On Tuesday (May 9), Los Angeles radio saw its landscape shift toward what very well could be the early stages of a major schism. Emmis Communications, the media company with stakes in industries including publishing, digital and radio, struck a deal to sell its coveted Power 106 radio station (KPWR-FM), which it acquired in 1984 from Century Broadcasting, for a hefty $82.75 million to Meruelo Group, a holdings company with stakes in real estate, construction, food and service, and media.
“It's bittersweet, but it’s the right decision for our people and the right decision for our company,” Emmis Chairman/CEO Jeff Smulyan tells Billboard. “The people in power are going to have more resources to fight the battle and we wiped out 60 percent of our debt overnight.”
It’s a substantial load off for Emmis, which is facing a step down in its line of credit. In April, Emmis entered into a fourth amendment to a 2014 credit agreement that, as part of its terms, promised to generate at least $80 million in sale proceeds with a deadline of Jan. 18, 2018. Knowing the company’s leverage ratio, a mix of debt to financially power their operations and the owners' equity, was going to stay at a rate of about four times, the company talked to its lenders about a potential refinancing, but ultimately decided it would be too expensive.
Emmis had already been in discussions with the Meruelo Group and others in Los Angeles since January and a sale seemed inevitable. As part of the deal, which is pending FCC approval, Meruelo must reportedly retain the Power 106 staff of around 90 employees. Meruelo initially responded to requests from Billboard for comment but ceased replying to follow-up emails and phone calls and could not be reached by press time.
“We love the radio business,” continues Smulyan. “I think the business has changed and it's a tougher business, but obviously, managing our portfolio, leveraged at three times as opposed to five-and-a-half times, it's obviously a much different proposition. So it's a lot easier. I learned a long time ago you never say never. But we'll see in the ratings.”
Some industry critics have speculated that the sale of Power 106 is due to a newly-competitive market and an attempt to cut its losses before the property's value decreased. Real 92.3 (KRRL), an iHeartMedia property that switched to an urban format in Feb. 2015, became an instant competitor by luring Power 106’s longtime on-air personality Big Boy with a reported $3.5 million salary that Emmis tried to match, and which spurred a $5 million lawsuit.
Then, on Jan. 6, 2016, Emmis laid off 32 workers to cut $7.5 million from its budget, which some connected to the rise in 92.3’s ratings over Power 106. Today, 92.3 has a 2.7 share with age 6+ total-week AQH, over Power's 2.6, according to Nielsen Audio PPM, placing the former at No. 15 in Nielsen ratings for Los Angeles and the latter at No. 13.
“Because you’re competing with another company that has five other stations there, it’s easier for them to allocate resources against you when you’re a standalone,” says Smulyan. “We had four or five direct competitors in 35 years and we're fortunate to always prevail. Our internal research showed that we were going to be fine, but we also said that given everything, it was probably time to reappraise our resources. We had a lot of debt.”
But, he adds, “I think we sort of withstood the major attack. If you look at the ratings trend, the 18-34 [ratings], we felt the brand was fine. But we also felt that only having one station there, it made some sense. We’ve been competing in this business for 40 years. Especially with a company like iHeart which has its own challenges. But if you look at all the factors, we thought this was the wisest decision."
Power 106 has been a hot property in Los Angeles for decades, serving as the West Coast's answer to New York City's Emmis-owned Hot 97. It began as a Rhythmic Top 40 station and switched to hip-hop and R&B in 1992; today it's considered a tastemaker, putting on three variety concerts a year, most recently featuring acts like Lil Wayne, DJ Khaled and Big Sean at its Powerhouse 2017 show on May 6.
Meruelo Group, run by Alex Meruelo and founded in 1986, adds Power 106 to its L.A. properties including radio station KDAY and TV station KWHY-22. The purchase was done following its participation in the FCC TV spectrum auction in early 2017.