I wanna do a 40 pages paper on “Company Analysis Project”. I can pay $100. The contents should include:a. Organizational Vision, Mission, and/or Values (include Goals and Objectives)b. Internal Analysis: Resources & Capabilitiesc. Strategy assessmentd. Recommendations for achieving or modifying current strategy.To make your report stronger and credible, apply strategic planning and analysis models you have studied and researched; be sure to use external sources when appropriate and cite within the paper.I have an A+ paper as an example. If you wanna do it for me, I can sent the example to you. I need this paper before Feb 13. You have 5 days to do it. Thank you very muchexample_paper.docxContents
Executive Summar…………………………………………………………………………………………. 4
Background Information on Cumulus …………………………………………………………………… 5
Brief History ………………………………………………………………………………………………….. 5
External Analysis………………………………………………………………………………………………. 9
Brief History of the Industry ……………………………………………………………………………… 9
Industry Analysis ………………………………………………………………………………………….. 10
PESTEL Analysis …………………………………………………………………………………………. 10
Political
Factors…………………………………………………………………………………………….
11
Economic Factors ………………………………………………………………………………………… 11
Sociocultural Forces …………………………………………………………………………………….. 13
Technological
Factors……………………………………………………………………………………
14
Environmental Forces …………………………………………………………………………………… 15
Five Forces Analysis ……………………………………………………………………………………….. 17
Barriers to Entry – Strong ………………………………………………………………………………. 18
Bargaining Power of Suppliers –Strong …………………………………………………………… 19
Bargaining Power of Buyers – Moderate ………………………………………………………….. 19
Threats of Substitutes – Moderate…………………………………………………………………… 20
Collective Strength of the Five Forces …………………………………………………………….. 21
Factors Driving Industry Change…………………………………………………………………….. 22
Industry Competitive Analysis …………………………………………………………………………… 24
Industry Competitors …………………………………………………………………………………….. 24
Position of Rivals in the Market………………………………………………………………………. 28
Value Proposition ……………………………………………………………………………………………. 29
Strategic Moves Rivals Will Likely Make …………………………………………………………….. 30
Industry’s Key Success Factors ………………………………………………………………………… 31
Industry Outlook ……………………………………………………………………………………………… 32
Summary of External Analysis ………………………………………………………………………….. 33
Internal Analysis ……………………………………………………………………………………………… 33
Organizational Analysis……………………………………………………………………………………. 33
Corporate Vision and Mission …………………………………………………………………………….. 34
Leadership…………………………………………………………………………………………………………..34
Culture, Social Responsibility, and Structure ……………………………………………………. 35
Summary of Organizational Analysis …………………………………………………………………… 36
Analysis of the Company’s Resources ……………………………………………………………….. 36
Physical – Strong………………………………………………………………………………………….. 37
Financial – Moderate …………………………………………………………………………………….. 37
Technological Assets – Strong……………………………………………………………………….. 38
Organizational Resources – Strong …………………………………………………………………. 38
Intangible Resources – Strong………………………………………………………………………… 38
Human Assets and Intellectual Capital – Strong………………………………………………… 39
Brands, Company Image, and Reputation – Strong …………………………………………… 39
Relationships – Strong…………………………………………………………………………………… 40
Company Culture and Incentive System – Weak……………………………………………….. 41
Capabilities – Strong……………………………………………………………………………………… 41
Core Competencies and Sustainable Advantages – Strong ………………………………… 42
Distinctive Competence – Strong…………………………………………………………………….. 43
Summary of Resources ………………………………………………………………………………………. 43
Analysis of Objectives ……………………………………………………………………………….. 44
Evaluation of Financial Performance………………………………………………………………….. 45
Financial Condition Analysis and Summary ……………………………………………………… 45
Crafting a Strategy ………………………………………………………………………………………….. 47
Criteria Test……………………………………………………………………………………………………. 48
Focus on unique brands ……………………………………………………………………………….. 49
Further Leverage Operating Efficiencies………………………………………………………….. 49
Use experience to provide consistent operations………………………………………………. 50
Refine their large-scale operations to achieve efficiencies. ………………………………… 50
Operate in a fiscally responsible manner. ………………………………………………………… 50
Making acquisitions that are sensible ……………………………………………………………… 50
Value Chain Analysis ………………………………………………………………………………………. 51
SWOT Analysis ………………………………………………………………………………………………. 54
SWOT Analysis ………………………………………………………………………………………………. 55
Strengths (Internal) ………………………………………………………………………………………. 56
Weaknesses (Internal) ………………………………………………………………………………….. 57
Opportunities (External) ………………………………………………………………………………… 58
Threats (External) ………………………………………………………………………………………… 59
Strategic Fit Analysis……………………………………………………………………………………….. 60
TOWS Analysis ………………………………………………………………………………………………. 64
Alternatives ……………………………………………………………………………………………………. 64
Alternative 1 (SO) ………………………………………………………………………………………… 64
Alternative 2 (SO) ………………………………………………………………………………………… 64
Alternative 3 (WO) ……………………………………………………………………………………….. 64
Alternative 4 (ST) …………………………………………………………………………………………. 65
Alternative 4 (WO) and (WT) – ……………………………………………………………………….. 65
Alternative 5 (ST) and (WT) …………………………………………………………………………… 65
Recommendations ………………………………………………………………………………………….. 65
Recommendation number 1…………………………………………………………………………… 65
Recommendation number 2…………………………………………………………………………… 66
References …………………………………………………………………………………………………….. 69
Executive Summary
The purpose of this paper is to conduct a strategic analysis of the broadcast radio
industry with a focus on Cumulus Media, Inc. This analysis will outline a brief history of
Cumulus and a timeline of major events in its history, along with an explanation of the
company’s purpose. Then, the external environment will be analyzed and the potential
effects on Cumulus. Using Dr. Michael Porter’s Five Forces Analysis, an assessment will
be made of the threat of entrants, the factors affecting the power of buyers and sellers, the
threat of substitutes of broadcast radio, and trends in the industry. The paper will then
look at competitiveness within the industry including anticipation of what Cumuls’
competitors might do from a strategic perspective, a brief summary of industry
competition and a look at industry key success factors. Once the external analysis is
complete, the paper will look inward and take a close look at of Cumulus Medias’
resources, objectives and financial performance. The strategies employed by a company
are vital to their future and must be flexible enough to change thus the paper will analyze
the company’s strengths, weaknesses, opportunities, and threats. Cumulus operates in an
industry that continues to move rapidly towards consolidation and the results of the
research will show what constitutes a good strategic fit as well as a list of alternatives for
positioning Cumulus for the future and a list of recommendations.
Brief History
Background Information on Cumulus
Cumulus Media (NYSE:CMLS) is a radio broadcasting company with the second
largest portfolio of radio stations in the United States. From their headquarters in Atlanta,
Georgia, they operate two distinct media groups. One, is Cumulus Radio, which operates
over 500 broadcast radio stations located in 110 US cities. Their other business called
Cumulus Media, which provides content to over 4,500 radio stations and facilitates and
syndication of well-known talk show programming hosted by such notables as Mike
Huckabeee, former Governor of Arkansas and Mark Levin (Cumulus Media Networks,
2015). In addition to their presence in terrestrial broadcasting and in another step towards
fulfilling their goal of increasing their number of listeners and being accessible via
streaming, Cumulus created an alliance with iHEART radio to carry their programming
on iHEART’s digital platform so that anyone with a computer, smartphone, or other
device capable of accessing the internet, could listen to Cumulus stations (iHEART
Media Inc. 2011).
Cumulus Media was created as a result of the changes in the 1996
Telecommunications act which removed the limit of the number of radio stations owned
by one entity (FCC. 2015). The company’s founders were Lewis W. Dickey, Jr. a
consultant and author for the radio and television broadcast industries and CEO of
Midwestern Broadcasting, Inc., and Richard Weening, who was the CEO of Quaestus,
which was an equity investment and advisory firm located in Milwaukee, WI. Using his
experience in the areas of publishing, radio broadcasting, and other eCommerce
businesses, Weening was able to secure investors from the banking and life insurance
industry as well as one institutional investor, the State of Wisconsin Investment Board.
On May 27, 1997, operations began with Weening as CEO and Dickey as Vice Chairman
(Cumulus Company History, 2015).
As part of their offensive growth strategy, Cumulus went public in June of 1998, and
during their IPO, they raised over $390 million of which approximately 70 percent was
used to conclude the purchase of several acquisitions as well as reducing company debt.
Their initial purchases included 167 broadcast stations that were in a series of
broadcasting groups located in every area of the country except for the West Coast.
During subsequent years, they strategically acquired stations in markets where they
lacked presence or saw an opportunity to have one. By the beginning of 1999, they
owned 232 stations in 44 distinct markets which positioned them as the number three
owner of broadcast radio stations in the country. However, their unabated growth resulted
in financial problems during 2000.
During the first quarter of 2000, Cumulus’ stock price tumbled resulting from the
results of a recent audit. Earnings for the previous year had to be restated and
shareholders filed lawsuits contending that the loss of stock value was not strictly from
poor business conditions as was previously thought. As a strategy to bring confidence
back to their stockholders and Wall Street, Vice Chairman Dickey was appointed
President of Cumulus and the company’s CFO was dismissed. In addition, they fired their
accounting firm Price Waterhouse and replaced them with KPMG. The also hired Martin
Gausvik, whose experience with finance in the communications industry was badly
needed. By the middle of that year, the company had restructured some pending
purchases and named President Dickey as CEO and his brother John as Executive Vice
President. The three years of rapid growth had leveled off and despite the loss of
stockholder value, the company’s mounting debt, and the consolidation of operations that
resulted in hundreds of layoffs, their portfolio of radio stations were regarded as highly
valuable and the company was ready to move forward (Cumulus Company History,
2015.).
Figure 1. Timeline of Important Events
Brief History of the Industry
External Analysis
This paper analyzes the external environment of the radio broadcast industry and
begins with a brief historical overview of the industry’s development.
Commercial radio broadcasting traces its roots back to the late 1800s when Mr.
Guglielmo Marconi successfully made the first trans-Atlantic radio transmission between
England and North America. In 1906, a Canadian inventor named of Reginald Fessenden
developed holiday programming for ships sailing off of the Atlantic Coast which ushered
in the era of public radio broadcasting. This experimentation lead to the official licensing
of radio stations in 1922. In these early days of broadcast radio, many people were
concerned that the electromagnetic waves generated by radio transmitters would cause
children to become ill or livestock to produce less, concerns that could be dispelled by
current scientific knowledge (Ruben, 2010). Yet, despite these concerns, the number of
radio stations began to grow.
These early commercial radio stations were owned by various entities such as
private businesses, schools, churches, and radio clubs, but many struggled to achieve
profitability. Stations owned by radio manufacturers used their on-air time to attract a
customer base who would buy their equipment, while others derived their revenue from
advertising sales. For many stations, widespread profitability didn’t occur until the end of
World War II. Corporations such as NBC, CBS, and ABC began to dominate the
broadcast radio industry and produced programming and sold advertising on a national
basis which gave them an economy of scale. This in turn, supported the growth of local
radio stations. Two emerging strategies influenced the proliferation of AM radio: 1) the
automobile industry began equipping cars with AM radios, and 2) the invention of the
transistor that brought the price of radios within the reach of most Americans (Stromberg,
2011). Radio quickly became the main source of news and entertainment (Scott, N.D).
Commercial broadcast radio has evolved through many economic cycles and
external influences. This paper will use PESTEL, Five Forces Analysis, and other tools to
provide a summary of the external analysis of the broadcast radio industry.
Industry Analysis
Today’s broadcast radio industry is comprised of 15,358 terrestrial AM & FM
stations (“FCC News”, January, 2014), as well as Sirius / XM which is a satellite
provider. According to research conducted by Houston-Santhanam, Mitchell, &
Rosenstiel (2012), broadcast radio has maintained a level listenership during the past 10
years. Using advertising revenue as metric, terrestrial stations continue to dominate the
radio listening market, with satellite remaining flat, and streaming growing slowly.
Nielsen company’s research shows that over 90 percent of every age group listens to
broadcast radio at least 2.5 hours per day. For advertisers, it offers a differentiation from
other media because many consumers are listening to broadcast radio just prior to
arriving at a shopping destination (“State of media: audio today,” 2014).
PESTEL Analysis
This section of the industry analysis will address macro environmental factors such
as political, economic, sociocultural forces, technological, environmental, and
Legal/regulatory.
Political Factors
The Federal Communications Commission (FCC) is an agency of the US
governmentthatoverseesalltypesofcommunicationincludingbroadcastradio.
The
FCC’s
stated purpose is to act as a regulatory body for ensuring the orderly use of different
media, licensure, and frequency and transmitter power assignments. The FCC is also
responsible for integrating and acting as a steward of new technologies and other
innovations and to educate its citizenry. The FCC is comprised of five commissioners, all
of whom are appointed by the President and one is selected as chairperson (FCC, 2014).
With the passing of the Telecommunications Act of 1996, the license renewal
process was significantly altered. It allowed stations to devote less time to public service
broadcasts that traditionally drew fewer listeners and in its place, the station could put
alternate programming that would generate more advertising revenue. In the interest of
fairness, the Act also provided for a lottery system for new frequencies vs. the prior
system that had the potential for subjective favoring of one applicant over another (Marc,
2000). Another provision of the act allowed for the formation of conglomerates such as
Cumulus Media, by removing the limit of the total number of radio stations that one
entity could own. However, there was no removal of the limit placed on the number of
stations that could be owned in a particular market. (“FCC What We Do,” 2014).
Economic Factors
There are several stakeholder groups in broadcast radio affected by factors in the
economy: radio listeners, station owners, advertisers, and station personnel as well as the
companies who provide the facilities and equipment necessary to produce shows and
transmit signals.
Other media such as newspapers, television, podcasts, and internet streaming,
broadcast radio equipment is the most affordable of all. For as little as $12, a consumer
can purchase a Sony ICF-S10MK2 portable radio (“Sony ICF-S10MK2,” 2014) and the
only additional cost is the occasional replacement of batteries vs. the monthly cost to
subscribe to the Arizona Republic for $6.12 per week (“The Arizona Republic
Subscriptions,” 2014). And although News and Talk Radio podcasts are available from
iTunes, free of charge, the minimum cost of purchasing an Apple device capable of
downloading podcasts, without the need of a computer, is approximately $199 (“IPod
Touch,” 2014). The user must also have access to the internet which is a service can
either be purchased for a monthly fee of over $60 (Dang, 2013). If television is the
consumer’s media device of choice, the cost of a basic television is approximately $90
(“Polaroid 19GSR3000,” 2014) and if the consumer elects to subscribe to a cable or
satellite service, the cost of a monthly subscription starts at approximately $20 per month
(“Digital Cable & TV plans,” 2015).
In an address given by FCC Commissioner Gloria Tristani , which was shortly after
the passing of the 1996 Telecommunications act, she explained there were many benefits
of consolidation to local communities. Some of these benefits include the continued
existence of local stations now owned by large broadcast groups, by taking advantage of
their economies of scale and reducing their cost of operations. Considering the format
diversity of these larger organizations, they could experiment with bringing programming
to local communities that would otherwise be cost prohibitive. Consolidation also gave
advertisers a more efficient process for buying time from one entity vs. negotiating with
individual stations (Tristani, 1998). The downside of consolidation, in addition to the
effects of having local news stories for one market produced in another, is the estimated
loss of thousands of jobs at local radio stations (Boyle & Wexler, 2005).
Sociocultural Forces
Broadcast radio is frequently listened to in an automobile however there are several
lifestyle changes in the US that have impacted the amount of time people are spending in
a car.
According to the 2013 US Department of Transportation report on the status of the
nation’s highways, bridges, and transit, between 2001 and 2009, the average number of
miles driven per day declined by 10 percent and the number of daily trips declined by 7
percent. The report also stated that Baby Boomers, those who were born between 1946 –
1964, are now approaching their retirement years and will be driving less frequently
while Millennials, those who were born between 1982 – 2000, drive less frequently for
reasons such as their migration from suburbia to urban settings. This results in more use
of public transportation and the declining need to own a car. Millennials also face the
challenge of finding good paying jobs which also reduces their need to drive (“2013
Status of the Nation’s Highways,” 2013).
The United States continues to welcome new citizens from around the world and
there are cultural and language issues that can affect radio programming. According to
the 2010 US Census report, the Hispanic population has increased by 46.3 percent since
1990 and is the youngest ethnic group. With the majority of them being US born, they are
bilingual so this presents a challenge for broadcasters because the Hispanic audience is
comprised of those who are older and only speak Spanish and the younger generation
who speak both Spanish and English but may prefer English (Guskin & Mitchell, 2011).
There are currently 816 US radio stations whose format is Spanish (“Spanish Speaking
Radio Stations,” 2014). This impacts station owners to have a diverse workforce so that
programming and advertising are properly representing the local demographic.
During the 1970s, a migration took place with music stations moving from AM to
FM to take advantage of the superior sound quality and reach of FM signals. The AM
band continued with formats that were primarily news, talk, and sports. Now, AM
stations are simulcasting their AM programming on an FM frequency. Among the
reasons for doing this is an attempt to capture more of the younger generation who grew
up listening to music on FM and rarely listened to an AM station (Diaz, 2013).
Technological Factors
The proliferation of electronic technology has been a boon to the broadcast radio
industry. Many radio stations carry sporting events and conduct remote broadcasts in
their communities. When a remote broadcast is held within a short distance to the radio
station, a microwave transmitter will send the broadcast back to the radio station for retransmission (Younger, 2012). Sound quality was greatly improved unlike the era where
these broadcasts were sent via telephone lines. When long distance signal transmission is
necessary, the internet has enabled radio broadcasters to use technology such as Skype to
send audio back to the studio (“More about Skype TX,” 2014). Social Media sites such as
Facebook allow correspondents to post videos and reports to their Facebook page and
these items can be extracted for use on the air. For stations with a music format, the
invention of the iPod and other MP3 devices has replaced file cabinets filled with records
and studios crammed with turntables. Increased reliability, improved sound quality, as
well as access to millions of titles have enabled stations to provide more diverse content.
This technology has also enabled the use of podcasts and ushered in an era where
programs can be produced from a remote site and sent via the internet for rebroadcast at a
later date (“Making a Podcast,” 2014). The internet and satellite transmissions also
facilitated the growth of syndicated programming such as talk radio, business and
weather reports creating an economy of scale that reduced individual station payrolls and
simultaneously removed some of the local content. This topic will be discussed further in
a later section.
Environmental Forces
Commercial radio broadcasting began in Pittsburgh, PA through experimentation by
an amateur radio operator who began playing music for his listeners. This caught the
attention of a Pittsburgh company by the name of Westinghouse, a manufacturer of radio
receivers. On October 27, 1920, the US government granted the first commercial
broadcasting call sign KDKA to the Westinghouse corporation (“KDKA the first
commercial radio station,” 2013). Since then, broadcast radio has played a pivotal role in
all facets of American life including the support of our communities during times of
environmental events such as earthquakes, hurricanes, snow storms, and other natural
disasters. When a catastrophic event takes place, stations will often suspend normal
programming and eliminate advertising commitments to provide continuous coverage of
the environmental event. During the aftermath of Hurricane Katrina in 2005, FEMA
distributed food, water, and battery powered AM radios to residents of Hancock County,
MS. Days prior to the arrival of the hurricane, station personnel set up a remote broadcast
site on higher ground and received a waiver from the FCC to broadcast their signal at a
higher power. Once the storm passed, WQRZ provided 24 hour coverage including
information about relief efforts, shelters, locations of food drop sites, and other
information to assist the victims of this storm (Pappentick, n.d.).
Broadcast radio stations require very tall radio towers to enable them to transmit
their signals over long distances. These antennas emit what is called radio frequency
energy or RF and there have been concerns about the environmental and health impacts
that result from RF exposure. In 1969, the US government enacted legislation that
required the FCC to establish a process to evaluate the effects of RF emissions from
transmitters that belonged to licensed operators. In 2013, this issue was reviewed and the
FCC was asked to revise their RF exposure limits based on changes in technology and
more awareness since the 1969 legislation was put in place. They determined that their
guidelines provided adequate public safety and welcomed further comments from
professionals in this field (“Radio Frequency Safety,” 2013).
When a broadcaster applies for a permit to erect a tower, there is a comment period
during which anyone who objects to the permit request has an opportunity to provide
feedback. In some cases, the Federal Aviation Administration (“Potential Flight Hazards,”
2014) may object due to the flight path that the tower may interfere with. However, the
majority of the objections come from citizens who are concerned about the appearance of
the tower or RF emissions. One recent example occurred in February, 2014 with an
objection filed by a resident of Point Roberts, Washington. Radio station KRPI, applied
for a permit to erect a tower at a height between 145 and 150 feet. The FCC license for
the station included an approval to erect the tower despite the town ordinance that
required a variance for the height necessary to reach the assigned listening area.
Ultimately, the Town prevailed and the request from KRPI was denied (“Whatcom
County,” 2014). As of December 24, 2014, KRPI is appealing the ruling and the residents
of Point Roberts, Washington are raising money for a defense fund (“No Radio Towers,”
201).
Five Forces Analysis
The Five Forces Analysis was developed by Dr. Michael Porter and measures
industry factors of rivalry, barriers to entry, bargaining powers of suppliers and buyers, as
well as threats of substitutes.
Rivals within the industry – Strong / Moderate
In the terrestrial broadcast radio industry, Clear Channel Communications, which is
a division of iHEART Media is the largest owner with 835 terrestrial stations (iHEART
Media Inc., 2014) followed by Cumulus Media which according to Businesswire.com,
(2011) has 570 terrestrial stations. Clear Channel represents a strong rival due to the
control it has over the Cumulus digital platform and through the influence it has resulting
from the larger number of stations. Other smaller competitors include Salem
Communications, CBS, Cox Radio, and numerous stations owned individually and by
smaller groups. From a macro perspective, these competitors have a moderate influence
because they don’t have the financial and content capabilities that their larger competitors
do. Looking at the industry from a micro view, the influence of smaller rivals is greater
because their relatively smaller size and lack of large corporate control could allow them
to operate with more local content. Later in this analysis, research will be shown that
radio station WTMA, located in Charleston, South Carolina only devotes 4 hours per day
to local programming and they are a Cumulus station (WTMA Weekly program schedule,
2014). Compare this to WSB, a Cox station located in Atlanta, Georgia that dedicates at
least 13.5 hours per day with local programming (WSB program schedule, 2015).
Barriers to Entry – Strong
The terrestrial broadcast radio industry has many barriers to entry. The first barrier is
obtaining a license to broadcast from the FCC. The demand for new radio station licenses
has significantly increased and the supply of station positions or frequencies is static, as
of December 26, 2014, the FCC is not accepting any new license applications so a
potential entrant would have to purchase a currently operating station (“How to apply for
a Radio,” 2014). There is also a permit required to erect a tower that is the appropriate
height based on the frequency assigned by the FCC, gaining public support can cause a
lengthy and costly delays (“Whatcom County,” 2014). Whether a new entrant is
purchasing an existing station or starting a new one, they must have sufficient financial
backing either through loans or other sources, both of which erected significant barrier of
entry. The FCC does not keep a database showing purchase and sale transactions (FCC,
2014) however in 2014, Emmis Communications announced the acquisition of
WBLS-FM & WLIB-AM in New York City for $131 million (Emmis, 2014) vs. the sale
of a small Vermont station with a current asking price of $250,000 dollars (“Vermont
AM Value Priced,” 2015).
Bargaining Power of Suppliers –Strong
Suppliers, depending on what they are selling, have a varied amount of bargaining
power with radio station owners. The supplier may have a strong advantage with smaller
stations and face fierce competition when selling to larger organizations such as Cumulus.
As an example, if Cumulus chooses one supplier for their national news, then the
competition to win this business would likely result in a lower price per station than a
single station operator would be able to negotiate. Conversely, the sole supplier of music
from a particular artist or an agent for a popular talk show host would hold an advantage
because the stations have no alternative to obtain the rights to use the particular music or
carry the highly desired talk show from any other source.
Sean Hannity is a popular talk show host whose show is carried by Cumulus stations.
Estimates have been made that his listening audience is approximately 13 million per
week ranking him second in the nation. If Hannity decided not to renew his contract, this
would force Cumulus to offer more money, possibly a more desirable time slot for the
show, or replace him which would be a large financial expense and would take time to
recover the lost listenership that would likely follow Hannity’s show (Daily News,
2013).
Bargaining Power of Buyers – Moderate
Broadcast radio stations have one commodity to sell which is time. This could be in
the form of advertising or paid programming such as a show to promote the sale of a
consumer product. The bargaining power of the buyer varies based on the time of day or
frequency of airing. The size of the listening market which in the case of Cumulus, which
could be nationwide, would also put the buyer in a weak negotiating position. Small local
radio stations, such as WWPR-AM in Bradenton, Florida offers different rates for
advertising spots aired between 6 AM and 6 PM and another rate schedule for other hours.
They also offer new customer discounts as well as the opportunity to purchase time for
paid live programming at a rate of $150 per hour (“Radio Advertising Rates,” 2014). The
size of the audience, the number of spots, and the time of day they are aired will vary the
buyers bargaining power.
Threats of Substitutes – Moderate
Consumers listen to broadcast radio for different reasons so the threat of substitution
varies based on the type of usage and in some cases, with the cost of subscription and
switching. According to research conducted by Arbitron, Inc., Edison Research, &
Scarborough Research (2011), respondents stated that 64% of their driving time is spent
listening to AM/FM radio and 42% reported that they left their radios tuned to the same
station. In addition to listening to music, many drivers depend on local radio for traffic
and weather reports. The cost of the radio is included in the price of the automobile and
there aren’t any additional fees so substitution isn’t likely if broadcast radio meets their
needs. If the listener is stationary, the cost of an AM/FM radio is as little as $12 (“Sony
ICF-S10MK2,” 2014) and potential substitutes are television, newspaper, or internet
streaming. Sirius/XM radio offers a wide variety of news, sports, and music content;
however the cost of switching is relatively high so the threat is moderate and dependent
on affordability. Streaming audio through a smart phone is also a relatively expensive
substitute because it requires a monthly fee, equipment purchase, and in most cases, a
long term contract so the threat of this substitute is low. Another option is to use an MP3
player or iPod device. Once the music is loaded into this device, it offers portability
however unless it’s equipped with wireless internet capability, it cannot provide the local
content of an AM/FM radio. For listeners seeking local content, AM/FM radio provides
the greatest value and the least amount of threat from substitutes.
Collective Strength of the Five Forces
The level of competition for listeners to broadcast radio is very high and it’s based
primarily on program content and accessibility. The lack of new station licenses and
industry consolidation has created large entities who enjoy economies of scale. This
evolution has created barriers of entry that are difficult to overcome which pits wellfunded and diverse organizations against each other to gain more listeners which
increases their ability to generate higher advertising revenue. Depending on their product,
suppliers to the industry sometimes have strong bargaining power and in other cases, they
are in a relatively weak negotiating position. Businesses who advertise with a radio
station have alternatives in the each market. However, as consolidation continues, the
cost to advertise may rise which could lead to defection to other media and a decline in
the industry’s revenue stream. The threat of substitution is relatively low for listeners
who depend on broadcast radio for local news, sports, weather, and traffic and are on a
limited budget. However, as costs decline with other technology such as smart phones
and streaming audio, consumers will have access to a broader range of content which
may undermine the success of broadcast radio stations that have chosen to remain with a
terrestrial strategy only.
Factors Driving Industry Change
The broadcast radio industry has several drivers that are affecting change. Until the
1970s, AM radio was the primary carrier of programming including news, talk, sports,
and music. FM had been underutilized and with lackluster programming, the listening
audience was far below its potential. By the late 1960s, the FCC encouraged station
owners who were broadcasting the same shows on their AM and FM frequencies, to use a
different format on each. As more FM radios were manufactured for home use and FM
radios for automobiles became more common, FM band usage began to grow. The sound
quality was more appealing than AM and did not have some of the characteristic
reception and static problems that AM suffered from (West, 2011). As a new generation
began listening to FM in greater numbers, AM listenership declined and by the late 1970s,
FM listenership exceed that of AM for the first time. In an effort to reposition the AM
band from decline back to growth, a ruling from the FCC in the late 1980s removed the
regulation requiring that the broadcast of opposing views of political issues receive equal
time on the air. This ushered in the rebirth of the AM band (McCoy & Sciullo, 2013).
Listenership to AM and FM broadcast radio has remained relatively flat since 2001 and
statistics show that the driver that will help keep this industry alive will be online
streaming of their programming (Mitchell et al., 2012).
The internet and smart phones have driven a revolution of change in broadcast radio.
One of the most significant drivers within this technology has been the addition to
streaming a station’s broadcast through the internet. Listeners can enjoy virtually
seamless reception without the limitations of the station’s coverage area. When a listener
is traveling and wants to stay informed about local events, internet streaming provides
this service. While a listener is working, staying tuned to a terrestrial station presents
reception challenges. Radio signals do not travel well through steel and cement buildings
and are adversely affected by electrical noise caused by computers and fluorescent
lighting so having the availability of the station via the internet eliminates terrestrial
reception problems (“Improving Your Reception,” 2014) and allows the listener
continuous station access. Similar to the impact of the internet on newspapers, as more
consumers switched to the internet for news gathering, broadcast radio is facing a similar
problem except there’s room for both technologies. Advertising costs are measured by
CPM or costs per impression. Broadcast radio advertising revenue for spots, which is the
term used for a broadcast radio advertisement, declined by 4% in 2013 vs. a 15% increase
in digital advertising revenue during the same period. From an advertiser’s perspective,
digital advertising is not limited to the broadcast range of a terrestrial transmitter so their
CPM is much lower due to a wider audience base. The radio station knows the
approximate location of each digital listener so they can substitute local advertising for
listeners in specific markets. The blend of both terrestrial and streamed broadcasting
should allow for growth in revenue and listenership over the long term (Kinsella, 2014).
With greater availability of radio stations through streaming, the competition for listeners
is rapidly increasing because not only are local stations available, now the listener is able
to choose from content around the world which will force the industry to become more
efficient in their operations as well as working harder to offer the best possible content.
Industry Competitive Analysis
The broadcast radio industry is going through an evolutionary period with the
internet and smart phone devices playing a larger role in how listeners are accessing
content. To analyze this industry without the inclusion of broadcasters who have a large
presence on the internet and Sirius/XM, the sole provider of content via Satellite, would
not portray an adequate analysis of this industry. I will examine iHEART media,
Cumulus Media, CBS, and Cox Media as well as Sirius/ XM, Pandora, and Spotify.
Industry Competitors
The industry leader is iHEART Media, Inc. who owns 835 radio stations located in
85 of the top 100 markets in the US. They also produce 95 syndicated radio programs
with 5000 affiliates carrying some or all of the content and they claim to reach a weekly
audience of almost 190 million listeners. They have a large digital presence that includes
their own programming as well as carrying content from other broadcasters (iHEART
Media Inc., 2014).
Cumulus Media is the second largest with a portfolio of 450 terrestrial stations
located in 93 media markets and distributes network programming to over 10,000
affiliates. They distribute their broadcasts through terrestrial and digital formats and in
addition to distributing digital content through their own network, they joined forces with
iHEART Media to carry a selection of Cumulus owned station programming. Cumulus
stated in the March, 2014 10k report that they have a presence in 8 of the top 10 markets
and estimate that their content is heard by 65 million listeners per week (Cumulus Media
Inc., 2014)
CBS, owns 126 radio stations in 26 US markets and provides news, sports, and other
content to affiliated stations with an audience of 72 million. Their market capitalization
of $29.6 billion (CBS, 2014) is significantly larger than that of Cumulus with $974
million (Cumulus Media Inc., 2014) and iHEART Media with a market cap of $605
million (iHEART Media Inc., 2014) however they’re involved in several other businesses
such as television broadcasting, outdoor media, and publishing (CBS, 2014).
Cox Media Group owns 57 radio stations and is a division of Cox Enterprises. Cox
Media’s 2013 revenue of $1.7 billion (“Cox Media Group – About,” 2014) puts it ahead
of Cumulus Media however its significantly less than the revenue generated by both CBS
and iHEART Media. Many of their radio stations also stream on the internet and they’re
the only company discussed thus far that is privately held (“Cox Media Group – About,”
2014). There are several smaller broadcaster groups such as Greater Media and Emmis.
Salem Communications owns almost 100 stations however their emphasis is on family
values and Christian broadcasting rather than the mainstream market that these other
companies serve (“Salem Communications History,” 2014).
For those broadcast listeners who prefer primarily music, there are several options.
We will now look at Spotify, Pandora, and Apple.
Spotify is an online music provider that offers their services free of charge with
commercials or with their premium pay service for $9.99 per month, the user can
download songs and create playlists and will not be subjected to listening to commercials.
The system also allows the user to identify artists and/or songs that they like and Spotify
will remember this information and make future recommendations (“Music for everyone,”
2014). As of May of 2014, the company has approximately 3 million users in the US
(Adegoke, 2014). Spotify offers the user the opportunity to select their preferred tastes in
music vs. services from iHEART Radio, Cumulus, and CBS who all offer features that
allow the user to select certain songs and then recommend ones that are similar but not
with the level of customization that Spotify offers. Terrestrial broadcast stations don’t
offer the opportunity to develop playlists so the only option for consumers is to listen to a
station that plays a desired theme such as country, rock and roll, or jazz.
Pandora allows the user to create music lists similar to Spotify. Like Spotify, they
offer a free service that’s accompanied by advertising or Pandora One, which is free of
advertising and requires a monthly subscription fee of $4.99. Pandora estimates that they
have 200 million users and over 80 percent use the service through a mobile device
(Pandora, 2014). This compares to Spotify, which is a privately held company, with an
estimated 75 million users (Pressman, 2014).
Apple’s products such as the iPod, iPhone, iPad, and laptop computers offer the user
access to a library of approximately 43 million songs. ITunes radio offers specific content
by genre, as well as numerous podcasts which cover items such as news shows, comedy,
book reviews, and many other subjects. There is no subscription fee for most of the
iTunes products however listeners must purchase songs, albums, and some podcasts.
Over time, ITunes can become very costly. For the devices that allow for internet access,
most of the services previously described are available as Apps. Prices of the devices
range from $49 for a basic iPod to thousands of dollars for an Apple laptop computer
(“IPod Touch”, 2014). According to Tim Cook, Apple’s CEO, the company has
approximately 800 million iTunes accounts, far exceeding their competitors (“F2Q 2014
earnings conference call,” 2014). This figure is based on their worldwide audience and
there’s no information available regarding the size of their US audience.
st
Satellite radio began in the early years of the 21 century by two companies named
XM and Sirius. Both provided seamless coverage from coast to coast and offered stations
with a variety of programming ranging from music, entertainment, news, and sports.
Listeners were required to purchase separate receivers and pay a subscription fee for the
service. In 2008, the FCC approved the proposed merger between the two companies.
With the era of Apple’s iTunes and other internet based broadcasting quickly
approaching, the intent of this merger was to help the satellite radio industry continue to
be a competitive force (Kharif, 2008). Today, Siruis/XM claims to have over 25 million
subscribers and offers 3 subscription levels ranging in price from $9.99 to $18.99 per
month with the more expensive subscriptions offering more channels as well as internet
access to programming. Most major automobile manufacturers offer Sirius/XM in their
vehicles by incorporating the technology required to listen to their stations into the
AM/FM audio units however after a trial period, the vehicle owner must subscribe to
continue the service (“Sirius/XM Welcome,” 2014).
Listeners have many choices today and the following chart will show how they are
positioned to compete.
Position of Rivals in the Market
Figure 1. Comparative Market Positions of Rivals in Broadcast Radio Market.
Figure 1 shows the market positions of broadcast radio groups vs. satellite providers
and companies that don’t use any type of terrestrial broadcasting. Due to their impact on
broadcast radio listenership, they must all be considered when evaluating the external
environment.
Based on this analysis, terrestrial broadcast stations that who are not active in
streaming are the most vulnerable. Looking at iHEART media, their portfolio is heavily
invested in terrestrial broadcasting however they’re also developing their streaming
presence which gives them additional revenue opportunities and exposure to listeners
who may have low awareness of their station or brand. Apple’s ITunes is in the most
favorable position. Their library of media gives them a competitive edge to offer more
variety to listeners. Also, the number of iTunes user accounts is over twice the number of
Pandora. Even though the data for the US market is not available from either, their
size gives them the advantage by having a distribution channel that the others haven’t
earned. Neither company offers live news, sports, weather, and traffic information
however, the listener has the option of using broadcast radio for this content. CBS’
presence in the streaming industry is small compared to Cumulus and iHEART, however
their corporate overall financial position is strong. Sirius/XM has a monopoly on satellite
radio but their system differentiates them from all of the others in terms of coverage area.
Their coverage has no terrestrial signal limitations, whether it’s being on the fringe of a
broadcast area or listening at night when some stations run lower power or are off the air.
In these areas, where a listener wants live news, sports, and weather information, satellite
radio is the best option. Spotify has neither the name recognition nor the size of a user
base that compares to the others.
Value Proposition
The preceding section discussed competition within the industry, who the players
are, and the positions they hold in the market. Broadcast radio offers the greatest value
proposition for a radio listener. From a cost perspective, it’s the most economical of all
media choices and with the resources of ownership or affiliation with organizations such
as Cumulus, the listener has access to almost every type of content that one would find in
a service that would cost much more. Based on their presence in terrestrial and digital
formats and as the cost of receiving the digital signal declines in the future, the company
will be experienced and prepared to offer quality content through both types of media and
give them a long term competitive advantage.
Strategic Moves Rivals Will Likely Make
iHEART radio is likely to continue their strategy of acquiring terrestrial stations,
increasing their streaming presence, and marketing their streaming services to other large
broadcast firms such as Cumulus and CBS. They also have an opportunity to offer their
streaming services to smaller firms that don’t have the financial resources, experience, or
marketing power of iHEART. This is a win-win for all parties, particularly the smaller
entities, because streaming can increase advertising revenue. Pandora and Spotify are
likely to continue with their specialization in music and individual station creation.
Neither of them own terrestrial broadcast stations and the barriers to entry may be cost
prohibitive, so those resources could be best used in their area of core competency which
is music.
Apple will likely continue to build their music library and expand their podcasts.
They are the only firm in this group that produces hardware and the competitive
landscape in the technology business, which is shown by the short life cycle of many of
their products, requires them to focus on product development rather than diversifying
into broadcast media that may produce a smaller return on investment than their core
business.
Sirius/XM is likely to grow their presence in the automotive business and
concentrate on subscription sales that incorporate their proprietary hardware with internet
streaming. The barriers to entry in the satellite broadcast industry require a significant
financial investment that no one is likely to pursue unless they can sell other services that
the satellites can provide.
Industry’s Key Success Factors
The overall key success factor is the ability of a station to differentiate itself from
others in the market.
Consolidation has taken place and one result has been that much of the
programming is now syndicated and has taken the place of much of the local
programming. As an example, WTMA is an AM station located in Charleston, South
Carolina, with a population in the metropolitan area of 669,157 (“Best Place to Live,”
2014). This station’s schedule from Monday through Friday includes a local morning
show from 6 AM until 10 AM and the remainder of the schedule consists of syndicated
shows hosted by Michael Medved, Red Eye Radio, First Light, Herman Cain, Clark
Howard, The Savage Nation, Mark Levin, and John Batchelor (“WTMA Weekly
program schedule,” 2014). Of the 24 hours of broadcasting, only 4 hours is dedicated to
local content. The fact that these syndicated shows can be streamed from many sources
gives the listener a reason to defect to another broadcaster. That intent could be
diminished if the station invested in development of local shows and differentiated itself.
This local content may result in more local advertising and without local identity, the
station may blend into the crowded field of competitors.
Another key success factor is to have a digital presence because with advertising
revenue increasing at a rate of 15% vs. a terrestrial rate of revenue decline of 4%
(Kinsella, 2014), the survival of a terrestrial station may hinge on how well it positions
with streaming. When the local stations carry broadcasts of events such as local sports,
political events, and remote broadcasts with businesses, this could increase their
listenership and generate more advertising revenue. It also creates differentiation where a
large company such as iHEART media, would be an unlikely competitor.
Industry Outlook
The broadcast radio industry is in a period of evolution going from a terrestrial
based operation to a mix with streaming. There are several factors that create a
challenging environment for the station owners. Public displeasure with new antenna
construction along with the current state of new license availability create barriers to
entry which has the potential to increase the cost of acquisition of an existing station.
Technology has created greater accessibility to broader program content however, it’s
also increased the competitive landscape which forces stations to run more efficiently but
at the same time, pits local stations against the immense resources of large corporations.
Advertising remains the main revenue stream for a radio station so there’s a conflict
between the revenues that digital media has produced and the need for the station to
maintain a local presence so it remains a comprehensive choice for its listeners. Apple’s
iTunes does not offer the same content that broadcast radio does however if they chose to
enter this market, the size of their customer base along with their financial resources
could pose a threat to local radio. Satellite Radio offers seamless reception and a wide
variety of programming and the cost of subscription is a barrier for many listeners.
Pandora and Spotify specialize in music content and despite their success in that niche,
they appear to be a complementary source of entertainment rather than a substitute. Based
on these factors, it appears that investment in this industry where the return is the greatest
is with the larger companies such as iHEART media and Cumulus.
Summary of External Analysis
The process of analyzing the external environment of an industry is important when
considering or increasing an investment in a particular industry. The numerous factors to
consider along with the complex and rapidly changing business environment make a
thorough external analysis essential. When a firm is considering entering a new industry
or expanding in one that it currently participates in, the time and money spent to conduct
this analysis is good for long term financial health. The terrestrial radio broadcast
industry continues to evolve as consolidation takes place and the larger media groups
such as iHEART, Cumulus, and companies yet to be created will likely become the
industry’s dominant force.
Internal Analysis
The internal analysis of an organization is necessary to make the best strategic
decisions by evaluating the strengths and weaknesses, core competencies, and willingness
of each stakeholder to achieve the mission of the organization. In this section of the paper,
we will look at various aspects of the company, its resources, the long-term and
short-term objectives, financial performance, the overall strategy, value chain analysis,
and a TOWS analysis.
Organizational Analysis
Cumulus Media is the second largest owner of broadcast radio stations in the US. Its
business is divided into two entities with one being broadcast radio and the other as a
syndicator and content provider to more than 4,500 affiliated stations throughout the US.
Cumulus has a strategic alliance with IHEART radio, a division of Clear Channel
Communications, to carry selected radio stations on their digital platform (iHEART
Radio, 2011). The company is based in Atlanta, Georgia and has offices in New York and
Dallas.
Corporate Vision and Mission
Cumulus’ goal is to provide diverse programming to maximize the number of loyal
listeners and to generate revenue through advertising and affiliate fees. Their vision is
“Cumulus Radio strives to create the next generation radio broadcast enterprise” and their
mission statement reads “by leveraging great people and technological excellence, we
provide high quality local programming choices for our listeners; targeted audiences with
disposable income for our advertisers; and rewarding career environments for our
employees (Cumulus. com. 2015).” Leadership
Cumulus’ leaders have been challenged with growing a profitable enterprise in the
competitive broadcast radio industry because unlike their predecessors who had limited
markets to reach in a changing but fairly consistent technological environment, the
Telecommunications Act of 1996 created a new entity in radio broadcasting called the
conglomerate. These leaders were the pioneers in a new frontier and should be lauded for
the risks that they took and the successes they’ve achieved. Cumulus’ corporate
governance is comprised of the Chairman who is charged with presiding over shareholder
and board of director meetings, as well as other duties as assigned by the board of
directors. The President, who is also the Chief Operating Officer has general duties of
supervising and controlling the business, and is given the authority to act as a signatory
for the company. The Chairman may also delegate signatory duties to any Vice President
during his absence. Other members of the board of governance are a Secretary, Treasurer,
and an unlimited number of assistants of each pending approval of the board of governors
(SEC.gov. 2002).
The current Chairman, President, and CEO is Mr. Lewis Dickey, Jr., is one of the
founders of the company and assumed the position of CEO in 2000. He received his
Bachelor’s and Master’s Degrees from Stanford University and earned his MBA from
Harvard. Prior to Cumulus, Mr. Dickey was a consultant to the broadcast industry, an
author, and sits on the National Association of Broadcasters Board of Directors. He is one
of the seven members of the Cumulus Board of Directors and oversees an 8 member
executive team (Cumulus.com., 2015).
Culture, Social Responsibility, and Structure
During this research, there was no information available on any Cumulus corporate
initiatives regarding activities to preserve the environment or for giving back to the
community. However, the role of a socially responsible corporate citizen and individual
efforts in these areas are handled by individuals and local radio stations. Alexis Glick,
who is a member of the Cumulus Board of Directors, is involved in a non- profit
organization that seeks to improve the health of children through good nutrition and
exercise. The local radio stations owned by Cumulus are also active in community events.
One example is the Medal of Honor Bowl game that’s held every January in Charleston,
South Carolina. This is a fund raising event with a portion of the proceeds donated to
Wounded Warriors of South Carolina. Radio station WTMA of Charleston is one of the
sponsors of the event (Medal of Honor Bowl – Charleston, 2015). CSR, which is an
organization that rates companies on their corporate social responsibility, gives Cumulus
an overall score of 51 vs. 55 for an all industry average and scored poorly in environment
and governance however no specific details were available. Their highest scores were in
the area of community (csrhub.com, 2015). There was no credible information regarding
any current ethical issues related to Cumulus.
Summary of Organizational Analysis
Cumulus Media is one of the original broadcast radio conglomerates who carried out
their vision by using acquisitions and joint ventures to integrate themselves into the
industry. Their strategic alliances with affiliate stations give them additional sources of
revenue for the media that they syndicate. They’ve taken the their alliances one step
further by allowing iHEART radio, which is owned by their competitor Clear Channel, to
carry Cumulus stations on this digital platform. Their vision and mission statements are
clear about their intentions and how they plan to accomplish their goals. Their lack of
visible community and environmental involvement is a cultural improvement that would
benefit all stakeholders in their organization. Their corporate governance appears to
adequately provide for a system of checks and balances.
Analysis of the Company’s Resources
A company’s resources can be classified as either tangible or intangible and
depending on the type of business, one may require strong tangible resources such as an
oil company while others rely on more intangible resources such as the reputation of a
company in the service industry. Regardless, all companies require both types of
resources and the following information will describe those that belong to Cumulus
Media. The company’s tangible assets can be categorized as physical resources, financial
resources, technological assets, and organizational resources (Gamble et al., 2014).
Physical – Strong
Cumulus’ Balance Sheet filed as part of their latest 10k report (Cumulus Media, Inc.,
2014) does not give a breakdown of their physical assets however they list property and
equipment, net of $254,702,000 and broadcast licenses valued at $1,596,337,000. Their
property and equipment shows a decline in value from the previous year and the
broadcast licenses show an increase but without more information, such as industry
benchmark data or a list of acquisitions and divestitures, it’s difficult to properly ascertain
if these values are considered good news or bad. Physical resources of a broadcast radio
station would include leases on property and equipment, transmitters, broadcast
equipment, antennas, real estate, their FCC station licenses, contracts with radio show
hosts and other media providers, all of the radio station logos, and trucks used for remote
broadcasts.
Financial – Moderate
Cumulus shows current assets such as cash, marketable securities, and receivables of
$377,055,000. (Gamble et al., 2014) also state the company’s ability to borrow and its
credit rating as part of the tangible asset portfolio. Standard and Poor’s (2015), one of
several credit rating services, has given Cumulus a long term credit rating of B on a scale
that ranges from AAA as best to D which is the lowest score. The B rating indicates that
the obligor has the financial means to meet its obligations but warns that adverse
economic or business conditions may affect their ability to pay.
Technological Assets – Strong
Cumulus owns 525 radio stations in the US and with that, each station has their own
logo, website, jingles, and some even have slogans which could be trademarked. Show
content and music are also the property of the owner or artist and when a Cumulus station
or affiliate broadcasts a show or plays music, they are required to obtain permission and
in many cases, pay a fee for its use. Cumulus’ strength comes from its ability to broadcast
content across different platforms.
Organizational Resources – Strong
Each radio station, just like a typical office, requires an IT infrastructure including
items such as servers, computers, phone systems, and possibly telecommunication
systems such as satellites, to allow for video conferencing and other long distance
communication. The organization should also have a chart showing the chain of
command as well as an HR program that handles all human relations functions and is a
source for protecting the rights of the company’s employees and the interests of
stakeholders.
Intangible Resources – Strong
According to Gamble et al.(2014), the company’s intangible resources can be
classified as human assets and intellectual capital, brands, company image, and reputation
assets, relationships, and company culture and incentive system. Their latest 10k report
(Cumulus Media Inc., 2014) $315,490,000 of intangible assets which represents a 22%
increase from 2012. Unfortunately, there is no benchmark to compare this to so the strong
rating is based on the percentage of increase.
Human Assets and Intellectual Capital – Strong
Cumulus has a significant inventory of human assets. Looking at their executives,
Lewis Dickey received his education from both Stanford and Harvard and has written a
book discussing leadership and strategy. His brother, who is also a Stanford graduate is
the Vice President in charge of Content and Programming. Treasurer and CFO Joseph P.
Hannan worked for several organizations in the broadcast industry and as a graduate from
a different type of university, brings a different perspective. Other members of the
executive team come from backgrounds such as a director of programs and a former radio
station owner (Cumulus Media.com, 2015). The collective experience of this group as
well as the board of directors and other staff is an asset that is valuable to this
organization.
Brands, Company Image, and Reputation – Strong
Each radio station operates on a certain theme such as news and talk radio, sports,
different types of music, and business. Although the Cumulus name appears in places
such as websites (WTMA.com, 2015), the station’s theme is their brand. As an example,
Cumulus owns radio station WIXV located in Savannah, Georgia. Their theme is rock
and roll music and they have branded themselves with the slogan “the rock of Savannah –
I 95.” In addition, the last three figures in the station’s call sign make up the roman
numerals for 95. The phrase “I 95” represents the interstate highway that runs to the west
of Savannah (rockofsavannah.net, 2015). Suppliers to Cumulus, such as syndicated
program owners, have the convenience of negotiating contracts with one entity rather
than with individual station owners. Advertisers have the advantage on the Cumulus
website where they segment their markets, list each station individually and included in
these listings, is a media kit that contains information about the theme of each station, the
demographic, on-air hosts, interactive solutions, a list of their current advertisers and a
signal coverage map (Savannah.cumulusradio.com. 2015). Cumulus dedicates an entire
web page with endorsements, or what they refer to as case studies, from some of their
advertisers (Cumulus Results, 2015). Cumulus would benefit from branding the Cumulus
name so regardless of the listener’s location, the Cumulus name would represent the
company’s good reputation.
Relationships – Strong
Cumulus developed an alliance with its main competitor, Clear Channel
Communications when they reached an agreement to carry Cumulus station’s content on
IHEART radio, Clear Channel’s digital platform. This strategic alliance allowed Cumulus
to minimize the cost of entry into the digital world and for Clear Channel, it allowed
them to sell advertising on Sweetjack, which Cumulus developed to allow local
businesses to advertise daily specials on their stations (iHEART Media Inc., 2015). Clear
Channel benefited from leveraging Cumulus’ presence in advertising in local markets.
In May of 2014, Cumulus formed a joint venture with Big Machine Label Group to
launch a new record label for promoting country music and increase listenership on Nash,
which is a Cumulus platform and is carried on all of its country music-themed stations.
Ultimately, the goal is to attract a larger listenership and generate advertising revenue and
music sales (Cumulus and Big Machine, 2014).
Company Culture and Incentive System – Weak
The company’s website has a page dedicated to careers. It contains a very basic
description about the company and how wonderful it is to work for them. There is no
mention of any intrinsic value concepts such as educational assistance, internships,
promotion from within, or opportunity to move to different areas of the country. There
are two testimonials from current employees and there’s no mention of diversity. Based
on the fact that the two featured employees are Caucasian, it appears that they aren’t
thinking about a diverse workforce that matches the demographics located in the markets
they represent (Cumulus Careers, 2015).
Capabilities – Strong
The most valuable resource, whether tangible or intangible, is of no use unless there
is human intervention as the catalyst. The capabilities of Cumulus begin by drawing from
the aforementioned resources and using skilled employees to produce results that will
benefit the organization. One of the company’s capabilities is the way in which their
organization operates their radio stations. This includes their sales department who must
sell advertising to generate revenue. An example of this skill is the design of their website
that enables a potential advertiser to look at the Cumulus stations in a given market,
review the media kits to determine which stations fit best with the products they are
selling, and then using the other data included in these kits to decide where they want to
spend their advertising dollars. The result has been a 121% increase in broadcasting
revenue between 2011 and 2013 (Cumulus Media, Inc. 2014). Another capability of the
Cumulus organization is to sell services to smaller non- Cumulus stations. These services
include radio show preparation, software for station operations as well as a program to
help independent station run effective local promotions (Cumulus Media, 2015).
Core
Competencies and Sustainable Advantages – Strong
The core competency of Cumulus is the ability to make strategic acquisitions of
broadcast radio stations that adds listeners to the Cumulus family, and to develop
strategic alliances with other organizations as a means of leveraging their core
competencies to Cumulus’ advantage.
When Cumulus Media was formed in 1997, they set out to take advantage of the
recent changes in ownership rules that resulted from the Telecommunications act of 1996
and to build a conglomerate of stations that offered diverse content to attract as many
listeners as possible thus attracting advertisers and generating revenue. Their aggressive
plan brought them from relative obscurity in 1997 to holding the position as the 2
nd
largest owner of broadcast radio stations in the country. As described earlier in this
analysis, their growth was not unlike other fledgling organizations which resulted in
reaching a point where they assessed their current position and made whatever changes
were necessary to continue moving forward. As they saw the market shifting towards
digital platforms, they used another of their core competencies of developing strategic
alliances and entered into an agreement with iHEART Radio to carry the Cumulus
content on their digital platform. They understood that development of a digital platform
would be costly and take many years to develop and brand so they turned to a company
with a core competency that Cumulus did not have. The combined activities of smart
acquisitions and knowing when to create a strategic alliance has formed the foundation
that will help them maintain a sustainable competitive advantage.
Distinctive Competence – Strong
A distinctive competence is a skill or process that an organization prefers that even
trumps a core competency (Distinctive competency, 2015). Cumuls’ distinctive
competency is to take their acquired radio stations and create a market where their brand
is best served. Instead of purchasing every all-news station in a particular market, they
are skilled and own brands that are distinct so they attract as many listeners as possible in
a given market without cannibalizing from each other. As an example, in the Charleston,
South Carolina market, they own WTMA whose format is news and talk, 93 Jamz, with a
format of hip-hop and R&B, 95 SX which features hit music, Nash 96.9, a country music
station, and Magic 107.3 that is referred to as the best R&B (Charleston.Cumulus. com,
2015).
Summary of Resources
Cumulus has developed a group of tangible and intangible resources that have
formed the basis for their success in the radio broadcast industry. This analysis has shown
their greatest area of strength which is the ownership of valuable FCC operating licenses.
We have yet to look closely at their financial position which will be reviewed later in this
analysis. Their intangible resources include the branding and trademarks of their radio
stations and the way in which they organize their sales efforts to minimize the decision
making challenges that their customers face. Their other intangible resource, and the most
important one, is their employees, executives and board members. Development of their
skills will have a positive effect on the company’s financial performance and give them a
sustainable competitive advantage. Cumulus should devote more resources to develop a
sustainable company culture and to promotion of its commitment to diversity.
Analysis of Objectives
Measurement of a company’s performance allows management to monitor the
progress made towards its goals and provide data to support changes that may be
necessary along the way. W. Edwards Deming, who was a famous management
consultant in the 20
th
century, devised a system referred to as the Deming cycle of PDCA
which stands for plan-do-check-act. This process allows an organization to develop
objectives for achieving its goals, implementing those plans, checking the progress at
various intervals, and altering the direction as necessary. The concept that he was
promoting is continuous improvement (Deming.org, 2015). In this section of the
Cumulus analysis, we will look at the Cumulus objective setting process and identify how
well they’ve achieved their goals.
The vision of Mr. Lewis Dickey Jr., was to acquire groups of radio stations located
in small and medium size markets. He was raised in a “radio family” with father Lewis
Dickey Sr., who owned a few small stations and formed the Midwestern Broadcasting
company (Inside Radio, 2015). Once the Telecommunications act of 1996 was passed,
Mr. Dickey’s vision changed to include the expansion of the quantity of station
ownership and formed Cumulus Broadcasting Company. He carried out the “do” portion
of the Deming cycle and by the year 2000, Cumulus owned almost 300 radio stations.
The “check” that was brought on resulting from allegations of accounting improprieties
which when they were corrected, left the company without any cash to fund further
expansion. Mr. Dickey “acted” and consequently sold some of the Cumulus stations
which raised cash and kept the company from failing. His “plan” then became to expand
from smaller markets to larger and wealthier areas of the northeast. The Deming cycle
continues at Cumulus today (Radioworld, 2002). As mentioned previously, the company
continued with additional strategic acquisitions and formed an alliance with iHEART
radio to penetrate into the digital market.
In the Cumulus 10k report from 2013, it states that the company has not abandoned
its original goal, which is to acquire radio stations of brands that are differentiated by
content and serving local communities. To reach their financial goals, they have
developed proprietary software, continuously train their sales staff, and provide them
with the tools they need to convey the vision of developing local advertising as the
preferred medium and that their growth strategy in focused on increased listenership and
the revenues from advertising that will follow. Cumulus’ experience in the broadcast
radio industry offers their local radio stations the benefits of economy of scale in general
administrative functions as well as a competitive advantage in areas such as value chain
activities, their brand name, and specific skills and knowledge that apply to the broadcast
radio industry (Cumulus Media, Inc. 2015)
Evaluation of Financial Performance Financial Condition Analysis and Summary
The broadcast radio industry continues to evolve from terrestrial based operations to
a mix with digital platforms. As substitutes to broadcast radio such as satellite radio,
pre-recorded music such as Itunes and the proliferation of digital platforms have
increased, the industry has been forced to form alliances to achieve economies of scale
and improve programming in order to compete with the plethora of alternatives.
Competition in general, breeds efficiency and continuous improvement but consumer
preferences will be the main driver of the fate of broadcast radio.
The company’s total revenue has increased by 120% from 2011 through 2013 which
has generated an operating profit increase of 274% for the same period. They had net
income in 2011 and 2013 and posted a loss for 2012. There is no data available other than
consolidated statements, to support an analysis such as revenue per station or revenue per
station based on audience size or market so further analysis will be necessary before an
investor should make a financial commitment. There are some key financial ratios that
will form a basis of comparison.
Figure 1. Cumulus Media vs. iHEART Media. Adapted from finance.yahoo.com
(2015)
Gross Profit Margin, which shows how well a firm can cover its operating expenses,
is clearly a strength of iHEART media and is of concern for Cumulus as it’s gross profit
margin is trending downward. Cumulus should review their cost of sales to as well as
their sales trend in their revenue stream to determine why it’s in decline and develop a
plan for recovery. However, Cumulus has strength in their operating profit margin and
iHEART should look at their operating expenses, particularly in selling, general, and
administrative and find ways to take advantage of economies of scale. The current ratio,
which is a measurement of how well a firm can cover its current liabilities, is in good
position with both companies however Cumulus is in a much stronger position in 2013
and iHEART’s decline in this measurement, warrants a review of their current liabilities
such as short term debt obligations and their accounts payable. Renegotiating short term
debt payments and terms for their accounts payable liabilities along with examining their
expenses might reveal why this situation occurred. IHEART’s working capital exceeds
that of Cumulus by a significant amount and some of these funds could be used to pay
down short term obligations but not to create a shortage of working capital. This also
involves a much deeper analysis than what is included here. Finally, the Long Term Debt
to Capital ratio is an indicator of balance sheet strength and the company’s
creditworthiness. A ratio below .25 is desirable and both firms are significantly higher
suggesting that their capital structure is heavily weighted on debt (Gamble, et al., 2014).
This section represents a summary of some key indicators. Cumulus has relative
strength in its operating profit and liquidity however the company is highly leveraged and
should consider restructuring its debt or selling some of its assets to put it in a stronger
competitive position.
Crafting a Strategy
The flow of strategy making in an organization is dependent on the corporate
structure. In a large conglomerate such as General Electric, the CEO and other executives
are removed from the operational aspects of their divisions however they set the goals for
the entire organization and each business unit’s management team determines the goals
that are necessary for them to the organization’s overall financial targets. Cumulus is
involved in one business so their strategy making is handled on one level which is
referred to as Business Level Strategy (Gamble. 2014). In their 2013 10k report, they
stated their intentions to use the following tactics to put their company in a strong
position to continue to grow and increase stockholder value. These tactics can be
developed using certain criteria such as financial, market share, and other highly valued
goals.
Criteria Test
Department goals must be written so they are in alignment with corporate goals and
must be measurable. Edwards Deming, who was responsible for development of what is
referred to as the Deming Circle included the steps of plan-do-check-act (PDCA, 2015).
The theme of this process is once an objective was set in motion to achieve a goal, it must
be measurable and have the ability to be modified and was the tool to foster continuous
improvement. The Deming Circle is a great tool to use for a goal’s criteria test. The “Plan”
phase helps to decide what the company wants to achieve and is a good double check to
make sure that it’s in alignment with the company’s mission. In the case of Cumulus,
they stated that they wanted to make acquisitions that were a good strategic fit and not
making them for the sake of acquisition (Cumulus Media Inc., 2013). Their goals for
acquisition could include a list of radio stations they wanted to acquire or a market they
wanted to dominate and answer the question of where they wanted to be and projections
both financial and organizationally of what they wanted their organization to look like.
Then, they would enter the “Do” phase which is the act of acquiring. Next, is the “Check”
phase at which time they would measure the progress of the goal to see if they were at the
milestone they expected to reach and the “Act” phase is used if the milestones they
anticipated were not reached (PDCA, 2015). The following is the list of tactics that
Cumulus wants to use.
Focus on unique brands
These include station format such as country music, news and talk, or top
40 and
this uniqueness will provide a means to attract local advertisers and the revenue stream
that accompanies them. Through their years of experience, they have progressed down
the learning curve and have developed exclusive systems to manage their customer
relationships. Through internal growth or by acquisition, Cumulus intends to grow their
portfolio of stations by leveraging their assets and attract additional advertising
revenue.
Further Leverage Operating Efficiencies
Cumulus has a competitive advantage through an experience-based proprietary
management system that is deployed company-wide. This standardized process of
managing their radio stations has set a benchmark that would be difficult for a competitor
or new entrant to copy.(Cumulus Media Inc., 2013). The synergy created in this
organization allows them to function as a low cost provider with an expense structure less
than that of the competition and simultaneously appealing to a broad audience of listeners
(Gamble, 2014).
Use experience to provide consistent operations.
As Cumulus acquires more stations, it can use the systems and processes they’ve
developed to integrate acquired properties in an efficient and speedy manner. Continued
growth will provide an economy of scale creating a position of strength when negotiating
with vendors. The process of continuous improvement is enhanced by the experience as
owners of hundreds of radio stations. Cumulus can leverage this knowledge and
implement it throughout its entire organization.
Refine their large-scale operations to achieve efficiencies.
With the size of their company, Cumulus continuously looks for ways to minimize
expenses while growing its revenue base that provides capital for growth in each
market.
Operate in a fiscally responsible manner.
Cumulus strives to manage their finances in a way that reduces their reliance on debt
and allows for greater amounts of free cash flow. The financial analysis shown in this
paper does not indicate that the company is adhering to its pledge to reduce their debt
reliance.
Making acquisitions that are sensible
Cumulus’ strategy is not to blindly acquire radio station but to use their experience
to acquire assets that fill market gaps and have the potential to generate value for the
organization. They believe that long-term success in the broadcast radio industry must
include the competitive advantages of large scale ownership including the simplification
of the processes for the purchase of advertising.
Cumulus states their overall strategy is to diversify their operations through
acquisition and expand their content to attract a broad base of listeners. They also strive
to create industry-leading research so that advertisers can make well informed purchase
decisions as easily as possible. They also intend to use their experience and both tangible
and intangible assets to methodically grow their enterprise (Cumulus Media Inc., 2013).
Value Chain Analysis
The value chain of an organization is comprised of primary activities beginning with
one or more inputs and ending with generating a profit. These primary activities are
classified into five categories: supply chain management, operations, distribution, sales
and marketing, and service with the ultimate goal of generating a profit and increasing
the value of the raw material which in this case are the necessary components to create,
establish, and operate a radio station. This does not apply exclusively to manufacturing
but is also used in service industries such as hotels and radio stations. The other section
of the value chain involves the support of primary activities with the ultimate goal of
looking at every input and determining how much value it adds, if any, and how to reduce
costs without compromising quality and service It’s important for a company to assess
the components for each link in the value chain and determine if they add value and how
much. If they don’t add value, are they necessary for production of the finished product?
There are processes that are used to measure the value added by each link of the chain
such as the following: determine if the link gives the company a differentiation or cost
based advantage and which one is more important for sustainable advantage. Looking at
program content, which includes music, syndicated shows, and local hosts, differentiation
ranks higher in importance vs cost. Although the cost of royalties paid to musicians,
contracts with syndicated show hosts, and salaries paid to local hosts must be considered,
if the company wrings out costs to a point where they lose valuable content, then listeners
will defect and advertising revenue will decline. There must be an economic balance
when assessing this link of the value chain so that differentiation is given a higher
priority. Radio stations own or lease trucks used for remote broadcasting and cars used by
salespersons to visit with their accounts. These vehicles require scheduled maintenance,
repairs, and fuel. Despite the fact that without these vehicles it would be difficult to
conduct business, Cumulus could create a cost advantage in several ways: one is to
negotiate lower fuel prices with the promise of using the supplier exclusively for all
maintenance and repairs. Another cost advantage might be to purchase these vehicles
pre-owned instead of new or to lease them and avoid the costs associated with the aging.
This strategy would have almost no effect on the successful completion of other value
chain activities and could have a positive effect on the company’s profit margin. On the
support side, commodity purchases such as office supplies and telephone systems can be
negotiated without impacting the end product and with the size of the Cumulus
organization; they could negotiate the website contract for all of their stations and
produce cost savings. (Gamble, 2014).
SWOT Analysis
The SWOT analysis is used to identify the internal strengths and weaknesses of an
organization and the opportunities and threats from the external environment. Once this
exercise is complete, an organization is ready to develop a strategy that leverages their
strengths, determines if they have the resources to improve their weaknesses and if not,
how critical they are to the success of a strategy. Then, the external environment is
measured by the opportunities such as a growing market for a product of service, the
vulnerability of a competitor that can be exploited for gain, or through an acquisition of a
company that fills a competency void or to increase capacity. Finally, the analysis looks
at threats such as economic issues, scarcity and escalating cost of raw materials, or an
emerging strategy that a firm is unprepared to compete with (Gamble, 2014).
SWOT Analysis
Strengths (Internal)
Economies of scale and established processes create buyer
power.
Domination in certain markets creates high barriers to entry
Alliance with iHEART Radio to carry Cumulus’ stations on
their digital platform
Lack of availability of new station licenses increases value of
Cumulus owned licenses
Diversity of experience in the management
team and on
the board of directors
Weaknesses (Internal)
High long term debt to equity ratio affects the ability to
borrow capital
Reliance on syndicated programming increases supplier
power and diminishes differentiation
Lack of national-level content production competency
creates vulnerability and dependence on producers outside of the
company
No proprietary digital platform
Opportunities (External)
Increasing the use of digital plaforms opens stations to large
geographic audiences, smart phone and computer listeners, and attracts more
advertisers
Purchase exclusive rights to air popular talks shows,
purchase them outright, or produce them.
Produce their own shows
Offer to sell programming to Sirius / XM
Threats (External)
Disruption in alliance with iHEART radio could result in a
high expense to develop and promote a Cumulus proprietary digital platform
Movement from local content to syndicated programming
jeopardizes station recognition in the community
Consolidation reduces demand for many radio station
positions which could lead to a decrease in supply of talent
Increased capabilities of substitutes such as Apple could reduce the
demand for broadcast radio
Strengths (Internal)
Cumulus has generated an economy of scale and established processes to create
buyer power. When an advertiser is researching a market and is considering a Cumulus
station, they simply go to the Cumulus website for that market where the advertiser can
see the number of stations, their format, links to the individual station’s websites, and a
media kit (Cumulus Media, Inc. 2014).
The fixed costs to build the websites, the templates for the media kits, and the
processes for presenting such can be spread among 500 + radio stations (Cumulus.com
2015). Cumulus’ presence in their respective markets includes the ownership of several
stations so one of their strengths in dominating the ownership of stations in a market is
the creation of barriers to entry as there are a limited number of stations available in each
market and as mentioned before, a new entrant may require the resources of Cumulus to
compete.
In 2011, Cumulus created a strategic alliance with iHEART Media to carry Cumulus
stations on their digital platform (Clear Channel.com, 2011). This enabled Cumulus to
leverage the experience Clear Channel and gave it immediate recognition with the
iHEART Media brand. The alliance also allowed Cumulus to redirect their financial
resources from building a digital infrastructure to other uses.
Cumulus Radio currently holds 525 FCC radio station licenses (Cumulus.com, 2015)
and as previously stated in this paper, the FCC is not accepting any applications for new
stations (FCC, 2014) so with the demand for licenses increasing and the supply remaining
static, this should increase the value of their licenses and raising the barriers to entry by
the increased price a license holder might demand for selling it.
Cumulus’ executive team, as well as their board of directors, are an intangible asset
and a competitive advantage in the market. Their collective experiences inside and
outside of the broadcast radio industry as well as the amount of time served in broadcast
radio give the company a strength in decision making and long-term planning
(Cumulus.com, 2015). Other operators could create an executive team and board of
directors however the cost and time of hiring the level of talent at Cumulus would be very
difficult to reproduce at a pace that would facilitate immediate market presence.
Weaknesses (Internal)
According to their 2013 Income statement (Cumulus Media, Inc., 2015), Cumulus
has a long-term debt to capital ratio of .84 which Gamble, et al.(2014) states that any
ratio greater than .25 indicates that a firm is heavily dependent on debt. This weakness
could be a factor if economic conditions change, a new entrant emerges, or if their
alliance with iHEART radio dissolves and they are forced to develop their own digital
platform.
Cumulus-owned stations are reliant on syndicated programming and this increases
the seller power, particularly when a contract with a popular talk show host is up for
renegotiation or if they violate the terms of their contract. As an example, in 2013,
popular talk show host Rush Limbaugh considered not renewing his contract with
Cumulus. According to Politico (2013), because of alleged derogatory remarks made
about a Georgetown University college student by Limbaugh, Lewis Dickey, Jr., CEO of
Cumulus estimated that his company lost over $2 million in advertising revenue because
of the alleged remarks and the fact that Cumulus kept airing the Limbaugh. He came to
an agreement to stay on with Cumulus and if he had departed, the negativefinancial
implications for Cumulus and its affiliates would have taken a long time to recover from.
Cumulus does not produce their syndicated shows. As stated in the previous
paragraph, Cumulus could have lost millions of dollars and had to find a replacement for
Limbaugh who could attract the same volume of listeners and the advertising revenue
that was lost.
Cumulus currently airs its content on Clear Channel’s iHEART Radio digital format.
Although this eliminated the need for Cumulus to develop their own digital brand and
sped up their appearance on the internet, it also leaves them vulnerable if Clear Channel
decides not to renew the contract. Clear Channel has a vested interest in the advertising
revenue that they earn by carrying Cumulus stations however if Cumulus were to make
other strategic moves such as acquiring a radio station that would threaten a station
owned by Clear Channel, this has the potential to create a problem for Cumulus.
With Cumulus’ large scale of operation, they are able to spread fixed costs across
525 radio stations which gives them a competitive financial advantage over smaller
station groups or independent stations. This represents possible acquisition opportunities
for Cumulus at a lower price vs. buying a group of stations.
Opportunities (External)
Streaming of broadcast radio has increased at a rapid rate and provides an
opportunity for Cumulus to expand their digital presence. According to Kinsella (2014),
advertising revenues for digital platforms are increasing at 4 times the rate of traditional
terrestrial radio station revenue and with the increased popularity of smart phones and
other technology, it makes good economic sense for Cumulus to reap the benefits of a
larger digital presence.
Another opportunity would be to purchase exclusive rights or outright buy the shows.
If the company had the capability to produce their own shows that would have national
appeal, it would reduce their dependence on others and create a valuable brand for
Cumulus. Amazon.com (2015) recently produced a sitcom called Transparent and won a
Golden Globe award for their efforts (Guardian.com, 2015). They continue to carry
shows produced by other companies however their dependence on outside sources was
diminished with this success.
Currently, Cumulus’ content is aired by their own stations, through iHEART radio,
and by affiliates. One market that they are missing is satellite radio such as Sirius / XM.
Despite the fact that their subscriber population is relatively small, Sirius / XM capable
radios are available as standard equipment in many automobiles and the content of Sirius
/ XM is tailored to a specific sport, news type, or music preference (“Sirius/XM
Welcome,” 2014). If Cumulus were to air some of their local stations on Sirius / XM,
they would not be the first mover because Sirius / XM currently airs a small number of
terrestrial broadcast stations (SiriusXM, 2015) however, they would give their loyal
listeners the opportunity to listen to their stations when the listener was out of broadcast
and cell phone reception range.
Threats (External)
If the strategic alliance with iHEART radio was disrupted, this would leave
Cumulus with no digital platform and result in a loss of revenue, listenership, and
possibly show hosts. This threat could be mitigated by learning from iHEART and
developing a digital platform on their own.
Although previously mentioned as a weakness, the threat of moving away from local
content creates a disconnect between the station and the community. Without local
knowledge of a station, it has no differentiation and may cease to exist.
Consolidation in the radio industry has caused a loss of industry jobs (Boyle &
Wexler, 2005). The threat to Cumulus from this job loss is the number of people seeking
careers in radio will diminish as the demand for their talents is reduced so when Cumulus
is acquiring stations and is looking for talent to operate them and produce even a small
amount of local content, the talent pool could be very shallow and cause production
problems in the future.
A significant threat to Cumulus is the threat of substi…
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