Entercom’s Cost Cutting

iHeart and Cumulus may have had no choice but to resort to bankruptcy, but Entercom is flirting with even more danger than these two competitors.

The CBS Radio merger that David Field wanted to do so badly that he allowed CEO Les Moonves to dump $1.5 billion of debt on the company before he sold it has not gone well.

It’s more than mismanagement and firing the wrong CBS executives, it’s deeper.

Quarter by quarter Entercom promises a turnaround and even using “adjusted” accounting procedures, they can’t deliver causing their stock to suffer.

What was worth over $16 a share before the merger, is now in the $6 range and slips to $5 and change regularly.

Now, there is only one way to survive the last three quarters of the year and it is to slash expenses.

Here’s what they’re going to do.

  • All the cuts will be on the CBS Radio side – Field already cut Entercom back as far as he could but those big salaries and expenses generated by his CBS acquisitions will be flushed before year’s end.That means programming, a few management trims and most certainly sales.
  • Commission cuts are on the table – Entercom’s reputation as the low-cost provider of radio advertising follows it into the sales pit. Fewer sellers, more automated selling and commission rates that will make it harder for account execs to earn what they did the previous year.  Most radio groups are cautious not to upend their sales efforts but Entercom reportedly feels they have no choice as expenses are out of hand. 
  • Fixed costs will drive further cuts – There are some expenses Entercom cannot cut. Rentals, tower fees, salaries (and even salary increases in some cases). Health care never gets cheaper although programs can be modified to be less like the outstanding plan CBS offered. At the same time, rights fees for Entercom’s sports stations are expected to escalate.
  • Miscalculations are pressuring Entercom – For example, when the company made a decision to buy back stock when it was in the $10 range, it seemed plausible – then. But now analysts and even investors question the use of corporate money to buy stock back at $10 when there is no sign that Entercom will even return to that level in the foreseeable future.  The money could have been spent instead on lowering debt.  And that’s another big issue affecting the coming cost synergies. 
  • Entercom has a huge debt of $1.850 billion – The only reason why Entercom stock is at the $5 range today is because investors are believing David Field’s projection that the company will do $350 million of EBITDA. When Field misses that target as many expect he will do, the company’s value will basically be equal to their debt.  And while this may not interest employees who don’t deal with such number crunching, it drives everything Entercom will do in the future.

Field will mess with the successful but expensive to run CBS all-news stations. 

Some feel newsrooms will be cut in half – a dangerous move if it hurts the product.

The Entercom sports franchise is missing the guy talk angle that worked so well for CBS Radio meaning play-by-play may just be a breakeven on stations that don’t have ratings viable content the rest of the week.

The music formats are not so much in the crosshairs but the infamously cheap David Field is trimming long time CBS air talent and replacing them with cheap options of voice tracking.

In the end, Entercom is (to use a Wall Street term) shorting itself on content and sales betting that revenue will continue to decline thus necessitating what would have seemed like unthinkable cuts to the CBS Radio group that was in good shape when Entercom took over.

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Lew & John Dickey and I will be talking about Cumulus under their regime and the current owners as well as the future of the radio industry at The Conclave -- Details here.