Westwood One, Inc. Business Information, Profile, and History

History of Westwood One, Inc.

The second largest producer and distributor of radio programs in the United States, Westwood One, Inc. generates revenue by delivering programs to local radio stations in exchange for airtime the company sells to national advertisers. During the late 1990s Westwood supplied nationally sponsored music, news, entertainment, sports, weather, and traffic programming to approximately 1,500 affiliated radio stations.

Origins

In 1974 Norman J. Pattiz was an out-of-work account executive looking for his next paycheck. He had been fired from his job as a television station sales manager in Los Angeles, but instead of landing a job at another station, Pattiz looked at the media industry and discovered what he thought was a good business opportunity. Pattiz noticed a scarcity of national programming networks for local radio stations and decided to start his own. Pattiz planned to provide radio stations with programs and, in return, the radio stations would give Pattiz airtime he could sell to national advertisers. The concept was not a new idea by any means, but Pattiz observed that there were few programming networks in operation during the mid-1970s and that the limited number of program distributors in operation were providing unattractive programs. At the time Pattiz was taking all this in, radio advertising sales in the United States amounted to a $1.8 billion business. A little more than a decade later, annual advertising revenues towered above the $7 billion mark. It was a decade of prodigious growth, and one of the chief benefactors of such growth was Pattiz and his entrepreneurial creation, Westwood One, Inc.

Pattiz, the unemployed television sales manager, did not start his entrepreneurial career with a lot of money. He had $10,000 to put into his venture, which represented a modest sum to begin business in the radio programming business. Successful programming networks boasted hundreds of radio station affiliates, one of the yardsticks by which national advertisers measured a program distributor's stature. The greater the number of affiliates a programming network counted within its fold, the greater its power to attract the advertising revenue of corporate clientele. Given this scenario, Pattiz's greatest asset was not his money, but his strategy; and it was a simple one. His inspiration came from a 52-hour program of Motown music broadcast by a Los Angeles radio station. He convinced the station to syndicate a similar show, signed up advertisers for the show, and lined up 250 radio stations to broadcast the program. This initial project represented a blueprint for the future: Pattiz planned to give radio stations free pop music programs, provided the stations carried his presold national advertisements. Armed with this advertising formula, Pattiz set out on his own, incorporating Westwood in January 1975, and began what would turn out to be a prolific rise as a network programmer for radio stations.

Although the medium of radio in many respects took a back seat to television, the effectiveness of advertising on the radio was not to be underestimated. On average, there were considerably more radios than television sets in each American household and, perhaps more important, there was a much closer link between a consumer and a radio station than with a particular television program or station. Generally, consumers tuned into their favorite radio station in the morning, listened to that same station while commuting to work, and tuned in at night. The same could not be said of American television viewing habits, which were governed by a pervasive penchant for channel surfing. This difference was important to advertisers, whose scientific approach to selling to the public was based on demographics. Particular radio stations catered to specific, demographically defined groups, whereas television stations tended to attract a grab bag of viewers. "It's the rifle as opposed to the shotgun approach to reaching your target audience," an advertising executive for General Motors noted, contrasting the fundamental difference between advertising on the radio and advertising on television. Pattiz characterized the difference in another way, frequently explaining, "You can tell an awful lot about a person from the radio station he listens to; you can't tell anything about a person from his favorite television station." This would be Pattiz's mantra, and it would be the driving force behind his company's explosive growth during the 1980s.

Given the limited amount of money with which Pattiz started, Westwood did not bolt out of the starting blocks. Concentrating at first on providing local radio stations with pop-concert programs, Pattiz relied on rented equipment and contacts within the music industry to get his company up and running. The relationships forged with musicians were important ones and would prove to be valuable years later after Westwood was shaped into an established market leader. Although he was rich in personal contacts, Pattiz had to make do with the resources at hand and conduct his programming activities as inexpensively as possible. In 1979 Westwood offered its first taped concert, using rented equipment to provide rock concert programming to fewer than 100 stations. With this event, the company emerged as a source for concert promotion and programming to radio stations, one of a few network programmers to offer such a service. It was an encouraging beginning, but the company's most rampant growth would occur several years later. The spark that lit the flame was a ruling by the Federal Communications Commission (FCC).

1980s Acquisitions

In 1981 the FCC permitted radio station license holders to buy programming rather than having to produce most of it themselves. For Pattiz and others involved in radio programming, the FCC's announcement represented a boon to business, meaning that radio stations could turn to a third party for all their programming if they chose. During the three years following the FCC ruling, Pattiz used his contacts in the country and rock music worlds to his advantage and exploited the programming market by developing a portfolio of attractive programming. To industry observers, Pattiz's most remarkable trait during this period was his aggressive pursuit of advertisers, to whom he preached the merits of advertising on radio. Aggressive marketing on Pattiz's part coupled with programming featuring celebrities in the pop music industry fueled Westwood's growth, as the company steadily increased its roster of affiliates. By 1984 Pattiz presided over a burgeoning empire that he was ready to take public.

Westwood's initial public offering of stock in 1984 raised more than $30 million, giving Pattiz the financial wherewithal to seriously consider acquisitions as a mode of quick expansion. What investors received for their cash was a piece of a company that produced and distributed more than 30 regularly scheduled shows that were broadcast to roughly 3,000 stations stretching from coast to coast. Westwood provided packaged music programs that varied widely, ranging from two-minute interviews with rock stars to two-hour live concerts. At the heart of the operation, however, were the national advertisements from which Pattiz and his growing staff earned their money. By the end of 1984 the revenues collected by Westwood amounted to nearly $13 million, from which the company earned nearly $2 million. The financial progress the company had made from its days as a start-up during the late 1970s was impressive, as was the rapid increase in the number of affiliates to which Pattiz could point when addressing national advertisers. The 1984 public offering of stock, however, precipitated a period of even greater growth, dwarfing the progress made before the company's debut on the NASDAQ Exchange. Nearly all of this growth came from acquisitions.

After its inaugural year as a publicly traded company, Westwood ranked as one of the largest producers and distributors of nationally sponsored radio programs in the United States. Pattiz was quick to build on this enviable foundation by scanning the horizon for an acquisition candidate that would increase further his company's capabilities and boost revenues. When his acquisitive eyes leveled on a target in 1985, the entire industry took notice because Pattiz had selected one of the industry's largest and oldest competitors, the Mutual Broadcasting System. Founded in the 1930s, the Mutual Broadcasting System was owned by Amway Corp. when Pattiz grew interested in the company. His interest stemmed in large part from the differences between his operations and those controlled by the Mutual Broadcasting System. A majority of Mutual's affiliates were adult-oriented in their target demographics. Westwood, with its pop music programming, consisted primarily of youth-oriented affiliates. Further, Mutual had news operations. Westwood did not have any news operations. Aside from these differences, Mutual was enormous. The company comprised 810 affiliates, or about ten percent of the commercial radio stations in the United States, and measured twice the size of Westwood. It was a deal Pattiz could not resist.

Westwood acquired the Mutual Broadcasting System from Amway in the fall of 1985, gaining control of the Mutual Radio Network, its affiliation contracts, studios, programming services, and talent, as well as management and staff, including the services of the widely popular Larry King. It was the first time in roughly 30 years that an owner of Mutual was a broadcaster, and Pattiz, as that owner, was ecstatic. "It's a perfect fit," he exclaimed, referring to the new operations and the bevy of adult-oriented affiliates gained in the acquisition. "It's a classic case of two plus two equaling five," he added, realizing the potential of a network programmer that could approach advertisers and deliver target demographics that stretched nearly from cradle to grave. There was one downside to the deal, however, and that was the financial health of Mutual. Under Amway's control, the company was a money loser, but in the euphoria surrounding the acquisition, Pattiz's celebratory mood could not be tempered. Roughly a decade after its formation, his company exited the mid-1980s as the second largest network programmer in the nation.

Trailing only the ABC Radio Network in size, Westwood entered the late 1980s as a formidable force in its industry. Two years after completing the Mutual transaction, the company made another bold move by acquiring the oldest broadcasting network in the country, the NBC Radio Network. From the acquisition of NBC Radio, Westwood gained a 20-year news supply and license agreement with NBC News for the NBC network stations, as well as the U.S. radio broadcast rights to the 1988 Summer Olympics in Seoul, South Korea. The acquisition included the traditional NBC Radio Network and several newer facets of NBC's radio business, including The Source, NBC's young adult network, TalkNet, a nighttime program service, and NBC Radio Entertainment, the program distribution arm of the NBC networks. Like Mutual, NBC Radio was also a money loser prior to its acquisition by Westwood, but the effect on Westwood's stature in the industry was enormous, nevertheless. After the deal was completed, Westwood held sway as a giant, supplying nationally sponsored music, news, entertainment, and sports programming to more than 6,000 of the country's nearly 10,000 commercial radio stations. It was extensive coverage to market to advertisers, and it was made more attractive by the stable of celebrities included within Westwood's programming. Featured stars included Larry King, Steve Allen, psychologist Dr. Toni Grant, rock interviewer Mary Turner, and Dr. Demento, all of whom helped make Westwood a programmer few national advertisers could resist.

Financial Woes During the 1990s

Following the completion of the NBC deal, Pattiz and his executive staff focused their efforts on curing the financial ills ailing their two large acquisitions. NBC's news operations, in particular, were demonstrating anemic financial performance. As the work dragged on to turn around both Mutual and NBC, this objective consumed nearly all of the company's energy, becoming the focal point during a two-year period leading up to the end of the 1980s. By 1990, when Westwood's debt totaled $215 million, there was not much evidence that any positive changes had been made. The company generated $146 million, far more than the total collected five years earlier, but registered a hefty $18.2 million loss. As time progressed, financial indicators pointed to profound troubles. Annual sales stagnated, then began to drop, while successive years of multimillion-dollar losses set off alarms at the company's headquarters. Following the $18.2 million loss in 1990, Westwood lost $16.8 million in 1991 and a staggering $24.1 million in 1992. To combat the problems, Pattiz began divesting properties, cutting costs wherever he could, and struggled to trim the company's debt. Despite Pattiz's efforts, Westwood was $164 million in debt by 1993.

As part of his ongoing plan to reduce debt and concentrate on his core network programming business, Pattiz sold Westwood's New York country radio station, WYNY-FM, in 1993 for $50 million. When the sale was announced in February, Pattiz told reporters, "Two years ago Westwood embarked on an aggressive program to lower costs, improve cash flow, and strengthen its capital structure through debt restructuring and the sale of certain non-core assets. The sale of WYNY is a significant step forward in that plan." Although not upbeat, Pattiz's mood at least reflected a modicum of confidence that progress was being achieved. By May the last traces of optimism were gone. "We just haven't been able to make it work," Pattiz lamented in a hand-wringing interview with Forbes. By the end of 1993 the financial figures posted by Westwood showed no signs of improvement. Sales dipped below $100 million for the year and the company's losses stood at $23.9 million.

Mid-1990s Recovery

Help arrived in early 1994 in the form of an acquisition and the arrival of new management. In February Westwood acquired the Unistar Radio Networks from Infinity Broadcasting, which, in turn, was owned by CBS Radio. The acquisition gave Westwood radio production operations and 24-hour satellite broadcasting capabilities, which lifted sales to $136 million by the end of 1994. Perhaps more important, the acquisition brought in new management. The chief executive officer of CBS Radio, Mel Karmazin, became the chief executive officer of Westwood, and CBS Radio's chief financial officer, Farid Suleman, became the chief financial officer of Westwood. In the management shuffle, Pattiz held onto his title as chairman of the board of directors. Under this new management team, the first significant progress in cutting financial losses was made. From the $24 million lost in 1993, the company's profitability recovered dramatically, leading to loss of $2.7 million. The following year, the company reported its first profit of the 1990s, earning nearly $10 million.

With profitability restored in short order and annual revenue volume back at the company's 1990 level, Karmazin and Pattiz were ready to expand by 1996. In 1996 the company acquired New York Shadow Traffic, Chicago Shadow Traffic, Los Angeles Shadow Traffic, and the Philadelphia Express Traffic. The purchases expanded Westwood's business scope, moving the company into the production and distribution of local traffic, news, sports, and weather programming in four of the country's largest metropolitan areas. The addition of the Shadow Traffic operations, coupled with the company's exclusive radio rights to the 1996 Summer Olympics, lifted sales nearly 20 percent to $171.7 million. The company's net income recorded a greater increase, nearly doubling to $17.5 million.

As Westwood prepared for the late 1990s and the beginning of the 21st century, the company appeared to have resolved the financial problems plaguing it throughout much of the 1990s. Although the company's financial condition was questionable throughout much of the decade, its position in its industry was always solid. Westwood entered the late 1990s as it had entered the 1990s: firmly entrenched as the second largest producer and distributor of radio programming the United States. For the future, further acquisitions appeared likely, particularly in traffic programming. The 1996 acquisition of the Shadow Traffic properties included options to purchase Shadow Traffic properties in other metropolitan areas. With expansion in this direction probable, Westwood headed toward the future, intent on expanding its network of affiliates and making the financial ills of the 1990s a distant memory.

Principal Subsidiaries: Westwood One Radio, Inc.; Mutual Broadcasting System, Inc.; Westwood One Radio Networks, Inc.; Westwood National Radio Corporation, Inc.; National Radio Network, Inc.; The Source, Inc.; Talknet, Inc.; Westwood One Satellite Systems, Inc.; Km Records, Inc.; Westwood One Stations Group, Inc.; Westwood One Stations--L.A., Inc.; Westwood One Stations--NYC, Inc.; Westwood One Broadcasting Services, Inc.

Principal Divisions: Westwood One Radio Network; Westwood One Entertainment; Westwood One Broadcasting Services, Inc.