Viacom's Infinity, Clear Channel try to finetune strategy after writedowns
“How Far Will You Go?” blares Infinity’s new $2 million in-your-face ad campaign, urging advertisers to jump aboard.
Infinity hasn’t been standing still on other initiatives, either.
This week, it’s launching online streaming of its all-news stations. A steady cash infusion for content, branding and marketing at selected stations has boosted ratings and revenue. A group of small-market stations is up for sale.
Infinity’s been easing its commercial load on a station-by-station, case-by-case basis — although with less fanfare than rival Clear Channel’s “Less Is More” campaign to slash station breaks and cut 60 second spots down to 15 or 30 seconds.
Infinity’s turnaround, a frequent topic on Wall Street, is being led by the triumvirate of Infinity chief Joel Hollander, Viacom co-chief operating officer Leslie Moonves and Viacom chairman-CEO Sumner Redstone. Latter, in 1999, inked a merger with the guy whom all three have been trashing for running Infinity into a wall.
“They were burning the furniture to keep the place going,” Hollander said recently, adding there were no computers in the field, no connectivity between the 183 stations.
“The investment was nothing — zero,” added Moonves.
They say — without naming names — that Mel Karmazin, Viacom’s former No. 2, left them holding the bag, that year after year he slashed costs and cracked a whip over his sales force to keep up growth and a frothy stock.
It worked for years. But a recession hit, the Internet bubble popped, ads dipped, and so did ratings. Consumers rebelled against on-air clutter just as Infinity and others in the humbled industry faced competition from satellite radio, devices like Apple’s iPod and Internet podcasting.
The final irony: Karmazin left Viacom last June and now runs Sirius Satellite Radio — a company that takes no ads on its music channels and has been opening its wallet for one rich content deal after another.
Given Sirius’ high-priced stock, it seems investors have welcomed Karmazin with open arms — even though many do blame him in part for Infinity’s recent woes.
“I remember Mel quotes like, ‘If there is a recession, we refuse to participate.’ It was cute at the time, and we all chuckled. But the company continued to miss numbers on the radio side,” says SG Cowan analyst James Marsh.
“Programming, technology and investment were kept to a bare minimum. Wall Street liked it. It was short-sighted,” he adds.
Viacom recently posted a massive $18 billion loss for the fourth quarter to write down the value of Infinity’s radio stations and outdoor advertising biz.
The charge was noncash and didn’t reflect the businesses’ actual perfs, which were tepid. But it did reflect the discrepancy between how those assets were valued on Viacom’s books, and what auditors think they are really worth. It means, in hindsight, Karmazin and Infinity overpaid for many of its stations.
A host of other radio groups did the same during the merger frenzy of the late 1990s and took writedowns before Viacom.
“Mel never wanted to take a writedown. He basically was always adamant, there’s no impairment to our good will; even when other companies had taken charges, he just refused to do it. It’s basically a fight between you and the accountant,” says fund manager Harry DeMott of Bourgeon Capital.
Rival Clear Channel took a $17 billion writedown and major PR hit in 2001.
“Now Les and (co-COO) Tom (Freston) are running things and they said, ‘Look, everyone else has done this. We should clear the books once and for all and risk a few days of bad press,’ ” DeMott adds. “It’s like everyone else in Hollywood clears the decks of all the old scripts and starts over.
The best time to clear the decks is when a new team enters and can pile on the old guard as the root of all ills — at least for a while.
And although some of the blush is off the rose, Karmazin still commands a loyal following on Wall Street. Sirius was thrilled to nab someone with his big name, experience and connections. Sirius will be selling ads on its nonmusic stations — including Howard Stern’s show when the shock jock jumps from CBS Radio to Sirius in 2006.
Karmazin already is beefing up ad sales, having just hired two former Infinity sales execs.
“It’s a really fine line Mel has to walk. He’s charging $13 bucks a month. People won’t tolerate 18 minutes of ads an hour,” says Marsh.