The Telecom Act 20 Years Later — David Pearlman & John Gehron

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In every issue of Radio Ink in 2016, we’re taking a look back at the 1996 legislation that changed the radio industry. The Telecommunications Act largely deregulated radio ownership, and the debate continues to rage about whether radio is better off as a result. To this day, some broadcasters think more consolidation is needed, while others believe deregulation ruined the industry.

David Pearlman (left) and John Gehron (below) were both in the thick of the action during the early days of consolidation. As co-COOs for Steve Dodge’s American Radio Systems (Pearlman founded the company with Dodge and Tom Stoner), they were part of the team that helped ARS grow from a very small operation to something CBS just had to have. CBS would purchase the company in 1998 for $44 a share, or $1.6 billion in cash plus the assumption of approximately $1 billion in debt.

John Gehron
John Gehron

RI: Randy Michaels said that when the Telecom Act was passed, it was either eat or be eaten (Radio Ink 4/18/16). Is that how you remember it?

Pearlman: Exactly. I called it “get big or get out,” because that’s how we really looked at it. We jumped on it. We had just gone public in 1995, so we had access to capital, we had very responsible credit lines. We were never highly leveraged.

More importantly, we picked very strategic markets to go into. At that time, it was markets that fit our criteria, between 10 and 50. We wanted to go in and create large clusters, manage them properly, and make them strong, local parts of the community. To do that, we made some very big acquisitions, first within the marketplaces where we were, in Baltimore, West Palm, Boston, and Hartford. Then we made one very important acquisition — it was our biggest purchase — EZ Communications. I think it was valued at $655 million. It gave us more markets, lots of density inside the markets where we were, and it positioned us to expand in a responsible way.

Gehron: It reminded me of those old Western movies, where in Oklahoma they lined up all the farmers with their wagons and they would shoot off a gun and it was a mad rush to get to their 20 acres of land or whatever they could block out. That’s the way it was in radio. Who can get there first?

The key was making sure you got there first, but more important was getting the right stations. We always went into a market and tried to get strong, anchor radio stations. We were very good at improving facilities, signals, people, and formats, and we built around those key radio stations.

One of the most exciting periods was when Greg Strassell and I went into Las Vegas. We bought a bunch of stations there, and we were able to change the formats at two stations in one day. To be able to pull that off, with the knowledge that we had and the resources that we had, it was just a very exciting time. Each time we added radio stations to our company, we were adding people, and we were very good at using those people to help us to the next level. Everybody in the company felt very involved in everything that we were doing, because nobody really was left out.

RI: Talk about how American Radio Systems grew once the act was passed.

Pearlman: When we first formed American Radio, we were at 16 radio stations. We then made a jump, doubling that, and, ultimately, after the EZ purchase, that’s when we got to 98. What’s interesting about all of this was the regulatory climate at that time. We were going into Rochester or Hartford or Boston, where our shares from an audience point of view, and a revenue share point of view — even having less than the allocated potential eight stations — were knocking on the door of the limits the DOJ would like to see.

So as we continued to grow, it sometimes became problematic when we wanted to do deals because we couldn’t add in certain markets, because of those limitations. We would end up trading with other companies, and there were a whole host of those. To answer your question directly, we went from a couple of dozen radio stations to 96 across 23 markets. We grew from a startup company to what became the fourth-largest radio company in the United States.

RI: Steve Dodge came to you at some point and said, “We are talking to CBS, and we are going to make a deal.” What was going through your minds at the time?

Gehron: Boy, that was a tough one, because you get caught up in the momentum of what you’re doing and you don’t even think about that as an option. You’re so busy out in the field. David and I, and later Don Bouloukos, we were out making things happen, making sure our people had the things they needed, the direction they needed.

So when it’s suddenly like the plug is going to be pulled, you have to kind of step back for a moment and take a deep breath. But at the same time, we realized that you’ve got to continue to grow, and the opportunity to grow was starting to become limited, with what was available. It was time to make that next move so we could get additional resources and become part of a bigger platform.

Pearlman: Also, it wasn’t a total surprise to John and I, because we were part of the board and part of the discussion — not only with CBS at that time, but we explored some other strategic companies that we could maybe strike a deal with. At that time, CBS was very centered in the top 10, with some other scattered markets where we competed against them — St. Louis, Pittsburgh, Boston. If you put those two companies together, from a size perspective, in terms of stations, we brought two-thirds of what CBS ultimately became, which was then an incredible broadcast company in markets that were cream of the crop, markets  one through 45.

It made sense, and when you looked at it on paper, certainly Mel [Karmazin] and Farid [Suleman] at that time, who were making that financial decision, it was an easy one for them to make; in one swoop, they became the top stations in markets that it took us out of, because we were beating them in a lot of places. We also ended up being part ofa larger organization with much more clout. And we were limited at that point strategically on how we were going to get to the top 10, because that was our next obvious move.

RI: Looking back now, 20 years later, was the 1996 Telecom Act good for radio?

Pearlman: I think it was good in the beginning because it jump-started the industry, going from a bunch of what ultimately would’ve been shaky independent owners into a more realistic business environment, where consolidation could play a key role in pulling together the industry and growing the industry. We kind of went from an intramural game to a more outward media-driven league. And it also allowed us to attract capital and create the kind of dealmaking that ultimately led to where we are today.

However, I think along the way, the industrylost sight of what’s made it great —  that is, local content. What really is troubling to me, as I look at the industry in 2016, is that the deep research projects, creating the next great morning show, doing terrific outside marketing, selling the medium of radio, is not done to the fullest. It’s too overleveraged in the deals with the financial community, and with the lack of double-digit growth and the loss of the go-go feeling it had in the past, it’s sent everybody into a spiral to hunker down and not spend a dime.

I always remember that when I was a general manager at Group W, I had the ability, as a local manager, with just moderate corporate approval after a budget was made, to spend, believe it or not, $99,000 without getting total approval up the line. I don’t think you can spend $99 today without having 17 signatures on it. There are pockets of companies and great broadcasters in the field — the Hubbards of the world, the Entercoms of the world — but the financial strife facing iHeart and Cumulus specifically has put a cloud over the whole industry and makes it very difficult for everyone else that’s in it.

As you look to the future, we have to go where the listeners are. We have to give them the content they deserve. And the highway to get there is not only over the airwaves, but it’s digitally, whether it be your smartphone or your desktop or your connected car. This is a great business. It’s a wonderful medium for advertisers and partners in promotion to be part of. Most importantly, it’s a big part of everybody’s lives. They are just using it differently, which is OK. You have to adapt. But, without the farm system of morning shows, I wonder where the next Ryan Seacrest is going to come from, or Matty Siegel or John Lander, or Gary Craig or Steve Rouse. We don’t have, in markets across the country, the locally driven content type of programming that John and I were so passionate about.

Gehron: When the rules changed, I was a big fan, for two reasons. One is, I saw all of our clients, all of our advertisers, the people we do business with, consolidating. Banks were consolidating, airlines were consolidating, advertising agencies. So all the people we were doing business with were consolidating, and if we didn’t go from being a mom-and-pop business to a big business, it was going to be hard to compete with those kinds of people and do business with them with any kind of leverage. So I thought that was a benefit of getting larger.

I also saw it as an opportunity to take the strengths within the stations that we combined and use the skills of the people and the revenues and everything else to do an even better job in those communities. Use the people across all of the radio stations. Use the marketing dollars and spread them where you needed to do things. Not by cutting, but by expanding what you were trying to do. So I saw it as a way to grow the upside of the business. Unfortunately, over time, we got overleveraged, and we went into a recession and it caught people short.

So, in order to survive, the two biggest companies out there, Cumulus and iHeart, are having to continue to cut. At some point, there is nothing more to cut. I just did a road trip from Florida back to Chicago, and as I am driving through these small towns, in many areas I’m hearing station after station that had no identity. If it weren’t for the commercials or the top-of-the-hour ID, I wouldn’t know where the station was from. I didn’t hear talent on the air. All I heard were segues and all this production between songs. I think radio stations have lost their connection, in many cases, to their community.

There are many people out there still doing wonderful things in radio, and thank God they are because that’s what I think, in many ways, is keeping the business going. But it’s somewhat disappointing to hear the lack of involvement and the lack of enthusiasm on the air.

The other thing, when you look at digital, broadcasters have been slow to embrace it. I remember when, if you had an FM standalone station, you couldn’t be a member of the NAB. It had to be an AM and an FM. Then we had the opportunity to bring satellite radio into the radio tent, and we didn’t, we fought it off. There’s the royalty issue now that radio might have been able to change, but they ignored it. Now they’re playing catch-up, and I just hope that they use all the distribution channels that are out there instead of thinking their towers are the answer.

2 COMMENTS

  1. Amen to Micah’s remarks. The TCA was regretted by many prominent Democrats (I’m told Joe Lieberman is among them) as soon as it became apparent that Republican-owned corporations and zealots were up to no good by gutting news departments and getting rid of local news altogether in some cases. The end result was a homogenization of right-wing programming that continues to this day. And yes, I was a victim of that downsizing frenzy after working for nearly 20 years at WTIC-AM in Hartford. But money talks when you’re parlaying a relatively small investment into something much bigger. Employees are simply collateral damage.

  2. TCA killed the small, unique markets that were the actual heart and soul of American radio. In its basic form TCA turned loosed great piles of investment capital (as the two men here represented) into large scale purchases forming temporary ‘fake’ networks. Those were then polished up and sold to large companies who were eating up these pre-packaged bundles by the truckloads. Eventually most of the major stations in mid to large markets were part of these groups. Many have since been resold and even re-bundled and sold several more times. TCA showed that the best way to make a mint in American business was to find a Democratic President anxious to deal and make money while in office to write new laws breaking the spirit of American media which could then be used to establish monopolies in the market. As of today radio is a slag heap of vapid sameness, broken only by weird reorganization of vested monopolies. One can actually listen to Sports radio stations in Washington, DC and Baltimore, MD and not notice much difference. And so on…

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