Hispanic Broadcasting Corporation

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Hispanic Broadcasting Corporation

3102 Oak Lawn Avenue, Suite 215
Dallas, Texas 75219
U.S.A.
Telephone: (214) 525-7700
Fax: (214) 525-7750
Web site: http://www.hispanicbroadcasting.com

Public Company
Incorporated: 1992 as Heftel Broadcasting Corporation
Employees: 828
Sales: $197.9 million (1999)
Stock Exchanges: New York
Ticker Symbol: HSP
NAIC: 513111 Radio Networks; 513112 Radio Stations

Hispanic Broadcasting Corporation (HBC) is the largest Spanish-language radio broadcasting company in the United States. As of mid-2000 it owned and programmed 45 radio stations in 13 markets. The company’s stations were located in 12 of the 15 largest Hispanic markets in the United States, including Los Angeles, New York, Miami, San Francisco/San Jose, Chicago, Houston, San Antonio, Dallas/Fort Worth, Mc-Allen/Brownsville/Harlingen in Texas, San Diego, Phoenix, and El Paso. HBC also operates the HBC Radio Network, one of the largest Spanish-language radio broadcast networks in the United States in terms of audience size.

From a Single Radio Station in Hawaii: 1960s-1995

The Heftel family owned and operated a radio station in Hawaii, KSSK-AM, beginning in the mid-1960s and continuing through the 1970s and 1980s. In 1979 the Heftel family added a second station, KSSK-FM. Cecil Heftel was a Democrat representing Hawaii in the U.S. Congress from 1977 to 1986. In 1986 he left Congress and began concentrating on Hispanic radio, acquiring KLVE-FM in Los Angeles. Both of the Hawaii stations were sold in 1990 to allow the company to focus on its mainland stations in Los Angeles and other media-related ventures in Los Angeles and Miami.

Heftel Broadcasting Corporation, which would change its name to Hispanic Broadcasting Corporation in 1999, was incorporated in Delaware in 1992. Initially, Heftel owned an AM-FM combination in Los Angeles, KTNQ-AM, and KLVE-FM. Cecil Heftel was also a partner with Amacio Suarez in a dominant AM-FM combination in Miami, WRTO, and WAQI.

In 1993 Heftel announced plans to merge with the Spanish Radio Network to create the largest Spanish-language radio company in the United States. The Spanish Radio Network owned four radio stations: WQBA-AM-FM in Miami, WADO-AM in New York, and WGLI-AM in Babylon, New York.

In 1994 Heftel signed an agreement with Mexico’s Grupo Radio Centro to acquire its U.S. network, Cadena Radio Centro. In exchange, Grupo Radio Centro would invest $20 million in Heftel, which would make an initial public offering (IPO) of stock. Cadena Radio Centro had 64 affiliates in the United States and 12 in Puerto Rico. At this time Heftel owned two radio stations in Los Angeles and was part owner of two in Miami. With the acquisition of Cadena Radio Centro for $6.5 million, Heftel reached approximately 88 percent of the U.S. Hispanic population.

In mid-1994 Heftel announced plans to expand and become the largest radio station group of Hispanic formatted stations in the United States. It planned to acquire another station in Miami, three in Dallas, and one in New York. The company planned to offer four million shares of stock in its IPO to raise about $47 million. By the end of 1994 Heftel had acquired KCYT-FM in Dallas/Fort Worth for $1.9 million.

Clear Channel Communications Inc. As Minority Owner: 1995-2000

In May 1995 Clear Channel Communications Inc. purchased $30 million of Heftel nonvoting stock. Heftel by this time owned 15 Spanish-language radio stations in the United States. The purchase gave Clear Channel a 20 percent interest in Heftel, but less than five percent of its voting stock. At the beginning of 1996 Heftel and its subsidiary Cadena Radio Centro radio network obtained the exclusive sales, marketing, and distribution rights to CNN Radio Noticias, a Spanish-language radio news service.

In mid-1996 Heftel was involved in a three-way deal with Clear Channel Communications and Tichenor Media System Inc. that made Heftel the largest radio broadcaster to Hispanics in the United States. Through a tender offer totaling about $206 million, Clear Channel increased its holdings of Heftel stock to 63 percent and installed its own board of directors. Heftel chairman and founder Cecil Heftel gave up his position, and Clear Channel president Lowry Mays became president of Heftel temporarily. Clear Channel would maintain Heftel as an independent, publicly traded company.

The second part of the deal involved a merger of Tichenor, which owned about 20 Spanish-language radio stations, and Heftel into a new company that would own 39 Hispanic stations and cover all of the top ten Hispanic markets. Head of the new company, which continued as Heftel Broadcasting Corporation, would be McHenry T. Tichenor, Jr., president of Tichenor Media System. The merger between Tichenor and Heftel was completed in February 1997, leaving Clear Channel with about 43 percent ownership of the new company. The merger-acquisition made Clear Channel the second largest owner of radio stations in the United States at the time, with about 100 radio stations in addition to 18 TV stations. As a result of the merger, Heftel’s assets nearly tripled from $164 million to $479 million.

At the end of 1996 Heftel owned the top-rated Hispanic radio station in the United States: KLVE-FM of Los Angeles, which played a mix of Spanish ballads and English-language songs aimed at Hispanic listeners. Heftel had acquired the station in 1986, and as of 1994 when Heftel went public it was pulling only about a three percent share of the Los Angeles market. At the time the station was broadcasting a broad mix of international Spanish hits. When research revealed that the audience preferred romance, it switched to soft Spanish love ballads. By spring 1995 it was the city’s top-ranked radio station.

Through Heftel, Clear Channel put down $10 million for an option to buy the low-ranking KCSA-FM of Glendale, California from Gene Autry-owned Golden West Broadcasters and change its format to Spanish. The station was acquired for $102.5 million and the format changed in February 1997. Heftel founder Cecil Heftel’s son, Richard Heftel, was president and general manager of the company’s Los Angeles stations.

Reflecting the merger with Tichenor, Heftel turned a profit of $18.8 million in 1997, a substantial turnaround from a $45.4 million loss in 1996. In 1998 a secondary offering of stock raised $205.2 million, which would be used to reduce debt and finance acquisitions.

Expansion Through Acquisitions: 1998-2000

In March 1998 Heftel announced that it would acquire KKPN-FM of Houston for $54 million from SFX Broadcasting and change the programming to a Spanish-language format. In Houston, Heftel also owned two stations, Estero Latino on FM and KLAT, known as La Tremenda, on AM. SFX had to divest the station to comply with federal regulations. During the second quarter of 1998 Heftel launched WCAA-FM in New York, which was formerly WNWK, and changed the call letters of Houston station KKPN to KLTN after acquiring it.

In August 1998 Heftel acquired two radio stations in San Diego County for $65 million from Jacor Communications Inc. The two stations’ new call letters would be KEBN, dubbed “K-Buena,” and KLQV, which would be marketed as “K-Love.” Jacor was required by government regulators to divest the stations to comply with rules governing another acquisition.

In February 1999 Heftel acquired KHOT-FM in Phoenix for $18.3 million in cash from New Century Arizona. Phoenix was the 12th largest Hispanic market. The acquisition gave Heftel ownership of 40 stations in the top 15 Hispanic markets, including 20 stations in the top ten.

Around this time Heftel united its radio stations into a national network to be called the HBC Radio Network. The new network allowed Heftel to offer advertisers a national Hispanic audience with local programming. Stations in the network would not all receive uniform programming. Rather, certain shows from certain markets would be rebroadcast on them. One popular morning show originating in Los Angeles was broadcast on Heftel stations in San Francisco, Houston, San Antonio, Dallas, Chicago, Las Vegas, El Paso, and McAllen, Texas. Other network programs would include lifestyle news and reports from People en Espanol, a program of regional music, and a sports roundup localized for individual markets. When the HBC Radio Network launched on February 26, 1999, it was heard on 39 stations that reached more than 18.5 million people, or 65 percent of the U.S. Hispanic population.

In March 1999 Heftel acquired KISF-FM in Las Vegas for $20.3 million from Radio Vision, giving it two Spanishlanguage radio stations in that market. Las Vegas’s Hispanic population was growing at the rate of nearly 16 percent a year.

In April 1999 Heftel entered a new national sales and programming alliance with Z-Spanish Media Corp. Radio stations in 19 of the top 20 Hispanic markets would be packaged jointly by Heftel and Z-Spanish for network advertisers. Heftel’s stations reached 65 percent of the Hispanic population, while Z-Spanish stations reached another ten percent. Heftel also swapped its KRTX-FM serving Houston for Z-Spanish station KLNZ-FM in Phoenix.

Company Perspectives:

Our strategy is to own and program top performing Spanish-language radio stations, principally in the 15 largest Spanish-language radio markets in the United States.

Heftel and Z-Spanish Media soon became more closely related, with Heftel purchasing another 4.1 percent of the company to raise its interest to slightly more than ten percent. Z-Spanish, in turn, said it would affiliate its 34 radio stations with Heftel’s newly created HBC Radio Network, giving the new network coverage of 19 of the United States’ top 20 Hispanic markets.

In mid-1999 Heftel changed its name to Hispanic Broadcasting Corporation to better reflect the nature of its business. The company had a market capitalization of $2 billion. Hispanic Broadcasting Corporation (HBC) could boast more than seven million listeners for its 42 owned or operated radio stations. The company planned to move into new markets and add stations to its existing bases. Spanish-language advertising was estimated to be growing at two to three times the rate of the general market. Spanish-language radio broadcasting was benefiting from the tremendous growth in the Hispanic population, and the Hispanic Broadcasting Corporation was the leading radio broadcaster to that market.

HBC also was reformatting some of its stations in line with an overall strategy to reach a wider range of Hispanics. In Miami, for example, it altered the format of WQBA-AM—one of four Miami stations owned by the company—from “La Cubanisma,” or “the most Cuban,” to “La radio que habla,” or “the station that talks.” Most of HBC’s FM stations played music, and the company was in the process of changing all of its AM stations to a news/talk format. The company also put all of its stations online, creating web sites for them, and was considering developing an Internet portal for Hispanics.

In October 1999 HBC acquired two radio stations in Los Angeles—KACE-FM and KRTO-FM—from Cox Radio for $75 million, marking Cox’s exit from the Los Angeles market. The acquisition gave HBC a five-station cluster in the city, including the top two stations in the market. KACE-FM was one of the city’s last black-owned radio stations, playing rhythm and blues oldies. Under HBC it would be reformatted for Hispanic audiences.

For 1999 HBC’s Los Angeles stations accounted for 43.4 percent of the company’s broadcast cash flow. For the year HBC reported net revenues of $197.9 million, up from $164.1 million in 1998. Net income was $34.2 million, up from $26.9 million in 1998.

In 2000 HBC introduced a new format, Hispanic oldies, or Recuerdo. It was first played on the company’s two newest Los Angeles stations, KRCD-FM (formerly KACE-FM) and KRCV-FM (formerly KRTO-FM). The new format included different types of Hispanic music from the 1960s.

As part of its proposed merger with AMFM Inc., Clear Channel divested 72 stations in 27 markets in March 2000. HBC planned to pick up new stations from Clear Channel in Austin, Texas; Denver; and Phoenix. The acquisitions were blocked, however, by the U.S. Department of Justice in May 2000. The Department of Justice cited Clear Channel’s “passive” stake in HBC and would not allow the purchase of the three stations.

At the time Clear Channel owned all of the Class B nonvoting shares in HBC, the equivalent of 26 percent of all of HBC’s common stock. As a result, Clear Channel was entitled to a class vote on certain matters, including certain sales of assets, consolidations and mergers, and other items. Another significant owner of the company was McHenry Tichenor, Jr., its chairman, president, and CEO, and his family, which held voting control over approximately 17 percent of HBC’s Class A common stock.

In May 2000 HBC announced that Prodigy would become the exclusive co-branded Internet service provider (ISP) for the company and its 45 Spanish-language radio stations. Prodigy en Espanol was the first bilingual English-Spanish-language Internet service created for the Spanish-speaking population. It became the preferred ISP on HBC’s stations and web sites in the first half of 2000.

In May 2000 HBC stock moved from the NASDAQ to the New York Stock Exchange, in part to increase its visibility and investor base and reduce trading volatility. Its ticker symbol was changed from HBCCA to HSP. In addition to being the largest Spanish-language radio broadcaster, HBC was the ninth largest radio station owner with 45 stations.

Positioning for Significant Growth

Several trends indicated that Spanish-language radio broadcasting in the United States had significant growth potential in the 21st century. The rapidly growing U.S. Hispanic population was estimated to have grown from 27.3 million at the end of 1995 to more than 31 million in 2000. During this period the Hispanic population grew at a rate estimated to be three times the expected growth rate for the overall U.S. population.

HBC also noted that more than two-thirds of the U.S. Hispanic population was concentrated in 15 markets, making them accessible to advertisers through HBC’s Spanish-language radio stations in those markets. Hispanics also represented an attractive market to advertisers, because on average they tend to be younger, have larger households, and routinely spend a greater percentage of their income on many different kinds of goods and services than non-Hispanic households. Total Spanish-language advertising revenues increased from approximately $950 million in 1994 to an estimated $1.9 billion in 1999, representing a higher growth rate than for all advertising during the period.

Key Dates:

1960s:: Heftel family owns and operates a radio station, KSSK-AM, in Hawaii.
1979:: Family acquires KSSK-FM in Hawaii.
1986:: Heftel acquires KLVE-FM in Los Angeles.
1990:: Heftel sells its two Hawaii radio stations.
1992:: Heftel Broadcasting Corporation is incorporated in Delaware.
1994:: Company goes public.
1995:: Clear Channel Communications purchases a 20 percent interest in Heftel for $30 million.
1996:: With the help of Clear Channel, Heftel merges with Tichenor Media System Inc. to become the largest radio broadcaster to the Hispanic market.
1999:: Heftel launches the HBC Radio Network.
1999:: Heftel Broadcasting changes its name to Hispanic Broadcasting Corporation.