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ON CITADEL, a Guest Editorial: Eric Rhoads "Bankruptcy – Music to My Ears"

I have no problem posting what another trade blog/site/magazine owner says if it carries weight. I love it when industry people are brave and I realize we all can’t be but I am always a supporter for the outspoken. Great editorial by Radio Ink’s Eric Rhoads today… I could not agree more…Kev…

It’s not in my nature to rejoice in the misfortune of others. The bankruptcy at Citadel Broadcasting is unfortunate for all the good people who’ve lost their investment and for all the good people who’ve lost their jobs over the past couple of years, and for those who perhaps still will. Sadly, the bankruptcy court may have been sold a bill of goods when the judge was told Citadel will be through its bankruptcy within 300 days.

I doubt Citadel’s lawyers mentioned that the company was on a path to self-destruction long before the economy got bad, or that its management has been considered by some in the industry  to have made nothing but boneheaded decisions. But, of course, the company’s attorneys would never say that, and how is the judge to know any differently?

The Domino Effect
Though we’ve all known the Citadel bankruptcy was just a matter of time, waiting only until a prepackaged deal could be reached with lenders, the actual event is music to my ears and one of the best things that could happen for the good of the radio industry. In recent editorials I’ve predicted that once one falls, we’ll see the start of a domino effect. And, of course, NextMedia fell after Citadel, filing for Chapter 11 the following day. Will more follow? I think you can count on it.

A Failed Experiment
I can’t fault anyone for being seduced by the high multiples and the easy money to build radio groups at the dawn of consolidation. Almost everyone was doing it. But the experiment failed. Though radio was and always will be a high-margin business, the mistake was thinking it could be a 50- or 60-plus percent margin business and support all that debt.

Another mistake is thinking that our problems are rooted in the economy. We must not forget that we had eight years of negative growth prior to this economy. That was just the final coffin nail.

The Radio Reset Button
Bankruptcy could be pushing the great reset button for radio, which can again thrive with reasonable levels of debt. Of course, that is entirely dependent on how we operate these properties going forward and on  whether the boards and investors of these companies don’t allow the same mistakes to be repeated — and if, in some cases, leadership is changed. Then, and only then, will we see a changed and thriving industry.

Money Waiting In The Wings
Behind the scenes at our Forecast event in New York in early December, I learned of four companies that have been formed and have raised hundreds of millions with the intent of buying up distressed spinoffs out of radio bankruptcies.

While a couple of these companies are investment groups with no broadcast experience or leadership, the others were formed by broadcasters who have track records of success and who intend to  operate with  the critical core values that made radio successful. There is a strong possibility that this industry will look very different in just a couple of years.

The Past Won’t Repeat
For those of you who are wishing for the past to return: It won’t. The radio industry we are about to see won’t resemble the radio industry of pre-consolidation days. But if mistakes aren’t repeated, this industry will again flourish. After all, unlike television and newspapers, which are suffering great losses, we’ve never actually lost our audiences, just our revenues. Imagine what we can do if we actually start promoting again and start serving our audiences with deep conviction and localism.

Music To My Ears
Bankruptcy is music to my ears. Not for the pain and loss it’s causing many, but for the hope that radio will again return to the core values that make it strongest once the debt pressure is removed.

Eric Rhoads

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