COMMENTARY Clear Channel Communications (CCMO), the radio station conglomerate, laid off "hundreds" of DJs today in a move that will no doubt lead to the increasing homogenization of radio in the U.S. Indirectly, it's all Mitt Romney's fault. Here's how these dots connect:
You can be forgiven for thinking, like Gawker did, that the layoffs are part of a cost-cutting plan driven by fundamental shifts away from traditional analog media (like FM radio) toward digital streaming media (like Pandora). They're not.
As a business, Clear Channel is doing quite well. It made revenue of $1.6 billion in Q2 2011, up from $1.5 billion the year before. It showed an operating profit of $311 million, from stations such as KTU in New York and KIIS FM in Los Angeles. Clear Channel's problem is that is also had a quarterly interest payments of $359 million -- more than its operating profits. That interest is being paid on a staggering $20 billion in debt.
That debt came from the financing of a buyout of Clear Channel back in 2006. At the time, Clear Channel was also a healthy functioning business -- it had just $8 billion in debt, and saw net income -- real profits after interest payments -- of $691 million for the year on growing revenues of $7 billion.
But that just wasn't good enough for the folks at Bain Capital Partners, the private equity group. Bain and its partners bought Clear Channel at that time, but the buyout loaded the company with roughly $12 billion in more debts -- which still isn't paid off. The debts are so large they threaten the future of the company. About $1 billion in Clear Channel's debt comes due in 2014, and another $10.4 billion comes due in 2016.
While Clear Channel might have a functioning profitable business, it's just not generating enough cash to shrug off nearly $12 billion in loans.
What does this have to do with Republican presidential candidate Romney? He was Bain's CEO through 1999. While he had nothing to do with its disastrous Clear Channel investment he was the founder of Bain and draws many of his life lessons from it.
Bain's interference in Clear Channel is an example of everything that is bad about finance-led capitalism: It takes functional businesses, loads them with debt, and transfers much of their cash in the form of interest payments from the people who are actually creating that value -- DJs, in this case -- to the investment banks who supplied the loans. Banks don't sing, record or broadcast pop hits. Yet they're the only ones who will end up making money from the Bain takeover of Clear Channel.
Let's hope Romney doesn't try something similar with the federal government.
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