Buyout of Clear Channel: Be Careful What You Wish For

1.Terrestrial radio will suffer a massive decline as a business because of the availability of more attractive alternatives to consumers.

2.While investors in Clear Channel might get some short-term gain in terms of sales of some stations, there is a high likelihood that they will be stuck holding the bag with a company performing poorly and bogged down with a tremendous amount of debt.

3.Historically, when private equity firms conduct their due diligence, they do not always delve sufficiently beneath the surface in terms of the actual long-term development of the business segment.

In the telecom space, the purchase of Telcordia in 2005 is a prime example of two private equity firms apparently not doing a sufficient amount of homework. On paper, the deal looked great with the OSS provider having a “captive” (albeit slowly diminishing) share of the RBOC space. Further investigation would have alerted the investors that there had been widespread disenchantment by the Bell companies for a long time and that Telcordia’s ability to transition to new markets would be quite difficult.

Regarding media companies, the more successful operations in the future will be those that exhibit three essential traits: voluminous content, widespread reach, and portability/mobility. Hence, one sees the gradual displacement of local newspapers by the Internet.

The shift from terrestrial radio to satellite radio and to iPods will be much faster than was the case from broadcast TV to CATV because the three big networks had a nationwide presence as well as control of a substantial amount of programming.

Consequently, it is hard to foresee the enduring attraction of owning broadcast radio stations, each of which has diminishing advertising revenue, limited reach and a small amount of content. In contrast, satellite radio offers greater clarity, over 100 channels with a wide array of content, little to no commercial interruptions, and the ability to take it anywhere.