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Company Perspectives:
11 Commandments of EMMIS: 11: Admit your mistakes. 10: Be flexible--keep an open mind. 9: Be rational--look at all the options. 8: Have fun--don't take this too seriously. 7: Never get smug. 6: Don't underprice yourself or your medium--don't attack the industry, build it up. 5: Believe in yourself--if you think you can make it happen, you will. 4: Never jeopardize your integrity--we'll win the right way or we won't win at all. 3: Be good to your people--get them into the game and give them a piece of the pie. 2: Be passionate about what you do and compassionate about how you do it. 1: Take care of your audiences and your advertisers--think of them and you'll win.
Emmis Communications Corporation is a diversified media company with interests in radio, television, and publishing. The Indiana-based firm operates about two dozen radio stations, including market leaders in New York and Los Angeles, 15 television stations that broadcast all of the major commercial networks, and niche-market magazines including Texas Monthly, Duncan's American Radio, and Country Sampler. Most Emmis properties are located in the United States, though the company also has interests abroad including two radio stations in Argentina. Publicly traded Emmis is run by its founder, Jeffrey Smulyan, who controls a majority of the firm's voting stock.
Beginnings
Emmis Communications got its start in 1979 when Jeffrey Smulyan and two partners purchased a radio station in Shelbyville, Indiana. After renaming it WENS-FM ("Lite Rock 9700") and moving it to Indianapolis, they put the station on the air in July 1981 after a number of regulatory hurdles had been cleared. Smulyan, who had a legal degree from the University of Southern California, had long been interested in radio, having operated a station in Indianapolis in the mid-1970s that his father purchased for him. That station, WNTS-AM (News-Talk-Sports) was a small operation that was noteworthy for the presence of future TV talk show host David Letterman (who would later become a board member and 1 percent owner of Emmis). The entity formed to manage WENS was named Emmis Broadcasting, after an unpublished novel Smulyan had written called "The Emmis Region"--Emmis also being the Hebrew word for "truth."
Within six months of entering the market WENS was earning a respectable 7 share in the Arbitron ratings, and in 1983 the company purchased a second station, WLOL in Minneapolis, for $6 million. The next year KSHE in St. Louis and KMGG in Los Angeles were also bought for a combined total of $20 million. The company, which had taken in only $500,000 in revenues in 1982, reported $22.6 million in sales for the fiscal year ending in 1985.
That year found Smulyan in disagreement with partners Mickey Maurer and Bob Schloss over the expansion he was plotting for the company. An acrimonious split ensued, with Smulyan buying the pair out for a total of $21.3 million. The buyout was financed with a $61 million capitalization in which $11 million in private stock and $50 million in high-yield "junk" bonds were offered. Morgan Stanley and Cigna Insurance Co. invested a total of $8 million, with Smulyan holding on to 55 percent of the company. The cash that was left over was earmarked for expansion, and new stations were soon purchased in New York, Boston, San Francisco, Chicago, and Houston.
Smulyan's instincts for what worked in radio were strong, and he excelled at taking underperforming stations and rebuilding them until they generated a positive cash flow. A newly acquired station often underwent a format change which was promoted with cash give-away contests and advertising in a variety of media. Substantial research was done before a new acquisition was made which included taking listener surveys, examining the competition, and looking at the market's available advertising dollars and potential for growth.
One of Emmis's greatest successes took place in Los Angeles, where the company converted sleepy KMGG into KPWR ("Power 106"), which featured a then unusual mix of urban contemporary dance music that appealed to African American, Latino, and white teenagers. Within six months KPWR had moved from 24th to number one in the 80-station market, a stunning turnaround.
Getting a Toehold in New York: 1986
In 1986 Emmis became the largest privately held radio group when it purchased three stations from Doubleday Broadcasting for $53.6 million. They included WAPP-FM and WHN-AM in New York, and WAVA-FM in Washington, D.C. Smulyan had been looking to get into New York for some time, as it and Los Angeles comprised the top two markets in the United States. The company later changed the name of WAPP to WQHT, which began programming a similar mix of music to KPWR, and also repositioned country-formatted WHN as the nation's first all-sports station, WFAN. For Smulyan, a diehard sports fan, this was the realization of a longtime dream, and he began pumping money into the station to make it a hit, though its early results were not encouraging.
In 1988 Emmis acquired half ownership of Duncan's American Radio, Inc., publisher of American Radio, a leading broadcasting industry statistical publication. Other activities by this time included Emmis Research, a consulting firm that studied audiences and made recommendations to broadcasters, and Indianapolis Monthly, a 53,000 circulation magazine that focused on living in the city.
The year 1988 also saw Emmis make its largest acquisition to date when it bought five stations from the National Broadcasting Company (NBC), a move forced by federal ownership restrictions that became an issue when NBC was purchased by General Electric in 1986. Emmis obtained WJIB-FM in Boston, WKQX-FM in Chicago, KYUU-FM in San Francisco (later changed to KXXX), and WYNY-FM and WNBC-AM in New York. Emmis could only keep two of its four New York stations after the deal, and soon sold WYNY to Westwood One, Inc. for $39 million, moving WQHT-FM's signal to WYNY's more desirable 97.1 megahertz. WNBC-AM was shut down after 62 years in operation and its powerful 50,000 watt clear channel frequency assigned to Emmis's WFAN, at which time the old WFAN frequency was also sold. Having earlier racked up millions in losses, WFAN now clicked, due in part to the addition of WNBC's New York Knicks and Rangers games as well as popular morning personality Don Imus. Emmis also bought adult-contemporary formatted KKHT-FM in Houston during 1988, which later became known as KNRJ.
The following summer Jeff Smulyan led a group that included Morgan Stanley & Co. and Emmis board member Michael Browning in purchasing the Seattle Mariners baseball team for an estimated $76 million and assumption of $12 million in debt. Afterwards Emmis sold KNRJ for $30 million and KXXX of San Francisco for $18.5 million to give Smulyan cash to finance the deal and to help lower Emmis's $220 million in debt. Emmis also secured a new credit line worth $185 million.
With interest payments eating up more and more of his company's revenues, in 1990 Smulyan decided to sell WLOL to Minnesota Public Radio for $12 million, and to take a $1 million pay cut. Despite such measures, when the company's year-end figures were tallied in early 1991 a record loss of $23 million was reported on revenues of $94.7 million. A few months later, in June, WAVA of Washington, D.C., was sold for $20 million.
Sale of WFAN: 1991
At the end of 1991, with both Emmis's and his own finances continuing to deteriorate, Smulyan put the money-losing Mariners on the block and sold WFAN to Infinity Broadcasting for $70 million, a record price for an AM station. The divestiture was a painful one, as WFAN was one of the most profitable broadcasting operations in the country. Soon afterwards, a deal was worked out to sell the Mariners for $120 million to a group of Seattle-area investors. At the end of 1992 Boston's WJIB was also sold.
In 1993 Smulyan arranged for issuance of $90 million in notes to help pay down the company's debt. That August Emmis made its first acquisition in several years when it bought Atlanta magazine from American Express Publishing Corp. The monthly magazine, founded in 1961, had 60,000 subscribers.
The company's finances were now on the mend, and at the end of the year an initial public offering of 3.4 million shares of common stock was readied. Some 540,000 of them were Smulyan's, who would retain control of two-thirds of the voting stock. The sale took place at the end of February 1994 and brought in $52.9 million, which was largely earmarked for debt reduction.
Emmis was now eager to get back into the acquisition game, as a recent FCC ruling that raised the number of radio stations a company could own gave it new opportunities for expansion. The first deal to be struck was for a pair of Indianapolis stations, news/talk WIBC-AM and oldies-formatted WKLR-FM, bought from Horizon Broadcasting Corp. for $26 million. Later in the year Emmis also bought a 24.5 percent stake in Talk Radio U.K., a joint venture of several media and investment companies that planned to start a new commercial station in Britain. In December Emmis bought another New York area station, WRKS-FM ("KISS-FM"), from Summit Communications for $68 million. The acquisition gave Emmis two of the top five stations in the market, and within a year WRKS and WQHT held positions one and two.
In late 1995 Emmis sold its interest in Talk Radio U.K. for just under $3 million, due to a lack of control in the venture. The next year saw the company finalize plans to construct a new $15 million office and broadcast facility in downtown Indianapolis, aided by city funding of $9.5 million for infrastructure and a parking garage. Passage of the 1996 Telecommunications Act by the U.S. Congress, which further deregulated the industry, led to more acquisitions in the fall when Emmis reached a deal to buy three radio stations in St. Louis from Zimco, Inc. for $42.5 million. The company reported revenues of $103.3 million for the year ending in February, 1997, with earnings a healthy $15.4 million.
In May 1997 Emmis reached an unusual deal with Tribune Co. to swap that company's New York FM station, WQCD, for two television stations which Emmis purchased at Tribune's behest. The arrangement, which cost Emmis $140 million, allowed Tribune to avoid paying capital gains taxes. The acquisition of jazz-formatted WQCD made Emmis the third largest operator in the New York radio market. Also in the spring, Emmis bought two more Indianapolis stations, WTLC-FM and AM, from Panache Broadcasting of Philadelphia for $15 million.
In August the acquisitions continued with the purchase of Network Indiana and the AgriAmerica Network from Wabash Valley Broadcasting Corporation, both of which offered informational and talk programming within the state. Later in the year Emmis's publishing portfolio was expanded with the purchase of Cincinnati Magazine from CM Media. Cincinnati had circulation of 30,000.
The company re-entered the European market in November when it led a coalition of investors that purchased a seven-year license to run Hungaria Radio Rt. ("Slager Radio") of Hungary. The newly created national network would be managed by Emmis, which owned a 54 percent stake in the $20 million operation. In January 1998 Emmis spent $37 million to buy Mediatex Communications Corp., parent company of magazine publisher Texas Monthly, Inc., and two other subsidiaries. The 25-year-old Texas Monthly had 300,000 subscribers.
Moving into Television: 1998
In early 1998 Emmis Broadcasting reached an agreement to purchase six television stations and three radio stations from SF Broadcasting and Wabash Valley Broadcasting. The TV stations were in Fort Myers, Florida; Mobile, Alabama; Green Bay, Wisconsin; Terre Haute, Indiana; New Orleans; and Honolulu, Hawaii while all three radio stations were located in Terre Haute. Five of the six television stations were Fox Network affiliates, with the Terre Haute one aligned with CBS. To finance the $397 million deal, and others that were expected to follow, Emmis issued five million shares of class A stock and arranged for $750 million in credit from a consortium of banks. The company's class B stock remained in the hands of Smulyan, who now had 66.4 percent voting control. At the same time the company changed its name to Emmis Communications Corporation, reflecting its diversification into print media.
In December Emmis opened its new seven-story corporate headquarters in downtown Indianapolis, which contained space for the company's local broadcasting and publishing operations. The building had 23 radio and television production studios, eight news rooms, three atriums, and an employee fitness center.
In January 1999 Emmis joined with 11 other broadcasters to invest $500,000 in USA Digital Radio, Inc. of Columbia, Maryland, which was developing technology to help radio stations broadcast "CD Quality" audio over the air. Several months later the company launched a quarterly offshoot of Texas Monthly, entitled Texas Monthly Biz, which used the subscriber list of recently purchased Texas Business. Another print media acquisition was closed in April when Emmis bought Sampler Publications, Inc., owner of several bimonthly craft and decorating magazines including Country Sampler, which had circulation of more than 500,000.
In June Emmis announced the acquisition of WKCF-TV of Orlando, Florida, a WB Network affiliate, for $191.5 million. A complicated deal to purchase six radio stations and a TV station in St. Louis from Sinclair Broadcast Group was also announced. The stations were acquired through former Sinclair head Barry Baker, who had retained options to buy them which he assigned to Emmis for "a nominal fee." The purchase price was to be determined by a committee of independent appraisers. In October Emmis sold 4.2 million shares of Class A common stock and 2.8 million shares of convertible preferred stock for $378 million. Liberty Media Group bought an additional 2.7 million shares for $150 million, which gave it 14 percent of the company. Controlling interest remained in Jeffrey Smulyan's hands.
In November Emmis invested $15 million to acquire 75 percent ownership of two top radio stations in Argentina, Radio 10 and FM News, and also donated its Terre Haute AM station WTHI to Word Power, Inc., a religious broadcasting concern. Some $5 million more was spent to purchase 2 percent of BuyItNow.com, a web-based retailer.
In January 2000 Sinclair Broadcast Group filed a $40 million lawsuit against Emmis and Barry Baker over his assignment of stations to Emmis, which was soon met by a $300 million countersuit. Also in January, Los Angeles magazine was acquired from the Walt Disney Company. Los Angeles, with circulation of 183,000, was one of the six largest publications of its type in the country. Later in the year Emmis joined with Creative Street to introduce Game Warden Wildlife Journal, a new conservation-themed quarterly magazine based on a television program.
In May the company reached an agreement to buy 15 television stations from Lee Enterprises, Inc. for $562.5 million. The stations, which comprised eight network affiliates and seven satellite operations, were located in Oregon, New Mexico, West Virginia, Hawaii, Arizona, Nebraska, and Kansas. A short time later another swap deal was made in which Emmis received three radio stations in Phoenix from Hearst-Argyle in exchange for a television station to be purchased later. Next, Emmis scooped up two radio stations located in Phoenix and Denver from Clear Channel Communications and AM/FM, Inc. for $108 million.
The spring of 2000 saw Emmis resolve its legal dispute with Sinclair Broadcast Group. The settlement gave Emmis clearance to purchase the six St. Louis radio stations for $220 million, while forfeiting claims to the television station. The company subsequently traded four St. Louis stations to Bonneville International Corp. for country formatted KZLA-FM in Los Angeles. Emmis worked its magic there once again, reformatting KZLA to play modern country music, and it soon became the most listened to station of its type in the United States.
In September the company added another Denver station, adult contemporary KALC-FM, acquired from Salem Communications Corp. for $98.8 million. The same month an Emmis-led group launched Local Media Internet Venture, Inc. LMIV would offer links to 185 radio stations owned by the venture's five partners and offer streaming audio for online listening. Emmis was also a partner with 16 other television station owners in iBlast Networks, which was working on plans for offering streaming video content over the Internet.
In January 2001 Emmis sold WTLC-AM and the trademark, logo, and call letters of its Indianapolis-based WTLC-FM to Radio One, Inc., which would continue to operate the station at a different location on the dial. Emmis took in $8.5 million on the sale, afterwards using the 105.7 FM frequency for newly created WXYB, a "soft adult contemporary" station.
High Debt Causing Problems Again: Early 2000s
Although Emmis had taken a conservative tack during the unprecedented radio consolidation that followed passage of the Telecommunications Act of 1996 (largely because the memory of its earlier financial crisis was still fresh), the company was feeling more and more pressure from Wall Street to add to its holdings. Emmis had always sought underperforming, reasonably priced properties that it could develop into ratings leaders, but the company was now starting to pay some of the inflated prices of the overheated market just to stay in the game. Consequently, its debt grew, eventually reaching more than $1 billion.
In early 2001 Emmis began to feel the effects of the dot.com bust, as advertising dollars from this important sector dried up. In March the company cut 120 jobs in its television station group, though this was attributed partly to the consolidation of operations at the stations acquired from Lee Enterprises.
With its stock taking a beating the company began making plans to spin off its TV group, but the move was put on hold after the terrorist attacks of September 11, 2001. The provision of advertising-free news coverage during the ensuing days, and the economic downturn that came soon after, put an even tighter crimp in the company's revenue stream. In December Emmis's majority-owned Hungarian radio venture lost its license to broadcast because the company had missed a loan payment. Emmis soon announced plans to institute a 10 percent pay cut for its entire workforce and to sell off non-strategic assets, though acquisition of a small book publisher, Guild Press of Indiana, was nonetheless completed during this period. Early in 2002 the company sold its two Denver, Colorado radio stations for a total of $135 million. Emmis continued to have trouble keeping within its loan covenants, however, and with outstanding debt of nearly $1.3 billion and reduced earnings it was once again in a precarious position. In April 2002, the company raised $120 million by selling four million new shares of stock.
While Emmis Communications was experiencing difficulties in the wake of a slowdown in the U.S. economy and the 9/11 terrorist attacks, the company had recovered from a similar situation in the early 1990s and had several options on the table. It also held a number of valuable assets, including leading radio stations in several major markets and a successful publishing division, and its founder and CEO Jeffrey Smulyan was a seasoned veteran of the radio business whose instincts had proven correct numerous times in the past.
Principal Subsidiaries: Emmis License Corporation; Emmis Television License Corporation; Emmis Radio License Corporation; Emmis License Corporation of New York; Emmis Radio License Corporation of New York; Emmis Radio Corporation; Emmis Meadowlands Corporation; Emmis Publishing Corporation; Emmis Escrow Corporation; Emmis Escrow Holding Corporation; SJL of Kansas Corp.; Emmis Television License Corporation of Wichita; Topeka Television Corporation; Emmis Television License Corporation of Topeka; Emmis International Broadcasting Corporation; Emmis Latin America Broadcasting Corporation; Emmis South America Broadcasting Corporation; Emmis Argentina Broadcasting, S.A.; Emmis Buenos Aires Broadcasting, S.A. (Argentina); Votionis, S.A. (Argentina; 75%); Slager Radio Rt. (Hungary; 59.5%); Emmis Hungarian Holding Co. (Hungary).
Principal Competitors: Clear Channel Communications, Inc.; Cumulus Media, Inc.; Infinity Broadcasting Corp.; Citadel Communications Corp.; Cox Enterprises, Inc.; Entercom Communications Corp.
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