Why ailing Emmis could bounce back

We all know the many ills weighing down Emmis Communications Corp., including its heavy debt load, falling advertising revenue and the perception that radio is a passé medium.

That conventional wisdom has helped drag down Emmis’ stock price to a lowly 28 cents a share, and it made the company’s July 14 annual meeting a melancholy affair.

“Every public media company has suffered this fate,” Chairman Jeff Smulyan told the smattering of shareholders who turned out at Emmis’ Monument Circle headquarters. “It’s painful, but that is where we are.”

But let’s play the contrarian. For Emmis, that means arguing that the battered company is poised for resurgence—rather than sliding deeper into the abyss.

Jeff Smulyan is crusading to get radio tuners installed in cell phones.

Smulyan made the case well during the meeting, without sounding as much like a cheerleader as he has in the past. He noted that traditional radio in the United States still has 260 million listeners a week, despite competition from the likes of iPods and satellite radio. And he noted that his industry doesn’t share the deep-seated woes of daily newspapers or local TV—a sector Emmis was a big player in before selling its stations in recent years.

For daily newspapers like The Indianapolis Star, a fundamental problem is declining print readership, especially among the young. They’ve also been buffeted by lost classified advertising, once a wildly lucrative segment, as people with stuff to sell flocked to the free service Craigslist.

Local TV stations, meanwhile, have suffered as their audience has continued to fragment. They’ve tried to offset losses on that front by negotiating fee-for-carriage deals with cable operators, but so far with little success. While a local station might get 15 cents per subscriber per month, ESPN gets several dollars.

That’s not to say radio is humming along. If it were, Emmis’ domestic radio revenue would not have tumbled 28 percent in the fiscal first quarter. And even when the economy finally improves, and advertisers ratchet up their spending, some of the money that used to go to radio likely will end up instead in new media, from Web sites to e-mail marketing.

Yet the company is fighting to ensure it doesn’t get pushed to the margins. Smulyan is personally crusading to have the Federal Communications Corp. require installation of radio tuners in cell phones. His argument is built on public safety: Installing the tuners would ensure Americans have access to emergency information when power goes out and cell phone networks go down.

Emmis also expects to benefit from the rollout of portable people meters, or PPMs—pager-size devices that automatically track radio listenership. The devices, which are coming to Indianapolis in 2010, will bolster the credibility of stations’ ratings, replacing a diary system that many advertisers long have considered dubious.

“The radio industry is alive and well,” Smulyan said at the meeting, perhaps overstating the case. “We just have to change the perception of advertisers.”

But even if everything works out as Smulyan hopes, investors are unlikely to flock back for a long time. The radio industry is so out of favor that not a single Wall Street analyst follows Emmis. Two years ago, more than a dozen did.

Bob Loftus, a shareholder who traveled from Wilkes-Barre, Pa., to attend the meeting, said he came away encouraged.

Yet the TV ad salesman is also a realist. He scooped up Emmis shares two years ago, before the free fall, leaving him deep in the red.

“It is so hard to go back to $10, from a quarter,” he said. “I just don’t want it to go under. That would be a big hit.”

<SUB>Reverse split ahead?

Emmis executives confirmed at the meeting that they are considering raising their stock price in a different way—by executing a reverse stock split.

The move would keep the company’s shares from being delisted from NASDAQ after the exchange ends the suspension of its $1 minimum-stock-price requirement July 31.

Emmis would have at least 180 days to take action after receiving notice it was out of compliance. The company hasn’t had to worry about compliance until now because NASDAQ suspended the rule after markets tanked last fall.

A reverse split may make investors feel better, but they won’t be any richer, since the total value of their shares would remain unchanged. In a one-for-20 reverse split, for instance, an investor holding 100 shares valued at 25 cents apiece would end up with five shares valued at $5 each.•