Tied to move into web radio

By Kathy Prentice

     Chancellor Media’s billboard business is on the block again.
     Chancellor, the fifth-largest outdoor company, with 36,000 billboards  in 37 states, conceded to a Media Life reporter that the outdoor division was up for sale as the company last week made public plans to develop three internet companies.
     Why the sale? Chancellor says dumping billboards will allow it to better focus on growing its radio business, where it’s also a market leader.
      ‘‘Radio is the fastest growing part of Chancellor’s business and leading the industry in terms of that growth,’‘ notes a Chancellor spokesman, accounting for 80 percent of the company’s revenue and cash flow. Chancellor will become the nation’s largest radio station network in July, with 470 stations in 105 markets, when it completes the acquisition of Capstar Broadcasting.
       Put another way, billboards just aren’t cutting it. ‘‘They’re not thrilled with outdoor’s performance,’‘ says James Marsh, broadcasting and publishing analyst for Prudential Securities in New York. ‘‘After all this turmoil, they’re focusing on radio.’’
     The big question now is who will buy. The field is limited, as Chancellor learned when it put the division up for sale in January, to the surprise of Wall Street, only to take it off the market in March.
     Analysts believe Chancellor had no takers because of the size of the deal and its $20 billion price tag, along with the usual regulatory concerns. Chancellor ranks behind Outdoor Systems, Eller Media, Lamar Advertising and TDI.
      If Chancellor has any offers this time around, analysts say it’s likely to come from a parent company of one of the current outdoor leaders. ‘‘A company like Eller could do it because they have Clear Channel behind them,’‘ says Susan Cohen, managing director for Outdoor Services, a media buying service in New York. ‘‘But Washington might not let it happen.’‘
     Who else might bid on Chancellor? ‘‘A large media company that doesn’t have outdoor but wants it,’‘ says Cohen.
    Just what impact a further consolidation might have on billboard pricing is hard to determine. It’s easy to presume that prices would go up based on recent history—the consolidation that has occurred over the past five years and the steady climb in prices that has followed.
     But that presumption fails to take into account a lot of other market factors, say analysts. Consolidation in itself doesn’t necessarily lead to higher prices.
     ‘‘It can go to two extremes,’‘ says Cohen. ‘‘Larger inventories mean less competition so prices can go up. It also means that those companies want to move the inventory, and that can provide some good deals.’‘
     Chancellor’s admission of  its intent to move out of billboards in favor of the internet is just the latest chapter in what has been a tumultuous few months for the fast-growing company.
     In March, CEO Jeffrey Marcus was ousted after only a year in the job, and the helm was taken by Chancellor Chairman Thomas Hicks. The company took the billboard division off the market, as well as its radio operations, which had also been put up for sale in January, and dropped plans to purchase Lin television. At the same, Hicks, Muse, Tate & Furst, the buyout firm headed by Hicks and holding a controlling interest in Chancellor, Lin and Capstar, picked up $500 million worth of additional public shares in Chancellor. 
     Chancellor added outdoor to its media empire only over the past year, acquiring Martin Media last June for $610 million and Whiteco Outdoor Advertising in September for $930 million.
     Consolidation of outdoor companies has not been limited to Chancellor. Top-ranked Eller Media, Outdoor Systems Inc. and Lamar Advertising have pursued aggressive buyouts of smaller billboard companies since 1996.
     Chancellor stock has bounced up and down with the company’s shifts in strategy but analysts believe it is under capable leadership. Hicks has assured shareholders that ‘‘operators are running the company, not the finance guys,’‘ says Prudential’s Marsh, notably James de Castro, president and CEO of radio and outdoor, whom Marsh says is running the company day to day. Tellingly, perhaps, come July the company will no longer be known as Chancellor but AMFM.
     Meanwhile, as announced last week, AMFM Interactive is building a network of web portals with the company's radio stations and is testing sites now. AMFM.com will start offering streaming services next month, and AMFM Equities will offer promotional services. Chancellor is seeking partners in some or all of these ventures. Interfacing radio and internet has been tried successfully by CBS and Chancellor announced earlier this year its intent to enter the internet market.

- Kathy Prentice is a writer in Traverse City, MI.