One of the big behind-the-scenes/industry stories in country music in 2014 has been the formation of gargantuan media partnerships in an attempt to make huge cross-format monopolies consisting of radio, television, online, print, and streaming content that will create a favorable environment for big advertisers looking to tap into country’s lucrative consumer demographics. Anchored by America’s two biggest radio station owners—Clear Channel & Cumulus—the country music media landscape is being reorganized like never before. The New York Times recently ran a story focusing to the Cumulus side of things, while calling country “one of radio’s biggest success stories over the last decade” as the genre gets younger and loses its hayseed image.
But there is a problem. And it’s a big one, for both Clear Channel, Cumulus, and many of their smaller competitors.
Radio is losing money, and losing money at an alarming, unsustainable pace. The problem for American radio is many fold, and has partly to do with some company’s strategies amongst massive red ink and increasing debt to cut costs by slashing labor and nationalizing programming; a strategy that is creating a disconnect with American listeners as streaming options become more prevalent, according to media research company Edison Research.
Though country has been lucrative for the radio business in some respects, and this is the reason media is betting big on country for its future, it may be too little, too late, as debt mounts, credit ratings get slashed, and radio, despite its continued dominance in the marketplace as a whole, faces increasing competition from new technologies.
And then there is the radio industry’s biggest problem: Conservative talk radio.
Though the New York Times portrayal of the new Cumulus mega media beehive seemed to be one of forward-thinking and fat times amidst country’s rising popularity, the fact is Cumulus, its chief rival Clear Channel, and many other smaller radio-based media companies are in a very bad way right now because conservative talk radio—the previous cash cow of the business—is in an absolute tailspin, making many of these media giants not just bleed money, but hemorrhage it, as radio ratings are nose diving right and left.
In one year, Cumulus Media’s revenue has fallen an astounding 87.4%, from roughly $56 million a quarter to $7.4 million year over year. TheStreet.com gives Cumulus a ‘C – ‘ rating, and the stock has “significantly underperformed” compared to its peers on the S&P 500.
A lot of the blame for the disappearing revenue is being given to the decision of conservative talk personality Sean Hannity to switch from Cumulus to rival Clear Channel. This swing has caused many of Cumulus’ biggest stations to see a plummet in ratings. Replacements like Gov. Mike Huckabee and Geraldo Rivera didn’t pan out, and it has put the company on a path to insolvency.
The Cumulus ratings problems aren’t just with conservative talk though. The company is seeing ratings drop in virtually all of their major, important markets and across all formats of radio, including some key country music stations. A recent breakdown of Cumulus’ ratings woes paints just how broad the company’s ratings issue is, including their Nashville-based country station that has seen a ratings slip of 45% in the last year.
- WABC/NY down 44%
- KABC/LA down 52%
- WLS/CHI down 57%
- KGO/SF down 58%
- KSFO/SF down 38%
- WBAP/DAL down 32%
- WLS-FM/CHI (Classic Hits) down 45.9%
- KLOS-FM/LA (Classic Rock) down 24.6%
- WGVX-FM/MN (Sports) down 80.8%
- WKDF-FM/Nashville (Country) down 45.2%
- WDVD-FM/Detroit (Hot Adult Contemporary) down 38.3%
- KBEE-FM/SLC (Hot Adult Contemporary) down 50%
With huge plans from Cumulus chief Lew Dickey to create a country music media empire under the “NASH” brand—scheduled to include a takeover of Country Weekly Magazine, and the marketing of everything from food, paint, furniture, and clothing with their NASH emblem, the economic realities beg the question of how the company will have the financial flexibility to pull off such a feat, especially when country itself has proved to not be immune to the company’s downturn. Cumulus is also not as insulated to the upcoming technology paradigm as its rival Clear Channel who has their iHeartRadio streaming app to fall back on.
But Clear Channel has a big problem too, to the tune of $300+ million quarterly losses, and $4.2 billion in debt on their own balance sheets. And once again, the root of the problem can be traced back to conservative talk radio, and specifically Rush Limbaugh. In fact Rush Limbaugh is so big, the flight of sponsors from his show is affecting both Clear Channel & Cumulus, who both carry the conservative talk juggernaut, as do many other smaller companies and independent stations.
Lew Dickey of Cumulus directly blamed Rush Limbaugh for the loss of “millions” last year, though the controversy cited for spurning the Cumulus revenue calamity was a brushup between Rush and Sandra Fluke which happened way back in February of 2012. Limbaugh is carried on 40 Cumulus-owned channels and the company said in May of 2013 that 48 of the top 50 radio advertisers in the country won’t work with Rush Limbaugh, or Sean Hannity. Meanwhile Rush’s massive, $400 million contract is still on the books until 2016, symbolizing the commitment radio has made to conservative talk, and how unwieldy and difficult it will be to unravel itself from it.
But as bad as Rush Limbaugh is for Cumulus, it’s worse for Clear Channel where the majority of Rush’s affiliates are found.
Clear Channel’s conundrum is even more daunting according to a recent Bloomberg report because their backs are against the wall financially. Clear Channel has lost money in every single quarter since its buyout in 2008 by Bain Captial and Thomas H. Lee Partners. In December of 2013, Clear Channel rolled its debt into a new term loan by offering more than double the interest rate so the company would get three more years to turn around their revenue woes. What that means is Clear Channel is now spending even more money each year on loan interest, roughly $1.58 billion dollars, and interest expenses have surpassed the company’s operating income.
So what does all this mean for country music?
With the big companies that serve country music listeners betting big on country as the next big thing, but at the same time facing mounting debt, anemic revenue, and loans coming due, the entire thing could topple and create a scenario where the huge media companies are not coagulating around the cause of country music, but being liquidated and broken up in the face of bankruptcies and reorganizations.
What makes the prospects look even worse is that these big companies are fighting over each other for the same consumer dollars, setting up a scenario where they not only have to battle for attention with new digital media, but with each other. Undoubtedly one of the reasons for the sharp decline in ratings of the Cumulus country station in Nashville is because Clear Channel has stationed their big radio personality Bobby Bones in the same city. Similar scenarios are playing out across the country, with the two companies cannibalizing each other over the same listeners.
Or the big bet on country music could pay off because of the rising interest in the genre, and just as conservative talk radio became the golden goose for radio in the 90’s, so could country radio be in the coming years.
Though with the rise of streaming media, the elimination of radios in some new cars, and the implosion of conservative talk radio creating a difficult economic environment, the bet on country music is one that’s certainly risky, with the destiny of mainstream country music now intimately intertwined with the fortunes of a few big companies with questionable futures.