Clear Channel Communications Inc. (NYSE: CCU) is a diversified media company with two primary business segments: radio broadcasting and outdoor advertising. Clear Channel is the largest radio broadcasting company in the United States, with 17% of the US radio market and over 1,100 AM and FM radio stations. It also owns a 90% share in the world's largest outdoor advertising division, with over 900,000 billboards in more than 60 countries. In addition, Clear Channel owns or programs 51 television stations and owns a media representation firm. Clear Channel has a market capitalization of $17.2 billion.
After having ramped up its radio business in the mid to late 1990s as new radio station ownership rules permitted greater radio industry consolidation, the competitive landscape for the company's flagship radio business is now changing as Clear Channel faces greater competition from the growth of new media such as Internet radio, iPods, satellite radio, and mobile broadband services.
Clear Channel is currently negotiating a buyout deal with a private-equity group led by Thomas H. Lee Partners and Bain Capital that would take Clear Channel private. The deal has had many stages, and ultimately, shareholders approved a buyout price of $39.20 per share. The FCC approved the deal in 2008. On March 25, 2008, speculation that the deal was falling apart due to financing caused the stock to sell off strongly. On March 26, 2008, Bain capital Partners and Thoms H. Lee Partners announced that they were filing suit against several investment banks to force them to honer and finance the deal. Clear Channel has joined in that litigation.
Founded in 1972 as the San Antonio Broadcasting Corporation, Clear Channel began as a Texas radio station operator. The company went public in 1984 and began expanding outside of San Antonio in 1986. With a relaxation of radio ownership rules in 1992, by 1995 Clear Channel owned 43 radio stations. After the Telecommunications Act of 1996 deregulated media ownership, Clear Channel quickly bought up more radio stations and over 70 other media companies, resulting in the greatly expanded present size of its operations.
Clear Channels most important business segments are its radio broadcasting and outdoor advertising divisions, with radio representing 50% of operating revenues in 2007 and outdoor advertising representing 47%. Television stations and a media representation firm make up the remainder of Clear Channel's revenues. The great majority of Clear Channel's revenues come from the sale of advertisements on its various media.
Clear Channel was formerly a promoter and producer of domestic and international events including music concerts, theatrical shows, museum exhibitions, and specialized sporting events. Until recently, this business segment constituted about one third of revenues. However, Clear Channel completed the IPO of its live entertainment and sports representation division on November 11, 2005 and spun off the division on December 21, 2005. The former segment is now publicly traded as Live Nation (LYV).
Clear Channel's radio division generates revenues from the sale of local and national advertising spots. Advertising rates differ from station to station and depend on the station’s reach among different target audiences, the number of stations and other advertising media competing in the market, and the relative demand for radio programming in the area. The company also owns equity in various international radio broadcasting companies.
While the radio industry has consolidated since the early 1990s thanks to a relaxing of ownership restrictions by the Federal Communications, the current rules still impose limits on local radio station ownership, and the top 10 players account for only 45% of the $20 billion radio industry. Clear Channel is the largest radio player in the US, with over 700 domestic radio stations. In 2006 Clear Channel announced its intention to sell 448 non-core radio stations. As of February 2008 217 of these non-core stations had been sold.
The domestic terrestrial radio industry has experienced audience declines for the past sixteen years. According to industry sources, 17.5% of people age 12 and up tuned in to the radio during a given 15 minute period in 1990, compared to 14.2% in 2005. Radio has had worse luck with some listening audiences than with others. Since 1999, “at work” and “at home” listening have fallen among 25-54 year-olds by 17% and 14% , respectively, while “in car” listening has fallen by only 3%. The falling audience levels are a result of the growing satellite and Internet radio industries which are stealing market share from terrestrial radio.
Clear Channel has attempted to increase its audience size through its new "Less is More" strategy of reducing the number and duration of its commercials. The company's radio revenues were $3.44 Billion in 2007, less than a 1% increase from 2006.
In April 2007 Clear Channel signed a deal allowing Google to sell some of the airtime on 675 of Clear Channel's stations to advertisers in Google's network.
Clear Channel owns a 90% interest in one of the world's largest outdoor companies, with nearly 200,000 domestic display faces and over 717,000 international display faces. It earns revenues from the sale of advertisements placed on billboards, street furniture displays, and transit displays.
Unlike the domestic radio industry, the domestic outdoor advertising industry is highly consolidated, with top three players Clear Channel, Viacom, and Lamar Advertising controlling more than 65% of the US billboard market. In addition, regulations place limits on the number of billboards in the US, creating a limited supply. However, emerging new media create less of a perfect substitute for billboard advertising than for radio and so are less disruptive to outdoor advertising than to traditional terrestrial radio.
Clear Channel's Outdoor Advertising division is made up of an Americas division (representing North and South America, with the US representing more than 90% of revenues in this category in 2007) and an international division. In 2007 the Americas division generated 21% of total revenue while the international division was responsible for 26% of total revenue.
The outdoor business trades separately as Clear Channel Outdoor Holdings (CCO).
Clear Channel owns 51 television stations and Katz Media Group, a media representation firm that sells radio and television advertising time.
On November 16, 2006, Clear Channel announced plans to sell all of its television stations to Providence Equity Partners for $1.2 billion.
The radio industry as well as outdoor advertising industry compete with many forms of media for advertising dollars. Competing media include newspapers, direct mail, television, yellow pages, the Internet, wireless media alternatives, cellular phones and other forms of advertisement. In addition, radio and outdoor advertising also compete with each other.
Besides ad revenues themselves, Clear Channel's radio broadcasting division also competes for greater audiences, which are the source of the value of their ad spots. Competitors including other radio stations, Internet radio, satellite radio, digital media players like Apple's iPod, and mobile broadband services.
The top 10 players account for only 45% of the over $20 billion radio industry.
The following table shows Clear Channel's radio industry market share by 2007 revenues from radio operations.
|2007 Revenues ($M)||Market Share|
Source: Company Reports.
Streaming radio stations on the Internet allow people to access the programming of terrestrial radio stations. Internet radio has presented an opportunity for traditional radio stations to reach a wider audience and cut costs, and expansion into Internet radio has generated much of traditional radio's recent growth.
At the same time, it has also given rise to the competition of independent Internet-only stations like Pandora. In fall 2006, 12% of radio stations reported broadcasting 100 percent of their programming over the internet. The audience for nontraditional Internet-only radio stations has grown from 1% of those twelve and over in 2004 to 2.5% in 2006. In comparison, listening to AM/FM radio stations online accounted for 0.5% of total radio listening in fall 2006.
The nascent US satellite radio industry commands 3.4% of the radio market. The industry is currently divided up between two firms, XM and Sirius, with 9.0 and 8.3 million customers, respectively.
For a monthly fee, the satellite radio companies allow people at home or in the car to choose between dozens of channels of commercial-free music, news, and sports programming content beamed by commercial satellites. Because of the great geographical area that the satellite radio covers (versus a relatively short distance for terrestrial radio), the same programming is available across the US.
Due to their fixed cost structures and negative operating profits, on February 19, 2007 the two companies announced a merger in order to cut costs and allow for greater programming diversity. The deal is currently pending FCC and US Department of Justice approval.
Clear Channel is heavily involved in Ibiquity's HD Radio. Ibiquity has proposed a rule to the Federal Communications Commission regarding the merger of Sirius and XM that would have HD Radio capabilities built into all satellite radio receivers. Should this happen, it would make HD Radio more available to consumers, which would give entities such as Clear Channel a wider audience for their digital radio offerings.
On March 24, 2008 the U.S. Department of Justice issued approval for the merger between Sirius Satellite Radio and XM Satellite Radio. The merger now needs approval by the Federal Communications Commission.
With over 100 million iPods sold since their 2001 release, the continuing growth of portable digital music is a threat to traditional radio. Additionally, Apple has been partinering with major auto manufacturers to produce cars with iPod-compatible audio systems since 2005. These digital devices allow the iPod to compete directly with "in car" radio listening. A threat to both terrestrial and satellite radios, digital players like the iPod boast full portability, comparable hardware installation costs, and no subscription fees.
Mobile broadband services provide broadband internet access over wide areas and are capable of delivering service to cars at speeds of up to 75 miles per hour. The ability to access the Internet in the car will allow people to search for information and listen to Internet radio in the car, providing a perfect substitute for terrestrial radio.
Mobile wireless broadband services were launched in Korea in June 2006 using a technology called WiBro. In the US, Sprint Nextel has announced plans to launch a wireless broadband service in 2008.
In addition, Ford has now made available in car computers available which can connect to the Internet through regular cellular networks.
Clear Channel's ability to earn advertising dollars is influenced by many factors. Key business drivers are regulations, broadband internet access, economic conditions, key employee movements, radio station ratings, and political spending.
With the radio industry extensively regulated, decisions by Congress, the courts, or government agencies frequently affect Clear Channel's operations.
Radio broadcasting is regulated by the Federal Communications Commission under the Communications Act of 1934. The FCC has the power to levy fines, regulate station content, choose whether to renew operating licenses, issue new licenses, and limit radio station ownership. Broadcasting businesses depend on the renewal of eight-year broadcasting licenses issued by the FCC, while their market reach is limited by ownership rules.
The Telecommunications Act of 1996 overhauled US telecommunications laws, changing both the process for the renewal of broadcast station licenses and relaxing national broadcast ownership rules. National radio ownership limits were eliminated, while local radio ownership restrictions were eased. The easing of radio broadcasting ownership restrictions led to industry consolidation and a tremendous growth spurt for Clear Channel. Clear Channel has reached the maximum station ownership threshhold in all of the markets in which it is present. Any tightening of limits may force Clear Channel to divest stations, while an easing of regulations could allow Clear Channel to consolidate its market share.
The regulation of the outdoor advertising industry may limit the size, placement, taxation, and content of ads. For instance, US and EU regulations forbid outdoor advertising for tobacco products, once a significant source of revenues.
With campaign spending representing a significant source of radio revenues, campaign finance laws also impact business.
The Internet provides competition to radio companies both as an alternative source of news and entertainment programming and as a source of streaming radio services accessible at home or in the office.
Growth in Internet radio listening has until now been closely correlated with growth in broadband Internet access. With only 22% penetration in 2003, broadband still has much room for growth. This, in turn, may mean greater competition provided by streaming radio in the future.
Clear Channel's main source of revenue, advertising, is sensitive to the health of the economy. During economic downturns, radio is one of the first media to get cut from advertising budgets.
The ability of Clear Channel's radio division to generate revenues depends on its ability to draw an audience and garner strong ratings. The higher the ratings, the higher the more valuable advertising time becomes. Ratings, in turn, depend on the performance of certain key employees such as on-air personalities and program hosts of syndicated radio programs with a loyal fan base. Many have long-term agreements, while many are at-will employees. In addition, the popularity of these figures is subject to changing public tastes.
Spending on political campaigns is a cyclical but significant source of radio industry revenues. Industrywide political ad revenues reached over $280 million in 2006, a figure that represents only 8% of the total $3 billion in political advertising dollars spent in that year. The timing of political cycles, campaign finance laws, levels of political fundraising, and the ability of radio companies to compete with other advertising media in targeting desirable demographics all have a direct effect on radio revenues.