November 17, 2006
Clear Channel goes for focus
Yesterday Clear Channel Communications – a longtime poster child for bigness and consolidation of the US radio industry – agreed to sell itself to a group of private equity firms in a $26.7 billion transaction. The first strategic move planned after the deal was announced: sell off one third of Clear Channel’s radio stations and all its TV ones.
This is just latest – and largest – example of media companies going private. Many, especially newspapers, originally were closely held, and issued stock to fund what often turned out to be uneconomical expansions. So moves like Clear Channel’s reflect an undoing of this strategy and a move back to their roots (although the intention of most private equity investors is to clean-up the clutter and take these businesses public again).
What all this illustrates is one form of the shift from bigness to focus. For folks who have been around the business world for a while, echoes of the LBO buyout boom of the 1980s are loud and clear.
Bigness is fueled by stock option-driven leaders in public companies. Consistent quarterly profit increases (something, as noted in Bigger Isn't Always Better, that defies the laws of economic gravity), ongoing incremental “water-torture” cost-cutting, emphasis on revenue increases, and unending pressures to expand are the hallmarks.
In contrast, the world of private equity is one of focus, spin-offs, sharp cost-cuts, short-term risk tolerance, and comfort from cash flow.
One model isn’t ultimately better than the other, just different. Both have serious flaws that can destroy real innovation and growth.
Ironically Clear Channel made itself more attractive to private investors by adopting a “less is more” approach to selling advertising 18 months ago. It reduced the total number of minutes devoted to commercials each hour on its radio shows and shortened their average length. Result: happier listeners, better ratings which led to more ad revenues for less air time, and constructive pressure on the advertisers to make their shorter commercials more engaging. Which led to more product sales for the advertisers – a win-win all around.
This is just latest – and largest – example of media companies going private. Many, especially newspapers, originally were closely held, and issued stock to fund what often turned out to be uneconomical expansions. So moves like Clear Channel’s reflect an undoing of this strategy and a move back to their roots (although the intention of most private equity investors is to clean-up the clutter and take these businesses public again).
What all this illustrates is one form of the shift from bigness to focus. For folks who have been around the business world for a while, echoes of the LBO buyout boom of the 1980s are loud and clear.
Bigness is fueled by stock option-driven leaders in public companies. Consistent quarterly profit increases (something, as noted in Bigger Isn't Always Better, that defies the laws of economic gravity), ongoing incremental “water-torture” cost-cutting, emphasis on revenue increases, and unending pressures to expand are the hallmarks.
In contrast, the world of private equity is one of focus, spin-offs, sharp cost-cuts, short-term risk tolerance, and comfort from cash flow.
One model isn’t ultimately better than the other, just different. Both have serious flaws that can destroy real innovation and growth.
Ironically Clear Channel made itself more attractive to private investors by adopting a “less is more” approach to selling advertising 18 months ago. It reduced the total number of minutes devoted to commercials each hour on its radio shows and shortened their average length. Result: happier listeners, better ratings which led to more ad revenues for less air time, and constructive pressure on the advertisers to make their shorter commercials more engaging. Which led to more product sales for the advertisers – a win-win all around.
