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Cumulus Media Inc
Delta Air Lines Inc
CC Media Holdings Inc
In April 2010, Lew Dickey, the co-founder, chief executive officer, and president of Cumulus Media (CMLS), was settling into his first class seat on a Delta Air Lines (DAL) flight from Atlanta to New York when he noticed a familiar face. The man sitting next to him was Mike Huckabee, the former two-term governor of Arkansas and 2008 Republican presidential candidate. Dickey and Huckabee had never met, but they bonded quickly over childhoods spent in radio.
Dickey’s father owned WOHO, an adult contemporary station in Toledo. Huckabee had been on the air at KXAR, a 1,000-watt station in Hope, Ark., since he was 14, playing the roles of disc jockey, news reader, and even play-by-play announcer for the local high school football team. He later worked his way through Ouachita Baptist University by DJing at local radio station KVRC. “I would put on the record, introduce Creedence Clearwater Revival or whoever it was, and then read my religious textbooks,” he told Dickey.
Dickey asked Huckabee if he had ever thought about doing a talk radio show. Huckabee had just launched The Huckabee Report, a four-minute syndicated spot, but he told Dickey he couldn’t imagine doing three hours a day, every day. At the time, Dickey’s company didn’t have a platform for a national show, “but I thought that [Huckabee] had the talent and drive to make it work,” says Dickey of that first meeting.
Photograph by Jeff Mermelstein for Bloomberg Businessweek
Last year, when Cumulus acquired Citadel Media Networks and expanded its reach to 570 radio stations nationwide, Dickey decided to give Huckabee a call. Cumulus needed someone who could go head to head with the biggest name in radio, Rush Limbaugh, whose show is owned by Cumulus’s rival, Clear Channel Communications (CCMO). Plenty of big names had gone up against Rush—Fred Thompson and Bill O’Reilly among them—and none had dented Rush’s 20 million listeners. Dickey considered others for his new show, including Bill Clinton and Sarah Palin, but “getting them to sit down and stay behind the mike for the next five years would be a problem. They both have ADD!”
Huckabee, on the other hand, seemed to have the right mix of name recognition, likability, contacts, and the dexterity to take on different subjects without sounding harsh or grating. Dickey offered the governor $5 million a year if his show gets enough “clears,” or stations picking up his show. And Dickey promised to build a studio in Huckabee’s Florida home. “I could finally get off the road,” Huckabee says.
The Mike Huckabee Show made its debut on 180 stations in April as a soothing, mellow alternative to Rush. “I’m a hard-core conservative, and that’s apparent, but we can have a conversation about it,” says Huckabee. The business plan was speeded up in March when Limbaugh, in what he says was an attempt at humor, referred to Sandra Fluke, a Georgetown law student who had testified before the House Committee on Oversight & Government Reform in support of insurance coverage for contraceptives, as a “slut” and “prostitute.” The resulting uproar, and Limbaugh’s loss of several stations and more than 100 advertisers, was, Dickey says, “a long-term blessing for us … but ultimately, the key with any radio program is not how the first few shows sound, but how the 500th show sounds.”
Radio may seem like yesterday’s medium, but it remains hugely lucrative, with profit margins—before debt servicing—of about 30 percent, according to media research firm SNL Kagan. It’s a business that boasts low fixed costs: towers, transmitters, and talent. “The great thing about the radio business, it’s not capital-intensive,” says Michael Bergner, president of media brokerage firm Bergner & Co. “It’s old technology, but it’s easy and it works.” Overall projected 2012 industry revenues climbed to $14.6 billion from recession lows of $13.3 billion in 2009, according to research firm BIA/Kelsey.
Large and jolly, Huckabee, 56, makes an unlikely player in the contest for supremacy of the airwaves. His show on Cumulus is broadcast four days a week from his home in Blue Mountain Beach, Fla. Every Friday he flies up to New York and does his show in the WABC studios near Pennsylvania Station so that he can tape his Fox News show, Huckabee, on Saturday. Mostly, though, “My commute is, I walk across the hall.”
The Mike Huckabee Show is three hours of decidedly mild right-wing talk, broadcast from, as Huckabee puts it, “the corner of conservatism and common sense, where every day is Bring Your Dog to Work Day.” A recent, typical segment had him spending an hour talking about the history of the blues with guest musicians and academics, noting how music “helps us relate to other races. And I can’t point to a moment when Jesse Jackson or Al Sharpton have brought people together.” Huckabee also wants to abolish the Internal Revenue Service, Social Security, and Medicare and replace all corporate and personal income taxes with a 23 percent consumption tax.
When we meet at a midtown Manhattan hotel, Huckabee is seated in a wingback chair in the lobby, killing time before an appearance on Fox’s Lou Dobbs Tonight. He has gained a few pounds since his presidential run; the jowls are a bit heavier, the cheeks fuller, the belly battling the trouser tops. He blames the weight on his previous life on the road as a speaker for hire, flying to an NRA Family Values conference in Pittsburgh one day and a fundraiser for a Christian school in Great Falls, Mont., the next. He got paid tens of thousands of dollars for showing up, shaking hands, and spinning his down-home conservatism. “I was going everywhere—trade shows, nonprofits, special interest groups,” he says, shaking his head. “It just wore on me.”
When Huckabee dropped out of the presidential race in March 2008, he was $100,000 in debt. The last job he’d had, as governor of Arkansas from 1996 to 2007, had paid $70,000 a year. “I needed to make some money,” he explains. “My name was on [the campaign debt], so I felt responsible.” After flying out to Beverly Hills to choose between superagents Creative Artists Agency and William Morris Agency, Huckabee chose CAA, eventually landing a Fox News (NWSA) show and regular gigs on the public speaking circuit.
“I loved the people. I loved that part of it. The travel got to me. … I’ve had the TSA shuffle as many times as I can handle.” He continues: “Good God! I was the governor of a state. I don’t think I’m a threat to anybody. And if I was, I could think of much better ways than running up and down the aisle of an airplane with a bottle of shampoo.”
Discussing his radio show, he is careful to play down the competition with Limbaugh. “It’s not about decreasing someone else’s audience,” he says. “I’m not out there trying to get Rush’s audience away from him.”
Maybe not, but down in Atlanta, the guy who hired him sure is.
Lew Dickey is 49 years old, with blue-gray eyes and blond hair parted on the right. Seated in his office overlooking the neighborhood of Buckhead, Atlanta’s downtown in the distance, he speaks in quick sentences about transforming Cumulus from a collection of radio stations to a diversified media company delivering content through television, the Web, and social networks.
In addition to the Huckabee show, Cumulus has launched Geraldo, Dr. Sanjay Gupta’s medical show, and Radio Perez, a celebrity gossip show with Perez Hilton. The company has also started a national weather and traffic reporting service, which will be syndicated, like all its new programming, both to Cumulus-owned stations and to those operated by competitors.
Dickey believes that he can use radio to launch a multimedia empire. This may sound grandiose, but consider his success so far. “Lew doesn’t sleep very much,” says his brother John, co-COO of Cumulus Media. “It’s hard to keep up with him.”
Dickey was born into the radio business and treats it like science. His father Lew Dickey Sr. bought his first local radio stations in West Virginia and Ohio in the late 1950s. Lew Jr. worked at the stations, but his first love was golf, and he was good enough to secure a scholarship to Stanford University. After graduating, he returned to Toledo, an English major with a head for figures but no clear idea of what he wanted to do, until he realized there was money to be made providing radio stations with better information about their listeners. “I always considered myself an amateur sociologist,” he says. “I was always interested in consumer behavior.”
In 1986, the 24-year-old Dickey founded Stratford Research, which provided music and program research to radio stations throughout the Midwest. (Stratford now functions as the research division for Cumulus.) You can blame Dickey for the rigid stratification of formats that took hold in the late 1980s, forcing listeners into classic rock or urban contemporary ghettos where the playlists don’t vary—and where you will never hear a song that hasn’t been tested by hours of research. “More of what you want, more often, and less of what you don’t want” is how Dickey describes his broadcast model.
With just six employees, Stratford generated a few million dollars a year and allowed Lew to forge relationships with hundreds of radio station owners and programmers across the U.S. While he was at Harvard Business School in the late ’80s, he continued to run his company from his dorm room. Two years after getting his MBA, in the fall of 1992, Dickey put together his first acquisition, buying two bankrupt radio stations in Atlanta, WCNN and WALR.
After interviewing 750 Atlanta listeners, Dickey relaunched WALR as an urban contemporary station, playing hip-hop artists like Master P and Dr. Dre and renaming it KISS 104.1. Within 90 days, the station had gone from fifteenth to fourth in the market. It has been in the Top Five ever since. In 2000 he sold WALR to Cox Communications for $288 million.
Dickey also took advantage of deregulation, which allowed one owner to control up to eight radio stations in a market and lifted the cap on the number of stations an operator could own nationally. In 1997 he and venture capitalist Richard Weening raised $120 million through debt and equity to found Cumulus. Dickey focused on buying smaller stations in midsize markets. “I was doing two or three deals a week,” he recalls. “It was the Wild West. These weren’t offering memorandums served up by an investment bank. This was a commuter flight and then a rental car and then a long drive down a dirt road to go see septuagenarians who had had these stations in their families for generations.” By 2000, Cumulus had acquired 300 stations.
As Dickey and his brother bought and consolidated stations, they earned their reputation as efficient cost-cutters. “I don’t relish that reputation,” says John Dickey. “You don’t want to be good at it, but you have to be.” Of his approach to business, Lew Dickey says, “We’re dead-ass focused.” It helps that Dickey doesn’t have many distractions. He lives alone in a five-bedroom house in Buckhead, not far from Cumulus’s headquarters. In 1997 he jilted his fiancée, local television reporter Kimberley Kennedy, calling her into the priest’s office at the church, according to Kennedy’s 2009 book Left at the Altar, to tell her, “I just can’t do it.” Dickey ended up taking his brother on his honeymoon trip to the south of France.
In September 2011, after Citadel Media, owner of the old ABC radio network of large market stations, emerged from bankruptcy, Dickey bid $2.4 billion for it. Citadel was debt-free and immediately delivered an additional $254 million in earnings to Cumulus. “As soon as we saw that balance sheet, we knew we wanted those assets,” he says. It was a rare case where the acquirer ended up with a stronger balance sheet after the deal. In what The Deal magazine called the “M&A deal of the year,” Cumulus doubled in size. Dickey rewarded himself with a huge bump in compensation, taking $20 million in cash and equity in 2011.
The acquisition made Cumulus Media the U.S.’s second-largest owner and operator of radio stations, with a presence in virtually every major market. Creating nationally syndicated programming to take on the giant of the industry—Rush—is just one part of Dickey’s strategy to challenge 40-year-old Clear Channel and its 850 stations. Another is SweetJack, a coupon and deal-of-the-day website, launching this month, which will use Cumulus’s national radio network to drive traffic to the site. “To compete in the digital world, you need massive scale,” says Dickey. “You can’t launch your own social network in just Buffalo, N.Y., and think you have a chance. Well, we have that scale.”
The plan is simple: Cumulus radio stations will be broadcasting local ads in every market, offering, say, a great deal on Ray’s Pizza in New York City through its WABC station. Several times a day, ads will push listeners who want that deal to go to SweetJack and sign up, just as one does at Groupon (GRPN) or LivingSocial, and then download their coupon and go shopping. Cumulus wins by building SweetJack and charging the local business. “No radio station sells 100 percent of its advertising time,” Dickey says. “We can profitably use up unsold time and create a new platform to reach advertisers who couldn’t otherwise afford us.”
Dickey is so confident about SweetJack’s prospects that he is hiring 400 staffers to work exclusively on the project. He has even partnered with the enemy: In exchange for $80 million in advertising on Clear Channel stations, Cumulus will give digital streaming rights for its radio stations to Clear Channel’s digital initiative, IHeartRadio. Dickey’s goal is to transform Cumulus into a digital media company, with the attendant valuation of such businesses. “If we can demonstrate that radio can be used to build these new brands, then of course we will be valued differently,” he says.
“Of course, we have to execute on all of this. The Mike Huckabee Show. SweetJack. But we will. We will.” The first Arbitron (ARB) ratings that will include The Mike Huckabee Show will come out in June.
Back in New York, Mike Huckabee is twitching and trembling as he sits behind the boom mike and control board. “It’s not easy to come up with three hours a day,” he says. He is up at 7 a.m. every morning for a multi-hour conference call with his producers and writers where they forecast the big topics, brainstorming potential guests and breaking down each 15-minute segment of the show.
Today’s breaking stories are the Secret Service prostitute scandal and the news that Trayvon Martin’s killer, George Zimmerman, made bail. Huckabee’s voice retains just enough down-home twang to offer a credible eulogy to his fellow Arkansan, drummer Levon Helm—“from Turkey Scratch, not Marvell, as is commonly reported”—and to lend sincerity to his tribute to Martin’s parents for their “class, dignity, and wisdom.” During a commercial break he grabs a handful of cashews and starts chomping, taking a slug of water before coming back. His producers, Joey Salvia and Renne Bakos, are in Dallas, speaking into his earphone constantly.
After an interview with legal analyst Royal F. Oakes, Huckabee takes some calls. Lara, a former teacher from Dallas, wants to talk about education. When Huckabee tries to answer her, his producers say in his ear, “Let her go, she’s talking through you.” He thanks Lara and disconnects, then goes into a riff about how federal overreach and the Obama administration are the main obstacles to education reform.
Though he may be new to this format, it’s clear Huckabee has deep radio experience and an ease with his audience and himself. He gracefully spins the news, interviews guests, and takes calls, serving up Republican Party red meat with a smile. Unlike the competition, Huckabee says, “I’m not mad at anybody.”