Citadel Broadcasting is going in for a makeover.
The country's third largest radio broadcaster filed for bankruptcy protection over the weekend. It won't die, though its current shareholders may not make it out alive. Under the legal umbrella of bankruptcy, Citadel will be able to clean up its balance sheet with its nail-biting creditors swapping debt for new shares.
Citadel has had a humbling ride down. Two years ago, things were going so well that it absorbed Disney's
Web-based streams will be a bigger problem down the road, as smartphones, in-car Wi-Fi routers, and Novatel Wireless'
When satellites attack
After successfully shooting down its own bankruptcy fears and delivering back-to-back quarters of sequential subscriber declines, Sirius XM bounced back by growing its account base this past quarter.
Now on firmer financial footing, satellite radio is a bigger threat to the future of terrestrial radio than ever before. We're not just talking about 18.5 million subscribers. These are 18.5 million people willing to pay nearly $15 a month for premium radio. In other words, these are the most rabid and well-to-do consumers of radio. Advertisers on conventional radio might wonder why their marketing spends aren't generating the same kind of leads that they used to, but it's because the discretionary income has gone somewhere else.
And it's going to get worse.
When tomorrow attacks
Using the same logic that satellite radio is sucking out AM and FM radio's most lucrative listeners, the same can be said of smartphones. Owners of iPhone and BlackBerry devices are paying far more a month than Sirius or XM listeners do. AT&T
Down the road, connectivity will be the final nail in terrestrial radio's coffin. Sure, savvy broadcasters are taking advantage of the World Wide Web to turn local stations into global entities, but that isn't enough of a business plan.
The level playing field poses far more threats than opportunities. Check up on the newspaper companies that figured they would find salvation in reaching an online audience farther than its most skillful paperboys could heave the morning paper. Print news has discovered that it's hard to compete with basement bloggers or lean online startups.
A plethora of alternatives will doom most old-school content creators. Music labels and movie studios know all about this. Conventional radio is showing the same symptoms.
Real and imagined windmills
Terrestrial radio was smart enough to identify satellite radio as an enemy. The National Association of Broadcasters lobbied hard to block last year's merger between XM and Sirius.
It lost that battle, but at least it was able to put up a fight. How will FM and AM radio station owners stare down the logical evolution of app-hugging smartphones, mobile broadband gadgetry, and smart car technology?
Citadel isn't dead in spirit. Many companies bounce back from bankruptcy reorganization. However, swaying today's creditors is going to be a cakewalk compared to swaying tomorrow's consumers of radio.
Longtime Fool contributor Rick Munarriz is a subscriber to both Sirius and XM. He owns shares in Disney and Novatel Wireless and is also a member of the Rule Breakers analytical team, seeking out the next great growth stock early in its defiance. The Fool has a disclosure policy.