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Against the odds, Emmis grows publishing division: Unsung unit now one-fourth of company's revenue

August 6, 2007

At a time when many print publishers are wringing their hands at the prospect of losing readers to the Internet, Emmis Communications Corp. is experiencing surprising growth in its magazine division.

With the acquisition of Orange Coast last month, Emmis owns seven city-based magazines and one nationally distributed magazine. And the publishing division, with 406 of Emmis' 1,300 employees, is the company's fastest-growing.

"City magazines like the ones Emmis has are doing quite well," said Abe Peck, chairman of journalism and cross-media storytelling at Northwestern University.

The magazine division's success coincides with a general decline in the fortunes of newspaper. The newspaper industry over the last five years has seen annual circulation declines of 1 percent to 3 percent, according to the Audit Bureau of Circulations. Newspapers in Dallas, Chicago and New York have seen near-double-digit percentage circulation declines since 2002.

Some of the growth in magazines is due to new publication launches, and industry experts warn a shakeout could take place in the next decade.

But Emmis is faring well for now. Its publishing division had 6-percent revenue growth during the first quarter this year over the same period a year ago, and analysts project revenue this year to be near $94 million, or about one-fourth of the company's total revenue, most of which comes from its radio division.

Emmis officials said their publications have a profit margin of 17 percent, almost double the national average for all magazines, according to Magazine Publishers of America, a national trade group.

Monthly leads the pack

Indianapolis Monthly, with up to 7-percent annual revenue growth, has the highest profit margin of any of its magazines-by a substantial margin, Emmis officials said. Its Los Angeles magazine has the most explosive growth, nearly doubling its revenue in the last seven years, to $20 million.

Emmis has taken calculated risks to serve some untapped markets. Tu Ciudad was launched by the company in 2005, and though it is just now turning a profit, Emmis officials think the magazine aimed at affluent Hispanics in L.A. has lots of potential.

"Emmis has succeeded in this field by putting together strong editorial staffs, and producing smart publications that appeal to a demographic that is very desirable to advertisers," Peck said.

Emmis' publishing division also brings in revenue through special publications such as visitor and wedding guides and special events, including film and food festivals. These ancillary products, Emmis officials said, often have higher profit margins than the magazines themselves.

Emmis' publications are chock-full of paid advertising special sections, which look a lot like the news content and include bylined articles.

There is a concern among industry experts, said Indiana University journalism professor David Boeyink, that such sections in magazines are not marked clearly enough as advertising.

Joseph N. Boyce, a retired Wall Street Journal senior editor, said some magazine special sections mimic TV infomercials produced to look like talk shows.

"Sometimes, the dollar trumps integrity," he said.

Print to the rescue

Emmis' growth in publishing comes at an opportune time. Emmis sold 15 of its 16 TV stations over the last two years. Meanwhile, its radio properties, like most stations across the country, are watching revenue shift to other media.

"With the sale of the company's television stations, the publishing division is a bigger piece of the pie, and its performance now has added significance for the company," said Frederick Moran, a media analyst covering Emmis for Houstonbased Stanford Group.

"Historically, Wall Street hasn't really given much attention to Emmis' publishing division because it's so small compared to their other properties. Their firstquarter growth might wake some people up, but we'd like to see sustained doubledigit-percentage growth."

Emmis publishing officials are still scouring for acquisitions and might buy another magazine in the next year. But Emmis isn't just looking for any glossy publication to pick up.

"It has to be a situation in a strong market where we can add value to the property," said Gary Thoe, president of Emmis Publishing.

D e m o g r a p h i c appeal is critical, Thoe said. Emmis publications generally have an audience with at least a bachelor's degree and a household income of $200,000 plus.

"They have carved out a niche many advertisers find very desirable," said Peck, who previously worked for Rolling Stone and Outside magazines. "They stress quality over quantity in their readership and they don't deviate from that formula."

Carefully circulated

Circulation of Emmis' city magazines ranges from Cincinnati Magazine's 38,000 to Texas Monthly's 301,000. Indianapolis Monthly has 46,000 subscribers.

Driving up circulation merely for its own sake can actually cost the operation money, Thoe said. With subscription and newsstand sales barely covering delivery costs, adding readers advertisers aren't interested in reaching does the publications little good.

Delivering a strong niche of readers has allowed Emmis to fill its pages with a plethora of ads-mostly local-from upscale home sellers, auto dealerships, jewelers and restaurants.

A recent study by New York-based accounting and consulting firm Deloitte showed magazine readers are actually drawn by the ads.

Since most Emmis magazines are published monthly, ads don't pack the immediate punch TV, newspapers and the Internet can. Most ads in Emmis' magazines, Thoe said, are designed to increase brand image, but can also drive traffic to a retail operation or Web site.

With the Internet and other broadband technology continuing to grow, some industry experts fear magazines will falter in the next five to 10 years.

"Technological advances certainly cast a shadow of a doubt on whether they'll be able to show sustainable double-digit growth," Moran said.

It's the same scenario that has hurt Emmis' radio properties. With advances in Internet and satellite radio, the iPod and other technologies, Emmis' radio division saw revenue drop from $290.6 million in 2006 to $271.9 million in the 2007 fiscal year ended Feb. 28.

An army of competitors

Emmis didn't get into the magazine business to build an empire.

The company that started in 1979 with a single Shelbyville radio station-WENS-FM 97.1-bought its first magazine, Indianapolis Monthly, in 1988.

"We bought Indianapolis Monthly because we thought it overlapped our demographics at WENS," Thoe said. "Publishing turned out to be a pretty good business all by itself."

The success of publishers like Emmis has brought out a variety of players-large and small-to try to take a bite of the pie.

There are about 50 magazines produced in and around central Indiana and nearly 80 in Atlanta, but many don't have staying power, said Samir Husni, who is the University of Mississippi Journalism Department chairman and operator of www.mrmagazine.com.

"Competition is fierce, and competitors come in every form," Husni said. "Staying relevant to your readers requires an investment, and that can eat into your bottom line. Past success in this ever-changing industry is no guarantee of future profitability."

Emmis has no intention of standing still. Thoe said substantial investments are being made to beef up the publications' Web presence and to continue improvements to the print publications. He said skimping on overhead doesn't pay.

"We won't do that," Thoe said. "We put the best publication out we can. We've shown we earn more revenue and profit by doing that."
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