey, shares the CEO role.

Together, the Dickey family controls 48% of the voting power of Cumulus stock, which we think is materially out of proportion to their 18% economic interest in the company. Affiliates of Bank of America also own substantial concentrations of common stock and options. These affiliates also have the power to rubber-stamp their own nominee to Cumulus’ board of directors, who in turn holds a substantial financial stake in those affiliates. Its corporate governance structure is clearly designed to benefit a few concentrated shareholders, leaving the rest with little say in company affairs.

This is not to demean the programming or efforts of Cumulus people -- many of whom are withstanding another round of assaults by being forced to take a 5% across the board pay cut. Nor does it forgive Cumulus for dismissing its talent cluster by cluster with firings and cutbacks. That may cut costs but it hurts the small to medium market local radio upon which their company is based.

Cumulus is in desperate straights although as we've pointed out before, it hasn't stopped CEO Lew Dickey from taking an $8 million signing bonus to re-up as top gun. No, the economic situation at Cumulus is only bad enough to cut everyone else's compensation -- not the controlling Dickey family.

Still, Dickey is a shrewd dude.

He's probably the best educated radio CEO although the knock on him is that he lacks the balls to be his own man and make the tough decisions.

I'd keep an eye on an attempt to merge and trade with other bankrupt consolidators hoping there will be strength in numbers and that eventually the radio business will come back and they can divvy up the booty -- if any.

When you're being paid like the Dickey's, what recession?

As far as Citadel is concerned, don't expect Teddy Forstmann to throw any more of his money into this black hole. Their bean counter CEO Fagreed Suleman does not have the qualifications to run a large radio company but that's only part of their problem. Citadel is a failed financial play.

The acquisition of ABC was supposed to light its fire but instead Citadel sucked all the oxygen out of ABC rendering the acquisition worthless and expensive in terms of more debt burden.

Citadel was supposed to become ABC.

Instead, ABC became Citadel.

Clear Channel has been downgraded again from B to B- by Standard & Poor's. They, too, have a lot of debt and debt structure problems. My sense is that Clear Channel's owners, Lee & Bain, will somehow win support to keep the entity afloat. That's their thing. I may be wrong but if radio is a pure Wall Street play these two investment banks should find enough motivation to keep Clear Channel propped up.

But it was a bad investment. No putting lipstick on this pig for Lee & Bain.

If you look to the bottom feeders, it gets worse.

Radio One -- in real trouble.

CBS Radio's fate is tied to that of its chief executive Sumner Redstone who has financial headaches at Viacom. That's a sin because on their own CBS Radio has upside. And one of the few to have an Internet strategy. It needs expansion but it's a start.

Regent and Salem -- nothing but debt.

Entercom, also burdened by huge debt service, somehow is hanging in there. This by no means leads to the conclusion that Entercom can survive as is. It is as exposed to the local radio revenue shortfall as any other company, but it shows that the Fields have dodged the bullet so far.

Two companies with a brighter picture are Cox and Saga.

Cox is a public company but still very much family-owned and there is a sense the family can jump in when necessary to finance it. Also Cox Radio on the whole has been very well run by Bob Neil and his team.

Saga has only $120 million worth of debt -- nothing in this age of borrowing money and it has no bonds. It's a small company and it may suffer from the local radio recession but is not burdened with the huge debt that is bringing down the other groups.

All conventional economics is out the door.

That's why it would be easy to conclude that once one consolidator is bankrupt it would be the end of them.

In today's financial world, the government won't let a bank go under even if it might be better in the long run. We're saving everyone.

Don't get me wrong.

The government isn't going to bail out the debt-burdened radio industry, but if we've learned anything over the past few days about Mel Karmazin and his Sirius XM problems -- now Sirius is attractive because it provides $6 billion in tax losses. See, satellite radio can succeed at something.

As it turns out it all depends on what the meaning of the word "is " is -- as in "is" bankrupt.

A few final thoughts for your consideration:

• I'm looking for mergers of the broke -- two can eat as cheaply as one, as the old phrase goes and two can easily be as bankrupt as one together. Radio is not worth anywhere near what it once was so for two companies to agree to merge and trump up higher valuations is simply an easy accounting maneuver.

• The only way for bankrupt consolidators to survive is to convert debt into equity. It is as if you couldn't make the mortgage payments on your house because the interest rates were killing you and you talked the bank into taking 98 percentage ownership, forgiving your debt and letting you live in it at a price you could afford. Of course, the bank would kick you to the street if and when they could sell your house for a profit so don't get too comfortable. Same is true on Wall Street in this scenario.

• If you're a broker, retire. Only the desperate are going to sell radio stations in a declining market where six times cash flow is too high a price to pay. Any fantasy you might have of putting together an equity group to buy some distressed stations will not happen -- at least on a mass basis.

Cumulus may be the first consolidator to be forced into a move -- but then again in today's climate anything can happen.

Radio and their Wall Street partners are in denial. They just want things to go back to the way they were.

Meanwhile -- back in the local markets -- these geniuses are killing off the one thing that could be of value to them. Radio is not just a board game for finance. When retailers and local advertisers are hurting, as they are, radio could be a source of cheap, efficient and quick advertising.

If you don't fire your salespeople and deploy even more to the street.

If you don't fire your local personalities that make the station special.

And, if you don't mistake a bad recession for bad decision making because that's what got radio consolidators into trouble in the first place.

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Radio Is Anti-Social

Radio’s Problems Are Not Financial.

Okay, that’s an oversimplification.

Of course, a 9% decline in revenue in 2008 and a horrendous start to the new year is a problem. That’s not what I’m saying.

The reality is that if radio is recession proof (and this is more than a recession we’re all having) – it still would be in trouble.

Back before the official economic downturn, you may remember that a one or two percent growth rate for the industry was the new way to spell success. In fact, I’m sure the major radio consolidators would have loved to break even this year.

There are some who think other factors such as Internet streaming hurt the industry, but Internet streaming is not even a viable business yet no thanks to the record labels and their efforts to make new media pay more in royalties than traditional media.

Perhaps you’ve seen reports that even online streaming in whatever state it is in currently has begun to decline and this decline can be directly attributable to the growth of social networking.

The big boys who run the major radio groups think I’m speaking in tongue when I talk about social networking. To them, it’s just MySpace or Facebook and yet most don’t even know what social networking is.

Where is John Slogan Hogan’s Facebook page? Wouldn’t you like to “friend” him on Facebook? In the world of social networking almost everyone accepts a “friend” invitation but in the case of consolidators like Hogan, don’t place any bets.

To the old school, you’ve got this here phone, maybe the old Blackberry to communicate with corporate and keep your social life in order and that’s it – nothing else has changed.

But what I’m saying is everything has changed – except traditional media executives.

Radio CEOs aren’t the only dinosaurs – look to TV and you’ll see a misguided breed of executives cutting local news from local television stations to cut costs. They should be increasing local news and distributing video, starting social networks and offering content separate and apart from their TV broadcasts.

Newspapers – just forget it.

Those old cats may know how to use a computer but most certainly don’t understand social networking for if they did, they would stop trying to cram a newspaper onto a website and start thinking of improving their local reporting, acquiring gifted writers and columnists and generate new news content that might also include video, music and whatever comes next.

Record labels should know better.

Their young audience of consumers started walking out on them nine years ago and they’re still heading toward the exit. Label executives are among the most clueless because while they now “get” that Napster wasn’t a fluke, they refuse to break the mold and reinvent the record industry as a discovery service.

Will someone please stand up and get into the music discovery business?

Of course, in radio it has always been a sacrilege to speak against the industry’s practice of “no innovation”. Among the most inept enablers are the Radio Advertiser Bureau and the National Association of Broadcasters – two useless organizations that over history have done more harm than good -- in my opinion.

Consolidators fed Kool-Aid to talent, programmers, managers, sales managers, salespeople and support help when they were assembling these big radio groups on tons of unserviceable debt. The employees hung in there and did what they were asked but over the ensuing 13 years consolidators couldn’t make radio a public business.

There seems to be no bottom to their stock prices.

Clear Channel, Cumulus and Citadel are on the brink of bankruptcy. No one who knows anything about the financial markets can dispute that statement. They may find a way to postpone the inevitable but not avoid it.

Why do you think they call it “inevitable”?

The current employee cutbacks – that really started taking place a long time ago but are now deemed to be exponential in scope – are directly in proportion to radio consolidators’ inability to run the assets they bought at inflated prices.

There’s no way to sell radio stations at or near what consolidators originally paid for them and that’s a pretty lousy business.

Lee & Bain are taking gas on their Clear Channel purchase and remember they are propping up Cumulus, too. It sucks to be them.

Consolidators are so desperate that they are rushing to produce cheap national shows for local licenses that they rent from the public. They still call it local radio but it’s really Repeater Radio. It’s just national cost-cutting.

And, radio CEOs are still being pigs.

Cumulus reportedly told their employees there would be no bonuses even if their employment contracts called for them even as Lew “Tricky” Dickey is making the rounds to the trade press saying that the $8 million he received as an incentive for signing a new employment contract is not really a bonus -- yet.

Just like Mark and Randall Mays are not taking their bonuses this year – unless you see how their contracts call for making up a lot, if not all, of this year’s compensation losses in the coming years.

Hell, I’d take that pay cut, wouldn’t you? It’s called a raise.

There are many reasons the radio business is in the toilet – and none of us can deny that a handful of arrogant, not-ready-for-primetime CEOs head the list.

But there are real and significant reasons why the heart of radio’s problems is not financial.

Money can always come back through increased advertising revenue – or, at least improved ad revenue.

But listeners are not likely to come back – especially the 80 million or so members of Gen Y who see nothing special in a radio or what’s broadcast on it. And without the next generation, radio has no future.

The fact that decision makers do not understand that a technological and generational revolution has taken place on their watch is the final nail in the coffin.

For example:

• The next generation’s radio, TV and newspapers are – social networking. Facebook increases in popularity while even streaming sites decline. Radio? Forget about it. Seriously – try to engage a radio CEO in this discussion and they’ll think you’re wacky. But it is the opposite. They are crazy for not learning about the thing that is killing radio – not a decline in revenue – a decline in understanding how important social networking is to the next generation.

• Even older radio listeners are putting up Facebook pages and joining LinkedIn. Because radio CEOs don’t get that the Internet is a perfect place for communication, information and entertainment to converge. And, we’re so arrogant we thought it was going to be the perfect place to stream our terrestrial signals.

• Broadcasting as a concept is outdated. There is no reason on God’s earth to broadcast to someone in, say, morning drive. Morning drive begins when today’s techno-socio consumer say it does. And when their cell phone rings or they text, they stop listening to their mobile content. So morning drive can be afternoon or evening. But radio CEOs don’t get it. In 1939 maybe – and through the age of consolidation – listeners had to listen to get the content beamed to them. Now, there are other choices.

• Even popular Internet “radio channels” like Facebook and Last.FM will slow in growth if they can’t figure out a revolutionary way to tap into social networking.

• In the old West, you needed a horse to get around. Once the Model T came along, folks needed a car. Then, we needed more than one car per family. Now, you need the Internet to get around – and social networking is the super highway. Working from home – turn right at Earthlink and Comcast.

• The worst thing a radio company can do is to dismiss its talent, local personalities, news reporters and the like. Because these people are the one foothold that radio broadcasters have into the digital future. And, of course, what do you see consolidators doing? Clearing out employees faster than the fire marshal at an overcrowded nightclub. How stupid is that?

• Failure to budget for the digital future – even before their radio stocks became penny stocks – best illustrates how radio consolidators intended to be a one-trick pony. Consolidate and sell for a profit. Now, with radio on the decline and the economy in no man’s land, they can’t get out.

• News, music and communication is no longer separate the way traditional media companies want it to be. Today’s consumers expect to click when they want to hear, click when they want to read and click when they want to see. Radio, television and print alone is so – 90’s.

So, perhaps you can see why I say radio’s problems are not financial.

For radio, money is only the start of their problems.

Even recessions and Depressions eventually end and prosperity returns.

But not to livery stables, steam engine railroads and candle makers.

You’ve got to be in the right business to eventually become a financial success again and music media companies like radio groups, record labels and television broadcasters awkwardly find themselves in the wrong businesses.

New media is an afterthought to them.

The next generation is apparently not worth the work and commitment to pursue the way baby boomer teenagers were once pursued by rock and roll, top 40, classic rock, modern country and the like.

Today’s radio CEOs are bankrupt alright.

In their knowledge of social networking, mobile content, generational media and the digital future.

If they were a stock, they’d be delisted.

If these CEOs were an elected official they’d be voted out of office.

But in radio, give them a raise, turn your head while they fire their assets, keep quiet while they make your stock worthless and look the other way while they act like you’re the one who doesn’t get it.

Bankrupt, indeed.

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How To Save Radio

Last week I mentioned an idea that, in my opinion, could save the radio industry from itself.

I have since run it past all types of radio people who have encouraged me to put it out there publicly.

S0, I'd like to share it with my readers not only in the U.S. but around the world to get your input and see if you would like to hitchhike on the parts you like.

At the onset let me say that I am not at all trying to be arrogant when I use the headline "How To Save Radio". There are lots of ways. Good local radio is one. Listening to your quite capable employees is another.

But unfortunately none of the good ideas are coming from consolidator CEOs. So please accept this proposal in the spirit in which it is suggested -- an idea starter at best and a short vacation from the Grim Reaper at worst.

If you look at today's radio industry, it has very little to do with content or for that matter sales and marketing. I know it doesn't take a genius to see this, but it's worth mentioning.

As we have discussed in this space previously, the original plan for radio consolidators was buy as many stations as possible and sell them for a handsome profit. There's nothing wrong with that except that they skipped the operations part. And now, when faced with no market for radio stations, increased competition, a lost next generation, unmanageable debt service and more, consolidators find themselves having to run stations for which they have no ability or talent.

That's why radio stocks are penny stocks.

Why every group from Clear Channel to Salem is firing people.

Why innovation has ground to a halt.

Why the digital future has been put on permanent hold ("with no music playing in the background", either).

Why everything that radio does today is not as good as it was even a few years ago and certainly not as good as it was before consolidation.

Why the listener means nothing to Wall Street-enabled consolidators.

And advertisers mean next to nothing when all we sell them is spots and not solutions.

I guess this is my way of saying that consolidators have found themselves in an industry for which there is no way out.

Continue to fire people, hurt your content -- lose your available audience to ho-hum programming.

Let cost-cutting mandate national programming instead of tried and true local radio with local personalities, news and salespeople -- and you're in the network business. And, that's not a great business.

Persist in avoiding the digital future and you'll continue making catastrophic deals like the recent NAB sellout to SoundExchange over radio streaming royalties.

No next generation -- no future.

That's why I believe that consolidators can neither run their stations nor can they sell them.

Here's another fine mess consolidators have gotten themselves into.

The tragic part is that the radio industry has been dying a slow death for years as the financial squeeze has forced the likes of the Mays family, Citadel's Fagreed Suleman and CBS to cut into the backbone of radio programming.

A small, greedy handful of radio CEOs have done in 12 years what their predecessors could not do in sixty -- tank a perfectly viable business and fail to prepare it to adapt to the digital future. After all, without a move from transmitters and towers to digital devices, radio would die anyway eventually.

What radio has going for it -- even at this moment is:

• The best trained and most talented on-air, management, programming, sales, marketing and support people. President Obama likes to use the term "shovel ready" for his plans to turn the economy around. In radio "shovel ready" is a shareholder shoveling up the horse manure put out there by radio CEOs. But their talented staffs -- ironically, the ones being fired in great numbers are "microphone ready". No industry -- even new media -- has this stable of talent rarin' and ready to go.

• Strong brand names that are sure things for conversion to new media. You think the only thing all-news WINS New York can do is terrestrial radio for old listeners? Not by a long shot. They are a strong brand that can be redirected to other platforms. You think making repurposed podcasts of over-the-air radio content available is the digital future? Not in this world, it isn't. Brands like news, classic rock, top 40, easy listening -- if they are strong locally with loyal audiences they are money machines for new media, mobile content, Internet and WiFi-driven initiatives and so on. Not just radio on the cellphone. Jerry Lee's B-101 in Philadelphia could "be 101" in content other than a streaming radio station. I'd bet on it.

• Studios, talent, training ready to create, sell and market new products with the people already employed by operators. You see why it bugs me that they keep firing talented folks?

• A ready-made sales force that knows how to build relationships in a world that is not at all like Google. Radio is not Google. And with devoting some money, training and commitment to these talented sales managers and reps, radio possesses a ready-made, almost fully trained content marketing sales force.

Since consolidators have proven they cannot operate the stations they bought and since they have no chance of selling radio stations for anywhere near what they paid, I am proposing the Del Colliano Plan to make radio consolidation more like retail real estate.

Consolidators would be, say -- like the Scottsdale Fashion Square.

They become the landlord of radio stations they purchased and must pay debt on. The stations themselves should be rented to "retailers" who know how to operate them. That's you, your friends and mine.

I know.

You're thinking the FCC might not allow the licenses to be bandied about in such an irresponsible and commercial way as to jeopardize their commitments to their community of license.

You're kidding, right?

Since when have consolidators cared about serving their communities -- unless of course by communities you mean investment banks?

Let me go on.

So Clear Channel puts 800 or so stations up to let. Then you -- and your friends -- can find investors to pay the rent, invest in programming, hire sales people, pay for operations and, yes -- pay your landlord, Clear Channel, their rent.

Clear Channel uses the rent to pay their debt and take a fair share of your profit. They don't have to waste it on John Slogan Hogan's salary or Mark Mays' private plane.

Plus, people who know how to run radio stations can get back to running them. They will have to earn enough to pay their "rent". And the lessor has the right to demand a percentage of income based on your sales.

Hey, I'm going to wait for John Hogan to call me.

Actually, real estate baron Sam Zell knows that I'm speaking the truth here. Too bad he doesn't have many stations. He could lease them.

Leasing isn't entirely a new concept -- Radio Disney entered into long term agreements to use low powered AM stations to spread its kids format across the nation.

So, let's say a group of my Scottsdale Study Group radio pals got together and invested in funding the rent to, say, CBS' KOOL-FM in Phoenix. We do a long-term deal -- say ten years with a renewable clause that allows us to continue operating the station. CBS gets the money and shares in our profit. CBS is out. Operating the station is now our problem.

My God, I know so many of you could handle this one and succeed -- especially if you don't kid yourself into thinking that only your terrestrial signal matters. In other words, if I were involved I'd get it in blood that my partners would do podcasts (other than station content), new streams, mobile content, social networking monetization and more.

Could you imagine Mickey Luckoff running KGO without Fagreed Suleman interfering 24 hours a day? Then, Citadel gets its rent and even profits in Mickey's good fortune but you get rid of Fagreed because he is the problem.

So is Mark Mays, John Hogan, Lew Dickey and the rest of them.

The concept is -- radio people running radio.

Consolidators doing what they do best -- lying to investment banks about refinancing their investment.

And they can have fun, too.

Say, CBS rents out all its stations and services the income, profits in part from future success -- they can turn around and sell their group to, say, AT&T or Verizon as a cash streaming business. Just as they would a shopping mall that was fully leased and profitable.

There are some current and ex-radio people standing in the wings waiting for multiples to come down so they can buy a few stations, but why saddle yourself with debt when you can lease from the Citadel Radio Leasing Company.

Well, you get the point.

Take radio out of the hands of incompetent consolidators.

Design a system that allows professional broadcasters, managers and sales people to afford to run radio stations. Keep people employed.

Everybody wins when professionals get back to running America's radio stations and inept consolidators are managers of only their debt service. And it's even better than leasing a mall -- no tangible expenses. Just debt. (Although they sure have a lot of that).

Or, you can just leave everything the way it is.

Fagreed trying to be Jack Welch.

John Hogan trying to be Tom Freston.

Lew Dickey trying to be Harry Houdini when his next debt payment is due.

To consolidators I say:

Rent stations to the talent that you are currently hogtying or firing and you will turn out to be geniuses.

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Radio's Next Round of Firings

Clear Channel is getting ready for phase two of its employee firing scheme.

Rumor is -- Friday.

If the first one had been code-named Hiroshima, the next one will be Nagasaki -- a detonation that will continue to obliterate radio's talented population.

But don't let the way Clear Channel works distract you from what is going on with the rest of the consolidators.

Cumulus wiped out 12 people in one cluster alone just recently. Since Cumulus is not of the magnitude of Clear Channel, those firings were under the radar and didn't get the same attention -- unless you were one of the fired.

Citadel is hanging its employees by their finger nails waiting for the axe to fall. Fagreed Suleman works consistently and methodically cutting here and snipping there.

How do you let Tom Cuddy get cut away when all he has ever done is keep the Citadel FM music stations competitive? Makes you wonder if radio CEOs already know the prognosis for their industry. Something may be up with Scott Shannon at WPLJ. He reportedly has a sit down with Fagreed soon.

See what I mean? Nothing is worse than a consolidator with his back against the wall and no power left to borrow from Wall Street banks.

That's why they are taking it out on their employees -- because they can.

But, they shouldn't.

Ironically, their employees are the only ones who can do great local radio and great local radio is the only way back -- at least until radio audiences grow too old.

Then there's CBS -- down 18% in revenue as we learned yesterday. Operating income plunged by 56%.

Sumner Redstone weighed on and said he doesn't know how long it will take for things to get better. CBS President Les Moonves doesn't need a cattle prod to know what he has to do -- both on the television side and at CBS Radio.

You can expect more carnage.

Some people in the company wouldn't be surprised to see between 100 and 300 people fired but that number is conjecture. One thing is for sure -- at the rate CBS is losing money, correspondingly it will lose a lot of employees.

They are dumping their KLSX talk format in LA to do a cheaper version of top 40 -- just what America needs, another top 40 station. Talk formats traditionally cost more than music so get out your pencil and do the math.

Not to get lost in the Clear Channel bloodbath that is coming but wait until you see what CBS is going to have to do to save money.

Firing employees appears to be the only way underperforming radio companies are able to cut costs. What's worse, you can see that Clear Channel's Repeater Radio concept is being embraced by consolidators who can't resist the allure of peopleless "local" radio.

What a joke.

It almost seems that some of the consolidators are enjoying this power over their less fortunate employees. There is no doubt in my mind that Lew Dickey and Mark Mays are two powerful people who don't know what it is like to be fired.

Well, I've been fired and perhaps you have as well. You're never the same again and no reason is a good reason.

In fact, when I went to Temple University I remember one of my professors, Lew Klein, the executive producer of American Bandstand, tell a group of parents on orientation day that if you haven't been fired from five stations by the time your career was over, you weren't in broadcasting.

Wow! That really got the attention of parents paying to put their kids through college.

Well, Professor Klein underestimated it -- today it would be ten stations! Maybe that explains why you can roam all over university campuses and not find students passionate about being in traditional radio.

Why would they be?

Do they like unemployment?

I've also stood on the unemployment line in Camden, NJ in between jobs. It is a humbling experience that I will never forget. I have a friend who is one of the most talented programmers in the industry and he's going to have to seek employment in a mundane, out-of-the-industry job just to pay the bills.

I respect him very much for that -- and I am saddened that this industry could let him and a lot of their other talent get away.

I've been having an exchange with Saga CEO Ed Christian, a man I've known for a long time, who is very unhappy that I've characterized him as part of the problem. Ed, it is fair to say, loves this business and thinks the bad guys will eventually fall on their swords and die. I agree.

But in the process the industry will die.

I chide him to speak out against his brethren -- fight for jobs, fight for local radio, fight for excellent programming. Take a stand -- say something in public. Obviously, Eddie doesn't see it that way which is why in my opinion he, and his consolidator buddies, simply swallow their tongues while this holocaust continues.

Don't expect to hear their voices as the outrage of incompetence and selfishness ruins the radio industry.

So, here's what I'm projecting next:

1. Some big groups will file for Chapter 11 bankruptcy to avoid paying the bills they cannot afford. There is no other way. The recession will get deeper and local radio revenues are flirting with 35-40% off in some markets. You can't run a debt-ridden radio group with no cash flow.

2. One of the "benefits" to radio groups in filing for bankruptcy will be not having to fulfill their obligation to pay severance, honor buyout agreements or fulfill employee contracts. This lightens their load as it does for any Chapter 11 beneficiary because in essence they can just walk from their obligations -- even to their loyal employees. (You can take this one to the bank, I'm afraid).

3. Guess what's happening to all those local advertisers who are being faxed dollar rates for spots? Or who is not being called on by their sales rep (because their sales rep has been fired)? A recession is a great time to offer solutions to retailers who could still be radio advertisers. The radio industry is firing their advertisers along with their salespeople. What a bad move at this time. And they won't be back -- at least not at the previous levels.

4. Cumulus, Clear Channel and Citadel are the three radio groups I think could be among the bankrupt by the end of this year.

5. You've probably sensed that radio unfortunately is no longer about attracting listeners. It's about cost cutting to pay debt service. So what is next is selling off assets. But there's one problem. No one wants to buy radio stations. Have you noticed how few are being sold? You can say money isn't readily available -- and to some extent that is true -- but when it becomes available again, stations will be selling for closer to their streaming cash flow value -- not a multiple even as high as 5 times. In other words, a fire sale.

So, with the next wave of employee firings at Clear Channel, CBS and the bottom feeders set to get underway, consolidators are continuing to loot their assets in a race against time that cannot be won.

They're broke and they know it.

Their banks know it, too, but don't really want the stations back now when they can't sell them for a profit.

Consolidators seem to find every way imaginable to rationalize firing the very people who could help them rebuild local radio. All they can see is cost savings -- not local revenue generation.

But this time, they missed something.

Something big.

This time, the consolidators are the ones who are screwed.

Mark my words -- can you say bankruptcy.

And through the magic of bankruptcy, this time radio consolidators have in essence fired themselves.

That's why they are looting the treasury while their stations rot away.

Consolidation is a game of greed and the greedy are now on their way out. It wasn't about diversity or building a stronger radio industry. That's just the bull the NAB, Congress, the FCC and the Department of Justice fed everybody in an age of deregulation.

Now that radio shares have become "penny stocks", it's time to realize that the only reason to gut your own business without the prospect of selling it for a profit is if you don't have future plans to operate it.

Fagreed Suleman must have popped the champagne corks yesterday as Citadel stock was up a whopping 27% -- who said he's incompetent -- from 11 cents to 14 cents in one just day!

The other day I wrote that consolidators didn't have a Plan B in case buying stations and building them up for eventual sale didn't work out.

As it turned out, they didn't even have a Plan A -- they just bought properties, added their free cash flow to the mounting debt and assumed radio would always be a hot market segment.

Clearly, radio -- as well as many of today's troubled U.S. industries -- was only viable before ownership changed hands from seller to buyer.

Without skills to operate you get incessant format changes, no innovation, mass execution of radio's extensive talent pool, hogtying capable managers, top down corporation management and arbitrary budgeting based on what the company needs to service their huge debt.

None of this can or will change.

So may I suggest that the next round for firings should include all the CEOs of radio companies whose public stock has declined by 50% under their management.

And I'm being generous because many of radio's finest have lost more than 50% of their company's value before the current recession.

Radio CEOs may have a hard time accepting that old saw "the buck stops here" but they'd find it hard to argue with the wisdom that the fish stinks from the head.

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This Bud's Not for Radio

Radio advertisers have begun to start eating their dead.

Anheuser-Busch is now dictating a new payment policy for their Budweiser radio commercials.

120 days.

That's four months after the spots have run -- assuming the client decides to pay the stations "on time" -- if you can call net 120 days on time.

Radio stations just have until the end of this month to protest the new terms or they become automatic. Of course, for the stations that opt out, don't expect any Budweiser business.

Anheuser-Busch's new owners, the Belgian/Brazilian mega firm Anheuser-Busch InBev is dictating the new rules. Seems like they think that there is a new world order for multinational companies. I'm not making this up. In effect, they are saying the rest of the world is stupid enough to accept payment in four months, why not American radio?

You know what will happen in this game of beer pong.

RAB will swallow its tongue and, instead, promote their Sales Conference which offers yesterday's sales techniques to a business that is fast going south.

The NAB is propping up RAB -- don't look for them to piss off Anheuser-Busch. Better to let it slide. It's only money. Anheuser-Busch is good for it. Hell, they pay faster than Mel Karmazin's Sirius XM -- what more do you want?

Radio consolidators are too scared to protest. They find their stations off anywhere from 15 to 40 percent so far this year. Send stamps if you want. Just advertise.

Imagine drinking a Bud four months after its stale date.

This is going to get uglier.

One of my readers reached for his Nexium.

"Some of my worst memories from my 32 years in radio are those of being in the undersized lobby of large Bud Distributor with two other competing stations waiting for our meeting. As always, the buyer would poke out of the conference room to tell all of us that 'we're running a little bit behind'. Eventually the exhausted Bud, agency and distributor reps would review our proposal, call it inadequate, too expensive and send us on our way with the orders to come up with more promos and lower rates 'if you even want to be considered'."

The outcome was predictable: the rock stations got most of the budget. Sports play-by-play deals were next and the rest would settle for scraps.

Except now, price negotiations will be less honest.

Berkshire Hathaway's GEICO has led the way on negotiating the lowest rate through weeks and months of torture, then once both parties shake hands, the agency demands more discounts and better terms.

Expect this element from snakes in the grass who want the lowest rate even if they get it in an unethical way.

You can almost see the day coming when a manager and seller has to go through all the above and the manager pulls back the rep's commission at 90 days with the argument that they will get 75% of their commissions back when the bill is paid at 120 days.

This Bud is not for radio.

In spite of the exodus of talent from radio, there are still salespeople out there who know how to sell. Policies like this will be a huge disincentive.

You'd think that radio companies in tough times would like their money sooner but can you hear them now? We can't risk losing the business.

The ironic part is that radio is and has always been in the drivers seat for advertisers. You can't get that kind of reach (even with declining audiences) that cheaply.

I'd like to use the word inexpensive instead of cheaply but radio missed its chance to raise rates and lower spot loads when it was a growth industry. Today, the clock is ticking. No next generation -- no growth industry.

Still -- as of today -- radio should tell Anheuser-Busch to shove it (not in those words but in actions). If they miss this chance, they have just allowed the new paradigm -- net four month terms as standard operating procedure.

I've said many times that the radio industry let it all get away.

Stopped innovating in the late 80's. Fumbled through deregulation. You see now what they did with full-blown consolidation. And they let their digital future get away.

But on the issue of Budweiser consumers, radio has every advantage. I suggest radio starts acting like it.

Say no to 120 days.

Take the repercussions if Anheuser-Busch decides not to buy.

Then, as one of my readers pointed out, let Bud see what promotion is like without radio:

• Live without endless luxury suite nights.
• No more countless Bud girl appearances at station events.
• Forget the front row seats to every major rock and country concert.
• You're out the millions of promo spots that were thrown into the package.
• Precious sideline passes -- sorry about your luck.
• Thousands of signage opportunities -- guess they'll go to someone else.
• And dozens of other ideas created by radio people that drive case sales -- you'll miss it.

It won't be long before Bud comes to its senses. After all, where can they get cheap rates (that are cheaper than they need to be) plus so much value-added thrown in?

Who is kidding who? Anheuser-Busch wouldn't pay the NFL four months late for sponsorships. Or Fox for its Super Bowl ads.

Advertisers that want to negotiate hard for the best rates, then agree to them and later demand more discounts to get the deal done are already redefining radio sales. Now, Anheuser-Busch is taking this abuse to another level of absurdity.

They can do it with radio's permission.

Have some balls.

Have some pride in your industry.

Radio still has plenty of beer drinkers and Budweiser needs them.

I fully realize that if one station stands up, another one across the street will steal the business and be happy to take "net 120 days" terms. This doesn't make it right.

But that kind of thing is killing radio.

This Buds not for you.

Two friends -- radio and Budweiser -- can do better.

And friends don't let friends drive their payables to four months.

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Online Radio Mortgages Its Future

Yesterday, it appeared Mel Karmazin was about to get rescued by Liberty Media's John Malone, the Mel Karmazin of the cable TV business.

And on the same day, terrestrial radio was rescued from the record labels when it struck an agreement with SoundExchange (representing the music industry) to pay rates more favorable than the ones webcasters are faced with.

What's going on here?

Can we call a spade -- a spade.

The one industry that should be helped is webcasting. It is part of the digital future that has real growth written all over it.

Meanwhile, Sirius XM needs to be rescued from itself because it cannot pay its debt. Satellite radio settled with the devil earlier over music royalties and by some estimates is paying 7% of revenues to the labels. Believe me, the deal they made earlier with SoundExchange is the least of their problems as satellite radio has never really become a viable business.

Kurt Hanson, who is one of the most reliable observers of the royalty situation, tells me:

"...Broadcast radio currently monetizes its on-air audience at about $.10 per listener-hour. So the 2009 rate of $.0015 per-performance, at about 12 songs per hour, is about $.018 per listener-hour, or about 18% of revenues assuming they can monetize their online audience as well as they do their broadcast audience. The 2015 rate of $.0025 per performance x about 12 songs per hour is about $.03 per listener-hour, so that's about 30% of revenues using the same assumptions".

Kurt believes that radio is paying a high royalty rate, "but broadcasters are in the best position to monetize their listeners. (They have skilled sales staffs with years of relationships -- compared to Internet-only guys, who lack that, AND have audiences dispersed across America rather than being concentrated in one specific city.)"

Last minute negotiating is going on between webcasters and SoundExchange with the deadline already past. Why do I get the feeling these webcasters are about to get screwed?

SoundExchange will have to do a deal with Small Commercial Webcasters.

How insane is it that commercial broadcasting, which is dying at the hands of debt-ridden consolidators and satellite radio that can't even merge it's way beyond debt to profitability, have deals with the music industry that they think they can manage?

Meanwhile Pandora, AccuRadio and a host of independent operators are the ones who are breaking music and promoting artists yet they stand to get the most burdensome royalty rate.

Actually, it makes a lot of sense in the screwed up world of big business.

The U.S. government would rather bailout bankrupt businesses than help them grow in the first place. It's the American way.

In the music industry, they'd rather help the devil they know (radio and satellite radio) than help the independent webcasters who are a hit with consumers but can't afford to run their businesses facing draconian royalty rates.

The music industry's "business" is to make recordings that consumers manage to get for free.

Mel Karmazin can't sell a download from his entire satellite monopoly.

All radio stations can do is put their terrestrial signals online and even at that, they only garner another 3 or 4% more audience streaming the same old programming.

If any of this sounds crazy to you, join the club.

Here's a better plan:

1. No additional fees for terrestrial radio stations that stream on the Internet unless it constitutes ten percent or more of the station's revenue. If it does, then radio broadcasters should pay. This cockamamie agreement that the press will be mindlessly touting over the next few days is ridiculous because streaming radio on the Internet is not a business until it makes money. Help it grow. (I know that is counter-intuitive for the record labels, but try to deal with it).

2. The labels should pay Sirius XM not to play their music since they don't really sell music. Just kidding! But hell, if the one-and-done satellite monopoly can't break a hit or sell a download, did the tree fall in the forest and no one heard it? I mean -- who cares? Satellite radio is so not a business (as you'll see over the next eight months). Why are you collecting royalties from the homeless so to speak?

3. For webcasters -- part of the growth business for digital media -- give a three year "royalty holiday" to encourage them to become profitable and then, at the same ten percent level that I'm suggesting for terrestrial radio, charge royalties based on a percentage of the profit. If they make under ten percent profit, charge little or nothing. You want to tax the fat cats -- isn't that what we do in America? And stop with the restrictions on how many times you can play an artist in an hour.

Play away. Are you nuts?

Now look -- I don't expect any of this to actually happen especially as the NAB starts to sell the radio deal to the rank and file.

My feeling about the NAB hasn't changed. It is not just radio's trade organization. It is toxic to the industry they purport to serve.

The National Association of Benedict Arnold's sells out radio every time and takes credit for it with their smooth spin machine.

Wasn't it the consolidator-endorsed NAB that recently wasted millions of radio dollars -- your dollars -- on fighting satellite radio? Satellite radio -- never a threat to anyone except the NAB looking for relevance.

NAB fought for radio against SoundExchange and look what they did for you!

Got you a lousy deal -- where you pay royalties even though your webcasts are probably not going to make a significant profit. Expenses without the promise of profit. Because as I have said, online radio streaming is not a business. It's a 3-4% add on to your terrestrial audience.

Bob Bellin calls it suicide at the hands of the NAB:

"This is actually WORSE than the original deal, if you factor in what’s happened to the radio ad market, which is down 25% so far this year on top of a 10% slide last year. So X size audience nets way less revenue than it did when these rates were established – meaning that webcasters must pay a much bigger % of their revenue to the the labels than what was the original calculus, which virtually everyone who didn’t work at a record company believed made it impossible for streamers to make a profit.

A station with an AQH of 205,000 would pay in excess of $27 mil per year. By the time that station paid all of their other costs, there is virtually no way they could make a dime.

IF I were in radio I’d cancel my NAB subscription. They paid millions to lobby against the Sirius/XM merger which proved to be an embarrassing waste of time and money. Now they mortgage their only hope at survival by agreeing to a deal that nets out worse than the original one."

Ladies and gentleman, the NAB got you again -- first it helped ram through deregulation that led to consolidation as part of the Telecommunications Act of 1996.

You're witnessing what that did.

Now, the NAB has mortgaged radio's future with an unfavorable deal that sets a standard that can only hurt webcasting royalties.

When I am saddened, I think back to my home state of New Jersey from which all wisdom emanates (at least that's what they think in New Jersey).

When I used to drive down Route 72 on the way to Long Beach Island and a forest fire had wiped out thousands of acres of scrub pine I used to say, "what a shame". But I have since come to appreciate those fires that burned through to the underbrush. Although their aftermath was not pretty, the devastation eventually led to rebirth.

That's how this insane business of terrestrial and satellite radio monopoly will ultimately play out.

As Billy Joel sang:

We didn't start the fire
It was always burning
Since the worlds been turning
We didn't start the fire
No we didn't light it
But we tried to fight it

Now, on the eve of another devastating cutback at Clear Channel and continuing slashes at other radio groups, every nonsensical move takes on even more meaning.

Royalties from dying businesses are no solution to anyone's problem.

You encourage new businesses like webcasting to grow -- not bail out consolidators and record labels that could screw up a wet dream.

Artists and labels have a right to share in any profits from webcasters when webcasters can in fact actually make profits and not just pay to play the music.

And in the meantime, it would be in everyone's best interest if they helped the living instead of taxing the dead.

Radio used to lie to its listeners by mindlessly repeating liners like "fewer commercials, more music and the best variety" -- not that the audience ever believed them.

Well, that's still a problem.

Knock yourself out all you want about settling online royalty fees with SoundExchange, but you haven't even begun to solve the more pressing problems.

Like making content that people will crave and making it available to them on technology that they prefer not the technology you prefer.

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Google Schmoogle -- Radio Is a Relationship Business

The readers of this space could have saved The Mighty Google lots of time and money.

Google in its infinite wisdom about all things sales, thought they could automate radio selling and eliminate lots of expenses -- like sales people and the expenses they incur including health benefits.

Sounds like Google's plan was made in heaven for a bunch of radio consolidators who still can't tell local radio from Ryan Seacrest.

So, when first I went nuts about this outrage -- on day one -- most of you agreed that even Google can't force a square peg into a round hole.

Translated that means: even though Google can sell search advertising like a commodity, radio can only be sold as on a relationship basis.

Now, you knew that -- and I knew that -- but some consolidators got to fantasizing about a radio station without salespeople and Google was their inspiration.

Well, Google finally pulled the plug on automated radio sales yesterday. They are going to put their Google Radio Automation venture on the block. Of course, they are blaming the recession. Surprise.

And with the death of Google Radio Automation is the demise of Audio Ads and AdSense that I have often called AdNonsense.

What Google does not mention in their mea culpa news release is one small little piece of history which documents their purchase of dMarc several years ago.

You see, dMarc connects advertisers directly to radio stations through its automated advertising platform making it easier to handle the sales process, scheduling, delivery and reporting of radio advertising, enabling advertisers to more efficiently purchase and track their campaigns. For radio people dMarc's technology automatically scheduled and placed advertising.

The promise was costs go down. Sales go up.

Greedy consolidators were frothing at the mouth over the thought of this.

For that technology Google forked over $102 million to Chad and Ryan Steelberg who have since been living large in Newport Beach, CA. Google was obligated to make additional contingent cash payments from time to time over the subsequent three years.

I've heard word that there was a dispute over this additional compensation, but needless to say the Steelberg's sold at the right time. Had it all worked out, the Steelberg's could have made an additional $1.136 billion over that three-year time period. Yes, billion with a "b".

Let's get real.

You knew it would flop.

I said it would flop publicly.

Radio CEOs slopped it up as the answer to local radio without being local or employing anyone local and Google splurged for relative chump change of $102 million to buy the technology. Remember how they hid their motives: "we just using Google to sell unsold inventory".

Yeah.

Now, they'll eat it.

See what I mean?

We knew it would fail and they didn't because they want radio to be a commodity.

We want it to be a local broadcast service -- with personalities, news and real live people making a living and paying taxes to their local communities.

There is the disconnect.

And to only reflect on Google's automated radio sales mistake would be an exercise in writing ancient history if it weren't for the fact that history repeats itself for a good reason.

No one ever seems to learn from it.

And, it's happening again.

Lee & Bain are hell bent to make Clear Channel stations Repeater Radio -- with national content, regionalized sales and management and as much automation as they can get away with.

Citadel's Fagreed Suleman is pleasuring himself at the thought of radio without people -- he's a bean counter, you've got to love the number zero on the expense side of the ledger.

As an aside, I got an awful thought yesterday when I heard Fagreed was going to personally be responsible for 21 Citadel stations from now on. That means Fagreed has to talk management with the likes of KGO, San Francisco GM Mickey Luckoff who actually knows how to run a successful franchise. What a mismatch.

No good can come from this.

Someone is going to tell someone else to shove their radio station where the sun don't shine.

Back to reality.

Tricky Lew Dickey is exterminating local radio stations by keeping the morning show and annihilating everything else. He's been methodical about it. He wants local sales to be overseen by corporate.

Now, that's a real winner.

Dickey is just another radio guy who hasn't earned the right to tell people who already know how to do their jobs how to do their jobs. It's like A-Rod telling Deepak Chopra how to purify his mind and body.

Entercom is content with freezing wages while their stations are in the dumpster and what they're missing is -- you guessed it -- local sales.

Oh, sorry -- I don't know what came over me -- that's all the recession's fault. I forgot.

CBS is entwined with Viacom CEO Sumner Redstone's financial problems. You can buy the CBS Phoenix stations, if you want them. Or make a deal on some others. CBS is the only company to contribute a "comp" for radio station prices in recent history when it sold its Denver trio to Wilks. The comparable on that sale was about six times cash flow -- a new low.

Radio One is worth every bit of the 28 cents the stock market says it is -- no growth, no innovation, no answers.

Regent is 13 cents -- a small market company that should be hiring triple the salespeople to ride out the recession. It isn't.

Emmis is 36 cents and it can't escape its large market curse -- as big markets go, so goes Emmis' revenue.

Clear Channel is readying phase two of its Spring Break Bash where more employees will be escorted to the door and sent on their way to watch MTV's Spring Break in real time.

It's easy to predict the next year of radio with senseless moves like the ones radio execs are making.

1. Bankruptcies or at the very least, a tighter leash from companies holding debt that radio groups can't repay.

2. Continued declines in station revenue as cost cutting has converged with sales and programming. This is all radio has to sell and if you nationalize local radio and then take more bodies off the street, you figure what chance radio has to rebound.

3. Even if the recession subsides, radio revenue will not rebound to the same degree. Remember, radio had been fighting to equal revenue figures or modestly project one or two points more before the recession.

4. As many as one-third of all remaining radio people could be out of work by Christmas as groups are unable to pay debt service that they ran up by buying stations at unrealistic multiples. I'll tell you the real multiple if you want to know it -- three times.

Three times cash flow is the new 14 times from Wall Street's good old radio days.

And some stations may sell for less. Some will sell for more -- but not much more because radio is a local service (licensed by the government not Wall Street) and supported by local advertisers.

No station was ever worth five times cash flow except in the buyer and sellers dreams -- and you know what kind of nocturnal dreams they were.

Here's how you value a radio station from now on:

It is worth the amount of goodwill and passion that it generates to consistently encourage the audience to listen with loyalty and consider supporting the stations advertisers.

Funny, before consolidation started artificially hoisting prices to unheard of heights, WLS, WABC, KABC, KGO -- were nice profitable businesses for ABC Radio.

Were they worth more than three times the revenue they made -- probably not.

It took a sucker to come along and spend approximately $2.7 billion for 21 ABC radio stations and associated businesses.

That sucker was Fagreed Suleman and Citadel Broadcasting.

Sucker? Read on.

As part of the transactions, Disney retained $1.35 billion of cash, representing all of the proceeds of the debt that ABC Radio Holdings incurred prior to the spin-off.

Disney danced off into the future having profited from radio's best years and Citadel stock is now worth - give or take a penny -- 15 cents a share.

So here it is.

Radio is a local service.

It works best staffed and sold by local people. (Google found this out, but radio CEOs are still fantasizing).

Any future value of radio in a digital age is directly related to transitioning solid and successful radio brands to new media.

Growth can only come from innovation, technology and understanding the one thing radio refuses to grasp -- generational media.

Financially, a radio station is worth what it is producing in revenue or possibly as much as three times that cash flow for a willing and eager buyer.

If you agree with radio's new math, then you can understand why group owners are cutting expenses they never had a right to own based on a figment of Wall Street's imagination.

By the way, I have an exciting idea on how Lee & Bain could save Clear Channel by doing one simple thing that shopping mall owners know how to do. Should I tell them?

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