Clear Channel Purchase

Implications: The privatization of Clear Channel will not set off a wave of similar transactions in the industry. It will, however, force the industry to reinvent itself and find ways to better compete with the public relations blitz of satellite radio and the looming threat of internet radio.



Analysis: The privatization of Clear Channel may greatly impact the landscape of the radio industry, which has been mired in virtually no growth for most of this year.

With the spinoffs of nearly 450 radio stations and 40+ television stations expected to yield more than four billion dollars, the new company will get a major cash infusion, reducing debt from the takeover, and opening up a plethora of opportunities in markets 100 and below.

It's funny how consolidation works. When an industry goes through it, the notion is that bigger is always better and "synergy" will be a benefit not only to our customers but to our bottom line. It never seems to quite work out that way; merit AOL Time Warner, Kraft/Altria, and many others.

Radio was an industry built on the backs of hard working entrepreneurs. The revision of the Telecommunications Act in 1996 marked the beginning of the end of this history. There remains a handful of individual successful operators of stand alone radio stations, such as WBEB in Philadelphia and WGN in Chicago, but they are the exception rather than the rule.

Over the past several years, radio has been engaged in a two front war. These are usually battles that can never be won. On the one front, is satellite radio, which has accomplished perhaps the greatest public relations success of all time. Never before has an industry that has lost so much money - and continues to lose money - received so much positive press. Every pay radio service since 1940 has failed. Satellite radio is soon to be trumped by wireless internet radio in the car, making more than 30,000 radio stations available for free at the push of a finger.

The second battle has been between new media. While radio disproportional from a flood of advertising dollars in the pre-dot bomb days, its spoils were short lived. Increasingly, money has been pushed in the online space, largely at the expense of radio and newspapers.

To be successful, radio needs to find a way to return to what it does best, and that is being a local service. HD Radio and radio station websites may well be part of the solution, but they are still some years away. In the meantime, there is a dearth of talent coming into the industry at almost every level. It is ironic that my alma mater, Northwestern University, while still offering a radio/television/film degree, offers no courses at all in radio.

None of this should result in creating the notion that radio is either a bad business or a doomed one. More than 90% of all adults 12+ listen to at least one hour a day of radio. Even if that were to drop by 20%, I still like the industry's chances. Radio will have to reinvent itself, just as it did when the pundits wanted to write it off with the arrival of television in the 1950's. The creative challenge has been laid down for this industry to pick itself up once more by its bootstraps and find a way to succeed.

One final thought - much has been written and said about the threat that mp3 players pose to radio. A recent study by Forrester Media Research should that while terrestrial radio listenership declined by more than 30% in the first six months a consumer owns an mp3 player, it subsequently not only returns to baseline, but increases 20% from where it began. What that says is this: mp3 players are novelties as toys. Loading them up with either your CD collection, or purchasing songs from iTunes, or loading podcasts eventually becomes a lot of work. Just like when you got your first VCR and you recorded programs like crazy for the first six months or so that you had it, it eventually became the place that you put the videos you rented from your local video store.

So the privatization of Clear Channel means a few things. There will be a return by many former broadcasters to the industry. There will be necessarily be an infusion of creativity. Don't look for a wave of privatization throughout the industry though.