Unexpectedly Intriguing!
14 September 2006

Brian Mulroney, the Radio Equalizer reported yesterday that the clock counting down to bankruptcy will finally run out on Air America Radio (AAR) this Friday, 15 September 2006.

As Political Calculations' readers know, we began following the AAR story as a business case study. In that original analysis, we asked three questions that would determine whether Air America would become viable as an ongoing business without going into bankruptcy. We can now answer those questions, assuming that the story is true, of which there is some question at this time (Update 15 September 2006: Brian Mulroney confirms that the liberal blog Think Progress has retracted it's story as false. Oddly enough, our analysis below still holds!):

1. What "critical mass" of stations or ratings is needed to generate the operating revenue required for the network to become self-sustaining without additional investor capital infusions?

At its peak, AAR's local broadcast affiliate network consisted of somewhere between 80 to 90 stations, along with its Internet and satellite broadcast outlets. At present, the network has just 39 affiliates in the Top 100 radio markets in the U.S. and five of these markets (New York, Los Angeles, Portland, Seattle and San Francisco) account for more than half of the network's total audience.

With a national average Arbitron rating between 0.9 and 1.0 over the past year, AAR's share of the listening audience has simply not grown at all. Since a radio station's revenues from advertising is directly proportional to the size of its listening audience, and given that advertising accounts for the vast majority of a radio station's revenue, the lack of audience growth indicates that AAR has had no significant revenue growth over this period.

It would then go that the "critical mass" of stations and ratings needed to sustain Air America Radio an a viable business was much greater than these levels. The bottom line: While AAR's management deserves credit for assembling a network of stations in many of the U.S. top radio markets and keeping the operation running for as long as it has, AAR's programming wasn't good enough to attract enough listeners to support the exceptionally high cost of its on-air talent to keep the operation out of bankruptcy.

2. Can the network grow fast enough to reach that level of self-sustainability before having to fold?

Combined with highly disproportionate costs for the radio industry, particularly for on-air talent and their staffs, AAR's management has had the challenge of trying to grow revenues to meet the network's exceptionally high expenses in order to become self-sustaining. Despite significant cost reduction efforts, including layoffs and firings of on-air personalities, as well as cutbacks in operational expenses, AAR's management could neither increase their revenues or reduce their costs enough to achieve operational profitability.

3. If the network cannot achieve operational profitability, can it convince its current or new investors to provide more capital to keep it afloat?

Air America Radio is entering bankruptcy proceedings specifically because its "white knights," RealNetwork's Rob Glaser and financier George Soros, who had previously kept the money flowing freely, are likely not interested in continuing to write blank checks to a failing enterprise with a bloated cost structure. Then again, that's been true of Air America Radio for some time - so, why should they stop now?

The Future of "Progressive" Talk Radio

The lack of willingness to continue funding AAR's operations doesn't mean that the network's "white knights" are going to stop funneling their money toward local broadcast radio outlets altogether, so much as that is suggests that they've tired of underwriting the liabilities that accompany Air America Radio and its current parent entity, Piquant LLC.

The early indications are that AAR's senior management is aligning its assets to benefit another business entity assembled by fellow left-wing political activists. GreenStone Media, which includes Jane Fonda and Gloria Steinem among its principals, is expected to take over many of the company's physical assets and may also go on to acquire its local broadcast affiliate venues, and perhaps the services of some of AAR's current on-air talent as well. Interestingly, both Steinem and Fonda appear to be connected through political affliations and financial relationships with George Soros' myriad political influence organizations.

Meet the new boss, same as the old boss....

It would appear that the new group may be intended to cleanly take over AAR's functions while washing its hands of its liabilities - a variation of what AAR's management attempted when it transferred Air America Radio from Progress Media to the Piquant LLC, but failed when it was ultimately unable to dispose of the network's Gloria Wise Boys and Girls Club obligation, which is still outstanding.

It stands to reason that "progressive" talk radio will continue as the forces behind it are unwilling to give it up. We suspect it will just go forward with a superficial makeover and a cleaner balance sheet.

Update: 15 September 2006: As we noted above, our analysis still holds. We do note that the sale of AAR's assets, which Brian Mulroney suggests may be in advanced stages (with the leaked bankruptcy story a tactic to lower the sale price), may also be used to achieve much the same goals, but with the disadvantage of not shaking the network's liabilities.

Previously on Political Calculations

The Future of Air America

We kicked off our series of posts analyzing Air America Radio viability as a business with this post. We really didn't think it would go much further than this!

Air America, Again

We found that AAR doesn't just have competition from the right - it has it on the left as well....

The Financing of Air America Radio

A throw-away post that let us fill space with some information on where AAR got its financing that we had come across in our previous analysis.

Time to Harvest or Divest

As AAR appeared to be running into significant turbulence, we updated our original strategic business analysis, finding that what AAR's management needed to do was to find "white knight" financing or to start making moves to significantly cut its costs.

A Top Ten Countdown

We couldn't resist applying a list a bankruptcy lawyer came up with for a failing company to AAR's known problems - lucky thing AAR has benefitted from the generosity of multi-millionaires with deep pockets.

Profiles in Semi-Obscurity

Another space-filler post where we just unloaded background information about various members of AAR's Board of Directors that we had come across in previous analysis.

Air America's Ratings in the Top 100 Radio Markets

Our look at AAR's ratings through Arbitron's Winter 2006 period.

A Bigger Footprint

An intrepid e-mailer let us know that AAR's flagship affiliate WLIB had a bigger footprint than just the New York City market - plus, we find that roughly half of AAR's audience is in just five cities.

Profiling a Handful of AAR's Local Affiliates

Once again, we unload information we collected in other analysis. This time, we estimate just how many local AAR affiliates there are by determining where they're not.

Air America's Spring 2006 Ratings

Here, we found that ratings weren't growing, at all, for the troubled radio network.

About Political Calculations

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