Katz Communications, Inc. Business Information, Profile, and History

History of Katz Communications, Inc.

Katz Communications, Inc., is the largest company in the American broadcast representation industry, with offices in 22 cities around the country. Closely held since its founding in the late 19th century as a family firm, Katz began as a representative for the printed media--selling newspaper space to advertisers--and evolved with development of the electronic media. Today the company acts as a middleman between media and advertisers, peddling commercial time or 'national spots' to businesses.

The company began in 1886 when newspaper mogul William Randolph Hearst sent Emmanuel Katz from San Francisco to New York City to sell advertising space in the San Francisco Examiner. Katz was successful in persuading New York merchants to advertise in the West Coast paper, and two years later he decided to strike out on his own. In 1888 the E. Katz Special Advertising Agency set up shop on Park Row in New York City, and the business of media representation was born. The agency operated as an intermediary between newspapers and businesses that wanted to advertise in towns other than their own. Katz's first and largest customer was Hearst, who had one of the largest newspaper circulations in the country at that time.

Six years later Katz brought his son, George R. Katz, into the business. Eventually George Katz left his father's firm to start up his own company in Chicago. In 1912 the two Katz firms merged, with George in charge. The company expanded over the next several years, opening offices in San Francisco, Atlanta, Kansas City, and Detroit. In 1928 George's son, Eugene Katz, joined the family business.

During the 1930s the agency broadened the scope of its activities to include the medium of radio. When a number of Katz's newspaper clients became owners of pioneering radio stations, the company began to peddle air time. By the mid-1930s Katz agents were selling advertising on ten radio stations. The company, which by this time had shortened its name to the Katz Agency, prospered throughout the 1930s and early 1940s, and in 1947 the company grew to represent television stations.

In 1952 Eugene Katz ascended to the presidency of the firm. Later in his tenure, in 1969, the company relinquished the business in which it had gotten its start: newspaper representation. Having had great success with the electronic media for more than two decades, the company concentrated exclusively on the growing field of radio and television.

In the early 1970s Eugene Katz decided to retire as company president. Lacking a suitable heir to the business, he established a stock ownership plan, dividing the company's assets among every employee. After 84 years of exclusive Katz family control, Katz sold the family firm to its workers on January 1, 1972. The company's stock was put in a trust for each employee based on his or her rate of pay. As the value of the stock grew, dividends were re-invested, the stock remaining in trust until an employee left the firm. At the time of the stock transfer, many of Katz's top managers became millionaires as a result of their participation in the plan.

In 1975 Jim Greenwald, executive vice president of the Katz Agency, took over leadership of the firm. During Greenwald's tenure the company underwent striking growth, tripling its size over the next 15 years. To better serve its clients, the Katz Agency rearranged its television sales operations in 1976 by dividing customers into two groups on the basis of market size: Katz Continental Television would serve stations in medium-sized and smaller cities, and Katz American Television would sell air time on stations in the 50 largest markets. This division allowed salespeople to streamline their work to meet the needs of prospective clients.

In that same year the Katz Agency formed its Media Data division, implementing computerized data banks and operating systems to assist sales staff. With the aid of a mainframe computer, the company could quickly calculate ratings or audience shares for television programming, thus enabling salespeople to demonstrate to potential advertisers how effective their programming could be. In addition, the company employed its Reach & Frequency System and Radio Instant Analyzer, which provided immediate estimates of how many people would see or hear an advertisement if it were broadcast on a proposed schedule, and how often. Other programs, such as the Media Mix tool, demonstrated to clients the efficacy of a joint advertising campaign that used both print and electronic outlets. In addition, a system labeled KTAB helped salespeople calculate prices for air time, and Radio Sales Profile provided information on rankings of radio stations within each market.

By 1979 Katz had 500 employees. When a merger between the General Electric Broadcasting Company and the Cox Broadcasting Corporation forced the sale of a number of radio and television stations due to anti-monopoly laws, Katz moved from merely representing radio stations to actually owning one. The company purchased WSIX, a radio station in Nashville, Tennessee, for $3 million. WSIX became the founding station of the company's new division, Katz Broadcasting.

In 1980 Katz further diversified its television sales operation when it formed Katz Independent Television to market advertising time on television stations not affiliated with the three main networks. The following year the company changed its name to Katz Communications, Inc., indicating more precisely the nature of its business.

Reflecting its broader interests in the communications field, Katz expanded its holdings in the radio industry. In April of 1981 the company purchased Syracuse, New York, radio stations WSYR-AM and WSYR-FM from Newhouse Broadcasting for $5 million. Two months later Katz paid Outlet $9.5 million to acquire stations WDBO-AM and WDBO-FM of Orlando, Florida.

In 1983 Katz added to its client list when Metromedia, a conglomerate of six radio stations, named Katz its national representative. In the next few years the company began to expand its sales representative business through acquisitions. Restricted by law from representing any more than one station in any given market, the company, in March of 1984, purchased two of its largest competitors, Christal Radio and RKO Radio Sales, for $18 million. The latter acquisition was renamed Republic Radio and merged into other operations, while Christal Radio retained its autonomy but was linked with the original Katz Radio operations under the rubric of the Katz Radio Group.

By 1985 Katz had become the nation's largest radio and television station advertising representative. Given this strength, the company elected to withdraw from an involvement it had begun in the sports event syndication business. In June of that year the corporation sold the rights it had acquired for numerous programs, such as the Big Eight college conference basketball games, the Pacific Coast Athletic Association basketball games, the 'Kickoff Classic' college game, the Liberty Bowl, and the University of Miami football season; Raycom Sports purchased the rights to these events, thereby becoming the largest syndicator of college sports in the country.

Katz further streamlined its corporate operations in 1986 when it terminated its status as a radio station owner. Since its first purchase in 1979, the corporation had acquired 10 more stations that together formed the Katz Broadcasting division, based in Bridgeport, Connecticut. In March of 1986 the company sold all of its member stations to the division management in a leveraged buy-out. Katz was able to reap $68.3 million by taking advantage of the high market prices for media properties and withdrawing its equity at an advantageous point.

In addition, in recognition of the growing importance of the special needs of the country's Hispanic population, the company formed Katz Hispanic Radio Sales in 1987 to tap into the growing market of media outlets for this burgeoning segment of American consumers. Katz Radio Group added a fourth unit a few months later with the purchase of the contracts and work force of Blair Radio, which was renamed Banner Radio.

By 1990 the company had completed a decade and a half of extraordinary growth, employing 1,300 people in 22 offices across the country. Hoping to further that growth, Katz announced in late October of that year that it would augment Katz Radio Group Research and Katz Radio Group Marketing divisions with a team of sales and marketing staff dedicated to increasing advertiser spending for radio air time. At that time, nearly three-fifths of each commission paid to radio sales representatives was consumed by costs incurred in placing the spots, a much higher percentage than was needed to place television advertisements. In an effort to make costs associated with radio more affordable and to encourage businesses and their advertising agencies to use the medium more, Katz began to provide a larger number of services to its customers--including increased use of data targeted to the advertiser's needs--while also streamlining its operations.

Rather than each subsidiary of Katz Radio Group operating independently, the company decided to pitch the group as a whole to potential advertisers, making it more convenient for them to use radio. Katz Radio Group Network was created to assemble informal 'networks' of stations from across the company's client lists to more adequately meet an advertiser's needs. In addition, Katz established a farm unit to tailor advertising packages to meet the agricultural industry's advertising needs. Through these efforts, Katz Radio Group expected to see its combined revenues for the year exceed $600 million.

Also in 1990 the ownership of Katz Communications was restructured. Instead of having the company's stock in the hands of all of its employees, Katz was purchased by a group of its upper-level management and a small number of outsiders. This refinancing gave the company a large base of capital, preserving its potential for expansion in the future. Three months after the purchase, Katz bought Eastman Radio from Jacor Communications; Eastman became the fifth subsidiary of the Katz Radio Group.

In March of 1991 Katz entered a joint venture with Viacom Enterprises to develop a syndicated first-run television property. A month later Katz further expanded its television operations when the company developed a regional forum for its client stations. In September of that year Katz became the first communications company to turn its attention to cable television; the corporation announced its intention to sell advertising on cable channels, thereby opening up a broad and lucrative new market for its services. In competition with already existing cable sales representatives, Katz signed up an all-news cable operation located in Washington, D.C., but failed in its bid to represent the New England Cable News.

In early 1992 Katz announced its plans to purchase Seltel, one of its rivals, to further strengthen its standing in the television representation business. By March the company had completed the acquisition valued at roughly $15 million. This consolidation came at a time when the structure of the television sales business was being altered. These changes had been reflected in Katz's internal operations just months earlier, as the company shifted its top executives in December of 1991. With its long and illustrious history and its record of adaptation to an evolving media industry, Katz stands a strong chance of successfully meeting the challenges of the future.