Radio giant Cumulus tumbles after flying high

The signal has weakened at radio giant Cumulus Media.

Over the last 18 years, the entrepreneurial duo Lew Dickey Jr. and his younger brother John spent billions building the Atlanta company into the nation’s second-largest radio network through a string of 150 acquisitions.

But Cumulus, which has 454 stations in 90 markets, is struggling to keep its debt-fueled empire together in an age when broadcasters are slowly losing listeners and revenue to iPods and online music streaming services.

“Cumulus is suffering from the tail end effects of the era of consolidation. The chickens are coming home to roost,” said Michael Harrison, a former radio station owner and publisher of RadioInfo. The biggest problem in the industry, he said, is “smothering debt.”

Cumulus has sidelined its Atlanta founders and based its new CEO, Mary Berner, in New York. It lost $542 million last quarter. Its stock dropped about 90 percent in 2015, to well below $1 a share, amid rumors it will have to turn to bankruptcy court to restructure its $2.5 billion debt.

Under pressure from its largest shareholder, private equity firm Crestview Partners, Cumulus named Berner as the new CEO in September. She replaced longtime CEO Lew Dickey, who became vice chairman. John Dickey, meanwhile, lost his job as a Cumulus executive vice president.

A magazine industry veteran, Berner headed Reader’s Digest during its 2009 bankruptcy reorganization. Cumulus put Berner in charge of a “strategic review” of the company when she joined its board of directors in May.

Turnover worries

One worry, she recently told investors, was falling ratings and nearly 50 percent employee turnover in 18 months. The company had about 6,000 employees at the end of 2014.

Cumulus did not make Berner or other employees available for interviews. In emailed responses to questions, a spokesman said Cumulus is generating enough cash from operations and planned asset sales to avoid bankruptcy.

“Despite what the stock price might indicate, (Cumulus) has and will continue to generate a significant amount of cash from operations,” a spokesman for Cumulus said in an email. The company, which had $84 million in cash on Sept. 30, also expects to collect about $200 million by 2017 from the sale of real estate.

“We have no plans to file for bankruptcy and the next maturity for debt is not for three more years until May of 2019, so we have significant runway to begin to stabilize and ultimately grow the business,” the Cumulus spokesman said.

On Dec. 31, Cumulus said it bought back almost $65 milllion of its debt at a discount, allowing it to save about $2.8 million a year on interest payments.

The spokesman disputed news reports that Cumulus is moving its headquarters from Atlanta to New York.

Cumulus has “no plan to end” its Buckhead headquarters, which has roughly 120 employees, but Berner will remain in New York, he said. “With operations in 90 markets, our (approx.) 6,000 employees are located all over the country with highest concentration long being in New York City, which is the center of our national sales effort and national content platform, Westwood One,” he said.

Deals and debts

Like several of the nation’s largest radio broadcasters, Cumulus is suffering under a damaging debt load. Over the past decade, one radio network after another partnered with private equity firms in expensive, debt-heavy buyouts or acquisitions, only to run into trouble when the Great Recession and changing technology led to shrinking audiences and advertising revenues.

Shares of iHeartMedia, the nation’s largest radio network, have dropped 95 percent since its 2008 initial public offering, to less than $1 a share. Formerly known as Clear Channel Communications, the San Antonio company is laboring under more than $20 billion in debt stemming from a 2008 leveraged buyout orchestrated by private equity firms Bain Capital and Thomas H. Lee Partners.

The company reported a $222 million loss in the third quarter, largely due to $454 million in debt costs.

As the economic slump was ending in 2009, Citadel Broadcasting, then the nation’s third largest radio network, filed for Chapter 11 bankruptcy, no longer able to handle its debt load from its 2007 purchase of ABC Radio from Walt Disney. The $2.7 billion deal had been backed by private equity firm Forstmann Little & Co.

Cumulus was co-founded by Lew Dickey and a private equity money manager, and owes most of its growth to rapid-fire acquisitions negotiated by Dickey and backed by debt and investment firms’ money.

A statistical boost

Its largest deal was its 2011 acquisition of Citadel for $2.5 billion, backed by Crestview Partners. For a while, the deal boosted Cumulus to more than 500 radio stations and its debt to more than $2.8 billion.

But in recent years, the industry also has been slowly bleeding revenue as evolving technology — satellite radio, iPods, music streaming websites, smart phones — offered more and more options to its audience and advertisers.

You have an industry that is stable but it is in slow decline,” said one industry insider who requested anonymity because he is not authorized to talk to news media about radio broadcasters’ deals. In Cumulus’ and other companies’ deals, “everyone’s assumption was that (revenue) would be growing by 2 or 3 percent, not declining by 2 or 3 percent,” he said. With such high debt loads, that made a big difference, he said.

Other radio companies that didn’t load up on debt and remained focused on their audience ratings are doing OK, said Michael Kupinski, director of research at Noble Financial Capital Markets, an investment bank in Boca Raton, Fla.

“There are actually some companies in the industry that are doing quite well,” he said.

Entercom Communications, the nation’s fourth largest network, has remained profitable and has doubled its stock price since 2012 after stumbling badly during the Great Recession. It operates two radio stations in Atlanta, Star94 and Star94 (Too) on the AM and FM dials.

(The Atlanta Journal-Constitution’s owner, privately held Cox Enterprises, also owns 59 news and music radio stations.)

Local focus lacking

Another reason Cumulus stumbled, said Kupinski, is because “the company didn’t focus on its local markets and was sidetracked by an expensive acquisition of Westwood One.” Cumulus paid $260 million in 2013 for the national ad seller and syndicator of radio programs.

Some critics said that after its Citadel acquisition, which added several large-market radio stations, Cumulus scrimped on programming and labor costs and fired or lost popular radio talent in key markets, including New York and Washington, D.C.

Listeners deserted. While iHeartMedia’s audience ratings in its largest markets grew by 5.7 percent from 2012 to 2015, Cumulus Media’s ratings dropped 10.7 percent in the same period, according to Chris Huff, a radio industry veteran and radio ratings historian.

Berner, Cumulus’ new CEO, cited some of the same problems in a recent conference call with investors.

She said Cumulus’ previous leadership “diverted much of its efforts towards building its portfolio of assets” at the expense of running local stations. Her focus, she said, would be on increasing stations’ ratings and fixing problems that had caused more than 2,000 Cumulus employees to leave the company over the past 18 months.

“This company has lost more than a dollar of revenue for every dollar of expense reduction over the past four years,” she said. “So I’m focused on intelligently managing the cost structure.”

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