New attempt to take Emmis Communications private means regional magazines will be sold
The publisher of such titles as Indianapolis Monthly, Texas Monthly and Los Angeles magazines sees its future with radio, specifically digital radio and the NextRadio app
The media company Emmis Communications is attempting, for the third time, to go private. So, the company’s executive Jeff Smulyan has offered to buy the outstanding shares at $4.10, creating a new company to do so – E Acquisition Corporation, (catchy name, huh?).
But that will leave the new company in a hole, and so like other diversified media companies, Emmis has decided that the city/regional magazines must be sold.
“How have we reached this point? I firmly believe in the power of radio and magazines,” said Smulyan in a staff memo. “I believe in our ability to create compelling content and connect with listeners, readers and advertisers over the air, in print and digitally in ways other media cannot. I believe NextRadio will bring about a renaissance of the radio industry. I believe Digonex will revolutionize the way goods and tickets are priced. Unfortunately, Wall Street does not share our strongly held view of these businesses. Investors have fled the radio and magazine industries. Trading volume in our stock has dwindled, meaning investors who want to sell are limited in their ability to do so.”
Unfortunately, Smulyan continued, the acquisition will leave the company seriously in debt unless assets are sold off.
“Unfortunately, in order to address the company’s debt issues, we need to look at selling assets. I would never consider such action unless absolutely necessary. Nothing pains me more than making decisions like this. After considerable discussion, we plan to explore the sale of Terre Haute radio, WLIB-AM in New York, and our Publishing Division (excluding Indianapolis Monthly magazine),” Smulyan said.
It is hard to overestimate what a shock this is for the city/regional magazine industry. The industry is not made up of huge players like the consumer magazine business. So, Emmis is kind of the Condé Nast and Meredith and Hearst all in one company.
Emmis publishes Texas Monthly, Indianapolis Monthly, Los Angeles and Orange Coast magazines, Atlanta magazine and Cincinnati magazine. That may not seem like a huge portfolio, but it is in this segment of the magazine industry.
The problem, beyond the fact that taking the company private will involve debt, is that the company already is in debt, and the publishing side is in the red.
The problem with Emmis is clear in their latest earnings report. Earnings were steady, but the fractional increase in radio revenue could not make up for the 16 percent fall in publishing, though some of that fall was attributed to timing issues.
But when you look at the revenue versus expenses of publishing at Emmis you see that last quarter revenue came in at $13.092 million, while expenses were $13.478 million – and that does not include corporate expenses.
On would think that these magazines should find homes. As an M&A guy myself, the first place I would look would be the metro papers in each market. Tribune Publishing – oops, I mean tronc – is the publisher of Chicago magazine, for instance. Looking at the various markets you see that Gannett owns the papers in Indy and Cincinnati, tronc owns the LA Times and Digital First Media owns the Orange County Register (as well as newspapers in the LA market), and The Atlanta Journal-Constitution is owned by Cox.
What Emmis wants to bet their future on is radio, and not just regular ol’ radio stations, but digital. Emmis owns NextRadio.
“I continue to be amazed and encouraged by the progress the radio industry is making with NextRadio, the radio industry’s initiative to make FM broadcast radio available on smartphones and tablets,” Smulyan said in late May. “The Samsung Galaxy S7 and S7 Edge will soon be NextRadio compatible across all major wireless carriers in the United States, and with the support of handset makers BLU, Alcatel, and others, we have launched NextRadio in Canada and Peru.”
What NextRadio really is, though, is the industry’s last gasp attempt to keep radio relevant in the era of streaming music. It is the reaction to Apple’s launch of Apple Music and its purchase of Beats. It is a reaction to Pandora and Spotify – and for now it is Android only (and you can see why).
In fact, just recently Samsung announced that it would shutter its own music streaming service called Milk.
“We have made the strategic decision to invest in a partner model focused on seamlessly integrating the best music services available today into our family of Galaxy devices. We believe that working with partners will accelerate innovation, enhance device sales and provide amazing new experiences for our customers,” Samsung said in its announcement.
So far, NextRadio has signed up 2,000 stations, including stations owned by CBS, Hubbard Broadcasting, Entercom Communications and Cox Media Group. One can understand why, like publishers signing up with Facebook, Apple News and other third party content distribution channels, radio station owners want to makes sure they are included in any new radio service arising.
Does it make sense to own a regional magazine these days? Not so much if it is a stand-alone operation, but yes if one can limit the production and distribution costs at the title.
When I first started at Hearst’s newspaper in Los Angeles, we published a Sunday magazine but I always thought the problem with it was its limited distribution. After all, our daily circ was falling, and with it the distribution of the magazine. Why not spin it out, using either a free distribution or paid model.
Hearst closed the magazine, and then a few years after I had left, it closed the newspaper. But I always thought about the marriage between newspapers and magazines. So, when I joined McGraw-Hill to publish a daily trade newspaper I soon decided to launch a monthly magazine to compliment it. We had the production staff already, we already had the editors (who were very enthusiastic about writing for a magazine), and we had the sales. Our only real new costs was printing (even distribution would be partially taken care of by inserting into the newspaper).
There are obvious examples of newspapers also publishing a magazine, but most are of the Sunday magazine variety. Why is that? One problem is that the rates sold by most regional magazines are very low. Sometimes ridiculously low. Successful regional publishers, like the luxury publishers, share editorial between magazines (most of it fluff) and sell full pages for pennies. Low costs, high volume. Not exactly the model employed by most newspapers.
But I was first a classified manager – low cost, high volume (at least in the heyday of classified sections). So, I got the model and didn’t mind playing that game.
So, it will be interesting to see who might step up and buy these city/regional magazines. Some may go to individual investors, people who simply like the idea of owning their hometown title.
In Indianapolis, the son of the former CEO of Eli Lilly and Company once attempted to launch a regional men’s magazine, for instance, though the effort was short-lived. (I know, I was involved for a while with its original development.) Sadly, Todd Tobias died in 2012, but I am sure that were he alive he would have been interested in the idea of owning Indianapolis Monthly.