Rescuing Radio

Larry Wilson has three big rescue dogs; he took them in after they had suffered at the hands of previous owners. They used to live with him on his two ranches in Montana, but they moved recently to his riverfront apartment in Portland, Ore. It's not ideal; they need to be walked at least four times a day. So on weekends they all pile into Wilson's private jet and fly back to Montana.

Wilson, 64, moved with his pooches to Portland because he bought six radio stations there, two from Microsoft co-founder Paul Allen and four from CBS. To many people, buying radio stations in the current climate is a little like taking in rescue dogs. There's a high probability of getting bitten in the butt.

Saying that radio is in dire straits is like saying Don Imus is chatty. As with nearly all media, it was hit with the nasty one-two punch of a dramatic falloff in local advertising because of the recession and the digital revolution, which not only offers listeners myriad new ways to get the content they want but also lets advertisers know exactly whom their ads are reaching. A series of mergers and buyouts that consolidated ownership and added enormous leverage has proved disastrous. In 2000 the industry was worth $20.1 billion. This year it's worth about $14 billion. Last year, radio's revenue fell 9%, to $19.5 billion; this year the numbers are off 20%.

Wilson knows all this, since he is one of the creators of the roll-up strategy. A former lawyer, he co-founded Citadel Communications Corp. in 1984, when he purchased two Tucson, Ariz., stations. By the time he sold it in 2001 to private-equity firm Forstmann Little & Co. for $2 billion in cash, it had grown to 205 stations in 42 cities. As it turned out, 2001 was a catastrophic year for business, because of the 9/11 attacks, and for Wilson personally. His wife, who had cancer, had her fifth brain surgery, and it left her in a wheelchair. He quit the business to be with her.

While Wilson was out, the buying spree that had been sparked when the Telecommunications Act of 1996 deregulated the broadcast industry hit a lull. From 1996 to 2000, 18.5% of all U.S. radio stations changed hands. From 2001 to 2006, that number dropped to 7.8% as broadcasters tried to figure out how to manage their assets. Nevertheless, in 2006, Citadel bought ABC Radio from Disney, making it the third largest radio group in the U.S.

When the financial crisis hit, Wilson's old outfit was stuck with a punishing amount of debt just as its cash flow dwindled and the credit market tightened up. And it's not alone in the quicksand. Clear Channel Communications, the country's biggest network, went through a tortured $24 billion leveraged buyout last year that left it--and its banks--sinking fast. "Most big radio companies have highly leveraged balance sheets and face a very tough future," says Standard & Poor's analyst Tuna Amobi.

Claire Wilson died in February 2008; later that year, her widower fell down some stairs and broke a lot of bones. As he lay recuperating, Wilson began to think about radio. "I thought I should get back in," he says. "I saw the industry make knee-jerk reactions--eliminating programming and salespeople. Going after the talent. Research was gone and external promotions were gone."