Westwood One spells out CBS deal


Westwood One executives got into the nitty gritty financial deals of their new deal with CBS Radio (10/4/07 RBR #194) in a conference call yesterday with Wall Street analysts. The bottom line is that Westwood One is in a better financial position under the new agreement and CBS Radio stations have strong financial incentives to continue to clear WW1 spots.

One analyst raised the question of what would happen if a CBS O&O station just quit clearing WW1 spots? That is, indeed, covered in the new agreement. Not only would WW1 save on its network comp payments, but would also receive liquidated damages if any CBS O&O station fails to clear 75% of the WW1 commercials it is supposed to broadcast for three consecutive months or four out of 12 months. If CBS Radio companywide would just quit carrying WW1 spots, WW1 estimates that it would keep about 40 million a year in comp payments, plus be owed over one billion by CBS. In other words, that ain’t gonna happen.

Back to the basic agreement, here’s how the finances play out, assuming the new deal is approved by WW1 shareholders. WW1 no longer has to pay CBS Radio some 19 million in cash annually under the current representation and management agreement, nor some 10 million from amortizing stock warrants. Going the other way is about 16.3 million of additional station compensation payments to CBS Radio stations, assuming they carry 100% of WW1 spots. WW1 will also have to pay its own CEO and CFO, who are now provided by CBS. There is nothing to report yet on the search for a successor to Peter Kosann, who will exit as WW1 CEO when the CBS management contract is terminated. If the new agreements had been in effect for the year 2006, WW1 calculates that it would have come out about eight million bucks ahead of its actual results.

RBR observation: One other interesting aspect is that CBS Radio has the right to veto certain candidates for CEO of WW1 once the new deal goes into effect. Those are the people who served as CEO during the time that CBS Radio managed the company: Mel Karmazin, Joel Hollander, Shane Coppola and Peter Kosann. It will be interesting to see who next fills the chair.