Business
Strong Signals
How rich can Texas entrepreneurs get buying and selling radio stations? Don’t touch that dial.
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Likewise, John Hicks couldn’t have begun to imagine the implications for radio when he put his four boys to work behind a microphone. A longtime adman with an interest in broadcasting, he bought his first station, KLVI-AM in Beaumont, in 1959. Over the next twenty years he assembled a small group of stations in half a dozen Texas cities, using his boys as “slave labor,” says Steve Hicks. The boys must have liked it, because all four went on to become station owners themselves (although the eldest brother, John III, is no longer in the business). In 1979 Steve and Tom co-founded Hicks Communications and bought their dad out. In 1992 they founded GulfStar Communications and with their younger brother, Bill, who owns Bryan-based Sonance Communications, acquired stations in Lubbock, Killeen, and Waco; GulfStar soon became the largest owner and operator of radio stations in Texas, with groups of stations in those three cities and six others (Texarkana, Corpus Christi, Victoria, Tyler, Lufkin, and Beaumont). In 1996 Steve and Tom launched Capstar, focusing on middle- to smaller-market stations, with a $100 million equity infusion from Hicks Muse. This July Capstar acquired GulfStar in an exchange of stock and joined the ranks of multibillion-dollar companies.
Another Hicks Muse—backed venture, Chancellor Media, has been actively consolidating radio stations in the nation’s top revenue markets. Chancellor Media was formed following the September merger of Irving’s Evergreen Media and Dallas’ Chancellor Broadcasting; it owns 99 stations in the nation’s 21 largest markets, including 10 recently acquired from New York—based Viacom. Earlier this year Chancellor began building a cluster in Houston, the nation’s seventh-largest radio revenue market; in August it agreed to acquire oldies station KLDE-FM to add to its portfolio of KLOL-FM, KKBQ-FM/AM, and KTRH-AM. As a result, Chancellor is number one in Houston in terms of revenue, with an estimated 22 percent share.
Number two in revenue in Houston—with a 16 percent share—is Clear Channel, the only major Texas player not exclusively in radio (it owns and operates eighteen TV stations as well). Clear Channel got its start 25 years ago when investment banker L. Lowry Mays and car dealer B. J. “Red” McCombs purchased KEEZ-FM in San Antonio. Today the family-run company (Mays’ sons, Mark and Randall, are top executives) owns 178 stations, which puts it in third place behind Capstar in the number of stations owned nationwide. While Clear Channel’s holdings are heavily concentrated in Oklahoma and Kentucky, it owns 6 in Houston, 5 in San Antonio, 4 in Austin, and 3 in El Paso. In June 1996 Clear Channel acquired a 33 percent stake in Heftel. And this July it announced plans to buy 46 stations from Florida-based Paxson Communications for nearly $600 million.
That seems like an awful lot to pay, but the fierce competition for stations has turned them into the broadcast equivalent of scarce beachfront property. “A money-losing FM station in Dallas that went unsold for $10 million in 1992 is now worth about $45 million,” says Paul T. Leonard, the managing director of Star Media Group, a Dallas-based company that advises would-be buyers of radio stations. Skyrocketing prices have made some mom-and-pop owners multimillionaires, says Leonard, who has brokered plenty of deals where small operators walked away with a bundle of cash. One such operator is rancher David Morris of Marquez. In February 1997, after 49 years in radio, the 77-year-old sold his two Houston stations, KNUZ-AM and KQUE-FM, for $39.5 million to SFX. “We started in February 1948 with $55 in the kitty, so we had a pretty good gain,” quips Morris, who is using his windfall to breed registered Braford cattle at his Lazy K Ranch.
While much of the consolidation thus far has occurred in large- to mid-sized radio markets like Dallas and Houston, it’s beginning to trickle down to smaller markets too. Take Waco, which is the 14th-largest market in Texas and the 190th-largest in the nation. Of its eleven local stations, Capstar owns six—KBRQ-FM, KCKR-FM, KWTX-FM/AM, WACO-FM, and KKTK-AM—which is the maximum allowed by the FCC. Has deregulation been good for the city? At least one Capstar rival thinks so. John Dokken, the general manager of KWOW-FM, says the increased competition has improved the caliber of broadcasting. In mid-August Dokken hired a second morning deejay at sixth-ranked KWOW, increased his budget for publicity and promotions, and scrapped the station’s oldies format in favor of country, putting it in direct competition with Capstar’s two country stations. “We’re taking them head on,” he says proudly. Others aren’t so sanguine. Capstar’s penetration—it has the ears of 53 percent of the listeners in Waco—has some wags referring to it as Deathstar. “A lot of history and radio tradition is being lost,” frets Roland Richter, the news director of independently owned KRZI-AM.
It’s true that things are different in the brave new world. Steve Hicks, for example, says he is toying with what he calls “an Intranet delivery system.” Rather than using overnight deejays at each of its stations, Capstar would maintain a central production center in Austin. From there it would beam “product” to places like Waco, Tyler, and Killeen. “Instead of twelve or thirteen people in the smaller markets, you’ll have two or three full-time, higher-quality people in a single location,” explains Hicks, who grudgingly admits that such a scheme is “not so good for the all-night disc jockey.”
Nevertheless, this is the future—not only for the new moguls of the Texas radio business but also for some venerable ones. Perhaps no single operator is better known or more synonymous with Texas radio than LBJ Broadcasting in Austin, yet even a Johnson family institution isn’t immune to market forces. In July LBJ Broadcasting, which owns KLBJ-AM/FM and KAJZ-FM, merged with tiny Sinclair Telecable, the parent company of KGSR-FM and KROX-FM, to form LBJ-S Broadcasting, Austin’s largest radio station group. It was a defensive move, industry insiders agree, but one can’t help wondering if it simply delays the inevitable. “It definitely bought them another couple of years,” says Paul Leonard of Star Media Group. Indeed, moguls like Hicks are still interested in a piece of the Austin market. “We’ve been having discussions with the Johnson family for the past seven years,” he says, and no wonder: Despite the prospect of owning 316 stations, he can’t tune in one of his own on his drive to work. “It never quite worked out,” he says wistfully. “Maybe someday.”
Alexandra M. Biesada wrote about Houston’s Pace Entertainment Group in the December 1996 issue of Texas Monthly.
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