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Emmis Could Be Obliged to Sell Off NextRadio

Industry partners have a call option next year

Emmis Communications has been in the selling mood; note the sale of KPWR(FM) in Los Angeles in 2017 along with its St. Louis radio cluster this year. But the future of its NextRadio radio app will depend solely on how other radio broadcast groups view the asset.

The consortium of radio groups that helped fund NextRadio has a call option it could exercise in August of 2019 to take possession of the hybrid radio app that allows users with radio-enabled Android phones to tune in local FM stations. It was developed by TagStation LLC, owned by Emmis. TagStation is a cloud-based software platform that allows stations to manage album art, metadata and enhanced advertising on various devices.

The call option is an agreement that gives an investor the right, but not the obligation, to buy a stock or bond at a specified price within a given time period. Emmis issued it as part of an agreement with radio broadcasters in 2013.

At the time, in an effort to kickstart NextRadio’s foothold in the marketplace, a consortium that included Emmis, iHeartMedia, Beasley, Urban One Inc.(formerly Radio One), Hubbard Radio, Townsquare Media, Bonneville, Entercom Communications and others, agreed to pay Sprint $15 million per year over a three-year period in return for the wireless provider activating the FM tuners in a minimum of 30 million FM-enabled wireless devices.

The call option can be exercised by eligible radio broadcasters in August 2019, according to paperwork filed last week with the U.S Securities Exchange Commission. No radio operator, other than Emmis, would be allowed to own more than 30% of the NextRadio and TagStation businesses.

This is actually the second call option for broadcasters to gain possession of NextRadio. The first, in August 2015, passed without action by the consortium.

“The call option may be exercised in August 2019 by paying Emmis a purchase price equal to the greater of the appraised fair market value of the NextRadio and TagStation businesses, or two times Emmis’ cumulative investments in the development of the businesses through August 2015,” according to the SEC filing this month.

Emmis would have the right to participate in the exercise of the call option and retain a stake in TagStation/NextRadio. Emmis, which says NextRadio has yet to generate a significant amount of revenue, has not indicated whether it’s aware of interest from the other broadcast companies in the consortium.

The company says it continues to work aggressively to increase the number of smartphones and other wireless devices that contain the enabled FM tuner, including Apple’s iPhone.