From the inestimable Jerry Del Colliano: a former employee of Cumulus Media is pursuing a class-action lawsuit against the company (common share stock price as of today: $2.55) alleging several violations of employment law. The suit is in the very preliminary stages now, but if any of Jerry’s other informants inside Cumulus (and other large radio conglomerates) can back up their “believe it or not” horror-stories, the company – and perhaps the entire industry – is in for some serious trouble.
A quick history recap: after the passage of the Telecommunications Act of 1996, the radio industry went on a station-buying binge. This led to massively inflated prices for stations across the nation. Flush with cash from investment banks, radio companies bought other radio companies, leading to a situation where less ten major broadcast conglomerates controlled some two-thirds of the industry’s total revenue.
While profits were phenomenal for a while, all that revenue was not enough to offset the massive debt incurred in the process of consolidation. Much like the housing bubble, when it began to set in that station valuations were simply untenable, radio companies had to write down their assets in a major way. Now their mortgages, so to speak, were underwater: to slash operating expenses, stations accelerated the trends of clustering, automation, voice-tracking, cuts in on-site engineering staff, and regional programming as a method to run more radio stations with less people.
This, obviously, has not worked out well. Clear Channel’s gone from private to public and back again, chucking more than 30% of its stations in the process; Viacom ditched Infinity Broadcasting, which is now CBS Radio; and Disney divested itself of the ABC Radio network and stations to Citadel, just to name a few examples. Those left holding the bag have turned to desperate measures to make a dime, as Del Colliano has been chronicling for some time now.
According to Jerry, “If this Cumulus class action suit gets legs, it could put a noose around the necks of consolidators who mishandled their human resources and ran afoul of employment laws.” Just how rampant these violations were/are might now be the real billion-dollar question.
Consolidation in the radio industry is already unwinding; many pundits thought the banks would make the most sweeping moves by calling in their paper. Perhaps the courts will do it instead, via the voices and stories of those the “consolidators” tossed aside and/or stepped on in their dash to first make mad bucks, and then save their skins.
That would be some justice.
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