When the government removed limits
on station ownership six years ago, San Antonio-based Clear Channel began staking a Texas-size claim on radio real estate. Today, the company is the country's largest radio group and among the top five entertainment companies. It owns 1,240 radio stations, operates another 75 through LMAs, and syndicates programming to half the commercial stations in the country. It even has a stake in a potential competitor: satellite radio. Clear Channel also owns 36 TV stations, the country's largest billboard inventory and the biggest concert-promotion business.
All that and aggressive cross-promotion have led media-consolidation critics to label Clear Channel "Exhibit A" in their fight for tougher ownership limits. The company has been beaten up in the press and Congress and faces lawsuits and FCC hearings. In the meantime, its stock has taken a beating from investors questioning its multiplatform strategy and financial health.
Company President Mark Mays sat down with BROADCASTING & CABLE 's Bill McConnell to answer some of the company's critics.
Why the stock tumble? Mays blames hedge funds shorting the stock but predicts the multiplatform strategy will pay off in the long run.
Dismissing charges that Clear Channel's tactics have turned radio into bland promoters of boardroom-concocted megastars, Mays insists solid ratings prove that big radio is giving listeners what they want.
Following is an edited transcript of the Mays interview:
You began an aggressive acquisition strategy after Congress relaxed ownership rules in 1996. Now your stock trades around $30 after peaking near $100. Is combining big positions in radio, billboards and TV paying off?
All four of our principal businesses—radio, outdoor, entertainment and television—are good businesses with big operating leverage. Once you drive revenues over their fixed costs, you are able to grow cash flow at pretty attractive margins. Plus, capital reinvestment in those four businesses is less than, say, cable, which gives us more free cash flow.
But your stock trades at significantly lower valuations now than pure radio players'.
Radio has outperformed other businesses, but this is going to vary depending on which sector is having a good year. Radio over the next few years is projected to be the most robust. All, over the long term, will perform very, very well.
Wall Street rumors predicting that Clear Channel will be the next big media company to restate its books have pounded the stock.
There's no truth to those reports. We believe hedge funds that consider the media sector overvalued were promoting those rumors to short the stock and the other industry scandals have fueled investors' willingness to believe. Otherwise, I can't explain why our stock goes up or down. If I knew why, it would be a lot easier to fix.
We focus on the things we can control: our ability to grow revenues and cash flow. Our people have done a dang good job of that. I'm very proud of the effort they have put together for the first six months, and they're on track for another outstanding performance for the third quarter. Eventually, that will come through in the stock price. Do I think [that performance] is reflected in the stock price now? No.
When you released second-quarter earnings in July, the company said it would not buy back stock to boost share prices. Over the next several weeks, $10 million in stock was repurchased.
The company did not buy back stock. It's a big distinction. The company is not in a position where it should be buying stock. We, as family members, did buy stock. It was cheap—like buying 50-cent dollars.
Clear Channel has been criticized as "ruining radio" by instituting national playlists?
We do not use national playlists. Playlists differ from market to market. If you look at KTKR(AM) in San Antonio, WKSI(AM) in Washington, and KIIS-FM in L.A. or Z-100 in New York, they're all Top 40 contemporary hit radio, but there's not a standardized playlist. What we do tell people is they have to conduct some type of research of local listeners to determine what that playlist should be. We don't want program directors saying, "I think I know what you guys want."
This is for all of radio, not just Clear Channel. The radio industry spends—I'm guessing—hundreds of million of dollars on research. Why? The ease with which someone can switch brands. If I don't like you today, I'm on to the next guy.
To what extent does nationwide research go into the numbers?
We don't do it on a national basis. We do it on a local basis. Program directors make the call as to what we put on the air. We have three research companies internally they can use, or they can go externally.
Still, don't you think research-intensive decisions contribute to homogeneous programming?
Attacks on the "homogeneity of radio" drive me crazy. Radio is the least homogeneous of any major media. Look at print: A lot of headlines are similar in papers across the country. In cable, ESPN is the same in New York as it is in San Antonio. Radio is the only localized medium, and we don't get credit for it.
You moved radio division CEO Randy Michaels to the Internet division. Were you unhappy with some of the aggressive moves he had made with LMAs, raunchy shock jocks and Web sites featuring "bong brigades?"
I won't comment on those specifics. But we're clearly looking to the future of the radio industry as a whole. As a leader in radio, we're looking for collaborative ways to work with everybody in the industry. Bringing new advertisers to radio is our goal.
What do you mean by collaboration?
We want to work within the markets where we operate to make the radio great and to make the advertising and broadcast associations strong. Radio sometimes has a military sense of competition. There's a winner and a loser. I don't think that needs to be the case. There's ability for everybody to move forward. If WBEB(FM) in Philly, a single station owned by Jerry Lee, is providing great programming and bringing more listeners to radio, maybe occasionally they'll punch one of my buttons.
Some competitors complain that you have bullied them by moving your syndicated shows from longtime stations to Clear Channel's and even ordering your ad broker, Katz Media, not to do business with some stations.
I don't think moving programs hurts listeners or advertisers, but we're not going to do that in too many circumstances. There are going to be circumstances where there's not always a win-win. We will tend to preserve relationships on their long-term affiliated stations.
Congressional critics have introduced legislation to stop some of Clear Channel's practices; some of your station purchases are getting extra scrutiny at the FCC. No wonder you're expanding the company's political action committee and hiring a lobbyist.
We're going to open a Washington office because it's important to have a presence there. We were three years past due expanding the PAC to broadcast assets. We just kind of held off, although we always had a PAC in the outdoor division.
Sen. Russ Feingold has introduced a bill that would strip conglomerates owning radio stations and concert promoters of broadcast licenses if they discriminate against competitors and unaffiliated artists. It would also forbid stations from accepting record-company payments for playing their artists.
A lot of this was the record industry trying to come in and make their presence felt. I don't think Washington is going to have much empathy for the record companies right now.
Clear Channel has been fined for indecency violations by the FCC for antics of shock jocks, particularly Bubba the Love Sponge. How does their behavior go over with the GOP friends you've cultivated in Washington?
Radio must clean up its own house; government regulation is never the solution. We count on the Clear Channel programming and on-air staff to distinguish reckless behavior from compelling programming.
Does that mean you may fire Bubba?
We have to give him the opportunity to censor himself. I think he's capable of doing that. He's been put on notice. There have been jocks put off the reservation because they departed twice.
Several stations have accused Clear Channel of violating local ownership limits by operating LMAs that are really front companies.
We've done nothing that is not perfectly legal. There are going to be competitors and lawyers who grouse to obtain payoffs. We're not going to play that game. What we do has been within the law. If the law changes, we'll operate within the new law.
Spanish Broadcasting has leveled additional charges including interfering with its public offering and efforts to buy Hispanic Broadcasting. It has even hired superlawyer David Boies.
My lawyers say I can't comment except to say this is obviously a publicity stunt on their part.
The FCC has ordered some of your station purchases reviewed by an agency judge to determine whether they create local ad monopolies, although there's no allegation of wrongdoing. Will you submit to the review or wait until the FCC finishes revising radio-ownership rules?
It doesn't do us any good to spend all that money to go before a judge just before new rules are set. We'd rather wait for the new rules. Then, if we don't like them, we can fight them in court.
What should Washington do?
They will change ownership rules to be media ownership within the confines of an entire market instead of simply radio. Eventually, regulators will realize that radio is not a market to itself. As a consumer, I don't distinguish where I get my news. Today, it may be the newspaper, or it may be radio on the way in this morning or on TV later tonight.
How big do you want Clear Channel to be?
We're a little behind schedule [laughs]. We never decided to grow to 1,200 radio stations. Rather, we asked ourselves how we could serve customers. Obviously, adding properties in markets where we already operated made the most sense. Remember, we owned radio and outdoor in a bunch of markets before anybody jumped on that.
Will you continue being a major acquirer of new stations?
On a relative basis, acquisitions become less material. At 1,200 stations, any acquisition you do—even big acquisitions—are not as material as they once were. But we'll continue to look for acquisitions that make strategic sense.
You've increased the use of "voice tracking," bringing a DJ recorded in one market into another. On-air talent in New York City, I understand, is actively protesting it. Isn't this an example of cost-cutting at the expense of localism?
We ought to give our listeners what they want to hear. Ninety percent of the time that means a live, local DJ. Sometimes they enjoy talent from another market. Rush [Limbaugh] is an example. Rush doesn't sit in New York; he's in West Palm Beach [Fla.]. It also could be a DJ in L.A. doing a show in New York. It also may be a guy in San Antonio doing a country show for a station in Corpus Christi.
So you don't see voice tracking as different from syndication?
Voice tracking is very similar to syndication, but we can make it more localized. If someone's doing a morning show in L.A. and does afternoons in Corpus Christi and he can spend time in both markets making appearances, it can be local, live and compelling. In many markets, voice tracking allows us to boost the quality of on-air talent. That may not be true in New York, but it may very well be in Winchester, Va.
But syndication doesn't raise such complaints.
I understand why the talent doesn't like it. When we may pay a guy to do two shows, that means somebody doesn't have a job. But, if listeners don't like it, they can punch a button. We can see in Arbitron or our internal research and know well before anyone else if listeners complain.
You've expanded your position in television recently. Do you aim to have the same kind of heft relative to other companies in TV that you have in radio?
I'd never say never, but, right now, we're real comfortable with our position. We've bid for more TV stations than we've purchased. It's not lack of desire but getting proper returns.
Are you saying TV stations are overpriced?
Yes, from the standpoint of purchase price relative to growth rate. Also, the networks have an economic advantage. They can pay more and make it work because they are buying their own distribution system.
Clear Channel is an investor in XM Radio. How big will satellite radio become?
I think satellite radio is a great niche product. I'm not sure it's going to be a mass consumer market.
Even given the growth of satellite TV?
People are switching to DBS because it's cheaper than cable and you get more channels than broadcast TV. The choice in TV is between five broadcast stations in a market or 150 cable or satellite channels. In radio, you already have maybe 35 free broadcast stations in a market, and only by making the investment of $12 a month can you go to 150. That appeals to audiophiles who like bluegrass or want Asian talk programming.
No question, satellite is a threat long term that radio has to take seriously. We're going to have to provide compelling product to get consumers to turn on radio and listen to programs.
Given your ability to leverage capital expenses and still profit at lowered ad rates, can single-station owners or small groups survive in Clear Channel's world?
Jerry Lee's WBEB(FM) is the top-rated station in Philly. Good radio provides what people want to hear. People who do that are going to do very well. This is not the death of mom-and-pop radio.