Urban One Inc (UONE) 2005 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. And welcome to the Radio One third quarter earnings release conference call. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, the CEO and President of Radio One, Mr. Alfred Liggins.

I appreciate everybody joining us for our Q3 conference call. With me today is our EVP and Chief Financial Officer, Scott Royster, and our Chief Operating Officer, Mary Catherine Sneed. With that we will just hand it right over to Mr. Royster.

I will start with the disclaimer and then go into some comments on the quarter. Good morning, everyone. This conference call includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Because these statements apply to future events, they are subject to risks and uncertainties that could cause actual results to differ materially, including the absence of a combined operating history with an acquired company or radio station, and the potential inability to integrate acquired businesses, need for additional finances, a high degree of leverage, seasonal nature of the business, granting of rights to acquire certain portions of the acquired company's radio stations operations, market ratings, variable economic conditions, and consumer tastes, as well as restrictions imposed by existing debt and future payment of obligations. Important factors that could cause actual results to differ materially are described in Radio One's reports on Forms 10-K, 10-KA and 10-Q, and other filings with the Securities and Exchange Commission.

I will talk about the third quarter. We had a good quarter in the face of ongoing softness in the radio industry. During the quarter the Company once again amply updates radio revenue growth in its markets, benefited from its acquisition of Reach Media in myriad ways, saw TV One continue to build its subscriber and revenue base, bought back a significant amount of stock, announced the acquisition of a radio station in St. Louis, and took specific measures to enhance its long-term strategic position as the primary media entertainment and advertising vehicle focused on the African-American demographic.

Specific strategies are currently being deployed to leverage the Company's platform into the content and Internet spaces. And we're close to formally announcing the nation's first African-American talk network, which we expect to roll out on AM frequency stations, ours and others, across the country early next year.

As for the numbers, net revenue was $101.4 million, up 20% from last year, while core radio was up over 6%, or about 4% on a same station basis. Units rose 2% for the quarter, while rates were up 1%. Sixteen of our 21 markets where we measure relative performance outperformed their markets for the quarter, and our biggest miss was in Los Angeles. If L.A. had just performed in line with their market, our performance would have been 200 basis points higher overall for the quarter. So obviously L.A. is a big focus point for us. And I'm sure that Alfred and Mary Catherine will have more to say about Los Angeles later in the call.

Most categories were up for the quarter, but auto and telecom were both down in the low single digits. Station operating income was $47.3 million, flat with last year. But during the quarter we moved our entire portfolio of radio stations to Katz Communications, half of which had been with Interep National Radio Sales. Associated with the termination of our Interep contract was an approximately $5.3 million termination expense, which will be paid to Interep by Katz. However the Company was required to take this one time non-cash charge this quarter, and will reduce its cost of sales over the four-year life of this charge on a pro rata basis for approximately $331,000 per quarter.

Thus, if you were to back out this charge, station operating income would have increased approximately 11% for the quarter from last year. Similarly, while EBITDA declined 4% for the quarter on a reported basis, it was up 8%, if you add back this non-cash onetime charge to earnings.

For the quarter some of the drivers of expenses includes a hurricane Katrina donation of $224,000, $225,000 in expenses for a special event in Atlanta that were in last year's second quarter, and just under $1 million in advertising and marketing in Los Angeles, Philadelphia, Detroit and Houston associated with new station and other programming changes that we have made over the course of the past couple of quarters.

Overall, the new stations in Houston, Charlotte, and Philadelphia added about $1.2 million in stand-alone expense for the quarter. Net income applicable to common stockholders was down 2% for the quarter, but would have been up about 24% with the add back of the Interep charge, less the tax provision on the additional income.

The balance sheet held fairly steady with net debt at approximately $928 million, and leverage at approximately 5.6 times debt to EBITDA. We bought back approximately $26.4 million of common stock in the quarter, ahead of our quarterly guidance of $25 million. As for taxes, given our recent asset acquisitions and current outlook, we now don't expect to be a federal cash taxpayer until sometime in 2009. Although Reach is a taxpayer today, since we only own 51%, and they do not benefit from our NOLs. Additionally, you should adjust your model to deduct approximately 125 to $130 million in tax-deductible amortization from our reported annual book income before tax through 2015, up from approximately 100 to 110 million as we had previously guided. Hence this very favorable tax position will enable us to generate that much more free cash flow for buybacks and debt paydowns in greater amounts and for a longer period of time than previously estimated.

As for our Q4 outlook, we expect consolidated revenue to be up in the mid teens, and station operating income to be in the mid single digit percent range, lower than last year. However, please remember that in last year's Q4 we had approximately $4.5 million of expense credits. So if you add those back to last year, we're looking at station operating income growth in the mid single digit percent range. Additionally, last year we had several million dollars of political revenue that we will not see this year.

For Radio One stand-alone, revenue will be up in the low single digit percent range, and station operating income will be in the high single digit percent range, lower than last year, or in the low single digit percent range higher, if you add back the $4.5 million in expense credits to last year's results. Core Radio One expenses should grow under 4% in Q4 of this year, normalized for these credits from last year.

So in summary, we are very pleased with Radio One's performance. It is a tough environment for old line media, but we believe we're taking the appropriate steps to morph this Company from one fully reliant on growth in radio revenues to one that will have multiple revenue streams stemming from a variety of related businesses. As we take an early look into our 2006 budget, it is becoming clear that 2005 may be the most significant transition year for Radio One in its history. We have spent much of this year investing in the creation of the new Radio One. While those investments will continue, we feel more strongly than ever that the base is being put in place, and that 2006 could be a surprisingly strong one for us. We realize that investors can't eat promises, only results, but we think you may be pleasantly surprised by what 2006 will bring as we look to fulfill our commitment to grow this Company in prudent and innovative ways.

With that, I will turn it back over to Alfred.

Why don't we just go right to Q&A, operator.

(OPERATOR INSTRUCTIONS). Victor Miller with Bear Stearns.

Just a couple of things. First of all, you do go through a fairly lengthy list of what led to the cost increases for the Company in third quarter. I think you mentioned almost ten of them. Maybe you could go through a little bit about how you saw the costs in third quarter? And the costs growth looks pretty accelerated in the fourth quarter as well. Maybe you can just talk about what is contributing to that. And also maybe talk about how -- I think you're developing that syndicated TV show for Tom Joyner. And I believe that you said on your last call that there's no revenues and expenses in your numbers at that point. Maybe you can talk about what that impact has had on the numbers? Then I have one follow-up.

A couple of things. You've got to make sure -- there is a lot of noise in the numbers, both in Q3 and Q4. So what I just said -- just to be clear, because I know that my guidance was a little convoluted given that we're looking at it consolidated with region than just Radio One stand-alone, and then we have these credits from last year. But if you back out those credits, you're looking at core Radio One expense growth of under 4% in the fourth quarter. I think most people would, hopefully, agree that that is not too bad given this environment, and given the fact that we're growing faster than almost any other radio company.

The expense growth that you're seeing for Q4 partly relates to the fact that, again, we had those credits from last year that really sort of throw the optics off. And then you have all the new Reach activity, the revenue and the expense associated with Reach. So I don't think that there's anything outside or there's anything that is materially unusual that is going on here. We've talked about Q3. I didn't mention ten things, I think I mentioned about half a dozen things that drove our Q3 expenses.

And so I'm not sure what other color you're looking for. With regard to the television -- the syndicated television show -- it has launched. There are no material expenses or revenues in the third quarter from that. There will be both revenue and expense in Q4 from that. But we at this point expect that to be roughly a breakeven proposition, maybe lose a little bit of money. And given -- we will see in time how successful it is from a ratings perspective. If it is successful, and if we think we can make money on it going forward, we will -- I am sure the folks at Reach Media will look to expand that part of their business. If not, then we will have tested the market for a Tom Joyner syndicated television show. We will have maybe broken even or lost a little money. And if we don't feel as though we can make more money in the future, we will move on from that. But that is not a significant driver ultimately from a profit perspective to our business today one way or another, nor is it a significant driver to any sort of loss that we might incur from that relative to our overall business.

Alfred, just to follow-up. First of all, in the press issue you mentioned that some of your investments may take awhile to pay off, but for patient investors the rewards will be great. What do you think in terms of how you look at being patient, can you talk about what you think are the most under appreciated assets in the Company? And when do you think on a timing standpoint you will see some of those coming around? Could you also clarify your position on what you would invest in the Washington Nationals, if anything?

Under appreciated assets in the Company.

What do you want -- (multiple speakers) why should they be patient? What are they going to be patient about?

First of all, I think that the radio business has been challenged for a number of years. I think investors have -- I'm not so sure there's a great deal of support for the radio industry as we sit today. So when we say be patient, I'm not so sure that we're actually living on much investor patience today. For Radio One, I have always felt that we sort of never really gotten proper credit for the performance that we have had, or the out performance we have had since we have gone public in 1999. Our performance has been pretty consistent, and consistently ahead of the peer group. And I can't say that we -- I think that has been properly reflected.

That is not sour grapes. It is just sort of a statement. But clearly the most glaring issues -- we get zero credit for our cable network that is worth a lot of money. And it doesn't make any sense. The reason we are buying our stock is because we think it is a buying opportunity for us. We really understand the value of that network. We also understand really what I think the value, or the position, that our Company has. I think we've got a unique proposition among other media companies to really build ourselves a very powerful concentrated niche. I'm not so sure investors get that.

I had somebody who once told me that it is 50% the market, 25% the specter and 25% the Company. And so we are running against a big headwind right now. And so we will just have to do the prudent thing. And I think that right now our acquisitions have been deliberate. We have been building our clusters up, as we just did in St. Louis. And we're putting money in things that we believe are going to prudently build value at the cable network.

The Washington Nationals, as its sits today, our investment is very minor. I'm not going to elaborate on the amount, but it is very, very, very minor. And could that change? I don't know. Right now -- first of all, I've made a verbal commitment to Jeff to support him in the Nationals at a level that I would consider very economically minor to the Company. I think anybody else would consider it economically minor. And Victor, you and I have talked, and so you know our view on that, and you probably know the kind of investment we're talking about.

All kinds of things can change. I'm not -- we're not in this, and I am not Jeff, so I don't have the same motivation about baseball that Jeff has. He's a real student and fan of the game, and really wants to own and run that team. We happen to be a Washington-based media Company that has been here forever, knows the political landscape extraordinarily well, owns radio stations here, and believe that a relationship with the hometown baseball team would be very, very beneficial to the Company and to the community at large. And we have a particular expertise and ability we think to help that franchise grow in this particular market only, because this is our home market. Those are our reasons for getting involved. And we've got a great relationship with Emmis, and have over the years done a number of deals with them. And I count Jeff as a personal friend.

Let me just add just a little more color, and then we will go on to the next question. With regard to some of the things that we are either looking at or we are in fact going to execute against over the course of the next couple quarters, or in fact have executed against over the course of the past couple of quarters. We mentioned the Black talk network. We will have more to talk about with regard to that after we launch it next year.

Obviously we acquired some stations over the course of the last year and a half, so we have been investing in those stations. We have been talking about the Internet for a long time. And we are spending a fair amount of time and some resources working with consultants, building our business plan. We think that there's a real business there. We did launch websites for all of our radio stations earlier this year. That is a business that is new to us.

We have talked about content, and Reach was our first acquisition into the sort of content programming space. And even within Reach, this new syndicated television show is an investment. It is something that may or may not work, but it is something that we're supportive of. And then there is another area that we have talked about over the years, sort of conceptually, getting into the research business, basically providing more and better research for advertisers on the African-American market. And so all of these things, whether they have been recent investments, whether we're doing a bunch of our own research to figure out whether or not there are true business opportunities here, or whether these are things that we're going to pursue in the future, relate to the kinds of things that we believe would tuck in very nicely to our existing business model. But it may not be as easy for investors to grasp the long-term economic benefit as they would if we were to just buy another radio station somewhere. That is the kind of -- those are the types of businesses we're talking about, the types of investments we're thinking about, and the type of patience, and the reason for the patience that comment was embedded in Alfred's thoughts for the quarter.

Jason Helfstein with CIBC World Markets.

Three questions. First, not to elaborate on Victor's question, but Alfred maybe if you can say how long do you think the transition takes to move Radio One from a radio only Company to more of a media Company? And what do you think hypothetically the cash flow breakdown in rough percentages could look like let's say in three or four years from now? And I know that is a hard question so answer the best you can.

And then the two other questions. Scott, did the Interep charge, does that impact your leverage? Do the banks hold that against you? And then number two, you if guys can give us -- Mary Catherine perhaps, an update on your search for a new head of programming. Thanks.

It is not a tough question. It is an impossible question. I don't know how long the transition takes. First of all, we have never done anything just for the sake of building the platform, because we think that is a bad business strategy. Just like when we launched our cable network, we didn't just launch it and put it up on the air and go ask operators for carriage, we waited until we got a partner who gave us substantial carriage, Comcast, and then we launched it. And we have $400 plus million of radio revenue. So my sense is it will be a while, absent some transforming acquisition, before we're diversified enough that people wouldn't look at us as a radio Company. Quite frankly, I think that maybe people still always look at us as a radio Company because Clear Channel -- what percent of Clear Channel's revenue is still radio, even though they've got outdoor and a bunch of other stuff, and they are still considered a radio company?

I'm not really that concerned with the Street's perception of what kind of company we are. Because they are going to make up -- I can't change that. We will articulate where we're going, what type of Company we are, but I can't impact the timeline on investors changing their perception of our Company. I can only move us in a deliberate pace in what we think is the right direction.

So it could take a long time, or if we went and bought another cable network and merged it with TV One and brought it into Radio One, it could be over night, where 50% of our revenues were cable network revenues. I just don't see those opportunities immediately before us to give you some sort of timeline. But I can tell you that we're moving in the direction of places where we can get faster growth or -- just faster growth businesses, or we are looking for areas, like Scott mentioned, our research.

We already have a research division that does research for our radio stations. Well we have an infrastructure. Nobody speaks to more African-Americans on a weekly basis than we do, because we have to ask them what they think about our music and our radio stations and our contests and stuff. And there's got to be a way to leverage that to offer clients some sort of service and information and monetize that. And we're doing it. It is not going to cost us a lot of money to do it. And I don't know how big the business can be. I do know that the online opportunity is big. I don't know how big, but we're pushing in that direction. We are just -- we're moving into the areas that we think are the right places to be, but we don't have a timeline. I don't think we necessarily need to have a timeline. And in the meantime, to hopefully satisfy investors and to continue to create more value for investors, we will buy our stock back. If people -- if investors don't have the same sort of patience and time horizon that we have with our business, we understand that, and we will support the Company and buy the stock back in.

But also, I think -- This is Scott -- just to build on what Alfred said, the philosophy of this Company -- sort of maybe a bit of a counterbalancing comment to what Alfred just said about television networks. The philosophy of this Company is to not necessarily look at all these other businesses and think that they're going to be half of our cash flow in five years. When we think about our Internet opportunity, if we focus on doing something organically we're talking about maybe building a business that will have 5 or 10 or $15 million of cash flow in five years. We're not talking about 50 or $100 million of cash flow. That is probably the same thing with some of these other businesses. TV One being the exception.

And so we're looking at single and double opportunities. But the way we sort of look at it is you grow this Company from whatever EBITDA is going to be this year to a number that is 250, $275 plus million of EBITDA in five years, without being a tax payer for the foreseeable future. You know what our leverage looks like. We could generate -- we could go from generating almost $100 million of free cash flow to $200 million of free cash flow in five years.

I think a lot of shareholders would be really, really happy with that, because the stuff that we can do with $200 million free cash flow in terms of deleveraging, in terms of dividend policy, in terms of continued buyback, is pretty powerful stuff. So we don't necessarily need to fundamentally transform this Company and all of a sudden radio is half of the cash flow. If this other stuff represents 25% of the cash flow, but it adds incrementally 5 or $10 million of EBITDA, or a little bit more than that every year, then we clearly have a business that I think would be viewed very differently by Wall Street a few years from now than it is today.

Good point.

With regard to your second question, this is easy -- a good question about whether or not the Interep charge affects our EBITDA or our covenant test. And the answer is no, it absolutely does not. We will add it back to EBITDA for the purposes of calculating our leverage relative to our covenant. Again, just to be clear, this is a non-cash charge to the Company, Katz paid or will pay, because I guess sort of they have their own timeline as to when that money gets paid to Interep. But Katz pays that to Interep, and it does not affect the way we calculate EBITDA for bank covenant purposes.

As far as the Vice President of Programming, our search continues. We have interviewed several individuals for the position. We have not decided on any one person. And it is sort of on hold right now because we're in the middle of the budget process, so we will pick it back up at the end of November.

Bishop Sheen with Wachovia.

Two questions. One, going to the talk radio network that you are creating, and two to the stock buybacks. On the talk radio network, can you give us a little more color on what you foresee once this gets up and running, the number of affiliates, the extent of the content block? And also your views on margins in radio networks -- they typically are not as good as your margins for your station operations. And on the stock buyback, can you give us -- can you size up what you would like to do in Q4 for the stock buyback -- the size of the repurchase?

Talk network. We're going to provide a slate of programming initially that runs from 10 AM to 7 PM. And at least our stations will do their own local morning shows, so all of the local political, school board, social stuff will happen in the morning. And then we will provide a lineup of very strong recognizable national talent from 10 AM to 7 PM.

I think the affiliate opportunity could be huge just because it is probably going to be mostly, if not all, AM's and AM stations,, particularly in markets that have large African-American populations, generally have two choices, and that is either gospel or talk. And talk is very difficult to do on a local level and very expensive, which is the reason that we are -- we're launching the network. And we think it's actually going to be a good business from us from a margins standpoint, which is why we're doing it, because we're going to launch it on -- I don't know, somewhere between five and ten of our own AM stations, which we already have already operating. We're spreading the cost of the talent over five to ten stations, which is going to make it very cost-effective for us out the gate.

Now the network business itself, I don't -- that is more of a Dave Kantor and Reach Media question. But I can't imagine that -- Reach Media already exists, so we're going to use their existing infrastructure. We have got the talent for this, and the economics, the amount of money that it is going to cost us to build a talk network isn't enormous. Maybe it is a couple of million dollars between us and Reach. We think that we are going to make that back fairly quickly. And so given that we are layering this on top of Reach's infrastructure already, I don't see any -- I don't see it depressing margins any further.

One thing that investors need to understand, and analysts need to understand, about how we're thinking about a lot of these new opportunities is these really are incremental strategies to what we already have in place. When we talk about having a platform, we're not just stating that because we think it sounds good. Whether it is the research business, whether it is the network business, for that matter whether it is the Internet business, because when we bought Reach Media we also acquired a website called BlackAmericaWeb.com, which is probably the number two or number three Internet portal out there for African-Americans. We're not talking about leveraging brand-new businesses where we're going to need to deal with sort of all the start up losses associated with getting into a new business. We are truly talking about leveraging existing resources and existing infrastructure. I think it potentially makes the economic equation for a lot of these businesses a lot more attractive a lot earlier because of the existing structure and infrastructure that is in place. Can we move on to your second question?

That was a great answer. Thank you.

So the answer to your second question is, consistent with what we have said historically, we announced a $150 million buyback over 18 months, 6 quarters, roughly $25 million a quarter. And our expectation is that we're going to be in the market buying our stock, and depending on the price of the stock and how we generally feel about life, we will probably buy back at the stated level, or perhaps even a little more. It is highly unlikely that we will buy back less, but I don't also want to be out there telling folks that we're going to be overly aggressive, so that people can front run what we think is in our best interest as collective shareholders of the enterprise.

Great. And a bonus question. TV One's sub reach now?

By the end of the year we should be about 25 million.

By the end of year 25 million?

Yes.

James Dix, Deutsche Bank.

I had a couple of questions. Just looking across your portfolio stations going into next year, are there any particular markets or stations -- where there are rating issues or trends that we should be thinking about in terms of modeling what your growth is going to be?

I guess secondly, what do you think more broadly if the industry moves to electronic measurements, whether it is the PPM or some other device, what are the particular benefits and risks of that type of measurement for urban formats, as far as you can tell? And then finally, in terms of the (technical difficulty) for 2006 from some of the other initiatives, if there's any way you could give some color as to how those other initiatives could specifically help the radio group growth? For instance, cross-selling with TV One, just anything we should be thinking about in terms of the impact on the radio group's growth?

As far as ratings, I guess at the top of my list is Los Angeles, which we're totally focused on right now. I'm going to be spending most of December there. We think that we probably will be able to turn that around fairly quickly. As you know, we have a new morning show there with John Salley. He started in May, so it hasn't been on the air that long. But our in-house research indicates that the market is really embracing him and the whole morning show. As far as other markets with ratings issues --.

Well, issues -- they really impact Detroit and Philadelphia obviously.

Yes, Detroit and Philly, and those are two markets that we did do some extra marketing in for third quarter, because we had changed frequencies for formats in both of those markets. And so we really needed to get that point across. And of course we had acquired Tom Joyner, and so when you get a personality of that magnitude you kind of get one shot to let the audience know that he has moved, and so we have spent time on that. The early indications in those two markets are from a ratings standpoint that the numbers look pretty good already. Philly has done very well. The only station in that cluster that we have been concerned about is the hip hop station, WPHI. And that does seem to be coming along now. In Detroit our FM station that we -- the urban AC station just had an enormous book. So Joyner really did take hold there very, very early.

I want to maybe do something that perhaps I shouldn't do at the risk of providing too much detail. But in the past we've talked about some of our challenged markets and the fact that we were underperforming, and the fact that we were focused on turning them around. The three that come to mind within the last year or year and a half were Cleveland, Houston and Richmond. And if you actually look at our third quarter results for this year, in Cleveland the market was down 9%, and we were up 7. In Houston the market was up 9, and we were up 29. And in Richmond the market was up 1, and we were up 12. So when you think about our ability -- one of the perverse sort of good things about having underperformance in a given year is that you have the potential, if you're good at turning things around, at seeing a tremendous pick up in performance the next year. We clearly have proven that we can execute against problems. We're not promising that we're going to be able to do that, but certainly with regard to those three markets that I think investors were concerned about, and we were concerned about within the course of the last year to year and a half, we are certainly on absolute right path. So hopefully this time next year we will have very good news with regard to L.A. We don't really have problems in Philly and Detroit, there are additional opportunities that have been created in those markets because of the move of Joyner from other people's stations to our stations.

And I would say, as I look across the performance portfolio, my biggest concern, and the only place I am sort of losing sleep, if you want to call it that, is Los Angeles. It is a big market for us. We've had some ratings challenges there. We have switched morning shows. We switched morning shows, but we also are reducing our expense base there considerably. And so we will work through it. But we have always had some market that had an issue at any given time. I think that is the nature of being in business. It would be nice if everything was hitting on all cylinders all at the same time. I have yet to experience that in my career in the radio business. Maybe it does happen, but it just hasn't happened for me yet. Maybe I'm not (multiple speakers).

When I talked about third quarter results and how 16 of 21 markets outperformed their market, so that means that five underperformed, Los Angeles was a huge miss to what radio revenue growth was in L.A. It was absolutely huge. But if you look at the other markets where we underperformed, in general we underperformed by a couple of hundred basis points. Baltimore we underperformed by 140 basis points. Let's see, Boston, where we have actually recently upgraded our signal, so things should be really good there next year, we underperformed by a bit. The fact of the matter is that, to sort of reinforce what Alfred just said, even where we underperformed, outside of L.A. in Q3, the underperformance was pretty modest. And then of course 80% of our markets overperformed and some overperformed pretty dramatically.

Now you had two other questions, electronic measurement.

Electronic measurement. I think the -- I guess the Houston data has come back and said that Hispanic did not perform as well as the diary. At least as far as I am concerned, I think Mary Catherine is concerned, and I think Bob Neil is concerned, about is that time spent listening is a major component in the radio business. It is not just keying (ph) a radio station, it is how long they listen to it. And if there is a gigantic disparity between what electronic measurement and the diary methodology says about time spent listening, then that would disproportionately affect ethnic audiences. It took Arbitron forever to sort of get ethnic audiences fairly represented in the diary methodology. And I think that they, or however, needs to figure out a way to account for time spent listening and share in electronic measurement, because it is real. And I think that has been our concern all along. I don't know when electronic measurement is going to get here. I'm going to assume that it is going to get here. But it is not about being anti electronic measurement, it is about being pro having the right electronic measurement.

And then your last question related to how these other initiatives might be able to help radio in 2006.

Who knows?

There is cross-selling going on with TV One.

We have said that we think that we can outperform the industry by a couple to several hundred basis points. That is the extent of forward-looking statements we're willing to make, because it is a very dynamic business environment. And we're going to put enough stuff in our oven that we believe is going to allow us to continue to do that. That is all stuff in the oven. It is about as much as we're willing to say about it.

Let me say something about the relationship though between TV One and Radio One. It is an incredibly close relationship. We just completed focus groups in many of our markets. We actually had gotten away from focus groups for a while and have just reinstated them. What we have seen, and I think that Radio One has helped TV One in this endeavor, is that in every focus group we have done, 100% of the participants know TV One and they love it. They think it is just a classy, classy channel. And they know every show. They know every personality. And they have a huge affinity for all of them. I think that partnership is going to be beneficial to Radio One down the road too. That really has worked out well for us. And even with the Reach Media, we're all working together for the same metric here. It is just a huge conglomerate. If you're interested in this audience, you really have to come to -- you have to come to us.

Ultimately our goal is to not just be in the radio business. We are in the black people business. And we want to reach them in whatever manner or distribution system they happen to be plugged into at the time, whether that is radio, whether that is officially television, or whether that is interactively over the net. And we need to become more of a content provider too. Because the distribution channels are blurring, and they're going to become ubiquitous. Who knows, with peer to peer and WiMAX this could get really squishy. And we need to be in the business of aggregating audience for this particular demo and providing content to them. And that is what we think the future of this Company is.

Jon Jacoby with Banc of America.

Just one short question. Just any pick up in selling shorter length commercials to advertisers as we head into next year with probably some people starting to look at their annual business and things?

Not really. We have had some clients in some markets ask for 30s, and we're happy to provide them with those.

Laraine Mancini with Merrill Lynch.

A little bit of clarification on third quarter same station performance. I know you said that the revenue was up 6%, but the 11% number that you gave us for station operating income I think includes Reach. So what it would it be just for the quarter, the comparable number to the 6%? And then for 4Q it appears to me like the guidance for Reach may be lower than what we were talking about in the past, and perhaps the margin is lower. Am I doing the math right?

Let's see. It is harder to talk about Radio One's stand-alone operating income because of the eliminations that occur. We've talked about this. And the consolidation to whatever extent there is consolidation between Reach and Radio One. I would tell you that if I had to estimate, and you can't hold me to this, I would tell you that Radio One's station operating income was up in the low to mid single digits, probably closer to the low single digits. But again, I am not entirely comfortable stating more specifically just because of the strong ties that exist between Radio One and Reach. It is obviously easier to look at the revenue on a stand-alone basis.

With regard to Reach, no, again it is complicated to break it apart because of, not only the eliminations, but also because of certain strategic things that the Company has done in consolidation with regard to optimizing the after-tax free cash flow to Radio One of Reach Media. But as we said when we acquired Reach Media, we expect to do about stand-alone $50 million of revenue and stand-alone $12.5 million of EBITDA. That is on a stand-alone basis, they will do that.

Are there any benefits -- are there any shifts of revenue from Reach Media to the stations? Like for instance, the morning show when it is on one of your stations now, does the revenue move out of what Reach Media was getting before and into what the radio -- core radio is getting?

No, it is still Reach Media revenue, but then it gets consolidated in, but then there are eliminations that occur.

Marci Ryvicker with Wachovia.

You were up 6% in the third quarter, and you are forecasting low single digits in core growth for the fourth quarter. How much of this deterioration is due to L.A.? How much is due to political? And is there anything else that is causing this decline? Secondly, have ad rates declined from the 1% increase you saw in the third quarter?

I have some thoughts, and then Mary Catherine may. I looked at Intercom's (ph) guide as flat to down versus what they reported for Q3. The radio industry is soft right now. And folks who think that radio is bouncing back, they are just wrong. Radio is sort of mired in a sort of flattish growth environment. And so I would tell you that I think the reason that we're providing the guidance that we're providing for radio in Q4 is because the industry is looking fairly anemic right now. That is just the reality of the situation.

L.A. continues to be a challenging market. No ifs, ands or buts about it. With regard to pricing, I think it is a little early to call pricing, but I would say that given the softness of the radio industry, pricing is probably pretty soft as well. That is just the reality of this industry right now. Other folks aren't even out with guidance. Why aren't they out with guidance? Because they don't have a clue what the industry is going to do in Q4, and it is early November. We are at least attempting to provide a little more information to the marketplace. I'm not at all putting other people down, because I thought about not giving guidance either, because it is a really tough environment out there right now for radio. It is. No ifs, ands or buts about it.

I agree. The number one sector is auto, and that has really crashed and burned here in the last couple of months. We knew this couldn’t last with all the special deals they were doing through the summer. This happens every year. It has for the past few years. And auto will come back in January, because they have to. But, yes, there have been cancellations to the tune of many dollars. It has been a little disconcerting here the last couple of weeks. I hope that it will stop. We will just have to see where it ends up.

Thank you. And we do appreciate you providing guidance.

That was a big debate in the corporate suite.

Eileen Furukawa with Citigroup.

I just have a few questions. First is in your view are you still giving the same sort of revenue share shift from Clear channel that you saw in the first half of the year? Or do you think that Clear Channel has been tweaking its mix a bit more towards 60s, making share shift more challenging on the 60 second inventory. Secondly, you have talked before about getting TV One rated in the fourth quarter. Is that still your thinking, and when do you think we might see the benefit in your numbers? Last is what percentage does auto represent of your core business?

The share shift from Clear Channel, that is a hard one. We don't know. All we know is we're outperforming the industry by several hundred basis points.

What is interesting is that I think other companies' numbers have sort of kind of jumped, but we're still kind of performing in the same sort of --.

I think all the mid cap guys are sort of performing in the same bandwidth as Clear Channel. They haven't released their results yet, but I expect they will underperform the industry by several hundred, if not more, basis points. But it is really hard to know why our business has the relative strength that it has. We have always thought that some of it has to do with Clear Channel's underperformance, and undoubtedly it does. I think one of your questions also was the whole 30 versus 60 second mix. Are they selling more 60s than 30s? That is really a question for them. But do we have anything?

I think they are extremely flexible. I think that Clear Channel is smart, and if a client wants 30s or if a client wants 60s -- they even have 15s now. And I believe they even have a category for 5s. I think that is all great customer service.

Nothing has changed from the beginning of the year until now in terms of (multiple speakers).

Not that we know of.

Yes. Clear channel has got their strategy. They are focused on their strategy. They want to effectuate this less is more in the move to 30s, and they're doing it. And so we will see -- hopefully it will yield dividends for the entire industry next year.

TV One is getting rated in the fourth quarter. The ratings to date are actually pretty decent, actually better than -- put it this way, the ratings to date internally we think that we can and should be doing better. But we have heard from the ratings people that it is incredible and outstanding for a brand new network. But we've gotten much higher expectations. That network is doing fine. I think we get our first numbers at the beginning of the year. But we get to see sort of monthlies and weeklies along the line. We're very satisfied with where it is going, and we continue to be well ahead of plan on that.

Do you think that you'll see sort of a sudden lift from being rated?

You know what, I don't know the answer to that question. I do know that we're seeing dramatic lifts in revenue over what we expected each year anyway. We had a killer year in ad revenue this year. And I see another 50% plus growth in ad revenue year in '06. And if we break out -- a lot of this stuff is hit show driven too. Now that we have got real distribution if we break out and get a hit show that will change the dynamics as well.

With regard to auto, automotive dealers in the quarter were roughly 12% of our revenues.

Mark Woinkis (ph) with Goldman Sachs.

You are in a lot of Howard Stern markets, where a lot of dollars are going to free up next quarter. Just wondering, how big do you think your opportunity is to get some of those listeners and dollars?

Listeners zero. The dollars, actually I'm not sure, because some of those dollars are very different dollars than we might get. Howard was on -- I agree, I guess Les Moonves or somebody said something about the Howard Stern business. They have big ratings, but Howard had a lot of no buy dictates. I don't know how -- where it is going to help us is in a place like Philadelphia where he is number one, 18 to 34. And let's say the new morning show drops down to fifth or sixth, our rank could improve which could help us there, but I don't know. But listeners, there is no overlap. I would say. Even though Robin Quivers is black (multiple speakers).

We don't get any overlap.

Gerrie McDaniel with Standard & Poor's.

You mentioned the new Radio One kind of multiplatform strategy. I'm wondering what other media you might consider moving into? Is magazine something that you might be interested in, or maybe broadcast TV, or maybe running a WB or UPN affiliate? Or looking at somebody like PAX, where you could get overnight nationwide television reach and fill that with the TV One concept?

We have looked at all of that extensively. We have looked at the magazine business 8,000 times. We don't like the magazine business. We don't like the broadcast television station business. And Paxon has got almost $2.5 billion of debt, and it doesn't make sense for anybody to buy. If Paxon television platform was available for $1 billion, yes, you could probably come up with a business plan that would allow you to get home doing an African-American targeted network on a broadcast television platform with no license fees. But I don't know how you do that given their current capital structure. So no, no and no.

Good. Those were the answers I wanted to hear to each of those. How many affiliates do you expect to carry the soon to be announced talk radio network?

We don't know. Put it this way, I think if the population has over 15% African-Americans, if it is over (multiple speakers).

A given market.

If the given market is over 15% African-American, I think we've got a really good shot, because there is a lot of AMs out there that's got no programming options.

Do you have talent lined up for the entire day?

We do, but we are not elaborating right this second.

You are saying that Reach is still on track for 50 million in revenue per calendar 2005, is that accurate?

Yes, their revenue is basically guaranteed. 70% of their revenue is guaranteed in advance by ABC Radio Network. There is never really been a risk whatsoever with regard to their '05 results.

Just one last thing. If you can go back to the Nationals, you mentioned that you talked to Victor Miller about your thoughts there, and about the size of the investment you plan to do there. Is there anyway you can share some more of that thinking with the rest of us?

I knew that was going to come out.

Is Victor still on the line?

Call Victor and ask him. No, we have said that it will be in the -- a couple of several million dollar range. It is a small number. To us that is not a significant amount of money to invest in something like this.

Operator, we're going to take one more call -- one more question, rather.

Our final question today comes from the line of David Bank with RBC Capital Markets.

Last question, can you just talk a little bit about the characteristics in the fourth quarter of the difference between the way local and national are shaping up? And if you can give any more color on the third quarter in that respect as well?

With regard to Q3, national was up high singles, local was up low singles. With regard to Q4, national and local are both up in the mid singles.

If national and local are both up in the mid singles, how come we're looking for sort of low single-ish growth?

All right. We're just looking at gross spot. And we're looking at a forecast that may have a little cushion in it, and also an industry that has continued to, I guess, to some extent disappoint us a little bit. We have still got two months left. As of right now -- you caught me -- as of right now we're pacing up in the mid singles, but we are mindful of the state of our industry.

Operator, thank you. You can close us out.

Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. And this conference will be available for replay after 1:30 PM this afternoon until November 5 at midnight. You may access the AT&T Executive Playback Service at anytime by dialing 1-320-365-3844 and enter the access code of 799060. (OPERATOR INSTRUCTIONS). That does conclude our conference. You may now disconnect.