Clear Channel Communications Inc., the nation's largest radio broadcaster, announced Friday a 59% drop in net income in the first quarter and confirmed that it would split up the media giant by spinning off its live-entertainment division.
The announcement is the latest evidence that media empires constructed in the late 1990s are rethinking their strategies because the whole has not proved more valuable than the sum of its parts.
Viacom Inc., another company that gobbled up numerous media properties in the previous decade, said last month that it might split its cable and film interests from the company's radio and television assets.
The move also signals that Clear Channel's plan to decrease the number and length of radio advertisements in an attempt to lure more listeners -- a strategy the company calls "Less Is More" -- is gaining traction more slowly than expected, analysts say.
" 'Less Is More' isn't taking off like everyone expected," said Mike Kupinski, a media analyst with A.G. Edwards & Sons. "Maybe the company is trying to do something too radical too quickly. But over time I think it will pay off."
The company tempered Friday's disappointing news with announcements that it would give shareholders a $1.7-billion special payout, or $3 a share, and raise its quarterly dividend by 50% to 75 cents a share annually.
"This is a mix of good and bad news," Kupinski said. "Now the market is trying to figure out which is stronger."
San Antonio-based Clear Channel, which owns radio stations, outdoor billboard advertising and live concert interests, reported that first-quarter earnings fell to $47.9 million, or 9 cents a share, from $116.5 million, or 19 cents, a year earlier. The company failed to meet analysts' earnings expectations, which averaged 12 cents a share, according to Reuters Estimates.
Revenue stemming from the company's radio broadcasting division fell 7% to $773 million while revenue from outdoor advertising grew 11% to $579 million.
The company's most disappointing performance came from the live-entertainment division, at which revenue fell 17% to $424 million. Clear Channel confirmed a report in the Wall Street Journal on Friday that the company was spinning off the division by issuing new shares to existing stockholders. The unit's chief executive also is being replaced, the company said.
"Some shareholders prefer not to own Clear Channel Entertainment, so we're giving them that choice," company Chief Executive and President Mark Mays said. Randall Mays, the company's chief financial officer, will take temporary control of the concert division while it becomes a separate company.
Clear Channel entered the concert business five years ago when it purchased SFX Entertainment for $2.99 billion, claiming the company's radio stations and billboards would complement live entertainment. But analysts say the expected synergies failed to materialize.
"They went after the holy grail, but they weren't able to find it," said Leland Westerfield, an analyst at investment bank Harris Nesbitt. "The market never really rewarded the company for the concerts division, and the unit's razor-thin margins were out of place alongside radio and billboards, which have big margins."
The company also said it would sell 10% of the outdoor advertising division to the public. That announcement and the dividend increase are designed to signal the company's strength, management said.
"This is a chance to highlight that our business generates enormous amounts of cash," Mays said. "Now, shareholders can decide if they want to use that $3 to buy stock in Clear Channel, the outdoor company or the entertainment company."
Shares of Clear Channel fell 6 cents to $31.94 on the New York Stock Exchange.