Audacy Inc (AUD) 2007 Q1 法說會逐字稿

Good morning and welcome to Entercom's first quarter earnings release conference call. (OPERATOR INSTRUCTIONS) This conference is being recorded.

I would like to introduce your first speaker for today's call, Mr. Steve Fisher, Executive Vice President and CFO.

Thank you, operator and thank you and good morning, everyone. First, let me make this note before I turn it over to David Field. Let me note that today's call will contain forward-looking statements that are based on current expectation and involve risks and uncertainties. The Company's actual results could differ materially from those projected. Additional information concerning factors that could cause actual results to differ is described in the Company's SEC filings on Forms 10-Q, 10-K, and 8-K. The Company assumes no obligation to update any forward-looking statements. During this call we may reference certain non-GAAP financial measures, and for those we refer you to our website at Entercom.com for a reconciliation of such measures and other pro forma financial information. With that, I'll now turn it over to David Field, President and Chief Executive Officer.

Thanks Steve and good morning, everyone. Thanks for joining us on today's call. After reviewing first quarter results I will provide some additional thoughts on a number of important recent developments and then shed some light on Q2. As announced this morning Entercom same station revenues were up 1%. Same station expenses grew 2% resulting in a 2% decline in same station operating income.

First quarter performance was led by strong results in Seattle, Indianapolis, and Wilkes-Barre. National results were up mid single digits while local revenues were flat. Candidly the headline numbers do not do justice to a quarter in which we made a number of significant investments and strategic moves to enhance future performance albeit at the expense of dampening short-term results. Since announcing the purchase of several stations in four markets from CBS last year we have been hard at work enhancing the value of these properties through a variety of creative follow-on transactions and operating enhancements. We are very, very pleased with the moves we have made to date and believe that we have added significant shareholder value in the process.

Let's briefly review what we have accomplished in each of the markets acquired from CBS over the past few months. In Austin we announced an agreement to divest one of the FM stations we acquired from CBS for $20 million. It is worth noting that that station has been a money loser historically. In addition we made a number of significant management changes in Austin and materially reduced commercial inventory levels at the cluster's flagship station. While the winter ratings will not be released in Austin until this week, based on the preliminary trends the station appears to be poised for substantial ratings gains.

Similarly we have made a number of management changes in the Memphis market where we have combined the operations of the CBS stations with our previous holdings in the market. We have generated significant cost savings that started to kick in this quarter with more savings to come when we consolidate our operations there under a single roof. We have also launched a new format in Memphis. In Cincinnati we engineered a station swap with Cumulus that enabled us to enhance the strategic value of the cluster. We were able to monetize this value creation in a trade for the Bonneville station group in San Francisco. It is worth noting that the bulk of the value creation in the Bonneville trade was not in the existing cash flow but rather in the development opportunity in San Francisco where one of the three FMs we acquired was losing money.

Within one week of commencing operations in San Francisco in late February we launched our Wolf country format in the market, thereby becoming the market's exclusive country station. I am very pleased to report that in the very first month of the station's existence "The Wolf" landed 5th in the market among 25 to 54 year old adults. While this is only one month of ratings and I caution that we should maintain more conservative expectations, consistent with our own internal expectations, we are confident this station will become a significant driver of revenue and cash flow growth for the Company beginning in the second half of this year.

In sum, we are quite pleased with our progress in each of these new acquisition markets and believe we are well on our way to driving significant value creation from these transactions, the new format, and operating enhancements; however, as a result of the near term investments in changes in Austin, Memphis, and San Francisco our first and second quarter revenues and station operating income have been adversely affected. In Q2 the impact on Entercom's revenue is roughly a point or two. We continue to make significant investments as well in our digital platform and our business development capabilities. We have made a number of new hires in sales, marketing, technical and product support and are making significant improvements to our technology platform and content all to drive our future growth in the digital world. Digital revenues doubled in Q1 versus the prior year albeit they remained less than 1% of revenues. We expect further acceleration in the quarters ahead and believe that our digital business will emerge as a substantial contributor to our business model in future years.

A few other noteworthy developments worthy of comment. You may recall that we acquired an additional FM signal from radio one last year to bolster the signal coverage of one of our existing Boston brands, WAAF. The enhanced coverage enabled WAAF to achieve signal parity with the market's other leading brands. I am pleased to report that in Q1 the station's revenue increased 20% and cash flow surged significantly as the station has begun to capitalize on its enhanced position. On a separate note, while the winter ratings are just beginning to be announced we had an outstanding ratings book in Seattle where we claimed three of the top five positions among adults 25 to 54.

Turning to second quarter performance we are guiding to flat same-station revenue performance. Frankly, we are disappointed with current industry conditions which remain sluggish. Having said that I want to note that second quarter revenue guidance would have been a bit higher were it not for the expected revenue declines in our newest markets where as I mentioned earlier we are making near term investments in new formats and operating changes to enhance future performance.

In sum this was a quarter of change, development, and investment at Entercom. We continue to focus on our three core strategies to enhance our future performance. Brands and content, business development, and our digital platform. We firmly believe our future success is rooted in these three areas. We also continue to use our ample free cash flow to reward our shareholders by buying back our stock which we believe remains significantly undervalued, and by continuing to pay one of the highest dividends among all media stocks. Steve?

Thanks, David. First let me address second quarter guidance and then I'll give you some input for your modeling going forward and then walk through a few notes on the first quarter. I recognize that we've got a lot of moving pieces with our acquisitions and divestitures so I'll try and help you understand the business model going forward. Let me make a note that the guidance we provide is based on same station comparisons.

Let me note that the same station guidance for Q2 is pro forma to include the impact of all transactions, acquisitions and divestitures we've announced to you with the exception of Rochester, New York, a CBS acquisition where we have not yet assumed operation, in a market where we will be divesting selected properties to meet regulatory requirements. At this point we are not yet including the Rochester transaction in our revenue, expense, or other line item guidance.

As David mentioned earlier we expect same station revenues in the second quarter to be flat with prior year. On the expenses, is as I mentioned to you on our last earning's call for the year we anticipate second and third quarter operating expenses to increase approximately 5% and we would expect fourth quarter expenses to be flat or perhaps even slightly down. The bump in the next two quarters is primarily related to the year-over-year increase in our Boston Red Sox broadcast rights which are expensed over the baseball season and not reflective of any change to our business model. We will experience very moderate increases in this contract with the Red Sox in the years ahead.

Another line item skewing quarterly expense growth this year is our decision to move up marketing dollars to the earlier part of the year supporting the launch of the significant new brands David talked about, and I will have a further note on that in a moment. You have seen our strong history of expense management and that continues throughout the Company. Our guidance implied for the full year implies annual same station increase of about 3%. Excluding the impact of the Red Sox bump in sports rights, and New Orleans' expenses which this year returned to normal, for the year we would expect -- for the full year we would expect to realize same-station expense growth of less than 1%.

A few other notes on 2007 line items to assist you in your modeling. Our corporate G&A in the second quarter should be approximately 5 to 5.1 million. Our noncash compensation expense for the second quarter should be about 2.4 million and drop to 2 million in each of the third and fourth quarter. As to the timing on the closing of the various transactions we've talked about and the impact on our balance sheet, clearly the FCC approval process has been slower than anticipated. While we anticipate approval and closing sometime in the second quarter, I would suggest to you that you model the quarter as though this closing does not happen in the quarter and that, in effect, we would continue to pay the TBAs fees through the end of the quarter at which time we would switch to interest payments on our acquisitions. At that time upon closing we would also begin recognition of depreciation and amortization and also upon closing we would have some additional amortization of short-lived intangible assets providing some bumpiness in the quarters immediately following the close.

So on those assumptions, and assuming we do not close on our outstanding transactions before June 30, and assuming no further share buybacks, we would forecast the following for TBA fees, depreciation and amortization and interest. In the second quarter we would forecast our TBA fees to be approximately 3.8 million, our D&A approximately 4.1 million, and our net interest should approximate 12.1 million for the quarter. For our tax rate, excluding one-time adjustments, we would guide you to a GAAP tax rate of approximately 41.7% for the year. A reminder, there will be quarterly fluctuations to that number as we book unique adjustments as required. Our expectations for CapEx in 2007 is approximately $15 million.

Let me give you a few notes on first quarter operating results. First quarter same-station expenses increased by 2%. This was primarily due to our marketing plans in the quarter versus prior year. Sports rights with the New Orleans Saints enjoying two postseason NFL playoff games in January, and an increase, as mentioned earlier, in the Red Sox sports rights which impacted preseason baseball in the month of March.

Also in the quarter we reflected an increase in New Orleans operating expenses due to prior year comparisons where last year we were not operating at what I'll call normal expense levels. An example, there was no arbitron winner booked last year, we were not paying rent, operating in a rent-free facility at the time. Besides the same station results for this quarter and the first quarter, our reported results had partial quarter operating results for Cincinnati, and three stations in Seattle up until the February 26, swap with Bonneville. Then we picked up results for San Francisco for the period following February 26. We also had partial period results for stations that were divested or put under TBA agreements in Austin and Portland. These stub period results reported in our overall financial results for the quarter were greatly impacted in this period by the divestiture shutdown costs, restaffing expenses in all new markets, and in the case of San Francisco, as David covered earlier, the expense of launching our new country format, the marketing costs associated with that which hit both in Q1 and which will also hit us in Q2.

Corporate expenses in the first quarter included at least 1 million in extraordinary legal expenses, and as mentioned earlier we are guiding to a significantly lowered figure in the second quarter. Our earnings per share for the quarter was impacted by two other line items versus prior year. On noncash expense, while this new accounting rule took effect at the beginning of last year our Board of Directors did not authorize equity compensation until the second quarter at which time we began amortizing this expense. Consequently this quarter, versus prior year, we had a negative comparison of approximately 1.6 million in noncash compensation expense. And with the increase this year in our effective tax rate we recorded a $2.9 million charge to deferred taxes to recognize this higher tax rate as applied to our deferred taxes on our balance sheet.

I'd make another side note on taxes. We, like many other companies, adopted FIN 48 this year which applies to uncertain tax provisions. As a result we recorded a net charge which was booked to our retained earnings, not our P&L, but our retained earnings of 1.8 million. As David mentioned in the first quarter we bought back $10 million of Entercom stock, and with today's announcement of our next dividend payment, payable June 28, we will have directly paid shareholders over $30 million in the first half of this year alone through dividends which is at a rate which represents one of the highest in the industry.

We're pleased to provide these returns of cash to our shareholders. In addition, we were pleased to see that in this quarter we were also, in turn, recognized by our shareholders and other institutions with two honors. First, David Field was again recognized by Institutional Investor magazine as the nation's top CEO in radio and TV broadcasting. And then last month, Forbes magazine, together with the firm Audit Integrity, recognized Entercom as one of the top 100 companies in the United States that, "showed the highest degree of accounting transparency and fair dealing to stakeholders during 2006." We appreciate the honors and take our responsibility seriously. With that operator, we'll now open the phone lines for your questions.

Thank you. (OPERATOR INSTRUCTIONS) Our first question comes from Marci Ryvicker from Wachovia.

I have two questions. The first is, we've been hearing that the Boston market has has been particularly weak. I just want to see what your thoughts are on what's happening there, and how your stations are doing versus the market. Secondly, David what are your thoughts about Clear Channel's decision to partner with Google on 30-second spots, and how can this impact your pricing for these shorter length product?

Let's do those in order. As far as the Boston market is concerned, Boston market has been choppy. I wouldn't say it's necessarily bad. We are doing better than most. Again, I don't think Boston is out of line now with industry norms.

Yes, let me jump in, Marci. Let me use this opportunity, because it's in today's trades. BIA does an annual forecast of brand to brand, and I happen to note in Inside Radio that they talked about a significant drop in WEEI in 2006. Let me just say that is totally incorrect. In fact, we were up in 2006. BIA has a tough job. We do not supply those data figures, as many others do, so they are left to speculate. So they had speculated a big drop in 2006 versus 2005 as a result of the Red Sox. That is incorrect. We were actually up at WEEI. Again, I apologize, I just had to jump in with that little observation, David.

It's a good addition. Let me jump to the Google question, obviously we don't know all the terms and facts and details of the Google-Clear Channel deal. What I can say is that I think that potentially it is a very good thing for radio in that we strongly believe radio is the most undervalued medium. Radio drives well over a quarter of people's time spent with media, yet 7% of the ad dollars. To the extent that Google can help facilitate increase in demand on finding inventory in the industry that would be a good thing. Obviously it depends ultimately on whether they are doing so at fair commercial rates and with fair compensation and devil in the detail type items but we're cautiously optimistic that it will actually be a good thing for radio.

Great, thank you.

Our next question comes from Victor Miller from Bear Stearns.

Good morning. Thank you for taking the questions. Steve, if we just take what you reported minus same station, it it implies that the -- kind of the stub quarter was about 23% margins, $2.1 million of EBITDA, $9.3 million of expenses. If you can talk about that dynamic, I imagine it's not the margins you expect from that other station group. Secondly, as we look to 1Q '08, sorry to bring that in, but can you give us a magnitude of the change that you saw in New Orleans from the Red Sox and Saints and from Wolf and those types of things, that what their impact was in the quarter, maybe more granularly so as we look forward to next year, obviously that should help next year's first quarter I imagine in terms of expenses. Lastly you're about 50/50 percent Midwest, Northeast, then the the rest of the country. I'm wondering if you saw any dramatic differences between the growth rates of those two geographic regions?

That's a list of questions. Let me see. Vic, you bring up the stub period. As I tried to say in my prepared remarks. You're right. If you take the numbers that we would have reported for that stub, you're right, it equates to about a 20%-something margin. That is not indicative. A couple things. One, first quarter margins are lower, but again, we had the significant expense of marketing for one month "The Wolf." We will be spending seven figures to market that. We also had to restaff the station operations.

Commercial-free.

Commercial-free for the month of March with the launch. Then also in Cincinnati and San Francisco we had some shutdown costs as those things were shut down and transferred over to Bonneville. So a lot of moving pieces. Now, in the second quarter we've given you results pro forma for everything but, yes, I would say there is nothing illustrative in looking at the stub period. What was the second question?

Let me jump to the third question. Third question was East Coast/West Coast. Yes, we do see -- there is a pattern we have seen over the last few months with West Coast markets doing a bit better than the general nation. Whether that's a meaningful long term trend, we would doubt, as we've talked about on these calls in the past, these things tend to fluctuate as you know, but right now we're seeing a little bit stronger results out West. As far as how we're positioned for next year, yes I do think that we continue as a company to invest in the future and to sew seeds for tomorrow and I think that we are set for some really strong growth in San Francisco for reasons we've already talked about in a couple of times on this call, and I think as well as, that the other new markets we're in and many of the new formats we've launched. So we continue to position ourselves for tomorrow and feel very, very good about where we're headed.

Thanks.

Thank you. Our next question comes from Eileen Furukawa from Citigroup.

You talked about your revenue impact being about a point or two points from these new stations. We're just wondering how many quarters do you expect these stations to continue to serve as revenue growth drag and when do you think that they can actually serve to boost your growth and then as a follow-up question on the margin, when do you expect these stations -- do you expect these stations will ultimately be at margins or in line with the rest of your portfolio? Finally, just a little question on Rochester. You said the Rochester results weren't in your numbers. Can you give us a sense of the growth profile you expect in the Rochester area? Thanks.

Let me grab those for you, Eileen. As far as when this flips to a positive, it's second half, I think it's third quarter, we should be in a good position across this portfolio to begin moving ahead and actually contributing positively as opposed to dampening our growth. We do not expect, as Steve mentioned earlier, these new assets to dampen our company-wide margins. To the contrary, once we're up and running here in San Francisco we expect that market to be a strong margin contributor and see no reason why to expect why Memphis, Austin, and Rochester won't do the same. Finally, your question on Rochester, we would expect to begin to operate those stations sometime later this quarter, depending on FCC approvals, and believe that there are some significant synergies for us there, both on the cost side and the revenue side as we're in a better position to capitalize on the collective footprint that we will find ourselves operating here hopefully not too far down the road.

But do you think it's going to be the same situation where initially it might serve as a dampening or up close then eventually a growth or do you think right out of the gates it will be a contributor?

From where we sit today I think out of the gates it will be either neutral or contributor and will become a contributor fairly quickly. I do not think we need to have the same level of moves there as we have experienced in some of the other markets.

Thanks a lot.

Thank you. Our next question comes from Jonathan Jacoby from Banc of America.

Good morning. I hope you can hear me.

We hear you fine.

Just following up on the Red Sox and New Orleans questions that everybody has been asking, can you give us some more color sort of how those -- have you seen incremental revenue versus expenses and cash flow on those stations in markets? Has there been a benefit to the Boston sort of network that you've sort of built around the Red Sox? Can you give us any color there? Then secondly, there's been talk on large market stations coming up for sale. What are your interest levels? Thank you.

The Boston situation you're referring to, Jonathan, of course, is where the Red Sox have moved principally from WEEI to WRKO. We are starting to see some traction of WRKO as the camel effect, so to speak, of the Red Sox begins to influence the greater performance of that station. I've mentioned in the past and believe strongly that WRKO will be one of our strongest growth properties going forward putting aside the issue of the incremental costs on the Red Sox contract. There are obviously rumors in the market that there may be some other assets in play. Our position on this remains exactly as it has been now for quite sometime. We are open to looking at anything in the top 50 markets that makes sense and that -- where we think we can add significant shareholder value but we're not going to do that at the expense of our balance sheet and we're not going to do that at the expense of the other shareholder-friendly initiatives that we've pursued over the course of the last couple of years which we think make sense for our business model.

And, Jonathan, just to dive in, you mentioned New Orleans. I would say kind of internally, I'll use the word business as usual. I don't want to misrepresent, obviously, the significant impact of Katrina in the New Orleans market but we have tremendously outperformed in that market. We've seen the overall radio market come back nicely but I was just pointing out on the expense side we had a lot of strange comparisons to last year. We kind of drop those off beginning in the second quarter. So it was first quarter, it was a significant impact, slightly less in the second quarter, and we expect kind of normal comps, if you will, Q3, Q4.

I hate to beat this down in Boston, but if you looked at March, April cash flows year-over-year are they up or down on those two stations?

They would be up except for the expense of the Red Sox.

Okay, but all-in, you'd be down then?

I'll answer that on the next one while I look at the data.

Let's back up. When we talk about the Red Sox, we're up on Red Sox revenue but we did acknowledge in the new contract it was a significant reset on the expenses. We did not expect to claw it all back in bcf. I think that answers your question right there.

Thank you.

Next question comes from Bishop Cheen from Wachovia.

David, congratulations on recognition by Forbes. I know that's not for dilettantes, it usually comes with work attached which you continue to do. Questions going to the balance sheet, and it comes right off your answer of not at the expense of the balance sheet or your stock valve. When I look at all the moving parts that you have for assets and, of course, the equity enhancements between dividends and stock buybacks, it looks to me like you can take, with all the transactions you get up somewhere in the high 8s, almost 900 this year, and higher, say less than 950 next year, get your leverage somewhere into the low 5s. I know there are a lot of inputs into that, but is that your comfort level? To continue to enhance your stock and improve the assets that you have?

Yes, but I don't want to pin us down to any specific data point. Steve has articulated this point very eloquently over the years. I don't want to be pinned down onto any specific number other than to say we want to maintain a prudent level of leverage which enables us to continue to be a versatile company that can operate effectively and continue to reward our shareholders going forward. Having said that we think there are several ways that we can create value for our shareholders today. We think that we can create value by operating enhancements. We think we can create value through new brands, through what we believe is a robust opportunity in the digital world and in the business development, broadly speaking. We also think there's an opportunity to create value through the purchase and sale of radio stations and the -- and some of the synergies and other opportunities that are created in those transactions. I think when the dust clears and folks take a look back at what we've paid and what we will receive on all the moving pieces of the past year, and they look at what the embedded cash flow will be going forward, I think folks will say, wow, that created a substantial amount of value for shareholders and it's a question of being opportunistic and being good buyers and good developers.

The reason I quantified the leverage is, traditionally you have been lower leverage, you have been more focused on keeping balance sheet flexible, and certainly with LBOs and everything else we just see the metrics move higher and higher. So is it right to think that you will continue to be lower leveraged than the industry might be?

Bishop this is Steve. Let me try and address it this way. I think we've been pretty clear on, at least over the past year in saying we like the flexibility of moving three levers when it comes to the balance sheet, making creative acquisitions where we see them, returning cash to shareholders through dividends and reinvesting surplus cash into share buybacks. If you go, as you ramp the leverage up, you foreclose a lot of those options. And I think we like being nimble and flexible. I question the utility of the extra couple turns in leverage that forecloses all the other options. So as indicated -- I spent quite a bit of time on the last call saying just over the past couple of years we've been able to do acquisitions as we've seen them, we've returned over $400 million in cash to shareholders through buyback, and up through June of this year we will have paid over $90 million directly in dividends. That's a great little business model. Levering up to a higher degree of leverage and foreclosing all those other options, I think, as we said, we like the flexibility of all three.

Well said, end of my inquisition. Thanks.

Not an inquisition.

Thank you. Our next question comes from James Dix from Deutsche Bank.

Just a couple questions. First, what was your market growth in the first quarter and if you have those figures for April as well, and if you could give any color as to the variations you saw maybe in terms of some of the markets which were not helping you out in terms of growth. And then, secondly, in terms of your -- any slowdown you've seen for the second quarter in your markets, do you have a sense that this is affecting the other media in your markets, or is this more differentially impacting radio and its share? Just any color you could give in terms of how your assets are standing up versus TV and newspaper, et cetera.

I think it's safe to say that we were in line in the markets in which we compete in during the third and first quarter. Again, had we not taken the steps we took to deliberately dampen our performance in order to reinvest in what we believe were opportunities to accelerate our growth in the future we would have significantly outpaced our markets for the quarter. As to market segmentation, as mentioned earlier, I think the only pattern worthy of note is that there is a little more strength on the West Coast than on the remainder of the nation at least insofar as first quarter is concerned. We do not have April data so I can't help you with that. I apologize, James, I forgot your last question.

Just any slowdown that you've seen for radio in the second quarter in terms of pace. You think that's affecting newspaper, TV, just general economic stuff, or is that--?

We hear from a lot of folks, and I don't think it's even -- it's pretty broad across a lot of other media beyond even the list that you mentioned.

Okay. Thank you.

Thank you. At this time I would now like to turn the conference over to the presenters.

Operator, would you poll and see if we've got other questions in the queue?

Thank you. (OPERATOR INSTRUCTIONS) Thank you our next question comes from John Blackledge from JPMorgan.

Thanks for taking the questions. Just two questions. One on Internet radio. Does Entercom expect -- do you guys expect to build out your platform internally, or would you guys acquire an Internet radio operator? And when would it be a somewhat meaningful contributor to the Company? And then secondly, on HD radio, how much has Entercom spent on upgrading to HD radio and when and how do you expect to monetize that just looking at a couple of newer technologies impacting radio and hopefully for the Company and for the industry? Thanks.

John, I gave additional color on the last call, but we've spent over 10 million in CapEx on HD. We are now spending some incremental operating expense programming both HD 1 with our primary signal, but more importantly our HD 2 signals with new unique formats. As to when we monetize those I think that's a subject of discussion both within Entercom and the industry. We're still early on. There were very few receivers sold last year. I think expectations are for probably less than a million receivers in this year. Whether it will be audio or data, add or subscription based, sponsorship or free, we don't know the answers to those questions yet. I think that becomes a big topic of discussion both with Entercom and the industry over the years ahead. We will have substantially rolled out HD on our significant FM platform by the end of this year. David, you want to talk about Internet?

One other comment on HD radio. We do see a lot of very positive signs of traction and acceleration in virtually every facet of the business model as we see adoption coming along on multiple fronts. So we're excited about that. As Steve said, it's not clear yet what the ultimate model is going to be. I think it is safe to say that we will have a significant asset there at some point down the road here, which is exciting. On the Internet radio side, quite honestly at this point in time our Internet radioactivity is limited to streaming our existing radio station and some other audio applications that we use on-line and at this point in time that's what we're focused on.

Thank you.

Thank you. Our next question comes from Jim Goss from Barrington Research.

Thank you. David, you earlier noted your continuing dissatisfaction at the general industry-wide tone of business, and you've tended to be taking an industry leader role in recent years. I'm wondering what you feel as to how much of the environment is controllable versus the cards you're dealt competitively. Are there industry-wide initiatives that can help recapture share, or will it come down to an individual company share of the industry type challenge?

A couple things, Jim. First of all it is not unique to radio as we know. As we mentioned on an earlier question there are -- it is broader than a radio issue. But I continue to have a great deal of confidence and enthusiasm based on the cards we have been dealt when I look at the perception versus reality. Radio remains an extraordinarily resilient and robust platform. It's interesting to note that just this past week as Arbitron rolled out the people meter in Philadelphia, that new methodology revealed that 96% of Americans listen to radio weekly. When you compare that to the penetration rates in other media, radio is stunningly powerful and stunningly resilient. The issue we have is that radio is the most undervalued medium, and, yes, there are multiple efforts afoot to address that. The new RAB leadership under Jeff Haley is doing a lot of very smart things to begin to accelerate efforts in that direction. Candidly as advertisers increasingly rediscover radio and its 96% reach and its extraordinary time spent listening, and look at the value proposition of radio compared to other media, which frankly doesn't hold its own versus radio's impressive numbers, I think the opportunity is there for some significant acceleration. We shall see.

It it seems like we've all been witnessing a lot of these RAEL studies that have generated a lot of the statistics you're talking about, and it seems like it's been tough to really capture that, convince advertisers of the fact and the challenge is still there, I guess.

I don't know if it's been tough to convince them. I think there's just a lot of noise in the marketplace. Candidly we haven't had our megaphone turned up. And one of the things that is going on is that we are beefing up and I think becoming more aggressive in how we articulate that message, and, yes, it's frustrating because it's something which has been hanging around for a long time. This is not a new story for radio. But we do think the merits of the argument are very very strong. Again, it's not just RAEL. It is the fundamental research which supports radio's vigor. We just need to do a better job of articulating that.

Thank you.

Our next question comes from Kit Spring from Stifel Nicolaus.

Can you talk about how big you think political might be for 2008, whether you expect a big spillover into radio? Thanks.

It's hard to speculate on that other than one thing seems pretty clear in our country that regardless of reforms and changes, that the amount of money spent on political advertising continues to increase. It is also well-known that radio has historically been a small participant in political advertising but I suspect going forward that while it will remain small it will be a growing category for us. Thank you.

Thank you. Our next question comes from Laraine Mancini from Merrill Lynch.

You've done a lot of portfolio rationalization, particularly since the CBS deals. Are you happy with how your portfolio stands now, or do you think we'd see more and if you did you purchase or look to purchase large market what is your view? Can you do a stand-alone station or would it have to be a cluster?

We are very, very happy with the moves we have made. We had a chance to talk a little bit about that earlier on the call, Laraine, but feel very good about it. We have also shifted our portfolio over the -- if you look over the last year, from formats like oldies, which are terrific formats but are demographically challenged to country and certain other formats which we think are more robust -- will be more robust properties in the future. We would not be inclined to go into a market on a stand-alone basis and feel we need a certain amount of critical mass. There are, of course, always exceptions to that such as our extensions of our WEEI sports brand in Boston which is the exception to that rule in markets like Providence and Springfield but generally speaking we will not enter a new market unless we have got critical mass.

Then one more follow-up. In terms of the portable People Meter have you had any discussions with Arbitron, or, actually, sorry, with advertisers about how they look at paying for the spots with under People Meter versus [DAIRE]?

Well, we're not a subscriber to the People Meter except for some of the properties we've acquired in the course of the last year. And since the People Meter is not out in any of the markets we're in we have not had any of those conversations. The reality is that we pay for our own research, then we monetize it as we best see fit. I'm not sure the advertisers believe it is their responsibility. Love them to chip in on it but I'm not sure they're queueing up to do that any more than they are for any other medium at this point.

Thank you.

And, operator, I think we have time just for one more call now.

Thank you. Our last question comes from John Klim from Credit Suisse.

Good morning, gentlemen. Any advertising categories that are showing significant outperformance or underperformance? Secondly, by my estimate your dividend payment represents approximately 60% of free cash flow. Is that a level you're comfortable with or should we expect the increase in the payout ratio?

Steve, want to handle that?

Two things. First, on the categories, always my favorite question, it's hard especially in a first quarter where seasonally your revenues are down but automotive was down as a percentage of revenue, as was television and cable. Health, home furniture and insurance was up. I don't know what all that meant other than as you noted I think in television, as those of you who follow television and other radio clients, that automotive was down in the quarter. There are shifts around automotive, so I don't see any longer term trend on that, as we see shifts around. But over years it hasn't materially moved. As for the dividend, the payout, obviously that's set by the Board of Directors. You're right, it's in the high 50s in terms of the payout ratio. We don't have a target in terms of adjusting our dividend to set a certain payout ratio but obviously we're comfortable in returning that portion of the free cash flow directly to shareholders in the form of a dividend currently announced.

Okay. Thanks everyone for joining us here this morning. We'll look forward to reporting back to you here in about three months. Take care.

This concludes today's conference call. Thank you for joining.