Going Private Would Cloud Broadcaster Finances

The chance that Clear Channel, Tribune and others could go private shows why FCC media rules, which the agency is considering changing, are needed in their existing form, said United Church of Christ Managing Dir. Cheryl Leanza. Those companies have said they're considering ways to boost lagging shares. The firms, and N.Y. Times Co., now trying to sell its broadcast assets, own 75 TV stations total.

“It’s a good reason… why media companies are subject to special rules promulgated by the FCC -- why securities rules aren’t adequate,” Leanza said: “It doesn’t matter who your investors are with respect to the FCC regulations.” No matter what their ownership, stations must follow Commission rules by keeping current records available for public review and following Commission ownership limits. Broadcasters want the FCC to allow them to own more stations in a market, and a newspaper.

Relaxed FCC rules are critical to the industry’s future amid online competition, lawyer Richard Wiley said: “Are they going to have the kind of strength that will allow them to invest, and grow and expand compared to the YouTubes of the world?” Chronically low stock prices encourage broadcast companies to think about selling out to private equity firms, the former FCC chmn. said: “That’s what’s happening, and it increasingly will happen.”

The FCC should examine the trend toward going private, Center for Digital Democracy Exec. Dir. Jeff Chester said: “Publicly traded companies provide an important form of oversight.” He worries about “fewer owners across all platforms with a bottom line mentality that eviscerates the public interest in the form of serious reporting and diverse entertainment,” he said. Entities said to be weighing bids for TV and radio stations, including Blackstone Group and Providence Equity, don’t file quarterly financial results, SEC records show. “It’s possible that the lack of transparency in private equity companies could reduce visibility into how media companies operate, where they allocate resources, who works for the companies,” Stanford Group’s Paul Gallant said: “Those questions are more easily evaluated in publicly held companies.”

If Clear Channel changes hands, privately or not, it may have to spin off assets to comply with FCC ownership limits, lawyer John Pelkey said: “The no doubt unintended consequence of either a Clear Channel sale or a spinoff of multiple Clear Channel clusters may be to actually counteract the aggregation” of assets, he said. FCC ownership waivers don’t transfer to acquirers, he said. Clear Channel’s controlling Mays family may divest stations if it goes private, even if FCC rules don’t demand it, Stanford analyst Fred Moran said: “There are buyers for radio stations.” Clear Channel executives declined to comment on a possible sale in discussing Q3 earnings (see separate item).

Other “well managed” publicly traded radio companies like Cox Radio and Entercom likely would consider a sale or going private if a Clear Channel deal occurs, Moran said: “Given the frustration Entercom management has had with their stock price, we think they are at least open to the idea.” Entercom stock rose 6.3% Mon., and Cox Radio gained 5%, after Moran told investors those companies eventually might go private. Company officials didn’t comment.

Broadcasters bought by private equity firms probably will invest more in online properties than their publicly traded counterparts, said Pelkey, noting that private companies have more leeway to invest in long-term business plans. Private equity firms aren’t interested in broadcast media as an online play, Moran said: “I don’t think private equity firms buy radio assets solely for the purpose of migrating into new media.”