Indy Star on Emmis and HOT 97
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It has been a rough three months at Emmis Communications Corp.
Emmis' Hot 97 (WQHT-FM) station in New York sparked three rallies and loads of bad press by airing a song mocking victims of the Asian tsunami and because of a shooting outside its Greenwich Village offices between backers of two rival rap artists.
Meanwhile, Emmis still is struggling to convince investors on Wall Street that its radio businesses can grow in the face of competition from new technologies: satellites, the Internet and iPods.
The end of March seems a world away from early January. Then Chief Executive Jeff Smulyan hopped atop a sofa to praise his champagne-sipping employees at Emmis' Indianapolis headquarters after Fortune magazine named Emmis one of the 100 best places to work.
The celebration came just after Emmis posted strong third-quarter earnings and just before it announced the acquisition of a radio station in fast-growing Slovakia.
"You get the good with the bad," Smulyan said. "If you're in business long enough, you're going to get arrows. We've had more arrows in the last 60 days than we've ever had."
Indeed. The group that organized the New York rallies now is pressing advertisers and shareholders to dump Emmis.
"We're about saying to Emmis Communications, 'What you did was wrong, and you're going to pay a price for it,' " said Rosa Clemente, a leader of the rally organizer REACH, which stands for Representing Education, Activism & Community through Hip-Hop.
Hip-hop music has made Hot 97 wildly successful. It is the No. 2-rated station in New York and has ranked No. 1 among listeners ages 18 to 34 for eight straight years.
But Hot 97 has lost "millions" in revenue, Emmis officials said, because many advertisers stopped buying spots after the station played a parody called "The Tsunami Song" for four days in mid-January.
To the tune of "We Are the World," the song contained racial epithets and included lyrics such as: "Go find your mommy. I just saw her float by, a tree went through her head. And now your children will be sold. Child slavery."
Before one airing of the song, one DJ allegedly said, "I'm going to start shooting Asians." Emmis later fired him and the producer of the song. DJ Miss Jones, chief of the morning crew that aired the song, kept her job after she and the show were suspended. Emmis also donated $1 million to tsunami relief efforts.
But the controversy didn't end. On Feb. 28, rapper 50 Cent played out his "beef" against fellow rapper The Game during an interview on Hot 97. That led to a shootout between followers of the two rappers, injuring one.
A week later, Fox News show "Hannity & Colmes" had Rick Cummings, Emmis' president of radio operations, on air to explain a Hot 97 contest called "Smackfest." It features adult women trading slaps to win a cash prize.
On March 4, about 200 people rallied in New York's Union Square, declaring that Hot 97 promotes a racist, violent culture.
In the past, said rally organizer Candice Custodio, Hot 97 DJs have mocked the plane crash that killed singer Aaliyah, once called rap impresario Russell Simmons by a racially derogatory term, and frequently used a certain racial epithet. Hot 97 DJs also play up "beefs" between rappers, said Custodio, also known as DJ Kuttin Kandi. She said that led to the 2001 shooting outside Hot 97's offices between the entourages of Lil' Kim and another rap group.
"There's not a balance of good conscience hip-hop there," Custodio said. Not everyone wants to hear violent language and women referred to by sexually derogatory terms, she said.
Tough balancing act
Cummings and Smulyan, however, say Emmis and Hot 97 try hard to balance responsibility with reality.
"The younger end of the audience is very much interested in these street records," Cummings said. If Hot 97 doesn't play them, "we run the potential at some point of being viewed by the audience as a sellout."
While a certain racial epithet had crept back into on-air banter, he said, Emmis now has reined it in. Hot 97 staff edits the word and other offensive items out of songs. They also try to limit the play frequency of "beef" albums. And Eminem's "Hail Mary 2003" never was aired at all.
There was no excuse for "The Tsunami Song," Cummings and Smulyan said, but the furor over "Smackfest" and the shooting is a case of political opportunism and critics piling on.
If listeners of Emmis' Indianapolis stations find the events at Hot 97 shocking, that's because Emmis doesn't own a hip-hop station here.
"That's the hip-hop culture," Smulyan said. "Do I condone some of the lyrics in hip-hop music? No. No more than I do Rush Limbaugh's show," which airs on Emmis-owned WIBC-AM in Indianapolis. "We reflect contemporary culture."
The uproar surrounding Hot 97 has not been lost on analysts and investors who follow Emmis.
Mike Kupinski, an analyst for A.G. Edwards & Co., said the Hot 97 controversy likely will keep Emmis from exceeding its fourth-quarter revenue forecast, which he says the company was on pace to do. Analysts have lowered their profit estimates by a penny per share in the past two months.
What has weighed on Emmis' stock even more heavily is the threat that new technologies could steal listeners from all radio stations.
Satellite radio companies XM and Sirius have signed up 4.5 million subscribers, and estimates of Internet radio peg its listenership at 4.1 million.
In addition, MP3 players such as Apple Computer's iPod stand to give motorists one more option besides listening to the radio. iPods can even receive one of 3,500 radiolike podcasts by downloading a file from the Internet.
Traditional radio still dwarfs all these media, drawing nearly 290 million weekly listeners.
But in summer 2004, many analysts sharply downgraded radio stocks, saying competition from new technologies would slice radio's traditional annual growth rate of 7 percent to 8 percent in half.
That drove Emmis' stock down from an early 2004 peak of $28.05 to as low as $17.18 in February. It since has rebounded and closed last week at $19.69.
"There are a lot of crosscurrents," said Jim Goss, a media analyst at Barrington Research. "As a result, a rebound in radio ad spending has not been as aggressive as they would have liked."
Indeed, radio advertising budgets grew 3.5 percent in 2004, slower than all other media, according to projections made in December by Universal McCann, a global advertising firm. Internet ad spending, by contrast, grew 25 percent.
The radio industry has fired back. The Radio Advertising Bureau undertook a project to quantify the value of radio marketing. And all major radio firms have contributed more than $28 million worth of airtime to promote radio listening in a campaign created by the National Association of Broadcasters.
Radio station operators are also aggressively pushing high-definition technology. It could improve radio signals to near compact disc quality. Or a station could divide its bandwidth into two or three signals, blunting the threat of Internet and satellite, which can offer hundreds of stations.
Emmis plans to do both, Smulyan said. It has rolled out HD technology at WIBC-AM (1070) in Indianapolis. It plans to have HD at 17 of its 25 stations by the end of 2006.
"It's become very popular to say, 'Radio's dead.' And yet it's a very vibrant media," he said. "The beauty of what we do is it's local, and it's live all the time."
Call Star reporter J.K. Wall at (317) 444-6287.
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