The growth of remnant advertising suggests it's not just a fill-in for unsold inventory but a threat to a station’s entire rate structure with ad agencies starting to pile on and permanently disrupt the radio revenue model.

• Discounts between 40% to 70% off standard rates.
• Designed as a way to monetize unsold inventory to make up for the industry-wide decline in radio advertising.
• But something has gone amiss – ad agencies are having their way with radio stations who have become extremely dependent on remnant ad sales no matter what it is doing to their overall pricing structure.
• Here’s an aggressive “fire sale” call-to-arms by Mynt Agency to take advantage of radio while it’s down.
• And plans revealed to squeeze stations harder as their spot sales continue to decline.

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In 2016, Beasley bought top-rated revenue producing markets from Greater Media that had loyal audiences and highly-paid talent but as the ad market tightened, the company targeted successful stations in Boston, Philly, Detroit and Tampa in a risky attempt to cut costs -- now with multiple Nielsen books in, we have some answers.

• Cost-cutting – even messing with top-rated talent – is nothing new – all the major group have done it.
• But Beasley is a relatively small radio group which relies on a handful of markets to keep them afloat so their desperate attempt to cut costs had real implications for the entire group’s financial performance.
• What has been learned: some market moves were mixed-to-bad, others stable but shaky, quiet and telling – some downright warning of real consequences in the months ahead.

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Connoisseur CEO Jeff Warshaw’s claim that strategic M&A will continue is detached from the actual state of the radio industry and while the Alpha rescue was a hedge fund’s dream, his talk about expanding the merged company of over 200 stations persists.

• What Warshaw is saying: "Strategic M&A has been a big part of my background and will continue to be …”
• BUT, radio M&A is effectively frozen -- There’s been no significant active buyer interest in broadcast radio groups especially not from financial investors for years.
• Most transactions now are distress sales, debt-for-equity swaps, or fire sales and the recent Alpha purchase could fall into that category.
• Asset values are in free fall -- Alpha Media’s previous bankruptcy and financial distress meant this deal was likely structured around debt assumption or a discounted credit purchase facilitated by Brigade Capital—not a premium acquisition.
• No one is paying real money for radio stations -- Buyers with scale (like iHeart or Audacy) are overloaded with debt. Independents can’t justify expanding when linear ad revenue is flat or declining and local operating costs remain high.
• Connoisseur isn’t sitting on free cash -- It’s a relatively small operator and buying Alpha without meaningful outside capital (i.e., Brigade’s financing) would have been impossible.
• Brigade Capital is not a long-term radio investor --  It’s a credit hedge fund—the Alpha purchase is almost certainly a distressed debt play meaning Brigade is in control with Warshaw simply operating the stations or holding a minority interest.
• YET Warshaw has a list of potential acquisitions in spite of it all – some may even be possible and two dead in the water.

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• Now two new indicators are real eyeopeners -- the Altman Z-Score and Macroaxis.

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Last week’s surprise Connoisseur/Alpha deal was effectively a restructuring of both radio groups but it is risky and not an old-fashioned rollup of radio assets. 

• There is no equity in radio, just lender/owners and managers who are caretakers presiding over the industry’s decline.  
• Tiny Connoisseur (11 stations) somehow comes away with larger Alpha (207 stations) and it’s called a merger.
• Then there’s Brigade’s financing at a time when private equity is avoiding radio.
• Warshaw is the operator, not the owner -- he may manage the stations, but Brigade holds the leverage and exit control.
• There’s no M&A flip which typically involves buying undervalued assets with the intention to improve them and sell quickly for a profit.  That’s not what’s happening here.
• And Warshaw is bragging about buying more – what’s going on here?

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President Trump’s order to eliminate federal funding for NPR and local public radio stations could reshuffle the battle for ad support at a time when the industry is suffering from declining revenue – it affects public broadcasting but may also have an impact on commercial radio.

• While NPR itself receives less than 1% of its direct funding from the federal government, many local stations depend heavily on grants from the Corporation for Public Broadcasting (CPB) which channels over $500 million annually in congressional funds to public media.
• NPR and PBS stations rely on federal funding for an average of 13% and 18% of their budgets, respectively.
• To make up the shortfall, traditional radio advertisers will have to be targeted and it is not altogether clear whether commercial radio and public competitors will find a solution.

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After shutting down some 20 non-essential Cumulus Media stations in February and March and a sobering first quarter earnings decline, management appears ready to abandon even more of their stations.

• Cumulus has not explicitly indicated plans to shut down additional stations beyond the over 20 closures that occurred early this year but by emphasizing a strategic focus on optimizing its portfolio they are suggesting that further evaluations and potential actions may be forthcoming.
• Here’s CEO Mary Berner’s set up: “The imposition of sweeping tariffs in conjunction with ongoing government spending cuts has resulted in supply chain concerns, inflation pressures, and worsening consumer sentiment, all of which have further clouded the outlook for consumer demand and contributed to pullbacks in advertising spending.”
• BUT, that appears to be a stretch even for radio groups that have wild imaginations when it comes to explaining revenue shortfalls – tariffs?
• They’ve gone further in fine print outlining which stations might be in harm’s way next.

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Total value destruction under CEO Mary Berner is now a shocking - $2.5 billion with all the major revenue indicators headed in the wrong direction except for digital which is low margin and a relatively small piece of the pie hastening another bankruptcy.

Reality check

• The equity value of the company now stands at just $2.6 million – down from over $500 million when the company emerged from bankruptcy #1 – a wipeout of $500 million for lenders turned shareholders.
• Cumulus shares were delisted from NASDAQ May 2 relegating the company to penny stock status.
• Their post-bankruptcy $666.5 million of debt is now trading at just 30 cents or $200 million – a wipeout of another $466 million.
• Total value destruction post-bankruptcy now stands at $966 million and growing in addition to the $1.5 billion of value destruction investors and lenders suffered the first bankruptcy.

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Cumulus is inching toward another financial reckoning, with collapsing profitability, declining revenue, and little room left to maneuver running out of both time and options.

• Bleak first-quarter results but beneath the surface is a strategy that looks all too familiar — one that echoes the company’s pre-packaged Chapter 11 bankruptcy in 2017.
• Once again, CEO Mary Berner may be steering the company toward a controlled crash landing before creditors take the wheel.

What to watch

• Lender pressure: If debt covenants are breached or EBITDA falls further, lenders may push for restructuring — likely behind the scenes first while the company gives the business-as-usual look.
• Layoffs and asset sales: Is it even possible for Cumulus to cut deeper, sell assets where buyers are scarce or relieve themselves of non-core assets – Berner has a plan.
• A second bankruptcy filing? It will be similar to the first one with industry-threatening desperation that could upend other struggling radio groups teetering on the brink.

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