Clear Channel Communications, Inc.
Clear Channel Communications, Inc.
200 Concord Plaza, Suite 600
San Antonio, Texas 78216
Fax: (210) 822-2299
Sales: $351.7 million (1997)
Stock Exchanges: New York
SICs: 4832 Radio Broadcasting Stations; 4833 Television Broadcasting Stations; 7312 Outdoor Advertising Services
A fast-growing, diversified media company, Clear Channel Communications, Inc., operates nearly 200 radio stations and roughly 20 television stations in 39 markets in the United States. The company acquired the bulk of its broadcasting properties following the Telecommunications Act of 1996, which lifted restrictions on national radio station ownership. During the late 1990s, the company was diversifying beyond the broadcasting business by acquiring billboards in major metropolitan markets. By 1997, the company ranked as the second-largest outdoor advertiser in the United States. In addition to its domestic radio and television stations, Clear Channel also operated broadcasting properties in New Zealand and Australia.
Early 1970s Origins
For L. Lowry Mays, everything changed in 1972. A graduate of Texas A&M University, Mays left Texas with a degree in petroleum engineering and entered Harvard University, where he earned a graduate degree in business. From there, it was back to Texas, where Mays settled in as an investment banker. It was a natural progression from his years at Harvard, but when two businessmen walked into his office at the small investment banking concern he was running in San Antonio, Mays’ life took a defining turn. The two men, both San Antonio professionals, asked the 36-year-old Mays for help in raising $175,000 to buy a struggling FM radio station named KEEZ. Mays agreed, and delved into researching the details of the radio business, demonstrating a thoroughness that would become one of his trademarks in later years. As preparations for the project were underway, the two businessmen backed out of the deal, leaving Mays with a headful of information about the radio industry. Mays pursued the investment opportunity on his own, enlisting the help of a local car dealer named B. J. (Red) McCombs, borrowing $175,000 from a bank, and purchasing KEEZ strictly as an investment. “I had no intention of getting into the broadcast business,” Mays recalled years later.
Nevertheless, he soon began to demonstrate the assiduous, hands-on type of management that would become another one of his defining trademarks. He and McCombs (whose later business achievements included acquiring the San Antonio Spurs professional basketball team) poured more cash into the station and changed its format to country music. At the same time, the partners expanded the station’s sales force and increased its promotion budget, with a focus on maximizing advertising revenue. Making money in broadcasting, Mays reasoned, required forging a close and profitable relationship with the advertisers whose dollars drove a radio station’s financial growth. Music format changes and programming adjustments were made, to be sure, but increasing cash flow by attracting advertisers was the chief concern. “Our whole philosophy, whether it’s radio or television,” Mays later remarked, “is that our business is selling automobiles, or tamales, or toothpaste. That’s our business: helping people sell Fords.”
Under Mays’s scrutiny, the floundering KEEZ was transformed into a profitable business within a year, and this success encouraged May to delve deeper into the broadcasting business. With the cash flow generated by KEEZ, Mays and McCombs purchased two radio stations located in Tulsa, Oklahoma, over the next two years. By this point, in 1974, Mays had already established the blueprint for Clear Channel’s future expansion. In the years to follow, he would acquire distressed stations in such mid-sized, second-tier markets as El Paso, Memphis, Louisville, and New Orleans, and bring them to profitability. Each acquisition candidate had to meet strict criteria before joining the Clear Channel fold, and, once added to the company’s portfolio of broadcasting properties, each acquisition was transformed by the same principles: the company’s sales force was doubled, its marketing activities were increased, and an emphasis was placed on attracting new advertisers. Mays rarely tinkered with a station’s programming format. Instead, all efforts were directed at the acquisition’s financial performance. “We want to be able to have both an immediate impact on the revenues,” Mays explained, “and an immediate impact on the expenses.”
1984 Public Offering Spawns Little Growth
Moving cautiously in the decade that followed the acquisition of the two Tulsa stations, Mays gradually added to his stable of radio stations as he learned the business. Developments in 1984, however, promised to usher in a new era of animated growth. In that year, the Federal Communications Commission (FCC) loosened ownership restrictions for radio and television properties, decreeing that companies could own up to 12 AM stations, 12 FM stations, and 12 television stations. Prior to 1984, the FCC barred companies from owning more than seven properties in each category. Mays and the rest of the broadcasting industry celebrated the news. “We knew this was going to be a trend, that these laws would continue to change,” remembered Mays. Preparing for period of energetic expansion, he took Clear Channel public in 1984, raising $7.5 million in an initial public offering. As expected, companies began acquiring broadcasting properties in earnest, swallowing up one after another to take advantage of the relaxed ownership restrictions; Clear Channel, however, stood by. Conspicuous by his absence from the acquisition frenzy, Mays was criticized by industry observers as a former investment banker who analyzed deals and then decided not to get involved. Mays later explained that Clear Channel’s inactivity was not due to a lack of effort or interest. “We looked at radio properties every day,” he said. “They just didn’t meet the investment criteria we set up. If you stick by your targets for return on investment, it will take you out of the market.”
In the wake of the 1984 FCC ruling, Mays made several acquisitions, but by 1987 his company was effectively out of the radio acquisition market. In 1988, when all radio acquisitions had been put on hold, Mays jumped into the television market, acquiring a station in Mobile, Alabama, that was an affiliate of the Fox TV network, which was just beginning its bid to become the fourth major network in the country. After acquiring the station in Mobile, Mays went on to purchase television stations in Tucson, Jacksonville, Tulsa, Wichita, and Memphis, each a Fox affiliate except for the Tucson property.
The foray into television broadcasting proved to be a financial boon for Clear Channel, particularly because of the success enjoyed by the Fox TV network as it developed into the country’s fourth major television network. Clear Channel issued a second stock offering in mid-1991, raising $25 million to pay for debt incurred in its late 1980s acquisition campaign, which had significantly strengthened the company’s financial stature. By end of 1991, the company’s 18 radio stations and six television stations generated revenues of $74 million and earnings of more than $1 million.
Early 1990s Expansion
Beginning in mid-1992, Mays changed course and began to acquire radio stations at a voracious rate, motivated by changing conditions in the radio industry. Companies that had acquired radio stations during the 1980s had paid high prices, and during the economic recession of the early 1990s many of those companies were saddled with debt and forced to sell. Consequently, the price of radio properties dropped dramatically, creating numerous opportunities for Mays. For the financial resources to wage an acquisition campaign, Mays relied on the guarantees of nine major banks, which totaled a hefty $150 million. By mid-1993, $110 million of the total had been used to acquire 31 radio stations and seven television stations in mid-sized Sunbelt markets, and Clear Channel had catapulted to the top of its industry.
In 1994 Clear Channel merged with a Tampa, Florida, competitor named Metroplex Communications. In 1995 the company leaped well beyond its established operating territory when it acquired a 50 percent interest in the Australian Radio Network. By the end of that year, Clear Channel owned 36 radio stations and 10 television stations, which represented a modest increase over the total number of properties it owned in 1993. The figures were deceiving, however, because they did not accurately convey the financial progress the company had made during the two-year period. Annual revenues between 1993 and 1995 exploded from $135 million to $244 million, while the company’s net income swelled from $9 million to $32 million.
Because of the strategy employed by Mays, Clear Channel exited 1995 in enviable financial shape and ready to take advantage of a momentous announcement by the FCC. The Telecommunications Act of 1996 lifted national radio ownership restrictions and eased local limitations, touching off a spate of acquisitions for those with the financial wherewithal to acquire broadcasting properties. Clear Channel was one of those companies in a financial position that permitted aggressive expansion and, in fact, was leading the pack. The Telecommunications Act of 1996 took effect in February 1996; by June, Clear Channel had acquired or was in the process of acquiring $581 million worth of radio and television stations. “They’re very savvy and they’re very focused,” one analyst remarked as Clear Channel grew rapidly during the first half of 1996. “All their acquisitions are great, and they have yet to trip up.” With 70 radio stations (43 FM, 27 AM) and 16 television stations under its control by June 1996 and 34 more acquisitions pending, the company had ample opportunities to make a mistake, but under the guiding eye of Mays, Clear Channel had moved resolutely forward and emerged from the mid-1990s stronger than ever. The company’s history of robust cash-flow growth and its discipline in acquiring stations for bargain prices had investors clamoring for more. Between 1990 and 1996, the company’s stock soared from $2.72 a share to a remarkable $73 a share, piquing Wall Street’s interest in what the company would do during the late 1990s.
By October 1996, clear Channel owned 121 radio stations and 11 television stations, making it the second-largest radio group in the country behind Westinghouse/CBS. As the company prepared plans for the late 1990s and the beginning of the 21st century, more acquisitions were in the offing. At the beginning of 1997, Mays had more than $1 billion at his disposal for future acquisitions and expressed no desire to slow down in the years ahead. “We’re the fastest-growing media company in the country,” Mays boasted to Fortune magazine. “We’re going to be the acquirer, not the acquiree,” he promised.
Clear Channel’s progress in 1997 set the tone for the company’s course of development in the future. In April, the company acquired Eller Media Company, the oldest and largest billboard operator in the United States with more than 50,000 outdoor display faces in 15 major metropolitan markets. In June, the company acquired a 32 percent interest in Spanish-language broadcaster Heftel Broadcasting Corp., which carried Clear Channel into major metropolitan markets for the first time. “We’re trying to consolidate the Spanish broadcasting industry itself,” Mays explained, as he formulated plans for developing clusters of Spanish-language stations. In October, the company made its next definitive move, signing an agreement to purchase Universal Outdoor Inc., which added 88,000 outdoor display faces to Clear Channel’s billboard holdings and made the company the second-largest outdoor advertiser in the country. On the heels of these forays into Spanish-language broadcasting and into billboards, Mays and the rest of Clear Channel’s management scanned the horizon for future acquisition targets, intent on building their company into a formidable giant.
Clear Channel Communications of Memphis, Inc.; Clear Channel Television, Inc.; Clear Channel Radio, Inc.; Clear Channel Television Licenses, Inc.; Clear Channel Radio Licenses, Inc.; Clear Channel Management, Inc.; Clear Channel Metroplex, Inc.; Clear Channel Metroplex Licenses, Inc.; Clear Channel Holdings, Inc.; Clear Channel Productions, Inc.; CCC-Houston AM Ltd.; CCR Houston-Nevada, Inc.; Clear Channel Real Estate, Inc.
Brockinton, Langdon, “Clear Channel Tunes in Billboard Business,” MEDIAWEEK, October 27, 1997, p. 20.
Poole, Claire, “The Accidental Broadcaster,” Forbes, June 8, 1992, p. 58.
Rathbun, Elizabeth, “Texas Size: Clear Channel Builds a Broadcast Dynasty,” Broadcasting & Cable, October 7, 1996, p. 56.
——, “Offering Follows Clear Channel Buying Spree,” Broadcasting & Cable, June 3, 1996, p. 44.
Roman, Leigh Ann, “Clear Channel’s Presence in Memphis Mirrors Nationwide Trend of Station Consolidation,” Memphis Business Journal, March 24, 1997, p. 49.
Serwer, Andrew E., “The Best Li’l Broadcaster in Texas,” Fortune, August 19, 1996, p. 26.
Viles, Peter, “Clear Channel: Sunbelt Success Story,” Broadcasting & Cable, July 5, 1993, p. 19.
—Jeffrey L. Covell