Strong Signals

How rich can Texas entrepreneurs get buying and selling radio stations? Don’t touch that dial.

STEVE HICKS HAS BEEN IN THE RADIO business for so long that he remembers when FM wasn’t cool. When he was a self-described “really shy and introverted” high school sophomore, Hicks got his start spinning the greatest hits of Perry Como and Frank Sinatra at his father’s station, KBPO-FM in Beaumont. “In the sixties hardly anybody listened to FM,” the balding 47-year-old told me in his glass-walled fourteenth-floor office in downtown Austin. Anyway, he says, “I was not a very good deejay.”

Give Hicks his due: His lack of on-air talent didn’t stop him from becoming one of the busiest and most powerful radio moguls today. He and his older brother Tom, a principal in the Dallas investment firm Hicks, Muse, Tate, and Furst, have snapped up 245 radio stations for just over $1.2 billion since forming Austin-based Capstar Broadcasting Partners in June 1996. In August of this year, Capstar agreed to acquire New York—based SFX Broadcasting (whose co-founder was Steve Hicks) for $1.2 billion plus $920 million in SFX debt it will assume. When the deal is consummated in the second quarter of 1998, the addition of SFX’s 71 stations will make Capstar the number one radio company in Texas, where it owns 42 stations, and number two in the nation, eclipsed only by Westinghouse Electric’s CBS Radio unit. “I don’t think anybody has ever done this much this quick,” Hicks says.

What’s the rush? Since the Federal Communications Commission ( FCC) eliminated many of the restrictions on station ownership in February 1996, around 2,200 radio stations have changed hands in deals worth nearly $25 billion. About 20 percent of the nation’s 10,300 commercial stations have already been gobbled up by seven major companies, four of which are voracious entrepreneurial Texas concerns: Capstar, Chancellor Media of Irving, Clear Channel Communications of San Antonio, and Heftel Broadcasting of Dallas. “It won’t be long before just three or four major players control the industry,” says Hicks. Of course, he intends to be among them.

Once the quiet backwater of American communications—and more recently overshadowed by the Internet and other high-tech advances—radio is being transformed these days from a mom-and-pop business into a corporate entity with mammoth money-making potential. One is tempted to compare it with television, yet while the acquisitions of CBS by Westinghouse, ABC by Walt Disney, NBC by General Electric, and CNN by Time Warner have generated headlines and editorials anxiously warning against media monopolies, radio’s rapid consolidation has gotten little play in the press. That’s surprising when you consider what radio has going for it. For one thing, it delivers ears to advertisers more cheaply than TV; the average cost of reaching 30,000 Houstonians via TV during prime time is $411 versus $163 by radio. For another, it’s effective at reaching choice demographic markets, especially the highly desirable 18- to 49-year-olds, who listen in the greatest numbers to popular station formats like country, talk, adult contemporary, and classic and alternative rock. And radio truly has a captive audience, particularly in urban markets where commuters are most likely to be stuck in traffic—away from TVs and newspapers.

The potential downside of the giant Monopoly-like scramble for groups of stations in geographic clusters is homogeneous programming, but Texas’ moguls, at least, vow that synergy will actually lead to greater variety on your dial. “Radio has always been its own worst enemy, with separately owned stations vying for the same listeners,” Hicks says, whereas the owner of a group of stations can customize his programming to target audiences. In 1993, for instance, Dallas-based Hispanic broadcaster Tichenor Media System bought San Antonio’s KROM-FM with the idea of putting it in direct competition with top-rated tejano station KXTN-FM. “The two were going to target the exact same bilingual audience,” says Tichenor’s chief executive, McHenry Tichenor III. When KXTN’s owners decided they’d rather sell than fight, Tichenor Media scooped it up and switched KROM to a Mexican Top 40 format. Today, Tichenor says, KROM is “serving a segment of the audience that never would have been served except for that consolidation.”

It’s somewhat ironic that radio’s growth spurt is being driven by Texans whose fathers and grandfathers were independent operators who, over their lifetimes, cobbled together small groups of stations—exactly the type of station owner who today is on the industry’s endangered species list. Consider Tichenor’s grandfather McHenry Tichenor, a pioneer of Spanish-language broadcasting who passed away last year at age 98. A onetime publisher of the Valley Morning Star, Tichenor came out of retirement in 1949 to apply for a radio station license in Harlingen and got it—no money down. He named the new AM station KGBS (now KGBT) after his wife, Genevieve Beryl Smith. Two years later Tichenor bought a more powerful transmitter that allowed him to broadcast in Spanish at night to all of Latin America. In the next four and a half decades, along with his son, McHenry II, and his grandson McHenry III, Tichenor built a family-owned empire. This February Tichenor Media merged with Las Vegas—based Heftel Broadcasting, the nation’s largest Spanish-language broadcaster. Today McHenry Tichenor III is the president and CEO of Heftel, a company now based in Dallas with $137 million in revenues and a portfolio of 34 stations. “My grandfather always said, ‘In business it is best to cast the longest shadow,’” recalls McHenry III. Even so, it’s a safe bet that his grandfather would be surprised to find his shadow cast in markets that reach 63

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