Katz Media Group, Inc.

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Katz Media Group, Inc.

125 West 55th Street
New York, New York 10019
Telephone: (212) 424-6000
Fax: (212) 424-6110
Web site: http://www.katz-media.com

Wholly Owned Subsidiary ofAMFM Inc.
1888 as E. Katz Special Advertising Agency
Employees: 1,800
Sales: $2.6 billion (1999 est.)
NAIC: 541840 Media Representatives

Katz Media Group, Inc., a giant in the media representation industry, has a long history that dates back to the 1880s and the very beginning of media representation. It has been at different times a private family-owned business, an employee-owned company, a management-owned company, a publicly-owned company, and a wholly-owned subsidiary. Its parent company, currently known as AMFM Inc., is the largest out-of-home media corporation with ownership of more than 800 radio stations, 19 television stations, and 425,000 outdoor advertising displays. Katz specializes in representing electronic media, including radio stations, cable TV systems, and broadcast television stations. It also has a sports marketing division to represent sports teams and venues. One of its subsidiaries, Katz Millennium Marketing, is dedicated to selling advertising on Internet web sites and other interactive media.

Origins Representing Newspapers: 1888-1930

Katz Media Group can trace its history to the 19th century and the very beginning of the media representation business. The completion of the transcontinental railroad in 1869 enabled manufacturers to sell their products nationally, and the concept of a national brand was born. To develop their brands nationally, manufacturers needed to advertise them in different cities across the country. For the most part, they were unfamiliar with the newspapers and other advertising media in these new markets where they were now selling their products.

Seeing an opportunity to represent advertising media to manufacturers interested in establishing a national presence, Emmanuel Katz, an associate of newspaper publisher William Randolph Hearst, moved from San Francisco to New York to persuade New York-based advertisers to buy ads in Hearsts San Francisco newspapers. The venture proved successful, and in 1888 Katz established the first media representation firm, called the E. Katz Special Advertising Agency, on New Yorks Park Row, with the Hearst newspapers as its first client. In 1912 George R. Katz, Emmanuels son, merged his Chicago firm with his fathers New York agency. The company soon added offices in San Francisco, Atlanta, Kansas City, and Detroit.

Moving onto Radio and Television: 1930s-70s

In the 1930s the Katz Agency expanded its client list to include radio stations, which were then a new advertising medium. The company remained profitable during the 1930s and 1940s, representing newspapers and radio stations. With the advent of television in the 1940s, the Katz Agency signed up its first television clients in 1949.

From the early 1950s through the early 1970s, the Katz Agency was headed by Eugene Katz, grandson of founder Emmanuel Katz. He had joined the firm in 1928. In 1962 the agency stopped representing newspapers in order to focus on representing electronic media. The agency was organized into two groups, Katz Television and Katz Radio.

An Employee-Owned Company: 1970s and 1980s

In 1972 Katz adopted an Employee Stock Ownership Plan (ESOP). After being a family-owned business for 84 years, the company was sold to its employees for about $3 million. In the mid-1970s Katz was involved with several money-losing subsidi-aries and representation ventures. It had an interest in a cable TV system; it collected accounts receivables for television stations; it had an outdoor advertising business; and it represented advertising in the New Orleans Superdome. All of these were losing money when new financial management was brought in; Dick Mendelson was hired by Katz chairman and CEO Jim Greenwald as chief financial officer in 1975.

Mendelson concentrated on divesting the money-losing operations while at the same time making strategic acquisitions. In 1976 Katz began its in-house data processing operation, Media Data, which later became an important sales tool by providing online computing services to the radio and television stations that Katz represented. In 1982 Mendelson became president of Katz.

In the mid-1970s Katz reorganized its television group into two divisions, Katz American and Katz Continental, to serve the different needs of large and small markets. In 1980 Katz acquired Field Spot Sales and formed a new division, Katz National, to represent independent television stations and, later, Fox affiliates. In 1983 Katz acquired the in-house representative for Metromedia television stations, Metro TV Sales.

Katz Broadcasting was formed in 1981 when the company purchased four radio stations from Park City Communications for $16 million and another station in Tulsa, Oklahoma, for $3 million from Curtis Communications. By 1986 Katz Broadcasting owned and operated 11 radio stations, which were then sold to an employee group headed by the president of Katz Broad-casting for $68.3 million.

During the 1980s media representation firms were consoli-dating. Katz Radio acquired two major competitors, Christal Radio and RKO Radio Sales, in 1984. At the time Katz Radio had about $130 million in annual billings, Christal about $70 million, and RKO $20 million. Katz paid an estimated $18 million for Christal and $3.5 million for RKO, which was renamed Republic Radio. Both companies would continue to operate as independent subsidiaries of Katz Communications Inc., as the company was then known.

In 1987 Katz Radio acquired another competitor, Blair Radio, which was renamed Banner Radio. For fiscal 1987 Katz Communications had annual billings of about $1.2 billion for its 200 client television stations and nearly 1,300 radio stations. The company had about 1,300 employees. Between 1975 and the end of the 1980s Katz had tripled in size. It had 65 sales offices across the United States.

In the late 1980s the media representation business suffered a downturn, especially in national TV spot advertising. The standard 15 percent commissions in some cases fell as low as seven percent, due to intense competition for station clients. While the industry had enjoyed double-digit revenue growth for most of the 1980s, national spot TV revenue was projected to be flat or increase by three to five percent for 1989. At the end of the decade Katz had about $1.5 billion in total revenues, about two-thirds of which were national TV spot billings. The company represented 197 local TV stations and 1,400 radio stations. The Katz Radio Group and its primary competitor, The Interep Radio Store, accounted for an estimated 90 percent of national spot radio advertising.

New Opportunities in Cable and TV: 1990-94

Through a leveraged buyout, Katz was purchased in 1990 by an investment group consisting of senior management and other investors. During the year Katz Radio acquired Eastman Radio from Jacor Communications for $11.75 million, making the Katz Radio Group the largest billing radio representative.

At the end of 1991 Peter Goulazian, formerly president of Katz Television Group, succeeded James Greenwald as the CEO of Katz Communications. Goulazian also became president of the company, a post that had been vacant for two years following the departure of Dick Mendelson. Greenwald remained as chairman.

Katz began representing cable TV stations in 1991, when one of its broadcast television clients began operating a regional cable news channel. It formed Katz Cable Sales, which sought to represent the Hearst Corp.s New England Cable News channel as well as Time Warners planned New York City cable news channel. By the end of 1991 Katz was representing an all-news cable channel in Washington, D.C., and negotiating with other cable systems. In January 1992 Katz announced it would represent Multimedia Cablevisions Wichita, Kansas, cable system. In February 1992 Katz acquired a minority interest in Cable Media Corp., a Detroit-based cable advertising representative that represented a regional sports cable network, among other clients, together with an option to acquire a 100 percent interest in the company. In June 1992 Katz merged its Katz Cable Sales into Cable Media, which began to expand nationally by opening offices in New York, Chicago, Dallas, and Los Angeles. Cable Media would represent all of Katzs cable TV advertising, while cross-media advertising packages involving a combination of cable TV, radio, and broadcast television would be handled by Katz.

In January 1992 Katz Communications acquired Seltel International Inc., a competing television representative, for about $15 million. The acquisition added 120 TV clients and gave Katz more than 320 client TV stations. In some markets Katz would represent competing stations. Seltel would continue to operate as a separate subsidiary until it was merged with Katz American Television to form Millennium Sales & Marketing.

A public filing for a proposed $100 million debt offering revealed that Katzs 1991 revenues had declined 5.9 percent to $117.5 million, due in part to an economic recession and the Gulf War. The company had 1,600 radio clients with a total of $500 million in billing, about 45 percent of the industry total. Katz also had about 300 TV clients with billings of $1.2 billion, or roughly 25 percent of the industry total.

Company Perspectives:

Katz Media Group, Inc., headquartered in New York City, is the only full-service media representation firm in the United States serving multiple types of electronic media, with leading market shares in the representation of radio and television stations, cable television systems and networks of broadcast related Internet Web sites.

In 1993 Katz Radio Group established another independent division, Katz Hispanic Radio, to represent Spanish-language radio stations. In September 1993 Katz Hispanic Media began representing the seven radio stations owned by Spanish Broadcasting System. The Hispanic radio market continued to grow in the 1990s, and by 1998 Katz had gained exclusive representation of Heftel Media Broadcasting Corp.s 34 stations. Katz Hispanic Media claimed to represent a 50 percent share of the Hispanic radio ad market with nearly $100 million in 1997 billings.

Katz also expanded internationally in 1993. Katz and London-based International Media Sales formed Katz International Ltd., with headquarters in London, England, and other offices Frankfurt, Germany, and Paris, France.

Ownership Changes: 1994-2000

Toward the end of 1993 the two investment firms, Sandier Media Partners and 61 K Associates, that together owned about half of Katzs privately-held stock, hired investment firm Lazard Freres to review their options. In January 1994 Katzs management received, and subsequently rejected, a $250 million buyout offer from the Dallas-based investment firm of Hicks, Muse & Co. Later in 1994 Katz announced it was considering making an initial public offering (IPO) of stock.

Katzs plans for an IPO were put on hold when Donaldson, Lufkin and Jenrette Securities Corp. (DLJ), through its investment fund DLJ Merchant Banking Partners Inc., acquired a majority interest in Katz in July 1994. DLJ agreed to pay $99.6 million in cash and assume Katzs outstanding debt of $187 million, bringing the value of the deal to $287.1 million. DLJ purchased all of the stock in Katz held by Sandier and 61 K Associates, making Katzs senior management DLJs only partners in the investment. DLJ ended up with about 80 percent of Katzs common stock. Katzs annual billings were estimated to be $2 billion. Tom Olson, president of Katz, replaced Peter Goulazian as CEO. Katzs new chairman would be replaced by DLJ Merchant Banking Partners managing director Thompson Dean. Around this time the company changed its name to Katz Media Group Inc.

Also in 1994 Katz merged its cable sales group, Cable Media Corp., with National Cable Advertising to form National Cable Communications, the single largest cable rep firm in the United States.

In March 1995 Katz gained the national representation con-tract from Chris-Craft Industries for its eight-station group, United Television Inc. Katz and Chris-Craft set up a new unit, United Sales Enterprises, dedicated to selling only the United stations, which billed about $185 million annually.

Katz completed its IPO in 1995, and for the first time in its 108-year history it became a publicly owned company. The company planned to offer 5.5 million shares at $16 to $18 per share, or about 28.7 percent of the firms common stock. Also in 1995 Katz formed Katz Millennium Marketing, a rep firm dedicated to selling advertising on Internet web sites and other interactive media.

With $1.6 billion in annual billings, Katz was ranked the third-largest media representation firm, behind Cox Broadcasting Corp. at $2.1 billion and Petry Media with $1.8 billion, according to Broadcasting & Cable. With the consolidation of radio and TV station ownership, many owner groups were considering opening their own in-house advertising representation agencies.

Early in 1997 Seltel split into two divisions, Republic and Capitol, to improve service to clients. Each new division included stations from markets of varying sizes. Later in the year Katz put Seltel and the Katz Television Group under a single executive, although the two companies would remain separate. Katz National Television, which represented independent stations, was folded into the Katz Television Group.

In July 1997 Katz became a wholly owned subsidiary of radio station owner Chancellor Media Group. It was sold to Chancellor for $373 million, including $155 million in cash and $128 million in debt. Chancellor Broadcasting and Evergreen Media Corp. had just merged to form the Chancellor Media Group, which owned or operated 98 radio stations in 21 U.S. markets. The acquisition caused concern among some radio station owners that were represented by Katz in markets where there were also stations owned by Chancellor. Most of the stations owned by Chancellor were already represented by Katz. At the time of the sale Katz had estimated gross billings of about $2.6 billion in radio, cable, and broadcast television, making it the single largest rep firm.

When Chancellor made its takeover bid, Katzs stock had fallen from its IPO price of $16 to $4.50 per share. The company had failed to meet Wall Streets earnings expectations, due in part to ownership consolidation of radio and television stations. Through a tender offer that was completed in November 1997, Chancellor offered $11 a share, a price agreeable to DLJ, which owned 49 percent of the company. Katz management indicated that it believed an alliance with a media company was necessary for the companys long-term well-being and stability. Tom Olson would remain as president and CEO of Katz and report to the head of Chancellor Broadcasting.

Key Dates:

Emmanuel Katz establishes the first media representation firm, the E. Katz Special Advertising Agency.
The Katz Agency begins to represent radio stations, a new advertising medium.
The agency begins representing television stations.
Katz becomes an employee-owned company.
Senior management takes control of Katz through a leveraged buyout.
Company begins representing cable TV systems.
Donaldson, Lufkin and Jenrette Securities Corp. acquires a majority interest in Katz.
Katz goes public.
Katz becomes a wholly owned subsidiary of Chancellor Media Group.
Chancellor merges with Capstar Broadcasting to form AMFM Inc.
AMFM and Clear Channel Communications merge to create the worlds largest out-of-home media corporation.

In mid-1998 Seltel became the rep for 26 TV stations in 16 different markets that were owned or being transferred to Sinclair Communications. It was estimated the stations accounted for up to $110 million in spot billings annually.

In mid-1999 Katz launched a sports marketing division, Sports Spectrum, to represent athletic teams and sports venues. To start, the division represented MSG Network and the Philadelphia Phillies baseball team.

Katzs parent company Chancellor Media merged with Cap-star Broadcasting to form AMFM Inc. in July 1999. The merger created the largest radio station group in the United States with 465 radio stations. Then just a few months later, AMFM Inc. and Clear Channel Communications announced they would merge to create the worlds largest out-of-home media company. The merged company, which would continue as AMFM Inc., would own approximately 830 radio stations after anticipated divestitures, as well as more than 425,000 outdoor displays for advertising and 19 television stations. The merger was expected to be completed in the second half of 2000.

With the backing of its parent company, Katz was in a position to enjoy a stable, profitable future. Massive consolidation among radio and television stations owners would mean fewer station groups to represent, so competition was likely to be keen among the remaining rep firms. Nevertheless, Katz enjoyed a leadership position and could offer advertisers a unique combination of advertising opportunities in a variety of electronic media.

Principal Divisions

Katz Radio Group; Katz Television Group.

Principal Operating Units

Christal Radio; Eastman Radio; Katz Radio; Katz Hispanic Media; Sentry Radio; Clear Channel Radio Sales; Continental Television Sales; Eagle Television Sales; Millennium Sales & Marketing; Katz International Ltd. (United Kingdom).

Principal Competitors

Interep National Radio Sales, Inc.; Viacom Inc.

Further Reading

Baldwin, William, The Myths of Employee Ownership, Forbes, April 23, 1984, p. 108.

Brodesser, Claude, An Absorbing Question: After Sale, Katz Media Seeks Positive ReturnAs Do Wary Clients, Mediaweek, July 21, 1997, p. 8.

Brodesser, Claude, Katz Consolidates at the Top, Mediaweek, June 30, 1997, p. 12.

Cobo, Lucia, Katz Negotiating to Buy Eastman, Broadcasting, July 23, 1990, p. 69.

Collins, Larry, Katz Change in ESOP Plan Points up Stress in Rep Business, Adweek Eastern Edition, March 20, 1989, p. 66.

DLJ Merchant Banking Partners Inc. Has Completed Its Purchase of Katz Media Corp., Broadcasting & Cable, August 29, 1994, p. 67.

DLJ Swallows Most of Katz, Mediaweek, July 18, 1994, p. 4.

Done Deal, Broadcasting, March 9, 1992, p. 18.

Flint, Joe, Jacor Sells its Rep Firm to Katz, Broadcasting, August 20, 1990, p. 53.

, Katz Eyes Seltel, Broadcasting, January 13, 1992, p. 6.

, Katz Reorganizes, Broadcasting, December 23, 1991, p. 6.

Foise, Geoffrey, Katz Merges Cable Rep into Cable Media, Broad-casting, June 22, 1992, p. 32.

, Katz to Tap Public Debt Market, Broadcasting, August 31, 1992, p. 64.

Former Katz Media Chairman Dies, Adweek Eastern Edition, May 1, 2000, p. 86.

Freeman, Michael, Potential $110M Gain Seen in Seltel-Sinclair Agreement, Mediaweek, June 15, 1998, p. 4.

Hicks, Muse & Co., the Dallas-based Firm that is Backing Two New Radio Groups, Has Reportedly Made an Offer to Buy All of Katz Communications, Broadcasting & Cable, January 10, 1994, p. 85.

Katz Agrees to Buy Christal, RKO Radio Sales, Broadcasting, April 2, 1984, p. 56.

Katz and Cable, Broadcasting, December 23, 1991, p. 34.

Katz and Seltel Have Finished Negotiations, Broadcasting, January 20, 1992, p. 64.

Katz Communications, Television Digest, December 23, 1991, p. 7.

Katz Dick Mendelson: Getting Back to Rep Basics, Broadcasting, September 26, 1988, p. 103.

Katz Grabs 50% Hispanic Share, Broadcasting & Cable, February 16, 1998, p. 30.

Katz Looks to Cable to Beef up Business, Broadcasting, September 30, 1991, p. 50.

Katz Media Corp., Billboard, August 27, 1994, p. 124.

Katz Takes on New Rep Contract, Adweek Eastern Edition, March 20, 1995, p. 20.

Littleton, Cynthia, Megareps Armed for Station Squeeze, Broad-casting & Cable, August 12, 1996, p. 46.

McClellan, Steve, Chancellor Buys Katz Media Group, Broadcasting & Cable, July 21, 1997, p. 53.

, Katz Media Reorganizes, Broadcasting & Cable, June 30, 1997, p. 54.

, Katz Takes Stock, Broadcasting & Cable, March 27, 1995, p. 55.

Miles, Laureen, Put out the Katz, Mediaweek, July 17, 1995, p. 6.

Moshavi, Sharon D., Katz Keeps its Toe in Cable Waters, Broad-casting & Cable, March 1, 1993, p. 49.

Peter Goulazian, Tom Olson, and Jim Joyella, Mediaweek, January 6, 1992, p. 21.

Petrozello, Donna, Katz Cancels Public Offering with DLJ Deal, Broadcasting & Cable, July 18, 1994, p. 18.

Radios Megareps Lead the Way into the 90s, Broadcasting, January 15, 1990, p. 110.

Rathbun, Elizabeth A., Consolidation Hurts Katz, Broadcasting & Cable, August 25, 1997, p. 33.

Saxe, Frank, AMFM on Growth Path as Merger Is Approved, Billboard, July 31, 1999, p. 89.

Torpey-Kemph, Anne, Katz Launches Sports Marketing Unit, Mediaweek, July 12, 1999, p. 26.

Viles, Peter, Katz Hispanic to Rep SBS Stations, Broadcasting & Cable, September 27, 1993, p. 49.

David P. Bianco