MuseWire COLUMN: A press release today (January 17th) from Clear Channel announces a new division called Entertainment Enterprises, to be headed by John Sykes. I think Sykes is a nice guy; I used to work with him when I was at Capitol-EMI and he was at Chrysalis Records. The premise of this new venture, however, is fatally flawed and I will be surprised if it gains any traction at all.

Recall that Clear Channel now primarily is an amalgamation of radio stations. It owns about 850 of them, more or less. In 2005 Clear Channel spun off Live Nation, its concert promotion business, which since has meandered along. For at least the last decade, terrestrial radio has been a horrible business with, generally speaking, mediocre financial results. It faces intense competition not only from satellite and internet radio (Pandora, Slacker, Shoutcast, Spotify), but also a myriad of other consumer entertainment alternatives such as internet-based activity (Facebook, YouTube), online gaming, console gaming, DVD-watching (how about those old episodes of Teen Mom and Downton Abbey?), not to mention simply listening to CDs, watching television or (God forbid) reading a book. Clear Channel lost $74 million dollars in the last quarter alone and has $20 billion in debt after Bain Capital (Mitt Romney, anybody?) raped, plundered, pillaged and looted it under the dubious guise of free-market capitalism.

My favorite Internet radio station was Technicolor Web of Sound, which seems to have vanished. Not to worry, Psychedelic Jukebox quickly replaced it. I can listen to psychedelic music from the 1960s all day long. Half of it I remember, because I was there when it was released. A quarter of it I’ve never heard before, and I like it. The other quarter is awful, just like it was awful then. Any way you look at it though, I’m a committed listener, and I’m willing to pay for the privilege. Unlike terrestrial radio, the market for Internet radio is deep, albeit narrow. I’m sure there are Internet radio stations for those partial to Bavarian polka music. My point being that one develops a closer affinity with one’s counterparts a continent away, as opposed to others who coincidentally happen to be within the geographical reach of a terrestrial radio station’s broadcast signal. All you hear on terrestrial radio now anyway is euro-disco dance music and uninformed but opinionated talk show. Have you noticed how Lady GaGa’s HBO special is far better when one listens to it with the sound turned off?

The best part about the press release is where Sykes says Clear Channel’s purpose “is to partner with people already in the business and use our deep talent pool to actually create a very powerful entertainment platform.” Setting aside for a moment Syke’s ungrammatical use of a split infinitive, this is just meaningless palaver. It has no operationalized content at all; one just as well might say the new division’s purpose is to sprout wings and fly to the moon. The simple fact of the matter is that Clear Channel does not have a deep talent pool. In fact it doesn’t even own a backyard in which it could dig such a pool, even if it wanted to. Somebody else already owns every single right it might want to exploit. Record companies own an artist’s master sound recordings and the right to extract any and all future ones for the artist’s useful life. Music publishers own the performance rights in the underlying musical compositions, for which terrestrial radio pays dearly. Unless they have been captured and retained by the record company, artists own the revenue derived from personal appearances (concerts) and merchandising rights. Reasonably intelligent executives already are exploiting all of these rights with some modicum of efficiency in their respective domains.

As a result, there simply is no room for an entity like Clear Channel, which essentially has nothing to bring to the table. It might consider refusing to play records by certain artists, but that would be (a) economically stupid, since it would impair the value of their advertising, and (b) a legal violation anyway, given its market dominance. Clear Channel needs to face the facts: essentially it is a distributor of stuff (intellectual property rights) owned by somebody else, and it will be forever and irrevocably relegated to attempting to market those rights to an increasingly fickle public in an increasingly diminishing market.

Live Nation, incidentally, faces the same problem. Awhile back it tried to start up a division making live CD recordings of artists performing in its venues. Then, it tried broadcasting audio and video images from the large-screen projectors on the sides of the stage. It quickly became enmeshed in a tangle of rights, vigorously asserted by record companies, hyper-vigilant to deter any intrusions on their contractual prerogatives. Live Nation tried to get a patent on various processes to do this, but their application was rejected by the patent office and characterized in the news media as “bogus.” Like Clear Channel, all Live Nation’s got is a right to distribute – that is, present live artist performances. Its margins are squeezed to a point approaching zero by rapacious artists (managers and agents); properly understood, its real source of revenue is concessions and parking fees. Live Nation has entered into deals with Madonna, U2 and Jay-Z to do something, but what it is ain’t exactly clear. So far as I can tell Live Nation gave them a lot of stock warrants in consideration for them not being represented by its main competitor, AEG Live.

My best advice to Sykes is to be prepared to endure a period of dissimulation, prevarication, procrastination and indecision by Clear Channel executives, who will have no enthusiasm for diversification into something outside of the company’s core business. Like a poor liver transplant, business organizations have a tendency to reject something that does not fit into their preconceived template. It’s not even Clear Channel’s fault, it’s just a consequence of corporate America’s industrial organization. No matter how ingenious or laudable, most new corporate initiatives of this sort share the same ignominious fate. After about a year or so of pretending that something’s happening, the company will quietly shut it down, at which time Sykes should be ready to redeploy his considerable talents in some other venture.

Article is Copr. © 2012 by David Kronemyer and originally published on MusicIndustryNewswire-dot-com before the site was revamped as MuseWire.com in March 2015 – all commercial rights reserved.