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