Broadcasters to SEC: Digital A Variable Priority

In its latest quarterly filing to the Securities and Exchange Commission, Emmis Communications, the Indianapolis-based broadcast conglomerate who developed the NextRadio/TagStation suite and is a major player in HD Radio, had some interesting things to say about both technologies.
Back in 2013, Emmis inked a deal with Sprint in which broadcasters would pay $15 million a year to Sprint through 2016, in quarterly installments, in exchange for Sprint adding FM receiver chips to some 30 million devices on its network. Emmis has been working with other broadcasters to help shoulder the burden of this deal, but it would seem that industry enthusiasm for the project is coming up a bit short. Specifically (p. 30):
“In December 2014, NextRadio LLC remitted $3.4 million of the $3.75 million due to Sprint for the sixth quarterly installment. Emmis funded approximately $0.1 million of the sixth quarterly installment. NextRadio LLC is in discussions with other radio broadcasters and companies involved in the radio industry to effect a long-term funding solution.”
The NextRadio/Sprint deal also has a revenue-sharing component to it, but Emmis reports that, as of the end of 2014, the NextRadio app “had not generated a material amount of revenue.” The company’s net revenues from its digital initiatives only accounted for ~5% of the company’s total revenues last year, and while spending in its “Emerging Technologies” division increased 46% from 2013, it’s a pittance relative to Emmis’ broadcast division and operates at a loss.
Emmis also reported that it’s opening up NextRadio/TagStation to future industry investment. It’ll oversee two windows (in 2017 and 2019) where other broadcasters may purchase up to a 30% stake in the business; sale prices will be determined by “(i) the appraised fair market value of the NextRadio and TagStation businesses, or (ii) two times Emmis’ cumulative investments in the development of the businesses.”
The company remains bullish on HD Radio, noting its work with the Broadcaster Traffic Consortium “to provide the bandwidth that a third party uses to transmit location-based data to hand-held and in-car navigation devices” and iBiquity to create a unified HD/NextRadio interface. Though the hope is that these initiatives will “strengthen radio’s position in the digital dashboard,” Emmis also admits that “[i]t is unclear what impact HD Radio will have on the markets in which we operate.”
That got me interested in looking at the 10-Q statements of other broadcasters to see what they’re saying about their digital initiatives. Turns out, it varies quite a bit.
Clear ChanneliHeartMedia’s big digital play is its iHeartRadio platform, whose growth is a bright spot in a company wrestling to contain $20 billion in debt from its consolidation-splurges. Its latest 10Q notes that 35% of that debt “bears interest at floating rates,” exposing the company to significant risk of fiscal disaster should those rates rise. iHeartMedia told the SEC last month that it sold more than 400 of its broadcast tower facilities for some $400 million. While that may make a small dent in its debt load, it’s now on the hook for $22.7 million a year in tower lease payments.
Cumulus, the nation’s #2 broadcaster by station-count, sounds like it’s in the market to buy stuff: “We further believe that our capital structure provides adequate liquidity and scale for us to operate and grow our current business, as well as pursue and finance potential strategic acquisitions in the future.” It points to a $2 billion loan and a $200 million revolving line of credit acquired in December of 2013, after its purchases of Westwood One and a 15% stake in Rdio.
Saga is touting the consolidation of its digital initiatives: “In 2013, we completed a project to bring all of our websites in house while making them fully accessible on mobile devices. This change will provide new avenues for revenue and improve our overall digital reach.” It also notes that it is continuing to add HD Radio to its stations, but provides no further details.
Finally, Salem Communications, the Christian conservative powerhouse which really hit its stride during the Bush II years, has acquired some notable brands in the right-wing blogosphere, such as RedState, HotAir, and Human Events. All now link back to, Salem’s first venture into online content, which it acquired from the Heritage Foundation back in 2006.