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Looking At The Ramifications Of The Cumulus/Entercom/EMF Deal Part 1: The Corporate Level

Cumulus Entercom EMF Educational Media Foundation K-Love WPLJ WRQXIt is very rare in this age for a radio deal of this magnitude to come out of nowhere. Considering that EMF and Cumulus had agreed to their terms in December with the escrow payment deposited on New Years Eve and not even a rumor of a possible deal leaked until the press releases were sent just after 4:00pm yesterday.

This is a deal that will continue to have shockwaves for the next year as it sets the table for plenty of future deals as we see the future of Cumulus Media take shape. In this part we will look at the deal on the macro level of how it effects the three companies involved, in part 2 we’ll examine the effects on the local markets in the deal.

Cumulus

This deal completely changes the trajectory of Cumulus. Lew Dickey’s assimilation of Citadel gave the company smallish clusters in major markets without the scale to compete against their larger competitors. By no means were these clusters failures, but as the former ABC Radio stations succumbed to poor programming decisions and the exodus of listeners from their former powerhouse AM stations it left stations that were expensive to operate without the economy of scale that iHeartMedia and Entercom have built.

Ripping the bandage off and deciding to depart New York City, Washington, and perhaps a few additional markets as other deals are finalized was a necessary evil. In a video to employees after the deal was announced, Mary Berner told employees that Cumulus will use the proceeds to pay off more of its $1.1 billion debt remaining following the bankruptcy restructuring and strengthen its position in Indianapolis by combining their cluster with Entercom’s giving them the strongest in the market.

The next steps will likely include the divestiture of the remaining stations in New York, Washington, and other former ABC Radio markets where Cumulus has not scaled up. Los Angeles and Detroit quickly come to mind and chatter of possible buyers for those markets has already started. A particular cog to figuring out the new Cumulus’ motives could be KRBE Houston. While not one of the former ABC markets, the standalone Top 40 has proven to be profitable to operate but does not offer the cost savings provided by having a large cluster.

It is that economy of scale that could lead to Cumulus combining with another operator? With Cox Media Group’s radio operations expected to be sold once it finalizes its sale of television could a Cumulus with a slightly better balance sheet make a play for some very strong markets? Outside of Atlanta and one station in Houston (where KRBE would be a great combination with the powerhouse Cox cluster), no divestitures would be required while giving Cumulus a stronger portfolio. Or is a group focused in medium sized markets like Alpha or Townsquare a fit for the new Cumulus?

Educational Media Foundation

The steamroller just keeps on rolling. And at this point it has to.

As we first wrote in September 2017 following the acquisition of KSWD Los Angeles, the EMF business model is predicated right now on sustained growth. There are tax advantages to reinvesting the money that comes from their donations and constant growth leads to more donations and the ability to invest more in acquisitions. EMF’s method of national programming also keeps operational costs down.

By adding New York, Washington, Atlanta, and San Jose in one fell swoop, EMF eliminates many of the major market gaps in the “K-Love” service that will lead to a large increase in listener support to the organization and they now have enough critical mass signal-wise with the additions of Los Angeles and Chicago in the past 18 months to build the brand into other verticals.

Seeing 96.7 WKLV-FM Port Chester get nearly a one share with a signal that covers less than half of the market tells EMF there is an audience for their product even in New York City. The 106.7 Atlanta signal is based in a Gwinnett County area ripe for the picking. Washington DC may be a harder battle with 91.9 WGTS firmly entrenched in the Christian AC

There are still a few big markets where EMF has yet to get a full-market signal for K-Love like Boston, Dallas, and Houston that at this point has to feel inevitable. The question then becomes what happens after they’re in every big market and still need to reinvest in donations for growth?

Entercom

Entercom’s pieces of the puzzle are much smaller but very consequential.

With the acquisition of WNSH and Cumulus divesting WPLJ, Entercom has become the dominant broadcast radio player in New York City. They are the only group with both 5 FMs and 3 AMs all of which are still successful. iHeartMedia is the only other group with the full contingent of 5 FM signals. While the WNSH signal move is still not a perfect solution, it will increase the station’s reach into Long Island, and may be a stopgap on the way towards resolving the blocking of WWSK keeping it from going to the Empire State Building.

Entercom also becomes a major player in Springfield MA where market leading WMAS-FM and WHLL join their 105.5 WWEI and its simulcast of WEEI Boston. The signal downgrade will not effect WMAS’s coverage of Springfield proper.

With only 2 FMs and 1 AM in Indianapolis, Entercom was not going to be able to scale up. So eliminating the operations cost in one market allows the company to improve its standing in two more.

Nationally

The big brewing story through the rest of 2019 is going to be deregulation and eliminating direct AM/FM competition in markets. This deal shows how some commercial operators are willing to help consolidate through the current rules by divesting commercial stations to non-commercial operators like EMF.

New York and Washington will each be down to three english language targeted clusters once Cumulus winds down operations there. Indianapolis drops from five to four with this deal. It also shows why companies like Cumulus continually are willing to take potentially lesser money selling these stations at stick value as opposed to trying to find a buyer who will try to invest into a commercial operation or even having one willing to invest in an FM operation these days. If five or ten years ago I said that you could buy a multi-station cluster in New York City there would be a line of bidders with money in hand to escalate a bidding war. Those days are over.

Tomorrow – how the deal will effect each market.

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12 Comments
  1. Eric Jon Magnuson says


    Regarding EMF, I’ve been wondering why it overhauled Air1: Did it feel that a Worship-based playlist would present better opportunities for growth, or did it need to deal with a declining performance for that brand? (Of course, those aren’t mutually exclusive.)

    1. borderblaster says


      I really believe it has a lot to do with the growth of the “nones” (younger people who claim no religious affiliation, let alone conservative Evangelicalism). The younger folks aren’t donating, so EMF refocuses on playing to the choir (or the praise band).

  2. johndavis says


    I don’t know what their metrics are, but I’m told that their research told them that worship is where it’s at for their target audience for Air1. To my ear, they’re aiming for women 18-34, and the billboards and imaging are really dialed in to the demo.

    1. Eric Jon Magnuson says


      I think you’re right about Air1’s current target demo. Still, I get the feeling that EMF deliberately shifted the target, in relaunching that brand (maybe including by skewing a bit older). I’m not sure myself, but I do think that BB (above, and in previous comments) is on to something about potentially decreasing donations.

  3. Theater of My Mind says


    Lance wrote: “The EMF business model is predicated right now on sustained growth. There are tax advantages to reinvesting the money that comes from their donations and constant growth leads to more donations and the ability to invest more in acquisitions. ”

    It’s also a business model that’s driven by the agenda of evangelical Christian conservatives who feel it’s their mission to saturate the nation with their religious messaging. So, what happens once they’ve achieved this with their flagship, K-LOVE? Well, they’re already maneuvering to do it all over again with Air1, aren’t they? Then I believe K-LOVE Classics is on deck, and then they’ll come up with another evangelical format, and then another, and before you know it EMF will be the biggest cluster owner in every market.

    They’ll be able to do this because, as Lance points out, this company is tax advantaged in a way no commercial operator can be, and they must reinvest that tax-free money since they’re not legally supposed to make a profit. They also have super-low operating expenses since they eliminate all the jobs whenever they take over a station, and then run those stations as unstaffed repeaters from their centralized satellite operation. By putting two thumbs on the scale like that, no wonder EMF is able to outbid everyone else for the best signals in every town.

    This is what the demise of a radio band looks like. We’ve seen it every time the religious broadcasters have moved in — first with shortwave, then the AM band, then with the encroachment of FM translators and now an all-out assault on heritage FM signals. And yet I see people on this forum and elsewhere celebrating what “shrewd operators” EMF are, and what a wonderful service they provide. Well, the political implications need to be called out: I have observed that a lot of EMF’s cheerleaders are conservatives who applaud this sort of evangelism and have no problem with an organization whose mission is obviously to convert people. And when EMF expands onto the best FM radio signals in every market in America, their growth won’t just come from individual donors but, inevitably, from conservative political organizations willing to donate lavishly as part of their pro-life, anti-LGBTQ, evangelical Christian conservative influence operations. Radio has already become a disproportionately conservative medium but EMF is poised to take it to the next level, just watch.

    As a lifelong radio fan, I find this profoundly disappointing. EMF is leveraging a thoroughly unlevel playing field to plunder the commercial FM broadcast band right under everyone’s noses, and it will NOT end with one K-Love signal per market. The FM radio dial as we’ve known it is under attack, and as long as EMF is free to operate as a so-called non-profit organization with coffers overflowing with tax-free cash that needs to be spent in an increasingly deregulated market, there’s nothing anyone will be able to do to prevent their ultimate takeover of a large swath of terrestrial FM radio.

    1. johndavis says


      While it is true that there is a religious operator who has assembled a national network of stations, some of which are heritage signals, which actively promotes a conservative political agenda – that one is a commercial operator (Salem).

      EMF steers clear of politics. So I’m not sure if I’m reaching the same conclusions that you are in your rant.

      We live in a free market. If you think the FM dial is under attack, go buy a station or two and build a better mousetrap.

      The way I see it, EMF is successful because they do good radio and they don’t cut corners. They build good technical plants. They do audience research. They know who they’re talking to and how to reach them. Any broadcaster who wants to succeed needs to do these things, no matter what content they broadcast.

    2. Eric Jon Magnuson says


      I concur with Mr. Davis: To conflate EMF with other “religious broadcasters” really, really oversimplifies things. EMF, Salem, American Family Radio, Immaculate Heart Media/Relevant Radio (which arguably also is on some “heritage signals”), et al., have different programming approaches, different goals, and different business models–some of which are a lot “better” than others. And, this comes from someone who also has huge issues with the increasingly nationalistic political views of many of the Talk hosts. (I might be libertarian-leaning enough to consider those hosts to not be truly “conservative”.)

      1. Theater of My Mind says


        It’s really not possible to argue that EMF steers clear of politics. Their stated mission is to “encourage our listeners to have a meaningful relationship with Christ,” which by definition means they work to influence people’s beliefs which in turn goes toward shaping public policy.

        I’ve heard K-LOVE and their banter on air. Sure, it’s a soft-sell wrapped in a music and entertainment presentation, but it’s entirely focused on promoting EMF’s conservative Christian values. They may be the “carrot” to Salem’s “stick”, but this is still an organization that is mission driven. And the evangelical’s mission always includes influencing public policy as detailed above.

        So yes, it is the further conservatization of the radio medium. EMF will attract lots of money from political operatives who oppose things like Planned Parenthood and a woman’s right to choose. Even if the conversations on K-LOVE aren’t explicitly about that, the underlying message is. Nearly every EMF takeover represents the loss of broadcaster focused solely on entertainment, replaced by one that operates with an agenda.

  4. Les Talk says


    My main concern, other than the lack of local programming, job loss or lack of public service to the license area, is the diminishing lack of places for businesses to advertise. Let’s say deregulation occurs. Salem purchases half of Iheart stations, K-Love/EMF purchases the other half. That would leave Entercom as the only non-religious group in many markets. Not just smaller, but major ones as well. Laugh at that scenario? Don’t. It very well could happen and there is nothing anyone can do about it if deregulation of ownership occurs.

    Say I own a business who wants to advertise on a secular, mainstream, English-speaking programming station. I don’t want to advertise on Salem’s commercial stations because I don’t agree with their platform. Entercom could charge as much as they want because they are the only one left in the market (in the scenario above). The local TV media is owned by Sinclair, and one of their shell companies. So there is only one option in TV. And newspaper? Who reads newspapers anymore? I might as well advertise in the yellow pages.

    And let’s also add the smaller religious broadcasters that want to flip smaller market stations to non-comm. Think that can’t happen? Take a look at a market like Morgantown/Clarksburg WV where the West Virginia Radio Corporation owns 100 percent of the 50K powered FM stations. They get away with owning numerous other lower powered ones because they are licensed to a “trust”. The market lost its only a/c station owned by the local TV station to a non comm religious operator (not K-Love.) What would happen with deregulation here? The market is already inundated with low powered, full powered, and let’s not forget AM religious stations. And, if West Virginia Radio Corporation could purchase the LHTC stations (the other “major” owner in town), you would only have one operator in the market. They would have no reason to play a shell game ownership. They could in effect own every FM station in the market. They could basically dictate the price of every sporting contract, local/national agency buys, etc. Local businesses would have no choice in where to advertise on radio.

    How is this being allowed? If Walgreen’s were to purchase every single drugstore in the US – CVS, Rite Aid, independent pharmacies… all go under Walgreen’s pricing and control. Wouldn’t you think there would be an anti-trust suit? Has radio become such a 4th rate form of media, that nobody cares?

    It’s sad to say when a religious operator goes on a buying spree like K-Love just did, I believe this may be very well true. Could the future of non-religious radio be internet only stations serving a local area? Take a look at oWow radio in Cleveland for an example. How many sporting contracts are now app only? No terrestrial radio at all.

    Think about it folks. This is seriously the end of the FM radio dial as we know it. This is only the beginning.

  5. Nathan Obral says


    Another market that stands out is Chicago. Cumulus only has three stations… two are reliable and durable FMs (WLS-FM and WKQX) and a faded AM with practically no ratings (WLS), plus the IP of an FM signal they previously LMAed (“The Loop,” retained after WLUP was spun off to EMF by Merlin Media).

    Muddying up the waters further is Nexstar, they are unloading WGN 720 as part of their purchase of Tribune. And then there’s Univision with their financial issues (and the curious domain registrations made shortly after WLUP went bye-bye)…

    1. Lance Venta says


      Here’s the difference with Chicago.

      Cumulus has just invested a lot of money in that market. They bought WKQX outright. They built brand new facilities at the NBC Tower. That is sunken cost that won’t be recouped in a sale. It doesn’t make financial sense to sell Chicago.

  6. Michelle Bradley/REC Networks says


    Remember too, EMF does not pay a dime of regulatory or FCC filing fees for any of these stations.

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