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Is The End Near For iHeartMedia Radio Stations?

The largest radio station owner in America is iHeartMedia (iHM) with over 850 radio stations in 150 markets. Along with the radio dominance, iHM owns a radio news/traffic service, a giant radio streaming service, a radio advertising company, a radio syndication network, various radio syndication formats, a radio trade magazine/website, a radio ratings website, a music charts service/website, a live events division, an outdoor billboard/advertising company, and parts of numerous international broadcasters in countries all over the world. In addition to all that, iHM owns crippling debt in the multiple billions that it cannot seem to get out from under, which just might bring this media empire crumbling down in the coming year.

Nearly 20 years ago, the U.S. Congress passed the Telecommunications Act of 1996. Among the many parts to this enacted law, was the ability of single corporations to own far more radio stations in a single market than ever before. It set Clear Channel Communications (iHM's previous name) to go on a buying spree across the nation, scooping up every radio station and radio company it could. This also meant going extremely deep in debt to afford these multi-million dollar purchases.

In 2008, iHM (then Clear Channel) underwent a leveraged buyout, bringing on Bain Capital and Thomas H. Lee Partners as investors/owners, a pair of private equity firms known for ravaging companies they have financial ownership in to recoup their investments. Since that buyout, iHM/Clear Channel has had crippling annual losses, ranging from hundreds of millions to a few billion. With revenue decreasing annually, and rising debts, the company has been teetering on the brink of bankruptcy since 2010. Stock prices have fallen over dramatically in a year, going from just under $10 a share a year ago to just over $1 a share currently.

On top of that, there have been highly questionable decisions made by the iHM corporate offices, ranging from routinely firing top talent, purchasing a multi-million dollar private airplane for its CEO, palatial new offices for corporate management in Manhattan, large bonuses for upper management, spending large amounts of money pushing the iHeartRadio brand and live events, and spending more time trying to find ways to shuffle its debt around than actually paying the debt down.

With investors and debtors now demanding to be paid, iHM may be out of ways to shuffle the debt around any longer. The massive media giant is on the verge of destruction.

Earlier this year, iHM tried to create a new company and move some profits and shares over to that on-the-books-only subsidiary, making it out of reach from the debtors. On March 7th, many iHM debtors jointly filed a legal notice of default against iHM, claiming the billions owed is now due. These lenders are claiming that by iHM making that debt-shuffling move, they broke some loan covenants and are in default of their loans. On March 9th, the creditor group announced they would give iHM 60 days to make the problem right or pay the billions they owe. This will most likely force iHM into bankruptcy in the coming months.

iHM has asked a Texas court for a permanent injunction against the creditors' notice of default -- something some in the industry feel will not be granted, at least not a permanent one. An answer on the injunction is expected next week.

One debtor is hedge fund mogul Paul Singer and his company Elliott Management. Singer purchased an insurance policy where he gets paid if iHM fails to pay its debt. According to the New York Post today, Singer purchased credit default swaps, which means he will get re-paid his full debt if/when iHM declares bankruptcy. By forcing iHM into bankruptcy, Singer would recoup his debt, plus potentially pull a mighty profit. The New York Post reports iHM is now suing Singer to try and stop his plans.

Media Life Magazine's Court Stroud today wrote an article, entitled "Coming, the collapse of radio's iHeartMedia," detailing out many of iHM's many problems they are now facing.

In Stroud's opinion, iHM is facing three scenarios in the immediate future:
    1. Reshuffling its immense debt once again, something shareholders are sure to turn down.

    2. Removing all current corporate heads and replacing them with new corporate heads who can turn the company around. This was tried in 2010 and it didn't work then. It's doubtful it will work a second time.

    3. Going into bankruptcy and breaking up the company, which would include selling off its many divisions and possibly even its radio stations. This appears to be the most probable scenario.

Wrote Stroud today: "But no matter what any of these assets might fetch, the breakup of iHeartMedia would be a good thing -- good for radio, good for the employees and good for all the divisions. The various business units would stand a strong chance of ending up in the hands of capable operators with the know-how and resources to maximize their true value. Advertisers and media buyers would certainly benefit."

The value of the companies divisions may be higher than that of its radio stations, largely due to timing. CBS may be on the verge of selling their entire radio division. CBS Radio is the third largest radio station corporation. Cumulus Media, the second largest radio corporation, is struggling with deep debt itself for many of the same reasons iHM is. Cumulus is itself trying hard to stay out of bankruptcy, but industry insiders are unsure the company will be able to stay out of bankruptcy much longer. This could also cause some Cumulus radio clusters to go up for sale. Tribune Media is considering selling some of its assets to help boost its television division and its sole radio station, WGN-AM is likely to go up for sale. With a glut of radio properties potentially entering the market in the coming months, some of which will have to be sold as fast as possible, this will drive their values way down.

In Chicago, the fall of iHM would be felt on a major scale.

iHM owns and operates the following Chicago radio stations: WLIT-FM/93.9 MYfm, WEBG-FM/BIG 95.5, WVAZ-FM/V103, WKSC-FM/103.5 Kiss FM, WGCI-FM/107.5-WGCI, and WGRB-AM/Inspiration 1390AM. The FM stations also have additional sub-stations broadcasting on HD Radio. Additionally, iHM owns WVON-AM 1690, but leases the frequency out to Midway Broadcasting.

The Chicago offices of the iHM-owned Total Traffic & Weather Network (TTWN) supplies traffic information to numerous Chicago radio stations not owned by iHM, including Chicago's #1 station, WBBM-AM/Newsradio 780 & 105.9. The Chicago TTWN offices also delivers traffic and news reports to radio stations throughout the Midwest.

Advertising firm Katz Media Group, owned by iHM, has a large office in Chicago. Clear Channel Outdoor is one of the largest billboard owners in the Chicagoland area.

The Telecommunications Act of 1996 changed radio in a major way over the course of just a few years. The downfall of some radio giants in 2016 -- a direct result of that Telecommunications Act -- will have an impact on radio for many years to come. If it is a positive or negative impact remains to be seen.

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