How a Los Angeles DJ named 'Big Boy' caused Emmis' layoffs
Emmis is getting hammered after one of its star DJs defected for a competitor.
Now it's clear why Emmis Communications Corp. was willing to pay $3.5 million a year to a hip-hop DJ in Los Angeles.
The defection of Emmis' biggest star has walloped its most profitable radio station, resulting in the company's recent move to cut costs and lay off 3 percent of its workforce.
DJ Kurt "Big Boy" Alexander helped Emmis' KPWR-FM (105.9), better known as Power 106, dominate the Los Angeles ratings for close to two decades. But the station's market-leading run came to a halt when Big Boy jumped to iHeartMedia Inc. last year. That company flipped another station, KRRL-FM (92.3), into a hip-hop rival called Real 92.3.
Real 92.3 toppled Power 106 in the ratings in March and has been beating it ever since. But the long-term effects of Big Boy's departure are just coming into focus.
Emmis this month reported that it generated $59.6 million in revenue during its third fiscal quarter, down more than 5 percent from about $63 million in the same period a year ago. Emmis CEO Jeff Smulyan told investors most of Emmis' third-quarter financial struggles can be attributed to the company's sudden competition in Los Angeles.
"This certainly has been a challenging quarter for us, which is not a surprise given the state of the industry and our particular challenges, especially in Los Angeles," Smulyan said in a conference call.
Power 106 was Los Angeles' fifth-most popular radio station in January 2015 with a 4.0 rating, according to Nielsen. By March, after Big Boy's morning show moved down the dial to Real 92.3, Power 106 fell to 14th place with a 2.8 rating, three spots below its new competition. Power 106 had a 2.6 rating in December, making it 16th overall in the market.
The notion that one DJ's departure could cause turmoil for an entire media company didn't come as a surprise to radio insiders or Emmis executives.
"Morning disc jockeys are very important," said Mark Fratrik, the chief economist for BIA/Kelsey, a Virginia media consulting firm that tracks the radio industry. Fratrik provided expert testimony on behalf of Emmis in litigation against Big Boy. "It's a very high usage of time. People are driving to work. In L.A., that's a significant chore. It's a very important part of radio stations' lineup. It's also sometimes the face of the station."
The prospect of Big Boy becoming the face of a competitor's station rattled Emmis a year ago. The company in February sued Big Boy for breach of contract for failing to honor a "right of first refusal" provision in his contract. Emmis also publicly disclosed that it was paying Big Boy $1.45 million a year and had agreed to match iHeartMedia's $3.5 million offer.
Emmis at the time issued a statement taking credit for Big Boy's rise, saying it "first discovered Alexander … working as a bodyguard more than 20 years ago, and has invested substantially over the years in helping him develop into the star that he is today." Smulyan called the conflict personal, adding he was "saddened by (Big Boy's) actions and the impact they will have on our brand and our people."
The worst of that impact came Jan. 6, when Emmis laid off 32 workers as part of a plan to cut $7.5 million from its budget. The layoffs included Mike Corbin, who was a news anchor and reporter for WIBC-FM (93.1) in Indianapolis.
Emmis President and Chief Operating Officer Patrick Walsh noted that stations in Los Angeles and New York generate more than half of the company's revenue. So, when one of those stations takes a hit, Emmis suffers.
"I think we've done a very good job competing with (Real 92.3), but whenever you have more choice in a market, I think that makes it a little more challenging for the incumbent to generate the same revenue and ratings as it did in the past," Walsh said.
Despite its Los Angeles struggles, Emmis is having success across the 19 FM stations and four AM stations it owns. In Indianapolis, for example, WLHK-FM (97.1), or Hank FM, is the No. 2 station among listeners 18 to 34 years old and the No. 4 station overall. Emmis also has the top station in New York in the 18-to-34 demographic, WQHT-FM (97.1), known as Hot 97.
"In terms of our ratings performance, across the portfolio it's pretty strong," Walsh said. "We think we've got the right operating strategy in terms of talent and programming on the air as well as digital content."
Emmis is sticking with Big Boy's replacement in Los Angeles, a DJ named J Cruz, and hoping the station can regain momentum heading into its second year without Big Boy.
"While we have challenges in Los Angeles," Smulyan said, "we have a remarkably talented team there, and really our ratings and performance across the rest of the company are very encouraging."
Call IndyStar reporter James Briggs at (317) 444-6307. Follow him on Twitter: @JamesEBriggs.
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