Gray Media Inc (GTN.A) 2007 Q2 法說會逐字稿

Good day, everyone, and welcome to the Gray Television second-quarter earnings release conference call. Today's call is being recorded. For opening remarks and introductions, I would like to turn the call over to Mr. Robert Prather. Please go ahead, sir.

Welcome, everybody, to our second-quarter conference call. I guess one of my favorite sayings comes from an ancient Chinese philosopher that may you live in interesting times. And I think we definitely are living in interesting times.

Although, I do think that TV is on the edge of being a -- continuing to be a great business over the next few years. I think full digital is just around the corner. There's only a little over 500 days until the transition February 17, 2009, 550-something days. We're gearing up for that. As you know, we've got 40 digital channels on the air. And we're working every day to make sure these channels are getting viewing and getting advertise and support. We feel very good about it. But we feel think we're going to have duopolies and triopolies in virtually all our markets that will be 100% coverage once the full digital comes in.

Second quarter wasn't great but it wasn't bad. We're happy overall that I think we're staying ahead of just about everybody in the industry as far as our results. Our overall result is down 2% on revenue. Our expenses, we actually held in line and did better than we thought -- better than budget. So, overall, we feel good about it. We think that the rest of the year is looking a lot better. Third quarter, just about all our GMs seem to be very optimistic about third quarter. And then fourth quarter, we're still hoping -- although we don't have it budgeted -- that political will start pouring in in fourth quarter because of all these early primaries moving up. But I think it is something that we can look forward to.

One thing that was a little bit confusing, as you know, we refinanced all our debt back in March. We talked about it in first quarter. But we had a debt extinguishment charge this quarter that -- $22 million from paying off our bonds early and refinancing our bank debt. But, we got one of the best financing deals. And in light of today's market, it is an incredible deal but basically 1.5 over LIBOR with excellent covenant terms and it gives a lot of flexibility. And we were in the right place at the right time to get the financing done. But that debt extinguishment is from paying off the bonds early and calling the bonds early with the premium we paid and also refinancing all our bank debt. And we now have all senior bank debt, which as I said we're very, very happy with and we're glad we did it then and aren't trying to do it now.

But, as I mentioned, I think the rest of the year is going to be -- it looks like it's going to be pretty good for us. Like I said, I think third-quarter pacings are looking good. And fourth quarter here again, it's a long ways off in today's world, but I don't see any reason in the world that we're not going to get political. Like I said, we didn't budget for it but I think it definitely will come in now that I think it's 24 states or February or earlier on their primaries. So I think it's going to be pretty hard for these candidates to get their message across. They wait until January and early February to do it.

But at this point, I'm going to turn it over to Jim Ryan, our Chief Financial Officer, to go through the numbers in a little more detail. Then, we'll open up for questions. Jim?

Good morning, everybody. Commenting on the second quarter, obviously we didn't have any acquisition activity in Q2 '06, so it is a straight-up comparison on the three month numbers. As Bob indicated, overall for the quarter, we felt it came in not too bad considering going against the 4.7 million of political from 2006. Local revenues were up about 3%. Our national continued the trend as exhibited in first quarter and was down and that is consistent with everybody else in the business as well. National was down about 7. We saw a softness in auto and also in the financial insurance category and our restaurant fast food business was also soft.

But, actually, we were very pleased with what we saw in the telco communications category. That was up very strong. We did very well. The entertainment category for us was also up very well. And we saw actually upticks that we haven't seen in a long time in our department discount store category as well as our supermarket category, which helped support the quarter a little bit as well. As Bob indicated, our operating expenses actually came in slightly under our internal targets. So, we felt good about that.

And on a year-over-year basis, the incremental effect of all 40 digital channels added about $1 million of operating expense to our total. And again, that was at or actually slightly below our internal expectations. So we felt good about that as well. Some quick comments on the six month numbers. There, I will talk about the pro forma so we give effect to the acquisition of Notre Dame in March of '06 as if it had happened on January 1, '06. Again, local -- considering in the six month numbers we're going against 6.6 million of political and 3.4 million of Olympics that were in '06 and not in '07, our local on a pro forma basis was up 2%. National was down 6.

And again, as far as categories go, obviously the trends for second quarter would be similar to transfer the six months as well. The digital channels added on a six-month basis about $2 million of incremental expense to our overall expense line. And again, that was basically at or better than where we expected. So, we're feeling pretty good about the operational characteristics of the digital channels.

A couple of quick comments on the balance sheet. Total debt at the end of the quarter was 928.5. As Bob mentioned already, we're very pleased that we got our refinancing done in March when the markets were very strong. We think we have a very strong -- a very good deal there. As Bob already mentioned, we did redeem our 9.25 sub debt in April and took a loss on extinguishment for that. And we also then redeemed our approximately 40 million of preferred stock that had an 8% coupon and we completed that in May. So, going forward, there's no more preferred stock dividends the rest of this year and going forward. And we're very comfortable with where we are with our financing package, our covenant package and where we see ourselves going forward the rest of this year and next year.

At this point, Bob, I will turn it back to you.

Moderator, Operator, if you would open up for comments, we'll take questions.

(Operator Instructions). Marci Ryvicker, Wachovia Securities

I have a couple of questions. For the second quarter, you came in at the low end of guidance. Is there anything that happened during the quarter, a particular category that softened more than you had originally expected? And then secondly, for your Q3 guidance for political, it sounds like it's a lot lower than what you did in Q2 and Q1. I'm just surprised, given that we're getting closer to the early primaries and you have significant exposure to many of those beats. So, can you just talk about that?

Jim, you want to take that?

Marci, I think as far as coming in just shy in the revenue number on the low side of guidance, which obviously we were a little disappointed in. June ended up being a little softer than we had initially anticipated. I don't think it was anything -- any one particular category softening up more aggressively than anything else. I saw some -- the TV beat is an industry-wide survey every month and the quarter to date. And I know through -- in their full second-quarter report and six-months report, industry-wide it looked like June ended up being the softest quarter -- or softest month of the quarter for some reason.

So, I think we were just exhibiting broad -- the broad trend in the business. As far as political goes for third quarter, we're being very conservative on that. Really, the numbers that we are guiding to at this stage would really only on a conservative basis activity in the Kentucky and Mississippi governors' races, which are the two -- they are both off-year governors' races. And we haven't put in any type of estimates or estimate on what might be the upside if indeed as you said there's -- we're well positioned to be picking up early '08 money when it starts. But we just don't have a good feel yet. We don't have any solid even -- it's just too early to predict that. So what we've gone with is just kind of relying on our two governors' races that we know about. And there may be upside in both of those governors races as well.

Chris Ensley, Bear Stearns.

I was wondering if you could give us updated thoughts on your outlook for this year for your Internet initiative as well as your digital second channels. And you look at that as incremental in both cases or 100% incremental or could perhaps some of the dollars be coming from either your primary channels or your over-the-air revenues?

Chris, that's a good question. I would say no to both of those. I think our Internet strategy -- I think we've got as good as anybody in the industry. As I've mentioned before, we're very proud of the fact that our Internet operations are growing very fast, have margins 60% plus profit margins. I think we're very, very careful that we don't count anything except pure Internet revenue. And I mean that we don't let a manager count anything as Internet unless he sent out a bill as Internet. Because I think a lot of people make the mistake of bundling Internet and TV together or bundling newspaper, Internet, whatever it is and they wind up giving the Internet away a lot of times. And we just don't do that.

We feel we've got very strong Web channels as we call them. They are all doing very well. We've got a lot of content on them, a lot of video. And we think it's going to be a continued growth engine for us in the future. And I think frankly, if most of you -- if anybody has got young children three or four or five years old when they are 18, 19, 20 years old ready to go off to school, they won't know the difference between Internet and television at that point.

But, secondly, the digital channels, here again, most of our digital channels we're selling what I -- basically virtually against cable, we're selling pretty cheap spots. Here again, we don't try to do any bundling or anything. We make sure that we've got separate salespeople in many cases on the digital. And we are really going after a different audience number one -- a younger audience in most cases.

And number two, advertisers that are looking for at least a less expensive way to get on television. And you know, because of the ratings and the fact that these channels are relatively new, they don't obviously generate the ratings that our primary channels do. So we're able to charge a much lower rate in those cases. So we're going after a totally different advertiser and pretty much different audience in those cases. So I don't think we're cannibalizing our main talent in either one of those. I think they are both incremental growth for us in the future.

And I think in prior quarters, you were talking about Internet revenues of 11 to 12 million, cash flow of 7 to 8 million and on the digital maybe 10 million of revenues expenses. Is that still sort of the outlook this year?

Yes.

Larry Schumacher, Oppenheimer Funds.

A couple of questions. In the last several quarters, you talked about expenses for the digital stations. Are there revenues for those stations and what is the potential over the next three to five years then?

Yes, we're cash flow positive in our digital stations. I think they will continue to grow as we build an audience. And we're trying to do more local programming. We're looking at both in the college towns more college programming and going down further trying to do more high school and coverage of local events and things that we can't really afford to do on our main network channels. But, they are cash flow positive.

I think the only thing that frankly has hurt us and probably put us a little bit behind on where we would like to be is that several of the cable operators pushed some of our digital channels up on the digital tier where they are channel 180 or 200 or something like that. And it's hard for people to find it. Plus, in some of our markets, virtually half the market doesn't even have a digital box. So, in Tallahassee, in Waco, in several towns like that, we've been hurt.

But what happened was, the cable operators wanted us to agree that we would give them two or three more years of free retrans in exchange for that. And we just opted not to do that. We thought we had a better chance of bargaining with them to get paid for retrans when that comes up next year. So, we opted not to give them. So we kind of -- we basically knew we were going to take it on the chin a little bit in the short-term but we thought long-term it would be the right thing to do.

So, ex the digital TV expense, what will your broadcast operating expenses be for the year because you had the (multiple speakers)?

[We were here] again. We should be, by the end of the year and I need to explain this a little carefully but you've got to remember in the off years, in the political years, we have a pretty hefty commission on political revenue. We had $43 million of political revenue last year, which probably 90% of it there was a 7% agency commission on -- rep commission on. So you're talking about close to over $3 million. We will have very little of that this year unless we get into fourth quarter.

So what we normally do is, we budget in the off years, a zero expense increase. We give raises out early in the year obviously. But as the year goes on, we gradually make that up -- that increase up. And then in the fourth quarter, the commissions aren't there or haven't been. So we wind up usually right at zero or a small increase during the year. And that's our goal again this year. Now, the good news could be that we get a huge political in the fourth quarter and we will have a bunch of commissions in and we will be glad to pay them.

Are you seeing any of this political starting up because of how many people are in the race and stuff?

We've seen a little bit of Romney money early on in Florida and Michigan and Georgia. That kind of went away. I think Romney was really spending money like crazy for a while and realized he was going to run out of money if he kept doing that and backed off. But, we haven't really seen much other than that as far as the national. Like I said, I think they've got to be planning for November/December type thing if they are going to really start getting some coverage going into early January and February.

Last question. The buyback is still in place? Is there anything left?

Oh yes. We've got -- I think it's -- we just had a reauthorization. Jim, tell me if I'm right on this, I think we got maybe 3 million shares we're authorized to buy. We're not buying any right now. But with the projects like they are, we may start looking at it hard again frankly.

Please, thank you.

Yes.

Laraine Mancini, Merrill Lynch.

The private market valuations, can you talk about what you're seeing out there, if you have looked at any of the transactions? ProStar did pull their deal and the debt market seems to have closed down. So, do you think that the market valuations have gone down and no deals will get done?

You know, I'm not that much of a prophet. But obviously, right this minute, nothing is getting done. I think Wall Street pretty well shuts up in August anyway for vacation and everybody before the kids have to go back to school. But it's clearly a different world than it was a month ago. And I think it will be interesting to see after Labor Day how people's attitudes are and how much shakeout is still going on from all this sub prime stuff and Bear Stearns problems in that area which have probably been in the forefront. But, I mean I think valuations are clearly less than they were a month ago.

I think everybody's pretty excited about the deals that we're getting done with Clear Channel sale and the New York Times sale. And I think that's one reason you saw a bunch of stations come on to market right after that. But, hey, I think -- like I said, I think our stock is way undervalued. We're definitely going to look at probably buying in more stock than we have. We hadn't been doing it for a while. But, with the stock like it is right now, it's probably incumbent in us. We're going to keep a close eye on our debt to cash flow ratios too. We want to keep those in line and keep them where we have told people we will keep them. So, both of those things, I think we will watch pretty closely over the next six months of the year.

Larry Haverty, GAMCO.

Jim, can you give me an idea of what the quarterly run rate of interest is likely to be with the refi in place and no preferred?

Top of my head, it's about 16 million a quarter. It's -- in rough math, it would be 925 million at basically LIBOR 150. We did hedge some of that. So, the blended rate would be slightly above the 150. But for back of the envelope math, it would be I would say 925 at LIBOR 150.

And, if you were to do that today, how much would the nice folks be charging you?

I don't think we could even do it today, Larry, from what I hear. But, I think we've got a great deal. Like I said, I am just glad we were in the right place at the right time.

Certainly, timing is everything.

Lance Vitanza, Concordia.

The first just a follow-up on Marci's question earlier on the political side. Can you remind me or do you recall, what had you expected Q2 political revenue to be?

Our original guidance for Q2 we said 2 to 2.1 and we came in at 2.6.

Okay so, just a little bit better there.

And some of that -- a lot of that op would've been attributed to the Kentucky governor's primary races which on both sides were pretty heated.

So then it would be normal I guess then to have a step down given that you are now between the primaries and the generals in those two states?

Yes, I mean we would expect a little bit of activity for the general in September in both of those states. Again, we're being conservative so we might get a pleasant surprise. But I'm assuming those governors' races would follow a more historical pattern and probably really heavy up in October versus September.

Okay, great. And then to follow-up on someone else's question, with respect to share buybacks, I guess I had kind of taken my eye off that as an issue. What flexibility do you have under the terms of your new bank deal to do buybacks? Is it sort of capped at a basket or is it just like a leveraged test that you have to worry about?

We've got plenty of flexibility. We couldn't buy as much as we got room frankly. So we're in good shape there.

Just lastly on the revolver, can you give me the revolver balance at the end of the quarter?

The revolver balance itself was 3.5 million out on the total 100 million line. So, the Term Loan B is a straight-up 925 million and total debt was 928.5.

Then any LCs drawn on the revolver?

No. And the revolver we will just use for standard liquidity purposes as we go along. And obviously, we would -- certainly the revolver should end up being down to zero and over time, just be there as a standby.

I apologize if I missed this a second ago when you were talking about the revolver. Do the covenants come into the -- you list the availability at like 96.5 million. But, are there covenants that are going to sort of come into play here but were--?

That's straight up. The only covenant in the entire senior facility is a maintenance covenant. And it's calculated on a last eight quarter average rather than a trailing 12. Currently the covenant level is at 825. And we will -- our first step down doesn't happen until June 30, 2008 when it steps to 775. That's the only covenant in the entire package.

And then what's your sort of -- when you calculate the ratio today, what does it come out at?

In broad math, I mean obviously the senior credit facility uses a defined term, which has got some add and subtracts. But, certainly our operating cash flow number which you see in our non-GAAP [REX] would be a reasonable proxy. But if you do the actual technical calculation, we came in at 797.

At 797 today.

And again, that's calculated on a trailing eight-quarter average. So, that really is -- by going to an eight-quarter calculation, that's a very powerful tool and it takes an awful lot in the short term to move the ratio in an adverse way.

Jim Goss, Barrington Research.

A couple of questions. First, Bob, I think you mentioned the -- in response to I think Chris Ensley question that digital might produce about 10 million of revenues this year but my numbers are showing you only are at about 1 million or 2 so far this year. Can you really ramp up that quickly?

That's not right. That's not right.

Jim, our digital revenues for the six months -- we're in the -- for the quarter, we are in about 3.64 for six months. And we do expect a reasonable ramp-up in the second half of the year as we get more time under our belts and come into a full year cycle on them. And obviously, we've got [side foxes] that have been doing very well for us. Obviously we would expect them to really -- we're expecting good things from them in the latter part of this year.

And with your Internet strategy, have you given any consideration to say IBS or one of the other--?

We run all our other sales and we think we do a better job than anybody else can do so we're very happy. We've got a very good interactive staff that basically works out of their homes. They are young. They are really energetic. They know the business and I think we're doing better than anybody else is doing. So I wouldn't want to change.

And then lastly, the auto category, could you talk about -- a little about how you see it right now and how you see it in the future, weather changes in relative importance to your business over time?

You know, we're down I think a little over 6% for the first six months which I think here again is better than most people. I think the auto category is going to continue to be our most important category. I think the domestic manufacturers are all floundering right now for various reasons. Obviously, Chrysler has been in the midst of a sale. They've got a new CEO now. I would assume they will come up with a strategy on marketing that will get them kind of back in the game a lot more. And I think General Motors had a good quarter. So hopefully, they will get better. But you know, you've got three domestic manufacturers all have been losing billions of dollars and they've all got to take a hard look at how they operate.

You've got Toyota and Hyundai and Subaru and all -- Kia all bragging about building new plants in the United States. And all our guys are shutting them down every day it turns around. So I think until they get their issues straight with the unions and with the retiree of health costs and things like that, they are going to continue to have problems. But the foreign manufacturers are picking up the slack. We get good advertising out of all of them where they are in our markets. So, I think this right now is just a temporary blip and I think the auto will be back strong.

[Brian Broadbent], Highland Capital.

Just a couple of questions. First, on the digital, so is it safe to assume that although you still expect them to be cash flow positive for the year through the first six months there, they are cash flow negative?

No, they are positive. But, you know, they are -- not a whole lot but they are positive the first six months.

And on the -- could you comment on how things are going with the HD news in Lexington and what kind of trends you're seeing there from that investment?

They are going real good. We had our Board of Directors meeting up in Lexington last week. So our directors could see the actual product on the air. We watched a newscast. We got a fantastic quality and that's an interesting town. Lexington's market 62 and yet two of the stations -- there's only I think 40 stations in the whole country that have local HD and two of them are in Lexington. Our competitor went on the air with HD -- local HD about three weeks or two weeks after we did. So we've got tough competition there. And it's hard obviously you can't monetize the digital now -- the HD.

But here again, I think we got a lot of strong stations all over that are news leaders and community leaders and I think we're going to have to be leaders in the HD side of things too. And I think if you talk -- most people who've watched HD don't want to go back to regular TV. I think it's going to be the same way on the news. So, I think it's something that we're looking hard at over some other markets that might make sense in the next 12 to 18 months. But we're going to be careful about it. But I think it's something that competitively we've got to look real hard at, especially if we have competition going in a market where we are either a leader or close to a leader. I think we definitely have to take a hard look at it.

When you talk about the runway looking a little bit better for the back half of the year, what are some of the drivers behind that? I know for example CBS talked about seeing significant increases on sports. Are you seeing those? Are you seeing those similar trends on your pacings? And then also, just some commentary about the [dig] boxes and the NFL on those properties and what kind of trends you're seeing there?

I look at it more from an ad revenue side of things and we're seeing auto looking a lot better. The other categories that have been looking good continue to look good. And I think just as a general tone among our managers that overall ad revenues are looking better in the third quarter. And like I said, I haven't talked to anybody specifically about what's going on in sports. We're in kind of a little bit of a different breed of cat when it comes to that. A lot of our towns, NFL is not near as important as local college. For example, in Lexington, Kentucky, Kentucky basketball is king and when the NFL was off to CBS there, we didn't miss them a bit. And you go up in Wisconsin where the Packers are big, they are extremely important in all our Wisconsin markets up there.

ut we've got a lot of towns where don't get me wrong, pro NFL is a great product and we're glad to have it. But we've got a lot of towns where it's not as big a deal as it is in cities where there is an NFL team or a tradition of really following pro football very closely in adjacent market or things like that. But we are looking forward to our boxes that we've got now, our digital boxes. Obviously they are big into sports and we think that's going to be a big boost for us on our digital channels with Fox. And like I said, college football continues to get bigger and bigger and it will be more and more important to us as we go forward.

And then on the covenants, I haven't run the exact math. But I believe that on a comparable basis, I think it's either in the third or fourth quarter, you start to have easier comparisons as to what's in your credit agreement rolling back over the eight periods. I was wondering if you could comment on that, where your potential cash flow ratio should significantly improve as we start to roll into fourth quarter political and then into '08?

Jim, have you got the figures on that?

Yes, that is -- that would be correct. I think you see some moderation by fourth. Third may be a little and then obviously as you roll -- the big driver would be the extra early '08 political which I'm not guessing at when I look at the compliance estimates going forward. And then, as you said, you get significant reductions quickly as the political in '08 rolls in. Just Bob and Brian as a point of clarification, just on the digitals, we were slightly negative in cash flow by a couple hundred -- less than a couple hundred thousand in the quarter that was basically expected. For the year, we should be positive. It's not a huge amount of money for us this year.

But again, everybody needs to keep in mind that what we've done is effectively created the functional equivalent of duopolies or triopolies by these 40 channels. And that's the good news because a good upside to that for us as Bob indicated that slightly the near-term challenges obviously we started from scratch last year, so we're building it as we go. That's where we're continuing what we're continuing to work on this year. But we are overall very pleased with where we are in those digitals for this year and where we see the future with them.

(Operator Instructions). Steven Shapiro, GoldenTree.

Quick question for you. You mentioned at the start of the call you see the TV industry on the verge of becoming a very good business again. What would it take -- kind of what do you see out there that would get it to be a good business? Is it digital revenue? Is it national advertising coming back? What are the things that you are hopeful for that will make this from what has historically been a good business into what I know you and I have talked about you think it's going to be a great business again.

Steve, I think the key thing is that digital transition coming February 17, 2009. All of a sudden, every American is going to have the ability to have digital TV and HD. I've always said there is three elements to it in my case. I think the viewers are going to have a much better product. It's going to bring excitement back to -- I think you're going to see a lot of people buying big screen TVs and having it at least in one room in the house where the whole family is watching on a big screen, watching HD in sports or movies that kind of thing.

And then second, I think it's going to be a new product for the advertisers. There is virtually no HD advertising been done right now but I think these guys are going to realize the carmakers and all these people that their product looks a lot better in HD than it does on standard definition or in analog. And I think you're going to see the advertisers embrace the HD format for commercials.

And then third, we're going to have the ability to have four channels at that point that we can broadcast which, like I said, we're doing it -- we've got 40 digital channels up and running right now. We hope to add more. We're looking at adding some 24 hour news and weather local in several of our markets, especially where we've got dominant news franchises. Here again, I don't think it will bring in much income in the short run. But, in the long run, it will strengthen our franchise and continue our strength in these markets as far as being the news leader.

So, I think, -- I think everybody I've talked to when I go around to conferences and things, I ask all of the investment bankers if they've got HD. And about 80% of the room raises their hand. The second question I ask is, can you go back to watching regular TV now? And they all say, no way. I just think the average -- I'd say 80% of the American public really hasn't still been -- really hasn't seen HD and been exposed to it on a regular basis. I think once they have it and see it, they are not going to go back. And like I said, I just think there's going to be a new excitement around the television business because of it.

Is there any concern about in a relatively weak national advertising environment about third, fourth and fifth channels in a market just too much inventory at one time or are you targeting--?

Because we're marketing strictly local. We're going after local. We're trying to do as I mentioned a lot more high school sports, the colleges in those towns covering sports that you wouldn't cover on a national type basis -- soccer, hockey, women's sports of various kinds, things that -- you would be very surprised. For example, in Lincoln, Nebraska, the women's volleyball team University of Nebraska was national champions last year. They've sold out 82 straight home games in a 6000 or 7000 seat arena. We have been televising some of those games on our digital channel and getting great results out of it.

And there are more cases like that around the country where a particular school has a college team that's really, really special that people want to see. And we've got to find those, identify them, and make sure we're covering them you know on a local basis. Here again high school, one of the things we're looking at doing, Steve, is using a lot of user generated for high school. We get -- go to some of the schools in our markets and get high school students, give them cameras and ask them to go cover the games. And we may have a two-hour video stream on our website or even on our digital channel of 10, 15 minute highlights from 10 or 15 high schools in a town which we think can be something that really get people's attention number one. And I think the advertisers will pay for it too.

So, those are the kind of things we're looking at and I'm very excited about it. I wish it was here today. I wish the transition was tomorrow frankly. But we're getting ready for it and I think we're going to be ahead of the game when it hits.

[David Tischer], Lowe's.

My question refers back to a comment you made earlier in the discussion about the push/pull between the set-top boxes in some of the markets you are in versus holding out for the retrans. Can you put a little more specific numbers towards that, what the impact may be in one way or the other?

Yes. David, most of our retrans deals are coming up in late 2008. I think about two-thirds of them or 60%, 70% and then the balance will be 2009. But we're working on a plan right now to really have a unified plan for the whole Company where we expect to get paid first of all. We're the dominant factor in most of the markets we're in. I think we've got seven or eight markets where our ratings in our market are more than all the cable channels put together in those markets. And, we expect that they are worth something and we're going to get paid for it.

We recently had a small cable system that was up for renewal just by chance with Time Warner. And we had a very successful negotiation with them. We're going to want to use that as a template for going forward. But we think we should be paid for our signal and we think we will be. That's going to be one of our goals and one of our main strategic initiatives in the next 12 to 18 months.

I know Jim has always refrained from putting numbers on that because of just where we see some of your competitors coming out and boasting certain markets. Is there some way that you can try to put what you think the potential may be?

David, you are trying to tie me down to something I really don't think I ought to. But I think it can be a considerable amount of money. I really do. And I think it should be a 95% profit to us once we get it. But like I said, I think if you look at us with 24 number one stations out of 30 markets and basically strong number two in all the other markets we're in, we've got a powerful product to sell. And then, I think we want to come out of it with two things. One is getting paid.

And number two is getting good channel designations for our digital channels. That's very important to us too. So, we're going to probably be fighting among two fronts. And, they are tough negotiators. They're not easy to deal with. I think every deal in some ways has its own quirks to it. And like I said, we want to come up with a corporate strategy where we can go especially to the big guys -- the Comcast, the Time Warners, the Charter, Cox -- those kind of people with a unified -- basically say, here, we've got 1 million subscribers all over the country that are Comcast. Here's the deal we're expecting. So, we're planning to make it a high priority corporate initiative like I said over the next 1.5 years.

Harvey Sandler, Sandler Capital Management.

My question was just answered.

Jim Goss, Barrington Research.

I was thinking that you've concentrated a lot of your effort on college towns as part of your strategy. I was wondering with the advent of digital, if you're contemplating any effort on establishing relationships with college stations to give them more visibility to create some programming for yourself and to in some way create sort of a farm club for talent for your bigger stations?

Jim, we hadn't thought of that but it's a good idea. I'll put it on a list to look at. I think it's something worth looking at. We're working -- we have relationships in a lot of cases with the sports programs in these towns but I think there's a lot more to the relationship to colleges than just that. And I think it's something we will look into. And clearly, user-generated video ought to become these college -- from students and from faculty in these college towns which is something we're working toward. But that's a good idea, something we will look into.

At this time, it appears there are no further questions. I would like to turn your program back over to Mr. Prather for any additional or closing comments.

I want to thank everybody. Like I said, I think we're looking to third quarter being a good quarter for us. Obviously, we've got some tough comps to go against from political. But I think basic business right now is looking good. I want to thank everybody for your support. I always end up the call by saying Jim and I answer our own phone and we're easy to find. So anybody that needs to call us, don't hesitate. And we'll look forward to talking to you at the end of third quarter. Thanks, everybody.

That does conclude today's conference. You may disconnect your lines at any time.