Cumulus Meltdown: Consolidation Karma

The thud heard ’round the industry: Cumulus Media, the second-largest radio station conglomerate in the country, ousted its founders in late September. CEO Lew Dickey has been demoted to a vice chairman, while brother John (an executive vice president) has already cleared out his office.
The move was orchestrated by private equity firms who hold a significant portion of Cumulus’ stock and have not been pleased by the company’s meltdown this year, which has seen its stock price tank by more than 80%, from north of $4 at the beginning of 2015 to 75 cents at the close of trading last week. As I write this, Cumulus’ market capitalization in total is $169.5 million. That’s a valuation more than $1 million less than what DTS bought the HD Radio system for. Think about that: hundreds of stations, a passel of networks, and online properties worth less than a mostly-ignored technology.
Cumulus was founded in 1997 on the heels of the passage of the Telecommunications Act of 1996, which drastically relaxed radio station ownership caps and removed them completely at the national level. The Dickeys embodied the acquire-or-die strategy that came with Wall Street’s entry into the broadcast business to fund the conglomerates. Over nearly two decades, Cumulus executed more than 150 acquisitions, including all of Citadel Media, the Westwood One and Dial Global radio networks, as well as forays into streaming media and luxury publishing.
To finance this growth, the Dickeys aggressively cut costs in their conglomerate; they were notorious in the industry for laying waste to things like local talent and programming if it might eke out a few more pennies for the quarterly report. This is why the Dickey’s demise has been met with so much glee: the standard-bearers of post-1996 corporate radio hoisted on their own petard.
Those who engineered this coup have installed new management, principally in the form of Mary Berner, a publishing executive with no broadcast experience but who did shepherd the Reader’s Digest Association through the bankruptcy process. This seems to suggest a significant reorganization in the works, but it remains to be seen where on the continuum between cosmetic changes and stripping for parts it will fall.
Larry Gifford of the Radio Stuff Podcast nailed Cumulus with an ascerbic take on the company’s history and the Dickeys’ downfall, which is well worth a listen. He compiles the Dickeys’ greatest misses, like flip-flopping in front of Congress on the value of localism and Cumulus’ decision to ban the Dixie Chicks after they made a disparaging statement about George W. Bush.
Gifford notes things were just fine when the Dickeys were two guys from Ohio acquiring and fixing up small and medium-market stations. They actually did try to serve their broadcast communities and treat their employees with respect. But once the Telecom Act came down the pike, “they traded their moral compass for a golden ring,” leading to a buy-or-die spiral that racked up billions in debt and little coherent or viable business model.
Cumulus is by no means the only overleveraged broadcast conglomerate in the business. In fact, its $2.5 billion dollar debts are puny relative to Clear Channel iHeartMedia’s $21 billion albatross, the vast majority of which is due to its own acquisition fever. To its credit, iHeart has spent several years repositioning itself away from being a radio company and toward becoming a “content discovery” company, but it’s come in part at the cost of literally selling off its physical broadcast infrastructure. iHeart’s also developed more synergies between its various components but its increasingly frequent maneuverings to refinance its debt, if only to lessen the impact of making the interest payments on them, hints at the continued delicacy of the situation.
The shakeup at Cumulus has its roots in media policies that encourage the commoditization of a public trust to the benefit of shareholders, and to the detriment of the public interest. It may have symbolized some of the most ergegious aspects of industry consolidation and high-level mismanagement run amok, but it’s not alone in its hubris. In fact, all of this may inspire more consolidation, as the second wave of post-Telecom Act radio conglomerates such as Townsquare Media (publicly-traded) and Alpha Media (privately-held) might love a chance to feast again.