The Four Seasons of Media Consolidation
By Jerry Del Colliano
Some of my readers have suggested workarounds to the Ticketmaster/Live Nation monopoly that I wrote about yesterday.
You know, the one that promises higher prices for concert ticket buyers.
The Grateful Dead concept of selling directly to fans.
The growth of entrepreneurial businesses that barter tickets in a fair marketplace like Brown Paper Tickets.
Others suggested Amazon or even iTunes as alternatives to Ticketmaster someday.
There is no shortage of good ideas when those ideas come from people who actually know what they are talking about, but the way our entertainment business model works right now — the CEOs and their bankers get to play with the monopoly money.
Take what happened yesterday when Emmis CEO Jeff Smulyan put together a $90 million buyout to take the company private. Alden Global Capital will buy all the outstanding Emmis shares for what amounts to $2.40 a share and Smulyan gets his company back.
You may remember that Jeff Smulyan was among the first to read the winds of change when he tried unsuccessfully several times to take Emmis private. The shareholders were always the problem. Emmis just never worked as a public venture.
But then again Emmis went public to get in on the Wall Street lending giveaway that enabled the other big consolidators to acquire stations once consolidation was approved. Unfortunately, Emmis never got big enough nor was it willing to be acquired and you saw how that turned out.
Radio is becoming a two-model business.
Consolidator vs. operator.
On one side the Clear Channels, Citadels and Cumulus-type consolidators who run on pure loan money and that must either grow or sell to have a reason for being. They are not interested in being broadcasters. By now everyone knows that what goes on-the-air is the least important component for these types of operators.
We know consolidators fire local personalities no matter how successful or profitable and keep only the “brands” that they can pipe to other stations in different cities to allow for more firings and lower costs.
They reward success by giving surviving managers even more responsibility guaranteeing that they cannot continue to produce excellence. Apple’s Steve Jobs would not take the executive in charge of his computer division and say, here take my iPod and iTunes initiatives, too. And then if somehow that person succeeded, could you imagine Jobs giving that same person a third responsibility — say, to oversee their retail stores.
Radio does this all the time.
Piling on work because the end result doesn’t matter.
Program directors are a thing of the past with consolidators. Content manager is the new name that at least admits to the change in job description — to channel national programs to various local destinations.
Bain Capital, one of the major investors (along with Thomas H. Lee Partners) that overpaid $20 billion for Clear Channel shows us how they are hell bent to operate as recently as this past weekend.
News Blues, a paid subscriber site, reports:
“The Weather Channel was in full balls-to-the-wall storm coverage mode Saturday as the nation’s Southeast lit up with severe weather. But Friday night, when nearly a half-dozen tornado watches were in effect, and parts of Mississippi were being ravaged by storms, TWC aired a movie: “The Avengers.”
Sound a bit like consolidated radio? You know, the kind owned by Lee and Bain and other “vulture” capitalists.
As was pointed out in News Blues, “The Weather Channel partners Bain Capital and Blackstone Group will never justify the enormous $3.5 billion price tag they paid for TWC in July 2008 at the height of acquisition market”.
They are all about profits.
Mobile apps, inter-connectivity and Internet distribution models.
Forget the tornadoes.
The model is right there — Clear Channel’s co-owner is doing the same thing at The Weather Channel.
Fresh off of $1.3 billion in refinanced debt.
This is getting too easy for us to understand, isn’t it?
The only climate The Weather Channel cares about is the business climate.
I mention all of this because the radio and music businesses have always operated in their own worlds. If you’ve worked in either (or both), you know that reality never meant anything in these businesses.
Radio set its own rules.
Always dictated what the audience would hear, how advertisers would support them. They don’t like being shoved around by the Internet, Apple, Facebook or a bunch of kids right out of Pirates of the Caribbean.
And, the music industry still doesn’t acknowledge the real world.
Napster was an asterisk in their history.
They can sue fans for stealing.
Watch consumers prefer digital downloads to plastic CDs.
And it remains business as usual.
They, too, are doomed.
That’s right — the CEOs who take their orders from equity owners — are doomed because they are operating in the make believe financial world that they live in and are not capable of acknowledging the real world where it takes innovation to grow revenue.
So, if you’re an innovator or have just a little innovation in you, fired from a media job you did well — the real financial turnaround is going to happen for your career.
Legal monopolies are not a business model in a world that has changed.
Financing and refinancing while content excellence suffers is a short-term and foolish strategic move — not an adequate five-year plan.
There are no viable five-year plans in the entertainment business because these industries are already ten to 15 years behind the consumer and their preferred technologies.
So here’s my take on the economic recovery that is coming.
Keep in mind Citadel, a company in bankruptcy, is bragging about a 4% increase in revenue over the first quarter of 2009. Also keep in mind — that is a pretty low standard to meet. Q1 of 2009 was the absolute bottom of the media economy and these geniuses think a 4% hike a year later is a recovery. Hey, it’s better than losing money, I grant you.
A growth business — never.
So here we go:
1. Equity holders must continue to consolidate or liquidate — collecting fees all along the way — to remain viable.
2. The longer they hold their assets, the more they run into their loan covenants that will require the purchase of more expensive debt. So watch things shake out in the year ahead.
3. For those of you who want to buy radio properties when the prices come down, remember that even Larry Wilson isn’t buying now. And that the properties may still be sound but consolidators kind of ran down the neighborhood if you know what I mean. In other words, they’ve devalued the very radio stations they overpaid for making it hard on competent owners who want to try their hand at good terrestrial radio.
4. Good operators like Bonneville, Cox, Lincoln Financial and others (usually smaller groups) will turn in excellent results because they have not devalued their properties even though they sell in a climate that has. However, these companies are like building Beverly Hills in downtown DC — location, location, location.
5. There can be no growth business for the entertainment industry without an interactive digital strategy separate and apart from traditional broadcasting content. And it must be fully funded. No digital. No growth. No kidding.
6. The brain drain will start showing its effect on media companies that have neglected great over-the-air content and have failed to innovate new media platforms. Sorry, but they just can’t keep firing assets and then declare they are hiring again for new needed media initiatives. The best people are going to stay away from operators like that.
So the reality is that media is just another microcosm of the new American business model.
Over-commit to debt.
Cut assets and costs.
Refinance again and again and hope the economy makes this model look good enough to — resell.
At a profit.
Or at least for more fees.
I’m going to put it in writing — years ahead of general knowledge — that once everything has been bought, sold, and resold, there will be a need for new ventures.
That’s why they call these vultures — venture capitalists.
Sadly, they need more businesses to buy and ruin for fun and profit.
The necessary growth businesses will never rise up from the companies they bought or funded because that’s not what equity owners are about.
For the growth businesses of the future, they will have to turn to the talent that has been shown the door or to the young people who cannot even get in the door.
The four seasons of consolidation are:
Spring — rebirth and growth by entrepreneurs.
Summer — the cornucopia of innovation with its abundant supply of revenues and rewards.
Fall — The final harvest of new business growth.
Winter — The coldest season of all — not friendly to the seeds of new ideas and an atmosphere not conducive to growth.
In radio, television, print and music, we’ve just suffered through the worst media winter ever.
Spring has sprung.
Get planting seeds of innovation. Equity speculators have to eat.
original article: http://insidemusicmedia.blogspot.com/2010/04/four-seasons-of-media-consolidation.html