The 800 lb Gorilla Leaves the Nest
A while back I posted that Clear Channel Communications had decided to divest itself of the behemoth Clear Channel Entertainment unit. Responsible for 140 plus venues and almost US$3 billion in revenues, CCE was the rock that was dragging down Clear Channel faster than Big Pussy sank after being tossed off The Stugots. The plan was to create an entertainment empire by using aquisitions of existing promoters then “leveraging synergy” between the CC radio and promotion units and owning the venues to create an unstoppable force in the live entertainment biz. Darth Promoter, if you will. The problem is it failed. Badly. On the scale of Waterloo. The tactics they used to drive the competition out of the market bit them in the ass as they were paying too much to too many to ink exclusive deals. I’m all for paying the bands that draw the crowd handsomely but some of these acts hadn’t made a new record in a decade or better and continued to do the same rehashed shed tours with other acts of the same ilk for far too much money. And CC continued to pay them.
With the May announcement of the divestiture I was expecting that they would sell the whole thing and exit stage right from the entertainment biz. I was wrong, they weren’t going to sell it per se, but divest it to a publically traded company in which neither CC or the new company would have anything to do with each other. I suppose that’s why I have a bunk on the bus and not a seat in the boardroom. The thing is so damn big I doubt anyone could have bought it anyway. Or would have wanted to. Here is how it is going to work, according to docs filed with the SEC a couple weeks back. A new company, the current working name CCE Spinco (to be rebranded just prior to the divestiture) will aquire the assets of CCE from parent CCU including 109 owned venues worldwide and exclusive contracts at another 41 venues, the concert and Broadway promotion arm of the biz and the motorsport and sports end as well as and the mountain of liabilities from the failed attempt of making a profitable go at taking over the concert biz. There will be a distribution of one Spinco share for an unspecified number of CCU shares. You’ll keep all your CCU shares and gain whatever Spinco shares are determined in the final deal. The deal is expected to close by the end of the year. CCU will not hold any Spinco stock, Spinco will not hold any CCU stock. They’ll operate as two separate companies though share some directors and the chair of Spinco will still be the CFO of CCU in addition to some operating agreements between the two corporations as a requirement of the divestiture.
Lest anyone thinks the new company will retreat from concert promotion to concetrate on venues, B-way and motorsport, acccording to the filing the new company will “seek to maximize cash flow from operations through the ownership and operation of a leading integrated live entertainment network.” Pretty ballsy for a company that’s taken more hits than Mike Tyson’s ex. Stands to reason, concerts account for 85% or so of revenue. There is a so called “poison pill’ provision to insure any takeover attempt not approved by Spinco will be thwarted. In addition “We seek to attract large audiences by securing compelling live entertainment events. We use our industry relationships and experience to attract popular established artists and events, while also using our local presence to identify and develop new artists and events.” That’s going to require some mammoth bridge building and I’m not talking Bridge on the River Kwai style building. I do find the breaking new artists thing compelling, hope it works for them. If they can help promote and break new artists it will give them some much needed cred. Under CCU new artists were almost non existent given CC radio homogenized and “Jacked” the format so bad it basically killed AOR or modern FM radio. If you beat your cash cow and don’t feed it, soon it will die. And this whopper almost laughed me out of my chair “The live entertainment industry is highly competitive and the success of our events are primarily dependent on public taste and our ability to secure popular artists.” The industry WAS competitive until your former master got involved. The artists will still work with you but you’re going to have to rub them with some money, mend some bruised egos and be more humble. When nobody likes you, you often have to rub them with lots of cash to get them to deal with you. You guys have a long road ahead.
That’s not to say that it can’t happen. There are still plenty of good people in the trenches that were aquired when the consolidation was happening. These people know the biz, they are respected and promoting them to positions in management will go a long way in restoring your cred. It’s going to depend on how fast and how well new CEO Mike Rapino can execute. The bloodletting has already began. CCE’s Minneapolis office is said to be slated to close with the Detroit based Cellar Door operation servicing the Twin Cities market, buyers Eric Herz in the Avalon (So Cal) office as well as Brian Drusky in the Belkin office in Pittsburgh have been let go. There are also rumblings that the Nashville office will be moved to Chicago. Most of the execs under former CCE CEO Brian Becker are said to have been shown the door. Clear Channel won’t comment though insiders speculate this is the early stages of what will be an all out exorcism of the old management blood and some mid level marketing and admin staffers said to be in the area of 200 jobs. While it’s a drag to see rank and file staffers lose jobs, the former regime bollocksed things so badly it’s going to take drastic measures to get the Clear Channel stench off this new company and repair the riffs.