Emmis To Turn Off TV, Stay Tuned to Radio

One of broadcast television's crusaders, Emmis Communications Chairman/CEO Jeff Smulyan, is ready to turn away from TV and stick with radio. Indianapolis-based Emmis is exploring the sale of its 16 midsize-market TV stations.

Analysts applauded the unexpected move, which would return Emmis, which owns 25 radio stations in bigger and more lucrative markets, to its roots as a radio company.

“Given the challenges facing over-the-air broadcasting today, it is necessary for us to focus on our existing radio holdings,” says Smulyan. “We got into television to be entrepreneurial, but our history is in radio.”

The TV stations could fetch between $900 million and $1.1 billion, analysts estimate. Emmis, which has hired The Blackstone Group as its financial advisor, says it would consider selling the entire group or parcel off the stations. Likely contenders include Hearst-Argyle, Gannett, Belo Corp., Meredith and LIN Television. NBC Universal, News Corp. and Viacom, which are close to or at the FCC ownership cap, are not expected to be suitors.

Smulyan says television group President Randy Bongarten is investigating a management buyout, in which Emmis might retain an interest in the stations.

The possible sale is a dramatic shift in Smulyan's stance on television. Less than 18 months ago, he unveiled a plan to air popular cable channels via digital broadcast. The idea never got off the ground, but it was a bullish attempt to produce a second revenue stream for broadcast stations, along with maximizing digital spectrum.

Smulyan also has tried to rally the broadcast industry to pressure the FCC for deregulation and to make cable operators pay subscriber fees. So far, both efforts are stalled.

Now Smulyan, a relative newcomer to the industry—having bought his first station in 1997—is ready to check out.

“Free over-the-air broadcasting so greatly needs regulatory relief and an entrepreneurial kick-starter, but ultimately, the task was beyond even the formidable talents of Jeff Smulyan,” says Harris Nesbitt, media analyst, Lee Westerfield. “He has tried like no one's business to develop the second revenue stream and find innovative ways of using spectrum to generate sub fees. Now Emmis is handing that off.”

Emmis, which means “truth” in Hebrew, started in 1981 with one Indiana radio station.

Without the drag of TV, analysts note, Emmis could be a player to buy more radio stations. Radio is another industry that has been dragging of late.

In another move, Emmis will initiate a “Dutch-auction” tender offer to buy back $400 million in stock. Smulyan says his company's stock is undervalued and the buyback is the “best possible use of capital.”

For several years, Wall Street has been urging Emmis to simplify its holdings, which also include a small publishing division that puts out Texas Monthly; a radio network; and international radio stations.

The tactics vary, but other media companies are considering splitting up assets. Viacom has proposed dividing into two companies, while Clear Channel plans to separate its live-entertainment unit.

In Emmis' case, financial pressures may have finally sealed the TV stations' fate. “Perhaps the CEO finally prefers to focus on his original business,” Wachovia Capital Markets Media Analyst Jim Boyle says in a research note. Apparently, Boyle says, Smulyan “does not want to fight that battle anymore.”