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Monday, April 19, 2002

Do You Take This Contract…?

The prospect of a 20-year marriage with Clear Channel Adshel

By Betsey Culp

Once again the subject of a city-run newsrack program is before the Board of Supervisors. It’s a different house from 1998, when the ordinance first surfaced, but the result may be the same call – a vote to approve.

If so, the city may find itself standing before the altar, preparing to wed an unsavory character. During the past three years, the company chosen to escort San Francisco’s sidewalks into uncluttered bliss has grown and changed – not necessarily for the better.

The company in question, Clear Channel Adshel, is an international conglomerate based in San Antonio, which owns – among many other things, more than 1,200 radio stations; SFX, an entertainment company and sports agency that represents one-sixth of the players in the NBA and the major leagues; and Bill Graham Presents. Oh yes, and Adshel, a self-proclaimed “award-winning provider of street furniture solutions around the world.”

Clear Channel Adshel is big, but it’s not necessarily successful. And it brings with it some questionable baggage.

To wit:

In this city, where voters have just approved a proposition to prohibit new billboards, Clear Channel Outdoor and Viacom Outdoor together control 90 percent of the existing space. The right to plaster nearly 500 pedmounts with ads will add nicely to Clear Channel’s hunk of the pie.

Clear Channel has grown rapidly in the past several years. It grows by gobbling: Harry Domash, writing in the Chronicle, calls it a “serial acquirer,” calculating its GI/A ration (the result of dividing goodwill plus intangibles by total assets) at a high-risk 85 percent. In contrast, a company like Microsoft, which has grown “organically,” has a GI/A ration of only 3 percent. Domash concludes, “Given the long list of busted serial acquirers, it pays to take that risk factor into account in your research of investment candidates.”

Clear Channel’s finances over the past year have taken a nosedive, perhaps partly because of its octopus-hold on the radio waves. In addition to a general decline in advertising revenues since September 11, the radio-listening population has declined in recent years, responding to increasingly bland fare often mass-produced for a number of stations. Less listeners, less ads.

An article in Salon lays out the ways a company like Clear Channel rules the airways: "Through a process known as 'cyber-jocking,' Clear Channel has eliminated hundreds, if not thousands, of DJ positions (and saved tens of millions in salary) by simply having one company jock send out his or her show to dozens of sister stations. Thanks to clever digital editing, the shows still often sound local." Adds Hal Fish, program director at WBZX and WEGE in Columbus, Ohio, "Clear Channel comes into markets and says to record companies, 'Don't give that station a concert or band promotion or there will be no business with us across our platform of stations."

It doubtless did not help ad sales when a story circulated through the media that Clear Channel had banned a ridiculous list of songs from its radio stations after September 11, a list that included Louis Armstrong’s What a Wonderful World, Neil Diamond’s America, and Jerry Lee Lewis’s Great Balls of Fire. Clear Channel subsequently denied the allegation.

Whatever the reason for the decline in revenue, the L.A. Times noted on February 27 that “the nation's biggest radio broadcaster reported a net loss of $365.6 million, or 61 cents a share, for the quarter ended Dec. 31, compared with a net loss of $192 million, or 33 cents a share, in the year-earlier period. Sales in the latest quarter fell 8%, to $1.86 billion.”

The poor company can’t win. First revenues decline, then the feds get on its case. The press teems with stories of investigations and requests for investigations. From the L.A. Times of March 12: “FCC Chairman Michael K. Powell in a letter last month said the agency was ‘considering carefully’ the issues raised by opponents of Clear Channel's planned acquisition of an Ohio station.” Of March 21: “A New York congressman asked the Justice Department to examine allegations that entertainment giant Clear Channel Communications is undercutting a major rival in the concert industry.” Of April 10: “Clear Channel Communications Inc.'s entertainment unit is accused in a government lawsuit of discriminating against diabetic concert-goers by refusing to let them bring insulin supplies into venues.”

Maybe, in spite of the problematic smoke screen, Clear Channel is sound and upright. But before we tie the knot, why not do a little serious checking? At least ask Harvey Rose to subject the terms of the deal to his characteristically carefully scrutiny.