A Sound Business : Upstart Radio Syndicator Says It’s Anything but Static

Cyberspace may be sexier, the information highway more intriguing, but old-fashioned radio broadcasting is hot right now. Radio properties are selling like Picassos at an auction, fetching fantastic prices and driving up the shares of the companies that own them.

To underscore that point, a small Sherman Oaks radio programming syndicator has caught the attention--and dollars--of none other than ex-con multimillionaire Michael Milken and his fellow tycoon and former junk bond client Rupert Murdoch. In July, the investment firm Archon Communications Inc., owned by Murdoch’s News Corp. and the Milken Family Trusts, acquired a stake of up to 44.7% in Premiere Radio Networks Inc.

What do Milken and Murdoch, who also controls Twentieth Century-Fox Film Corp. and Fox Broadcasting, see in a tiny company that produces such fare as “The Jury’s Not Happy,” a parody on the O.J. Simpson trial sung to the tune of “Don’t Worry, Be Happy”?

Simply stated, they want to turn Premiere into radio’s version of the Fox TV network.

“We could have tried to start by buying ABC or CBS [radio networks] or something else,” said Robert M. Fell, Archon’s co-chief executive. “But why not start with a vision, and then a small company that understands the radio business . . . and is eager to grow?”

Radio syndication is an arcane, highly fragmented business in which companies produce programming ranging from music countdowns to talk shows to short jingles. Then they sell the programs to radio stations for either cash or--as Premiere does--for advertising time. The radio stations can customize syndicated fare so the listener wouldn’t even know that it wasn’t produced locally. For instance, the voice of a station disc jockey could be spliced into a celebrity interview to make it seem as if he were asking the questions.

In the radio syndication industry, Premiere likens itself to Fox TV, which was once seen as a brash upstart with little chance of being taken seriously as a real network. Premiere’s hip young staff specializes in short comedy bits aimed at young listeners. And Premiere not only adds a new piece to News Corp.’s media empire--radio--but also gives Fox a vehicle for promoting TV shows: Imagine “Melrose Place Moments” or “Fox Football Update” playing on thousands of radio stations across the nation.

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Yet some radio experts say they are somewhat mystified by the Milken-Murdoch affiliation with Premiere. Though profitable--Premiere earned $2 million in 1994, with $16 million in revenue--it is a fraction the size of the ABC and CBS radio networks and Westwood One, which is controlled by Howard Stern’s boss, giant Infinity Broadcasting.

The economics of network radio are also radically different from television networks, which are critical to local TV stations because they finance nationally branded programming that local stations could never afford. In radio, most stations produce their own music-based programming and have little need for a national network to attract listeners. Only a handful of nationally syndicated programs have been successful at drawing listeners in markets around the country.

“I have no idea as to why either one of them would be investing in Premiere,” said Bob Kipperman, vice president and general manager of CBS Radio. “It’s a very, very small programmer.”

Bob Callahan, president of the ABC Radio Network, questioned whether Premiere would be an effective promotional vehicle for Fox because Premiere “is such a small network.”

But Premiere Chief Executive Steve Lehman, a former DJ who founded the company in 1987, said a $17.6-million capital infusion from Archon will help Premiere grow quickly. “We feel that Premiere is on a fast track.”

Lehman plans to use the money to build on the 27 programs and radio research services Premiere currently produces. And he intends to acquire other small radio programmers, many of which are “below the radar screens of an ABC or a Westwood One,” and which lack the in-house ad sales staff that Lehman cites as one of Premiere’s greatest strengths.

While Milken is not involved with Premiere management, Fell and Archon Co-Chief Executive Kenin Spivak, former chief operating officer of MGM/UA Communications, talk with Lehman every day. It was Fell, a longtime Premiere stockholder and well-connected venture capitalist, who suggested Premiere to Milken as the first of what may become many media investments for Archon.

The influence of Fell and Spivak on Premiere are already apparent. They were instrumental in lining up a deal for music and television producers Quincy Jones and David Salzman to give Premiere the first right to produce and distribute any radio shows they develop. They now see Premiere moving more into “long-form” programming--two-hour sports talk shows, for instance--in addition to the two to three-minute parody jingles and skits that are the company’s hallmark. And they want Premiere to expand globally, by buying radio programmers in, say, Latin America.

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Archon also made good on its promise to Premiere that it would bring in a strategic partner, when, in July, News Corp. acquired 50% of Archon. Fell, Spivak, Salzman and Fox TV President David Evans are now Premiere directors.

Using radio to bolster a TV network is not a new idea. The “poster boy” for that strategy, said analyst Jeffrey Logsdon at the Los Angeles investment firm Seidler Cos., is Capital Cities/ABC, which ties ABC Radio Network shows to its ABC Television and ESPN cable networks.

Radio programmers are also in demand for the same reason that Time Warner wants to acquire Turner Broadcasting: Media companies are in constant need of content to fill the proliferating channels of distribution. For instance, radio programming suppliers are finding new markets in everything from airplane audio services to on-line networks, said Ron Rodrigues, managing editor of the Radio & Records newsletter.

The expanding universe for radio programming may help explain Milken’s interest in Premiere.

As head of now-defunct Drexel Burnham Lambert’s junk bond operations, Milken helped fuel the takeover wave of the 1980s and the growth of such companies as Tele-Communications Inc., McCaw Cellular and MCI Communications. But after a lengthy government investigation, Milken pleaded guilty to six securities-related felony counts and was barred from the securities industry. He was released from prison two years ago after serving 22 months. Despite paying nearly $1 billion in fines, Milken’s net worth is still estimated at $500 million.

Recently Milken has backed an eclectic variety of companies, including computer game maker 7th Level; ICS Communications, a cable and telephone services firm; Heron International, a British real estate concern, and education firm EEN Communications.

Milken was also reportedly a consultant to Murdoch during talks for MCI Communications to invest up to $2 billion in News Corp. And the Wall Street Journal reported that Milken is set to be paid $50 million for his services to Ted Turner in conjunction with Turner Broadcasting System’s planned merger with Time Warner Inc.

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Through a spokesman, Milken said that the family trust--which invests on behalf of his children--put its money behind Premiere because “I believe there is a lot of opportunity in the sound business, and that Premiere Radio’s management team has the potential to capture those opportunities.”