Citadel's Farid Suleman: We Need Leaders, Not Pretenders (10/04/04)
By Reed Bunzel, Editor-in-Chief
Farid Suleman has been chief executive officer of Citadel Broadcasting as well as a special limited partner of Forstmann Little & Co. since March 2002. That’s when the company hired him away from Infinity Broadcasting, where he had served in a number of positions over the previous 16 years. Forstmann Little had purchased the company from veteran broadcaster Larry Wilson the previous year, and the 2001 numbers made it clear to the new owners that they needed someone to come in and fix it — someone who had “been there, done that.”
Suleman was just such a person. Prior to joining Citadel, from February 2001 to February 2002, he was president/CEO of Infinity Broadcasting, and he had been executive vice president/CFO/treasurer and a director of Infinity Broadcasting from September 1998 to February 2001, when Viacom acquired Infinity Broadcasting. Suleman was named senior vice president of finance of CBS in August 1998, and senior vice president/chief financial officer of the CBS Station Group in June 1997.
Born in Tanzania, on the slopes of Kilimanjaro, Suleman attended school in England, then worked in finance in London for two-and-a-half years before moving to New York. “I worked for what at the time was Arthur Young, where I did mergers-and-acquisitions work in the cable and media industries,” he recalls. “I joined Infinity in 1986, when Infinity had $8 million in EBITDA. When I left in March 2002, our budget for EBITDA for the year was $2 billion — and I met my first quarter when I left.”
Now, just 30 months after coming on board, Suleman appears to have brought the “right stuff” with him from Infinity. In early August, Citadel reported that net revenues in the first half of 2004 were a record $194.2 million, compared to $172.6 million for the same period in 2003. Excluding the effects of stations acquired in 2003 and thus far in 2004, same-station net revenues increased 5.2 percent vs. the first half of last year. Moreover, second-quarter 2004 revenues were $107.3 million, compared to Q2 2003’s $95.4 million, a 12.5-percent increase. Same-station second quarter revenues were up 4.7 percent over the same period in 2003.
“The company was able to post record second-quarter operating results in spite of a continued difficult environment for the radio industry,” Suleman said during a conference call at the time. “The 13-percent increase in station operating income, combined with the benefit of refinancing the company’s subordinated debt, resulted in a 56-percent increase in free cash flow.”
These numbers weren’t achieved without considerable effort and determination. As Suleman recalls, “When I arrived here in 2002, they had just come up with 2001 numbers, and the cash flow was $88 million. I arrived almost like the blind leading the blind, and I didn’t know a single one of Citadel’s markets.” Committed to his task of turning around a company that Suleman says lacked both a culture and a strategy, he made it his mission to instill a sense of dedication and self-worth throughout all tiers of management.
During his years at Infinity (and continuing at Citadel), Suleman admits to being somewhat reluctant to publicly discuss either internal corporate operations or his overriding issues about the radio industry. However, when Radio Ink pressed him to sit down for this special NAB Radio Show cover interview, he agreed to do so — with the proviso that some individuals within the industry might find his concerns and criticisms as controversial or, quite possibly, heresy.
As if that would make us think twice.
INK: After 16 years of working with Mel Karmazin at Infinity, did you experience a sense of freedom when you came to work at Citadel?
SULEMAN: Well, I had freedom before, and I have total freedom now. It’s been awesome. But I’ll tell you, the transition was hard, moving from a highly buttoned-down culture that had evolved both in radio and outdoor over my 16 years at Infinity. I’d spent all my life saying, “Who would ever want to be in small markets?” Suddenly, I had a company that was all small and medium-size markets.
Plus, there didn’t seem to be any cohesive culture, because the company had expanded rapidly in the two years before I got there. They had the “western cowboy company,” which was the old Citadel, and there were the Southeastern acquisitions that were predominantly in the Knoxville, Nashville, Tri-Cities, and Chattanooga areas. They also had the Northeastern culture, which came from the Fuller properties. So there were three distinct cultures, and none of them shared an overall strategy or vision.
Was instilling a culture the biggest challenge you faced when you joined Citadel?
That and cash flow. When I arrived in March 2002, they had just come up with 2001 numbers, and the cash flow was $88 million — for 200-plus stations in 40 markets.
I arrived almost like the blind leading the blind, and I didn’t know a single one of Citadel’s markets.
What was your first move?
I visited every market, and I still visit all the markets. I determined that I needed to make a total hands-on change of cultures and create a vision. Of course, this was during what I think was one of the toughest radio environments ever. Since then, we’ve gone from $88 million in cash flow to the $160-plus million in EBITDA that the analysts are projecting for us this year. That’s in just three years.
How did you go about identifying the culture that you wanted to bring to the company?
The corporate staff at Citadel was bigger than I had at Infinity, so I had to streamline it. The first three months, I visited every market, holding “town hall” meetings at every station and telling everybody the same thing: “This is the way it’s going to be: You’re either with me or you’re not. If you’re not, we’ll work it out now, because you’ll get a good severance and you can leave.” And people wanted to stay.
I tried to create my own version of the Infinity culture by taking the best of everything. It was amazing how quickly the company was transformed. Within a year, we repositioned the company, eliminated a lot of the regional managers and made everybody hands-on accountable for what they did. We created an entrepreneurial environment. What was amazing was the way a majority of the managers responded. They liked it.
There had to be some people who resented change.
There were, but I gave everybody a chance to perform or they were out. My line was: “If people had arrived at work this morning and weren’t sure that they wanted to work at Citadel or the DMV, they should leave now.”
Through this process, I also found that there really wasn’t that much difference between big markets and small markets. The numbers were smaller, but the people were just as good, which was a real surprise to me. My managers in many of these markets have chosen to be there for the quality of life. It wasn’t as though everybody had to be in New York and L.A. and Chicago. I always thought that if you were good, you moved to a bigger market. I found I really had good people.
So once you created the culture of “we’re going to win,” everybody began to fall into place.
People like to be part of a winning strategy. There are two types of people. There’s one type, which I used to call the old “CBS Country Club.” It was full of people who felt that, as long as they left things alone, they didn’t really care what happened outside their group. As long as there was security, they were fine. They party, they’re part of the chosen group, and they’re fine. That was the old Citadel culture. It was almost as though the name “Citadel” implied that they didn’t really care what happens outside the company. And I’ll tell you what: A lot of those people didn’t survive.
However, there were people who wanted to go out there and win. They wanted to get the Number One revenue share and improve their ratings. It was amazing. And I can tell you that now, in about 80 percent of our markets, we’re Number One or Two in ratings and revenue. That is what we will have to do if we’re going to win, or survive against Clear Channel.
Still, you brought in a number of people from outside the company, including from Infinity.
We did, but look at the managers we’ve had: We have Bill Figenshu from Infinity; Kevin LeGrett, who was one of my best managers at Infinity; and Dave Siebert, who ran my whole Dallas cluster. We have Paul O’Malley from Clear Channel, and we just attracted another person from Clear Channel. How often had that happened at Citadel before?
You also stole Judy Ellis from Emmis.
That’s right. Judy is as hard-charging as anybody, so suddenly I was the nice guy. Judy is one of the best radio operators that I have worked with. She is hard-working, she relates to people, she brings a culture to the company, and she doesn’t take any bullshit from anyone. So Judy brought her touch in, and the culture emerged — really the best of all.
Together, we established an entrepreneurial environment where stations are locally programmed and locally sold with a minimal amount of corporate control, other than that we always want to know what’s going on. That’s the culture today.
Did you explain how you were going to compete and win against the big players, such as Clear Channel and Infinity, a behemoth you helped create?
I put in some overall parameters how we would do what I had in mind, and then I essentially let people perform. The changes happened gradually over the course of a year, so there was no disruption in any market. There was no mass exodus or mass firing. It was “Here’s the new culture; here’s how it’s going to be.” I also told them that Citadel was not a family owned company, so they didn’t have to have the last name of the chairman or CEO. They didn’t have to be a Mays or a Field. I said, “If a person named Farid Suleman can be CEO and a woman can be the president of the company, all of you have even better chances of succeeding.”
Was it a daunting task to initiate a public offering and acquire attractive properties during such a prohibitive economic downturn?
It was not daunting, but I knew that we could not do five things in parallel. We could not take the company public until we fixed it. The company was highly leveraged when I arrived. The debt was a billion fifty, and cash flow was 88 million. Five hundred million was Forstmann-Little’s own debt, but it was still debt, and 550 million was the bank debt. At purchase, the cash flow was supposed to be something like 120 million, but not only did they not make any growth their first year, they actually went below 2000 numbers.
The first thing I had to do was fix the company. Once we did that, we could take the company public. As soon as we went public, I totally de-levered it, and then we went looking for acquisitions. It was hard in that I could do only one thing at a time here, but it happened fast. As soon as we got one thing done, we went on to the next. You’re right — it was a tough economic environment, so we couldn’t miss any opportunities.
Have you brought the company to where you wanted it to be at this point in 2004?
Our stock price notwithstanding today, we sort of doubled the cash flow, got the management team in place, fixed the culture, made acquisitions, took the company public and completely de-levered it. Our debt today is under 600 million dollars, and our interest expense is one-tenth of what it was.
Over the last couple of months, Wall Street has dumped on radio and radio stocks. Is the radio business being unfairly maligned by analysts, or has this been a wake-up call for the industry?
This is what happens when every radio executive becomes an economist. If you remember, they would give projections about where radio was going. They should have known that you can’t project next week in radio, but there they were, giving projections. “We’re going to be up double digits,” they’d say, even though this business is not a double-digits business. The only time we were in double digits was when the Internet piled up the numbers.
A series of people were selling Wall Street on projections. It also was the time that pacing almost became like a Wall Street ticker. The whole analysis was based on “what’s your pacing?” — the only question they’d ask.
Do you think today’s stock prices unfairly represent the value of the public radio companies?
Today’s stock prices are an exaggerated effect of what the industry has become. When it was 6- and 7-percent revenue growth, people said it was more like 9 or 10, and you got a really big multiple. Now it’s like a 2- or 3-percent business, and the multiple has gone the other way. The answer will be that it will settle down at some point in the middle.
Have acquisitions slowed equivalently?
Sellers are still trying to sell radio properties at 20 times next year’s cash flow, and nobody is going to get those prices. If Citadel is going to do $160 million in cash flow and if I can buy 10 or 12 million of cash flow in acquisitions — which is what I’ve done the last couple of years — that’s a big deal.
There are enough acquisitions for the next three to five years to satisfy our targets, which are pretty aggressive. The sellers got used to getting 20 times cash flow, and the buyers got used to paying 20 times cash flow. When your stock’s not at 20 times cash flow, though, anyone who pays close to those multiples is really going to pay for it. I think you’ll see a bit of a standstill for a period of time until someone needs to sell.
Recently in Radio Ink, former RAB board chairman David Field lauded the efforts of the industry’s leaders to expand the perception of radio among national advertisers and agencies. How satisfied are you — or not — with the current leadership within the radio industry, both at the trade association level and at the corporate level?
I totally disagree with David Field, and you can quote me on this, because I’ve talked to him at length about this. For me, David Field’s pretending to take a leadership role is dumb. It doesn’t make sense. You have Clear Channel as the largest radio company — it’s huge.
Then you have Infinity. Then you have a bunch of companies like Entercom, Citadel, Cox, ABC — all in that $400-million revenue range. The gap is so huge. When Procter & Gamble wants to go out and sell toothpaste, they don’t go to a retail organization and say, “Hey, come up with a strategy of selling toothpaste.” They go out and invest in their own company. They do their research, they do their marketing, and they go out and promote it.
You don’t believe the RAB can present a strong case to national advertisers for buying radio?
How can you have something like an RAB go out and be an industry arm? You can’t have an industry arm. You must have leadership at companies that are the biggest in the business.
The problem here is very simple. Radio is a business — you have a product and then you have to sell the product. To sell the product, you have to be a seller; and in order to sell, you have to be a marketer. Isn’t it strange that we are the only business in which 25 to 30 percent of your advertising is sold by sellers who don’t work for your company? It’s sold by outside rep firms: Interep or Katz. We have taken 25 to 30 percent of our business and turned our destiny over to somebody on the outside.
I’m not saying the rep firms are bad; I’m just saying that’s what we’ve chosen to do, and you really have to question the business model when that happens. The second part of this equation is that national business is not sold; it’s bought. The rep firms become order-takers.
You don’t think they’re working hard to bring in new business?
Yeah, they have this little new business-development category that they talk about, but it represents less than 3 or 5 percent of annual business. What you really have is agencies that decide what they’re going to do, and then they call in the rep firms. So when we talk about leadership, what do we really mean? That a whole bunch of CEOs in radio went out and met with the agencies about radio. I mean, “hello.” It’s nice to make a friendly call, but who’s going to follow up and get the order?
My view is that you don’t need the RAB. We have decided that we’re going to sell national advertising through our rep firms, we’re committed to our rep firms, so we should make sure that those rep firms are out there selling, promoting, coming up with strategies, looking at the 50 largest network advertisers in television and saying, “Who’s not buying radio and why, and what should the strategy be?” It’s a shame it has to be done with outside rep firms, but that’s the right place to do it — not at an RAB level.
Are you saying that the industry doesn’t need a unifying voice to speak for it?
Industry organizations, whether they are the NAB or the RAB, can do all they want to say, “Radio is great” — then tomorrow, Clear Channel announces they’re going to have war rallies, which gets a lot of people all upset and generates controversial media coverage. Why would I support the RAB and put out ads that radio is a great thing, when one of our industry leaders then says, “I don’t want the Dixie Chicks on my stations” or “I hate Howard Stern”? Leadership really has to be company-specific.
How concerned are you about satellite radio and its potential to usurp some of terrestrial radio’s local identity through traffic and weather reports?
Satellite doesn’t affect radio, because it’s a boring medium. In radio, you can become localized, and you can promote it that way. I know the satellite companies want to give weather and traffic, but they have it all wrong. It’s weather and traffic within the local programs that works. When I’m listening to satellite radio, how do I know when I should go and turn on the traffic channel? It’s not like when I’m listening to Country music — commercial-free Country music on satellite radio — and they come on and say, “By the way, there’s s traffic jam coming up on the Long Island Expressway.”
Has radio done all it can to maximize the critical mass — and significantly increased sales — that consolidation was supposed to deliver?
No. Radio was a great business before consolidation, when there were lots of small businesses that were very well run. They were run with passion, there was great programming, and the belief was that consolidation would help you own more of these great businesses.
The challenge was, once you put together these big national clusters, what was the strategy of maximizing them to generate greater revenues? We really failed. Companies came in and they cut costs, but they had no strategy to improve them. They just hoped that the business would continue to go as before, and guess what? Once they went off auto-pilot, nobody knew what they were doing. They have multibillion-dollar businesses with no strategy about how to improve revenues.
What do you think of Clear Channel’s recently announced plan to cut spot loads in order to help drive up pricing and reduce on-air clutter?
What John Hogan has done is great, but that’s a very small element of it. He sat there and said, “I’m going to improve my product.” So yes, the first thing in improving the product requires you to improve the perception, get rid of some of the clutter, and cut down on some of the commercials.
The big part is actually improving the product so it’s not hub-and-spoke, because if you run the same programming everywhere, satellite radio then can compete. They have to follow it up with a great marketing plan. Clear Channel is a huge company, and they can have five or six very creative marketers who can show that radio can work, show people why radio is effective.
The FCC and the courts have somewhat muddied media ownership rules. How would you like to see these rules sorted out, and what would that mean to you?
The rules don’t make sense. The FCC shifted from the contours line, which used to define a market, to an Arbitron-defined market. Think about it: Arbitron will define any market that you want if you’re willing to pay for it. So in some places people pay, and in some they don’t, and does that become the basis for an FCC to decide who owns what? The entire starting point here is wrong.
What’s even worse is that substantial consolidation occurred under the previous rules, and it was found that some companies abused them. So what do they do? They change the rules now, prospectively going forward. Hey, guess what? The horse is out of the barn. If you want to adopt new rules because there’s been abuse, apply them retroactively. That is a level playing field, where everyone works with the same set of rules.
At Infinity, you oversaw programming that many critics contend pushed the edges of indecency. How do you define indecency, and what can the radio industry do to ensure that it follows the FCC’s guidelines on this issue?
Well, it can’t be an industry issue, because when it’s an industry issue, you have people coming up with their own way of dealing with it. My view is that the laws are there, they’re defined, and they should be implemented uniformly. But that’s not how it’s been. For years, Howard Stern’s show has been the same, so why did the FCC suddenly come down on him the way they have this year? We should not be in a position where something that was legal three years ago is not allowed today because somebody has moved the needle. You can’t do that.
Having said that, I believe there should be a standard that should be easily understood and implemented. Every broadcaster has full responsibility to be in full compliance with everything that has to do with the law — including indecency.
With so many entertainment media available to people today, how does radio attract listeners — and keep them?
If there is something attractive for them, they will come. If there isn’t, then they will not. One of the things that is happening is standard formats. If I have eight stations and four are successful, I take my fifth one and go after my competitors to make a successful station, rather than do something a little more creative, like play just new music.
The fact is, most people still have to get into their cars and drive wherever they’re going, so they are exposed to radio. The opportunity to be exposed is there; it [depends] more on whether the programming is compelling enough, whether they’ll sit there and say, “We’d rather listen to this than put on the iPod.”
Where do you see the most significant competition for radio coming from over the next decade?
I think it’s from ourselves. The fundamentals of the business are great. If you constantly research and re-invent your product to meet the organic needs of what’s going on at that point in time, then people will listen to the radio. It has to do with constant research and investing in your product. I don’t mean running TV commercials, either. What I mean is conducting research to make sure your product is current, fresh, and responsive to changing needs.
What is radio’s greatest strength today?
It’s totally flexible, it is highly targeted, and it has the potential to reach big masses comparable to network television if it is done effectively.
On the other hand, what is its greatest shortcoming?
Lack of real leadership: Who will re-invent the product, invest in the product, make sure the product is current, then go out and sell the product — run it like a business?
What do you foresee as radio’s greatest challenge over the next 10 years?
Creating new, national demand for advertising. Local is okay — it goes up and down with the economy — but we have not done anything to make radio more attractive to both existing and new national advertisers. The biggest risk is that it will become commoditized. If it’s a total commodity, you have no control over it. The challenge comes from the dual effects of not investing in the product to improve the demand side, and on the flip side in order to make up for that, you go out and compete with each other — and create a downward spiral.
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