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 percent of the Hispanic population in the U.S.
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.