Entercom, on Verge of CBS Radio Buy, Takes Stake in Podcaster

(Bloomberg) -- David Field, whose dad started Entercom Communications Corp. with three FM stations 50 years ago, wants to breathe new life into old media with his $1 billion purchase of CBS Radio -- and podcasts will be a part of it.

Entercom, with 126 stations in 28 cities, is acquiring 45 percent of Dgital Media, a startup that handles ad sales and distribution for “Pod Save America,” “Recode Decode” and “The Tony Kornheiser Show.” The Bala Cynwyd, Pennsylvania-based station owner paid $10 million, according to a person familiar with the matter, and has the option to buy the rest.

Podcasts are one way Entercom plans to spruce up the news and sports outlets it's acquiring from CBS Corp., a deal expected to close later this year. In buying the CBS division, Field, 55, is transforming Entercom into the No. 2 U.S. radio broadcaster behind iHeartMedia Inc. and trying to turn a local programmer into a national powerhouse with 243 stations.

“Our frustration has always been lack of scale,” Field, the company's chief executive officer since 2002, said over breakfast of shakshuka and green juice in Beverly Hills, California. “We were always limited by the scope and scale of the operation.”

The purchase of CBS Radio changes all that and gives Field, whose father Joseph started the company in 1968, a chance to show growth is still possible in an industry where revenue has stalled and millions now also listen to iPhones, Spotify and other digital services. That means focusing heavily on local audiences and exclusive programming, and weaving podcasts into the mix.

“Podcasting is a beautiful fit with everything we do,” Field said. “Say Bill Clinton wants to do a podcast. Imagine being able to put five minutes of a Clinton podcast in that local show.”

Field, one of the last true believers in radio, wakes up each day and listens to his company's stations across the country, as well as the competition, like WIP, the main sports outlet in his home town of Philadelphia. That CBS station, and almost 120 others, will come under his ownership when he closes the deal announced in February.

Long Pursuit

Field said he has been pursuing CBS Radio for years, convinced its mix of sports and news stations in major markets, like WFAN and 1010 WINS in New York, would complement Entercom's music stations. The company will now have a major presence in 23 of the 25 biggest markets.

Government regulations used to severely limit how many stations any company could own when Field's father, a tax lawyer, foresaw the boom in FM radio and raised money to buy signals. He founded Entercom with three stations. David Field joined his father in 1987 after four years with Goldman Sachs. Nine years later, government reforms revised the rules for media ownership and ushered in a wave of consolidation.

Clear Channel, now known as iHeartMedia, went on the biggest buying spree, and is now the largest player in the market. But scale hasn't been kind to iHeartMedia or Cumulus Media Inc., which are choking under debt raised to finance their acquisitions. IHeartMedia's cash fell by more than half in the second quarter from a year earlier, to $260.5 million, and the company extended talks with creditors this week to negotiate a debt overhaul.

Entercom had no such problems after balking at the price of ABC Radio and Citadel, whose stations are now owned by Cumulus. The company's biggest deal before CBS came in 1999 when it acquired 46 stations from Sinclair Broadcasting Group Inc. for $824.5 million. IHeart has a lot more stations that focus on music rather than talk, which may make the company more vulnerable to Spotify and other outlets than Entercom with its sports and news.

But the CBS deal comes with costs. Entercom's net debt will increase fourfold to about $1.86 billion and the issuance of 105 million new shares to CBS stockholders will dilute the Field family's voting stake in the company to 25 percent from almost 75 percent, according to a regulatory filing. Revenue will increase about 3.7 times to $1.67 billion -- a distant second to iHeart's $6.3 billion.

Entercom shares, after soaring on enthusiasm surrounding the deal, have come back to Earth. They peaked at $16.55 when the purchase was announced and have since retreated to under $10. They were down 2 percent to $9.65 at 2:38 p.m. in New York.

Field says the merger will create national advertising opportunities that Entercom never had before as an operator of local stations. The company will expand its programming in sports, news, talk and entertainment to serve the broader base of stations. Such scale has enabled iHeart to make deals with large national advertisers that wouldn't previously consider radio.

“Radio, up until a couple years ago, didn't have conversations at senior levels in agencies, at the C-suite level within consumer goods companies,” Field said. “The conversations we're having with all sorts of companies about this, they are excited. There are some amazing things we can do with the benefit of scale.”

Field also vows that a few years from now Entercom will be bigger than just the sum of two companies put together in 2017, promising growth for the combined enterprise. That's a big pledge in an industry that hasn't really shown progress in years.

“While radio isn't perfect, we have a real opportunity to redefine and almost have a renaissance in the industry,” Field asserts. “The company is capable of significant, sustained, organic top-line growth.”

To contact the reporter on this story: Lucas Shaw in Los Angeles at lshaw31@bloomberg.net.

To contact the editors responsible for this story: Crayton Harrison at tharrison5@bloomberg.net, Rob Golum