Audacy Inc (AUD) 2007 Q3 法說會逐字稿

Good morning and welcome to Entercom's third quarter earnings release conference call. All participants will be able to listen only until the question-and-answer session of the call. 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. Sir, you may begin.

Thank you, operator. And good morning, everybody. Before David Field begins overviewing our call, I would like to read you this disclaimer. Today's call will contain certain forward-looking statements that are based upon certain expectations 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. We refer you to our website at Entercom.com for a reconciliation of such measures and other pro-forma financial information.

With that, I would like to turn this morning's call over to Mr. David Field, President and Chief Executive Officer.

Thank you, Steve. And good morning, all. Thanks for joining us on today's call. As usual, I'll provide some additional color on the results we released earlier this morning and then share some thoughts on recent developments and business conditions.

As announced earlier, Entercom's same station revenues were up fractionally during the third quarter. Our results compare favorably to our markets, which were down 2% for the quarter. It is worth noting that, until early September, we were tracking to deliver low single digit revenue growth for the quarter. However, September business conditions deteriorated as financial and housing market concerns and related uncertainty caused advertiser jitters.

Same station expenses for the quarter grew 4%, resulting in a 5% decline in same station operating income. However, if you look at those numbers, it's very important to note that the bulk of the increase in our expenses was caused by our new Boston Red Sox rights agreement. If you exclude the increased expense of this agreement, our same station operating income would have been down 1%, and our same station expenses would have been up just 1%, which is a far better reflection of our core expense growth. Next year, the agreement will no longer have the same influence on our expenses, so we would expect a more normal year of expense growth, which Steve will talk about a bit during his portion of the call.

Third quarter performance was led by strong results in Seattle, Boston, Indianapolis and Milwaukee. National and local were essentially equivalent, with political revenues down considerably. If you exclude political, our same station revenues were up 1% for Q3. Digital revenues were up 150% for the quarter and now equal roughly 1.5% of our total revenues on a run rate basis. Strategically, we continue to focus on accelerating our revenue growth through a number of core initiatives that we have discussed on these calls in the past, that include business development, digital, and our brands and our content. We are investing in our capabilities in each of these areas to provide our customers with enhanced integrated advertising and marketing opportunities across our three platforms; on-air, on-line and on-site. Our efforts are bearing fruit and we are becoming increasingly effective at developing innovative, multi-platform marketing programs for our local and national customers.

Our summer ratings were reasonably strong. One analyst report that crossed my desk this past week, cited Entercom as the general market broadcaster with the strongest set of summer numbers. We have particularly good ratings in Greensboro, where we have three of the top four stations among adults 25 to 54. What is particularly impressive about this is is that two of these stations are brand-new -- or relatively new; Simon, our eclectic hit station, and The Wolf, our new country station. In [Norfolk], another station that is only a few years old, WBKL, has now settled in as the market's leading station with adults 25 to 54, leading its rivals by a full two shares. I also want to mention three other stations whose performance in this book was particularly noteworthy. The Mountain in Seattle surged to number one, adults 25 to 54, and KNRK in Portland jumped to number one, adults 18 to 49, the first time that has ever happened. What makes KNRK's achievement particularly noteworthy is that it is an alternative station, a format which in the diary world has struggled in recent years. Our success there is a direct result of the evolutionary cutting edge vision of our team in Portland. Finally, The End in Sacramento had a sensational summer book, growing to number one among adults and women 18 to 49 and 18 to 34, and hitting number two with women 25 to 54. While, of course, in any ratings book, there are always stations within portfolio that have good and bad books, overall we are pretty pleased with the macro ratings picture from the summer.

Turning to business conditions for the fourth quarter, which I would describe as being somewhat choppy and mixed. There is a fairly wide variance across markets, with strength in many cities offset by weakness in others, particularly those markets with a greater dependence or reliance on the housing industry. Within that context, however, we continue to improve our execution as a company and are driving slow, but steady progress from our various growth initiatives. We currently expect Entercom's fourth quarter revenues to be flat to down 2% with costs up 1%, both on a same station basis. Two useful data points, during Q4 last year, we had approximately $2.7 million in political advertising. Also during Q4 this year, we added approximately $1 million in incremental billing related to the Red Sox World Series run.

Before turning to Steve, I want to share a few additional observations. First, now that PPM results are out in three markets, we can begin to draw some conclusions. PPM has confirmed what the diary has told us for years, that 96% of Americans listen to the radio weekly. The recently released New York PPM shows some stations with audiences that exceeds 5 million per week, which is pretty staggering. While time spent listening is lower than in the diary, it remains higher than any other medium except television. Unfortunately, there remains a disconnect between perception and reality on the state of the radio business. The fact is that radio provides near universal reach, is second only to TV in usage, offers strong local brands and personalities, and is the low-cost provider among all major advertising vehicles.

We are also fairly positive on how PPM is likely to affect Entercom. There is now a pretty clear pattern of which formats will benefit and which will suffer under the new methodology. The Entercom station portfolio is concentrated in formats such as AC and Rock that appear to do relatively well in PPM. So we would expect to become one of the primary net beneficiaries of the new technology.

Finally, a comment about our stock valuation. Candidly, we are pretty perplexed by the fact that our stock has declined to a point where our dividend yield is now roughly 9%. While we cannot control how our investors will value our stock, we can tell you that we intend to continue to use our ample free cash flow to reward our shareholders. We remain committed to paying our dividend, which consumes 65% of our free cash flow.

With that, I'll turn it over to Steve.

Thanks, David. I would like to make a note that the guidance we provide is based on same station comparisons. As noted in our release, the guidance for the fourth quarter is pro forma for all transactions, that is acquisitions and divestitures which we have announced to you and which is in our earnings release, with the exception of Rochester, New York, a CBS acquisition which we have not yet assumed operations and therefore do not include in our guidance. At this point, we're not including Rochester in our revenue expense or other line item guidance.

As David mentioned, we expect same station revenues in the fourth quarter of 2007 to be flat to down 2% as compared to the prior year. On expenses, we would expect same station cash expenses to be up slightly less than 1% for the quarter, which is similar to our experience in the first quarter, and similar to a normalized experience in the second and third quarters, as David mentioned. Our prior year fourth quarter same station information is revenues of $119.9 million, and station operating expenses of $68.0 million. Now note, this base excludes non-cash compensation expense. A reconciliation of this information is posted on our website.

A few other notes on 2007 line items to assist you in your modeling. For the fourth quarter, we would expect our corporate G&A to be approximately $5.3 million to $5.4 million, and our non-cash compensation expense to be approximately $1.7 million.

On our balance sheet, while we anticipate approval in closing on the range of our transactions prior to year-end, given the uncertainty of any timing, I would suggest modeling the quarter as though closing does not happen until January 1. A reminder that upon closing we will trade off PVA fees for interest expense so there is minimal cash flow impact. We will start depreciating these assets and realizing the tax shields from intangible amortization upon closing. And also upon closing, whenever that occurs, we'll have some additional amortization of short-lived intangible assets over a few quarters, which will provide some spikes to the expected D&A. With that preamble, and assuming that we do not close on our transactions before year end and that there are no further share buybacks in the quarter, we would forecast the following for TBA fees, D&A and interest. During the fouth quarter, expected TBA fees of $4.0 million, depreciation and amortization of approximately $4 million, and net interest should approximate $12.5 million for the quarter. As noting on the release, we go into the quarter with a basic share count of 37.3 --37.3 million shares.

For our tax rate, excluding one-time adjustments, we would guide to you a GAAP tax rate of approximately 45%. This is an updated number for your models. A reminder, there will be quarterly fluctuations to that number, as well as unique adjustments, as required.

Our updated capital expenditures expectations for the full year 2007 is between $13 million and 14 million. As a side note, we'd expect to see a significant decrease in CapEx in 2008.

And now a few notes on third quarter before we get to your questions. We're proud that during the third quarter, the Entercom bought back 300,000 shares of Entercom stock. And with today's announcement of our next dividend payment, payable on December 17th, we will have paid directly to shareholders $1.52 during 2007, and as David mentions, at annual rate -- yield that now approaches 9%. Since we began our dividend program in 2006, we will have paid out $3.04 per share to our shareholders over the past two years, and that's in addition to our share buyback program and strategic acquisitions. And as noted, our payout ratio on the dividend is only 65% of our free cash flow.

Let me give you an update on our leverage. With the guidance we have provided for the fourth quarter, we would expect to end the year 2007 with leverage pro forma for all announced transactions of approximately 5.6 times.

So with that overview, Operator, we will now open the phone lines for your questions.

Thank you. We will now begin the question-and-answer session. (OPERATOR INSTRUCTIONS)

Our first question comes from Mr. Kit Spring of Stifel Nicolaus. Your line is open.

Okay. Any interest in acquisitions -- anything in the Lincoln financial that fits you? And if so, how would you finance that? Could you go above your current leverage ratio? Is there another creative way?

And then on the Red Sox, how much did that benefit you in 3Q and 4Q? And have you seen the quarter get better since the tough comparisons in October, kind of adjusted for the Red Sox? Thank you.

Let me take those in order. First, from an M&A standpoint, we have said in the past that we do look at opportunities that come along the pipe to make acquisitions and we occasionally talk trades with people as well. But we do that soberly and very much in mind with our balance sheet an our commitment to pay our dividend. You should not expect us to look at anything that would materially alter our balance sheet.

As far as the Red Sox are concerned, as I mentioned during my remarks, there was no impact at all in the third quarter, of course, because playoffs did not begin until October. And for the fourth quarter, we have already -- as I mentioned, there will be about a $1 million impact on revenues, incremental, due to the additional games in the post season.

And finally on quarter, I think things actually are better than they were during September. I think the tone is stronger -- has been stronger in October and for the first part of November. But again, as I mentioned, I would define -- or I would describe market conditions as somewhat choppy and mixed, with a pretty wide variance between what we're seeing in certain markets, which are performing very well and other markets which are hurting, based upon the -- I think the macroeconomic issues that are specific to those local economies.

Thank you.

Victor Miller of Bear Stearns, you may ask your question.

Morning. Just to kind of reiterate that last question from another angle. Obviously, the dividend yield is about 9%, the after-tax cost of debt is probably 4.5%. So repurchasing shares at a much accelerated level is obviously going to add to free cash flow per share and free cash flow in general -- the gross dollars of that. How do you -- and you are looking at a 9.5 times lever -- 9.5 times valuation on next year's EBITDA by our estimates. How do you throw these all into the mix as you even contemplate whether you add another acquisition or add any more assets to the Company?

And then can you give us some more color on just kind of the variation -- what markets are doing the best and worst for you right now? Thanks.

Let me give you a little color on that question, Vic, and then Steve may want to add some thoughts of his own on that. You're asking the same questions, of course, that we ask ourselves. There never are any perfect answers for that. Again, we have no intention of putting our dividend in any jeopardy. And we're very conscious of the fact that our stock is trading with a very high yield and that the incremental cost of capital for us is low, albeit finite, given our balance sheet. So all that needs to be factored in and you should expect us to make prudent decisions. Bearing all of that in mind, and given that this is not -- this is a company where management holds a substantial chunk of the equity and is acting, I think, in accordance of the best interest of its shareholders in general.

I'm sorry, I've forgotten your second question.

Some more color on the -- how good are your good markets, how bad are your bad markets?

We're seeing some markets that are -- that as the markets are probably down 10%-ish for a given month. And we have other markets that are pacing up. And again, I don't mean just our performance, cause obviously that is a separate issue, but markets that are pacing up -- approaching double digits for the given quarter.

When you talked about contrasting the -- what happened in September and specifically, you think, for the industry, that everyone feels a little bit better about the tone in October and going forward? What -- was it a category that cancelled? Did auto walk? What happened in September?

I would define it as general skittishness. We had some cancellations. We had -- there was a small degree of advertiser paralysis for a short period of time, as they attempted to sort through the changes and the implications of the headlines that were coming out related to sub-prime losses. I think as things settled down and business sort of kept moving, things got better. And people are coping with the economic news in a more productive manner over the last few weeks.

Thanks.

James Dix of Deutsche Bank, your line is open.

Good morning, gentlemen. Just a couple questions. First, how, at this point, would you have investors assess the progress of the CBS station acquisitions at this point? If for '07, they've been dilutive to growth, for example, how might you quantify that in terms of revenue and EBITDA growth rates?

And then secondly, just looking to '08 for expenses, are there any particular or unusual expense comparisons we should be thinking about, now that you'll be basically cycling against a more normalized Red Sox increase on that contract?

And then, I guess finally, how do you assess whether a particular market is being affected by local housing? Because I know in the past, we've tried -- we've talked a little bit about how hard it is to predict when a market is going to be up or down or how to explain it. Do you look at how much housing prices have gone up or how much they're coming down? You mentioned it in your opening remarks. Just any color that you could give there would be helpful.

James, let me grab the first part of the question, and Steve will deal with the second and third. I think insofar as CBS -- let me give you a little color across the board there. We are feeling very good about where we are in Austin. We've made a lot of changes in personnel and a lot of changes in sort of business strategy and culture and so forth and have really turned things around there over the last couple months. And I think we're primed for a good fourth quarter and a great '08 there. We also were successful, I think as you recall, in spinning one of the properties there, which was essentially a break-even proposition. And that also -- that transaction has worked out very well for us. We're still waiting on the sidelines for Rochester and still waiting for federal approval of that, which we continue to hope -- and it may be imminent but having predicted that in the past and not seeing it happen, we're not going to prognosticate any further. We are -- our San Francisco assets, which obviously are not specifically CBS, but are related to that transaction and came directly from the trade of Cincinnati, which we did acquire from CBS, and some additional stations in Seattle -- as you may recall, we launched a new radio station there and another one of our Wolf stations. And we expect that -- things are going very well for us in San Francisco and we would expect to have a solid 2008 there as well. So we're feeling very good about the assets we've acquired and feel like we've done pretty much, I'd say, all of the heavy lifting at this point in time in the larger markets. And we're set for '08 and with Rochester on the -- hopefully under our operation here soon.

Speaking of '08, James, your question was any expense categories for '08. And the simple answer is no. If we go back, and aside from the step function this year in Red Sox, which we've talked about a lot on this call, we gave you ample headlines for you going into this year. As we look to 2008, the simple answer is no. And I think we'll continue, as you have seen in the past, to find ways to operate more efficiently. And that's our charter as management.

Your question on housing prices and predictability -- good luck. The simple answer is no. Clearly, everybody is aware of the headline housing issues, in say a market like a Miami or a Las Vegas or something like that. But it's pervasive and acrossward. Housing as a category is not explicitly a large category for radio. I'd note -- I don't know if there's a cause and effect, and maybe someone on this call will ask the perennial question on categories -- but appliances, we're down in the quarter. Is that housing related? I don't know. Kind of for fun, on the macroeconomic, restaurants were down and grocery stores are up. Does that mean people are staying home and eating as opposed to going out? I don't know. We don't know. We've had no luck trying to forecast market -- individual market reaction, neither have you So long answer to your short question.

Okay. Thanks very much.

Marci Ryvicker of Wachovia, you may ask your question.

Thanks. David, you said that digital is about 1.5% of your total revenue. Can you talk about the margin of the business today and where it can go over the next couple of years?

And then secondly, when you look out into the future, where do you think the most upside is at Entercom? Is it related more to the marketplace and the overall industry? Or is there something that you can do, specifically, at Entercom to kind of pull you out of the crowd?

That's a great question, Marci, the latter one, and probably deserving of a full day of discussion. Let me take your first one first because it's a heck of a lot easier. Our margins -- I would say this, our incremental margins on that business are high. But because we're investing in significant personnel and infrastructure and content and so forth, I would say that as a division, if you were to isolate it, our margins would be quite low at this point in time. As the revenue continues to grow and as expenses peter out, I think we'll see the incremental profitability of that business increase.

As to your other question, there are a lot of things. We talked about the three internal initiatives, all of which, we believe, are going to make a difference for us. We do believe that the impact of creating greater capacity in our organization to offer customers integrated marketing solutions is a really powerful vehicle, as we compete in a $250 billion advertising economy and look beyond the more myopic or narrow vision of competing just within the $20 billion radio space. And that's really a core vision that our management team shares and the way we're going about approaching business. As the low-cost provider with near universal reach, and a tremendous tool kit of opportunities for our customers, we should be able to compete very effectively in that $250 billion world. And that's what our primary focus is and what I think the best potential driver for future business will be. Beyond that, obviously there's the macro question of the optics of radio in a world of -- that is evolving. And again, we thing the basic fundamentals of radio are a heck of a lot stronger than the perception of radio, due to the noise from so many new gadgets and new developments. And candidly, we need to do a better job as an industry of articulating our value proposition. And that's not an Entercom issue, that's an industry issue. And we haven't done very well at it.

Thank you.

Bishop Cheen of Wachovia, your line is open.

Thanks for taking the question. Hi David, hi Steve. Just sort of a two parts -- one, a follow-up to Marci's. The key take-aways from '07, which is -- what do we say? It's been a challenging year. What's the key take-aways for you that you are -- you think you can apply to '08 and make Entercom that much better?

And secondly, on political revenue, as you look at '08, if you quantified it -- the same, bigger, less than '06 and why?

I don't know if I have a magic answer to your first question, Bishop. And again, I think it's -- we feel we're on the right track. We feel we're doing the right things, changing our organization and revamping in that direction. And so we're very -- we feel very good about that. We're going to continue to march in that direction. It's not a Panacea, but it should enable us to incrementally improve our performance vis-a-vis the general radio economy, so to speak.

On the political side, you're asking me now to look into my crystal ball, which is probably no better or worse than anybody else's. But from everything I read and everything I hear, there are going to be more dollars than ever before spent on political races next year. While radio is never the first medium to exploit that, we do participate in those dollars. And I would expect there would probably be a proportional -- a proportionate increase in our '08 political revenues versus our '06 or '04 revenues.

Okay. And then just back to the kind of vision thing. Have you changed the way, that you could articulate -- in the way that you go about marketing your advertising inventory, based on your lessons from '07?

No. Again, I think this -- what you're hearing me articulate on this call is what we have been articulating for a while. But it is an evolutionary process. And we continue to achieve greater and greater momentum within the organization, but it is a change in mindset in terms of the skill sets that we have within our organization and how we approach business and it takes time. But we're making progress.

Okay. Thank you, David.

Lee Westerfield of BMO Capital, your line is open.

Thanks, gentlemen. Good morning. Couple questions, if I may. The first is, your experience up in Boston -- it sounds as if you grew revenue against the grain of what I think most other media competitors there and newspaper and television saw in the quarter, which was tough times there. So I wonder if you could contrast how you performed in Boston, if there's a driving force behind that, more than simply sports radio, which may be the cause.

Second question I have -- David, actually, I haven't heard you touch on the HD alliance. And my specific question there is if you can update us -- and update us in any way that you can, as to the options available with regard to selling advertising or subscription in that -- in the context of that alliance? Thanks.

I'll do those in reverse order. The HD alliance -- we continue to make great, great progress in the -- in building important partnerships, be it in the retail area with the Wal-Marts and Best Buys of the world, or be it in the auto world, where Ford has come on board and obviously the joint BMW and others. And in the manufacturer and consumer electronics world as well, we're continuing to see a growing number of manufacturers and a growing number of products coming into the marketplace. And we're very excited about that. I also think on the content side, there continue to be some interesting developments in that area. I think you'll begin to see the very first crumbs on the revenue side beginning in 2008. But I really would not look at this as a material driver for some time, because as you all know, the developing -- achieving penetration rates that are material, again, takes some time for any product in today's marketplace.

It must be my amnesia today, I forget your -- oh, Boston. Look, Boston is great. But Boston is, again, a direct and perfect example of where our strategic focus pays off. We are doing well, digitally. We are doing well with our business development. And in fact, I mentioned on our last call a program we developed with Shaw's Markets, which is the largest grocery chain in New England, where we did a multi-platform integrated program with them which has generated substantial incremental dollars that have kicked in over the last couple months and will continue over the next couple of years. And also on the brands and content side, where we continue to invest in great content on our sports station, WEI, which is the number one rated sports station in the United States, and in addition, investing in great content on our other properties in that market. That has enabled our brands to stand strong. At a time when Boston is a flattish market, we've been able to achieve significant growth as a direct result of those efforts.

Gentlemen, thank you.

David Miller of SMH Capital Market, your line is open.

Hi, just one quick question. David, on the pending transactions that you list in your press release, are you guys pretty much done with the reprogramming efforts that you've essentially consummated over the last six months or so? Or should we expect additional programming expenses to sort of filter into 2008 with those pending transactions? Thanks.

I think in so -- look, we're never quote, unquote, done -- right? And don't read that as code. We are always evaluating our portfolio and always thinking about where we might find opportunities to gain material lift from stations which are performing at levels below what alternatives might be. So I would never want to give the impression that we are done. And we always find an opportunity here and there that we'll pursue, be it in our recently acquired stations or our portfolio that we've held for longer periods of time. So I would expect sort of a normal rate of new formats for the foreseeable future.

And David, kind of aside, if your question is, is there anything in the 2008 business model that could be impacted by cost of format changes, I would agree with David. We don't know at this point. There might be some next year. But I can't envision anything that would have a material impact on the business model or your models.

Okay. Thank you very much.

Jonathan Jacoby of Banc of America Securities, your line is open.

Thank you for taking the question. Just curious on expenses -- I know we've touched on a little bit going forward. And you guys have really done a great job of managing expenses. But is there any more room to cut -- or has the radio industry sort of cut to the bone and needs to start investing, whether it's in programming and/or marketing? Thanks.

Hey, Jonathan, would you like to come sit through our budget meetings? No. Macro question, not to -- one, I am proud of the operating team and the management team, as they have managed expenses in what's been, let's call it, a challenging revenue environment over the past several years. The simple answer to your question, is there more opportunity without hurting our basic business model? And the simple answer is yes. I think we're always trying to be prudent and balance things off. You've seen us make big investment in content, whether it's talent, sports rights, launching new brands, digital, our business development. And don't forget, digital, which has been a major focus this year -- we have invested a lot in people and resources there and yet managed a very reasonable expense growth. And so I would say the simple answer is yes. I'm not going to go into the categories -- it's specific for each market, each brand and how we operate and our philosophies. But the simple answer is yes, we think there's still more opportunity to maintain a a very reasonable and perhaps declining expense metric.

Let me just add to what Steve has said, cause I think it's an important point. It's not just about cutting back and how thin we can go. That's not how we look at things. We spend a lot of time thinking, how can we do things better and smarter? And so are there ways that we can run this function that may have cost us $10 million in the past, run for $8, and yet still do a better job because technology has changed or the marketplace has changed or there's been some other evolution in the world that has enabled us to do things better. So I think it's really important, again, to reemphasize, it's not about cutting back on our capacity and our capabilities but just doing things smarter and more efficiently.

Thank you.

Mark Wienkes, Goldman Sachs, your line is open.

Thank you, good morning. No category question here, first.

Come on, Mark. I wanted to [trumpet the fact] that restaurants were down and grocery is up, and let you all make conclusions on macroeconomic trends.

I'm not taking the bait. If I could wrap up all the macro versus Company-specific questions in one question; how much of the variance in your performance for, let's say, '08, '09 do you think is going to be dictated by the general economic conditions versus your own specific company actions? 50% of your performance is just going to be reliant upon the economy or -- et cetera?

Look, it's -- again, it's a great question, Mark, that we grapple with quite a bit. We would like to untether ourselves as much as possible, and again, think about ourselves being competing in that $250 billion advertising pool as opposed to the $20 billion radio pool. But the reality is there's only so much of that you can accomplish. And we are still largely -- our performance is heavily correlated to macro trends in the economy and also macro trends in the radio business. The delta between what we do and what our peers do, I think, can continue to expand. By the way, I think -- on both sides. I think you are -- we've seen over the past year the delta in performance within the radio industry -- or the variance, let's say, has increased. I think that will continue to be the case. Because again, we are more and more competing in this broader universe and it reveals --

The variance across companies, you're talking about?

I'm sorry?

The variance across company performance.

Yes, within the radio industry, the variance between the performance -- it is greater than it was, let's say, five or ten years ago, because we are competing to a greater extent in a broader, less forgiving world, which rewards companies that are doing a good job of competing in a broader universe and punishes those that don't.

On that point, the blogging world and others already have XM and Sirius merger having been approved. If that happens, how do you think about the changes in the market that they like to call, the audio entertainment market, from that combined company? And then one step further, implications from -- that FCC action toward the radio industry broadcast -- (inaudible) radio?

Look I think it's too early to start answering questions like that. By no means do I believe that that is a fete-a-comple. I think that if one thinks about the implications of an approval of that merger, on what that could mean in terms of other -- of other media consolidation, it's pretty staggering. Let's wait and see whether it happens first before we start answering questions like those. I'd still be surprised if the government approves a monopoly in national pay radio.

Thank you.

Eileen Furukawa of CitiGroup, your line is open.

Thanks for taking the questions -- a couple ones. I just want a little update on the inventory side of the business. As we enter these more difficult times, how has the inventory levels been for you and your competitors that you're seeing out there, in terms of both -- not only just minutes but in terms of units, as people are also continuing to move to shorter ads?

And then secondarily, you talked a little bit about the PPM and how it's looking good in the New York market and how that's pleasing. That seems in big contrast to what we heard with Cox saying that they thought the transitions that People Meter was bringing down the Houston market as a whole down 5%. Do you think the transition of People Meter is going to inflate or deflate market revenues? Thanks a lot.

Sure -- units and ads -- I think the number of minutes seems to be decreasing, the number of units seems to be increasing, again, as you mentioned with this transition to shorter commercials. In the long run, it's a very good thing to the industry for reasons I've discussed and others have discussed, previously. So I think it's a real positive trend for the future.

On PPM, I want to be careful. You may have misconstrued my comment. I think it's way too early to see what PPM will do to New York ad revenues. I was merely speaking to the validation on radio -- of radio listening levels, which remain spectacularly high and which people do not sufficiently note. Nobody steps back and says, here's an industry that reaches 96% of Americans every week and reaches them for a dozen or 14 hours or whatever it is a week, which is a spectacular marketing model. And that was my point. I also added that within the winners and losers, formatically, I think the Entercom portfolio is very well-positioned for that world. Again, I haven't seen a lot of discussion about that. I think as people start sorting through winners and losers within that, we will be served well.

As to the disruption of the advertising, the primary comment I have heard about Houston and Philadelphia -- first of all, there really hasn't been a disproportionate disruption in those markets on revenue. Yes, there's been some natural transition that's occurred. Yes, there's been a lot of discussion. I don't think Arbitron did as good a job as they should have in preparing the market for it. What I'm hearing is that in New York and in other markets that are coming up in '08, both the industry and Arbitron are doing a far better job of getting in front of advertisers and clearing through the questions long before the new books hit, so that advertisers can have their arms around it. And hopefully, we won't see -- we'll see a much cleaner transition in those markets.

And just a follow-up clarification point. You talked a lot about real estate weakening -- weakness in markets. What exact markets are you talking about in your portfolio of stations that are getting, in your mind, hit by real estate?

I think we're seeing most -- in for instance, Florida and California are two regions or areas or states, obviously, that we're seeing a more adverse impact than others. And again, I'm not commenting on our execution within those markets but rather on general market conditions.

Thanks a lot.

John Blackledge of JPMorgan, your line is open.

Thanks for taking the questions. Sorry if I missed this -- just wondering what your performance was in September and what your market performance was? That's question number one.

Number two, does it make sense for terrestrial operators, including yourselves, to pair up with Internet pure-plays, like a Pandora, as you grow out your digital platform?

Lastly, are you concerned that industry revenues go from flattish to down 2%, 3% over the next couple years? And even excluding kind of cyclical issues, just -- and what's the driver for -- or argument that the revenues don't start to dip versus staying flat to up? Thank you.

I'm not sure I'm conceding your last question. I don't know what revenues are going to do in '08 or '09. I point out that, if you look at our Q3 performance and you look at our Q4 guidance in the context of political comparisons, we're not declining. In fact, we've actually -- again, it's not robust growth -- but on a normalized basis, we were up -- we actually were up normally in Q3, but ex-political, up 1. In Q4, normalize our guidance, and again, it's up slightly. So -- and I think with our initiatives and with any change in industry optics that move us closer to the reality of industry conditions, from a listener standpoint, and away from some of these deceptions where we get lost in the shuffle, I think that's the potential for a major positive lift. So I'm not predicting that. I'm merely pointing out that that disequilibrium, should it ever be narrowed, would work in our favor. We'll see how that plays out.

As far as September is concerned, we performed far better than the industry. We were down 1% for the month.

And your digital question, I'm not sure I completely understood. Maybe you can share that with me again, please?

Yes. Does it make sense for terrestrial operators to pair up with pure-play Internet radio operators, like a Pandora, to kind of broaden your platform? Just hypothetically thinking about it.

It's a tough hypothetical. At this point in time, I don't see it. But we're looking at ways in which we can continue to expand our content and our brands. And continue to look for ways, as technology evolves, to serve our listeners and our customers in new ways. We continue to think about those kinds of things.

Thank you.

David Bank of RBC Capital Markets, your line is open.

Thanks. A couple questions. First, on the digital business that now comprises 1.5% of your overall business; how much of those advertisers are sort of new advertisers versus advertisers who were advertising on the radio platform? So actually, guys who hadn't been advertising at Entercom at all and are now advertising on the online platform?

And the second question is, as the Google Audio platform sort of rolled from beta to full roll-out with the Clear Channel inventory at the beginning of the summer, have you guys seen any impact on the industry? Have you seen any impact in your markets? Any thoughts on Google Audio at this point?

I'll go in reverse order. To your latter question, we have seen no impact at all. That doesn't mean they're doing well or poorly, we just don't see any impact on our world.

To your first questions, it's a mixed bag. You have some advertisers who are radio advertisers who love the ability to extend their interaction with our audiences through our online opportunities. You see other advertisers who, frankly, are intrigued with our digital offerings and are not that interested in what we offer them on-air, who are doing digital-only programs with us, or in some cases, starting with digital and then adding in the radio. It's all of the above. And it's a good thing.

Okay. Thank you.

Victor Miller of Bear Stearns, your line is open.

Just one quick follow-up on RKO/EEI. Could you tell about -- talk to us on how that wound up? Are you pleased with the progress there, when do we really see the ratings gains that we've seen in RKO really translate to increases in revenue there? And will EEI suffer any revenue losses? Thanks.

We are thrilled with -- how EEI has fared. Namely, even though we took off the Red Sox, our ratings have remained outstanding. And so, as predicted, that's worked out terrifically for us. The RKO situation is a little different because, while the thesis was playing out, unfortunately we had a contract dispute with our number one personality who has been off the air for the last couple years and had a high profile contract dispute over the course of the summer. And I think that was meaningfully disruptive to both our advertising and to our listening strategies. We very much hope and expect to see a positive resolution of that situation, but it obviously put us behind schedule here as we have sort of waded through that disruption.

Thank you.

Michael Kupinski of Nobel Financial, your line is open.

Thank you for taking the question. Following up on Bishop Cheen's earlier question, I realize that this is a small part of your business, but how do you prepare for the prospect of strong political advertising next year? I learned that some broadcasters indicated that they are aggressively raising the lowest unit rate in anticipation of political next year. Do you have to have the lowest unit rate in place the year prior to political? And then of you could give us some color -- if you're raising the lowest unit rate? And if so, by how much?

And then finally, my next question is -- I'm sorry if I missed this -- can you give more color on your local versus national, particularly ex-political year-over-year, in the fourth quarter?

There is a -- we do a lot of training for our people on political. They're well-aware of the implication to the low cost -- of the political rate. And as a result, they understand that there's a window before the elections in which they need to be particularly careful. They know the rules. They understand their business models. And they need to make the right business decisions as to what makes the most sense for them in pursuing their agenda.

And on your question on local, national in the fourth quarter -- as David mentioned, there was no meaningful difference in the third nor do we anticipate any meaningful difference between the two categories in the fourth quarter.

Are you raising, significantly, your lowest unit rate this year in anticipation of political next year?

Again, it's not -- first of all, the -- again, it's a local decision, Michael, as to how each of our managers do it. They need to make the right business decisions on their lowest unit rates. And they're fully cognizant of the implications of -- on political rates.

I will just say, as an aside, I don't think we manage our rates in anticipation of political. We manage our rates because of what's best for business.

It's a supply and demand function. And they do what they think is in the best interest of their station and then follow the rules as far as political is concerned.

Okay. Great. Thank you.

Jim Goss of Barrington Research, your line is open.

Thank you. Good morning, Dave. Good morning, Steve. One -- going back to a little of what Marci and Bishop had started talking about; what level of industry-wide revenue trends do you feel would be sufficient to enable you to cover your expense increases and outperform on the top line, as you consistently tend to do with your programming acumen, and still generate at least mid-single digit cash flow and EPS type growth? Do you need a couple of percent type industry-wide revenues? What do you think?

I'll take that -- this is Steve. I'll take that, Jim. One, we don't -- and I think we've consistently not predicted the outcome -- we give all the factors we see. But you're asking a math question. Let me back into it. We don't see anything next year, or frankly into the foreseeable future, as it relates to our expense business model. So if you are looking to get mid-single digits on EBITDA growth or mid to high on free cash flow per share growth, that would imply low single digit on the revenue side. That's just the math.

Do you think you can get there? Or do you think there's -- ?

That's a different question, which I think, we find it pretty difficult in forecasting this business, given the short cycle nature of the industry.

The other contentious issue that's --

(inaudible) to answer your question is, I can come up with a scenario that would indicate that. Whether it plays out or not, I don't know.

The other contentious issue that's been talked about a couple of times today is the PPM issue. And it seems like it's not reached as much as usage, that the total time spent has been a little less, even though it's still very high, and that there's a struggle with the cost per point pricing versus the more accurate audience measurements that tend to be down a little bit. And how do you grapple with that? And do you think what was mentioned on the Cox radio call the other day is a real fear?

Imagine if this were the newspaper industry and they just got PPM and it was determined that all the circulation of every major newspaper in the country was up two to three times. It would be heralded as this incredible windfall, the most spectacular development in the industry. We have an incredible reach story that has been validated and dramatically enhanced by PPM. And we still have a medium which reaches Americans for 12, 13, 14 hours a week, which is a spectacular amount of time. And we are the low cost provider. I think we are in a very, very good position. And I think it's -- I think we're very well-positioned as a medium for the future. And I think as advertisers look for more and more accountability, and they narrow the PPM methodology, which they will prefer to the diary, I think when the dust all settles -- and there's always going to be noise and debate and back and forth, that's going to happen -- but at the end of the day, radio as a medium looks stronger than ever in a PPM world.

All right. Thanks.

Operator, we have time for one more question.

Thank you. Kit Spring of Stifel Nicolaus, your line is open.

I don't think this is going to happen, but are you at all concerned about having to pay performance royalties?

I think on the merits of the argument, we should not be concerned with that. I don't want to get into all the -- inside Washington back and forth on that. But obviously, we don't believe it's going to happen.

Thank you.

Okay. With that, why don't we wrap up for the day. Appreciate everybody's time here this morning and look forward to reporting back to you again in three months. Thanks.