The Radio Equalizer: Brian Maloney

10 May 2006

Emmis Communications, Wall Street Analysts, Radio


One Company's Plan May Yet Save Radio

(Scroll down for other new items posted today)

After last week's messy Cumulus Media - Susquehanna Radio merger, where excessive layoffs took away even vital engineers, production personnel and other staffers, industry morale has never been lower.

For radio, it's been an ugly decade of corporate consolidation, with many talented professionals thrown out of the business.

Regardless of its intentions, one broadcast firm may have just what the doctor ordered.

Emmis Communications (NASDAQ: EMMS) has announced a plan to go private, which would get Wall Street analysts off of its back for good.

Would that kind of move restore long-term thinking to radio's corporate environment? Or, is it simply too late to save the medium?

In my latest Inside Radio column, we take a look at the possible ramifications of such a plan.

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  • Just my incomplete midnight thoughts:

    Getting rid of the incessant quarterly-earnings obsessed brokerage analysts is a qualified good.

    Companies are really only attractive to Wall Street if they can demonstrate consistent growth. If that growth is internally generated, it makes a great story to sell to the investment clients. If that growth is externally generated it does the above AND creates lots of M&A fees for the investment bankers.

    Without taking the time to read up on the deal at this hour, I'd say the motivation goes something like this:
    1)Internal growth is tough due to competitive and/or license ownership max-out issues in their existing markets.
    2)Internal growth by expanding into new markets with new stations is not likely.
    3) External growth by infilling existing markets or buying stations or clusters in new ones is too expensive.

    Therefore, management sees that the best value is to buy back Emmis' own stock -- all of it.

    Whether or not "long-term thinking" reappears at Emmis depends a lot on the buyout financing. A heavy debt load will hobble Emmis as surely as Susquehana suffers for Cumulus' overpayment. Furthermore, it will increase the need to eventually go public again in a few years, which gets them right back in analyst-hell.

    Just to be completely cynical, this deal will probably get the media banking herd slobering over pitchbooks to take the other public broadcasters private. Assuming this becomes an LBO frenzy, some firms will surely overpay for themselves. The ultimate realization of this sad fact will certainly not encourage long-term thinking.

    It may well be that there is no easy growth left in the medium barring regulatory overhauls.

    What do others think?

    By Blogger Robert, at 11 May, 2006 00:45  

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