Urban One Inc (UONE) 2013 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Radio One second-quarter conference call. I have been asked begin the call with the following Safe Harbor statement.

During this call, Radio One may share with you certain projections or forward-looking statements regarding future events or its future performance. The Company cautions you that certain factors including risks and uncertainties referred to in the 10-Ks and the 10-Qs and other reports periodically filed at the Securities and Exchange Commission could cause the Company's actual results to differ materially from those indicated by its projections or forward-looking statements.

This call will present information as of August 13, 2013. Please note that Radio One disclaims any duty to update any forward-looking statements made in the presentation.

In this call, Radio One may also discuss some non-GAAP financial measures in talking about its performance. If measures will be reconciled to GAAP either during the course of this call or in the Company's press release, which can be found on its website at www.Radio-One.com.

Any audio replay of the conference call will also be available on Radio One's corporate website at www.Radio-One.com under the Investor Relations section of the webpage. The replay will be made available on the website for 7 days after the call. No other recordings or copies of this call are authorized or may be relied upon.

I will now turn the call over to Alfred C. Liggins, Chief Executive Officer of Radio One, who is joined by Peter D. Thompson, the Company's Chief Financial Officer. I would now like to turn the conference and the call over to Mr. Liggins. Please go ahead, sir.

Thank you very much, operator, and welcome, everyone to our second-quarter results conference call. As you saw in the press release, we had a pretty strong quarter from an EBITDA growth prospective.

We're going to go into some more detail than usual about the different business segments after Peter goes through the details of the numbers. But we are really happy and we think that you will be pleased with the direction of our business.

Thanks, Alfred. Net revenue was approximately $119.6 million for the quarter ended June 30, 2013, an increase of 13%. A sizable part of the increase is due to timing difference of two of the Company's events, the Tom Joyner Fantastic Voyage and the One Love Gospel Getaway, both taking place in second quarter this year compared to the first quarter of last year. Normalizing for the event timing difference, our consolidated net revenue was up approximately 5.7%.

Radio division produced net revenues of $50.8 million. Adjusting for the impact of moving the syndicated programming out of the Radio Broadcast segment and into Reach Media segment, Radio was up 0.4% year-to-year. However, excluding ticket sales from the 2013 One Love Gospel Getaway, the Radio division net revenue was down 0.6% from last year.

Reach Media had net revenues of $18 million in the quarter which, excluding event revenue from the 2013 Tom Joyner Fantastic Voyage and adjusting for the syndicated programming change, was down 7.2% year-to-year. Decline was primarily due to a one-time-only affiliate termination fee of $471,000 that occurred in the second quarter of 2012 and did not recur.

We recognized approximately $37.7 million of net revenue from the Cable Television segment in the second quarter, an increase of 17% over Q2 2012. Affiliate revenue was on plan and up 8% versus prior-year. Advertising revenue was up 26% versus prior-year.

The Internet division had net revenues of $6.4 million, up 45.5% year-to-year, partly driven by a new studio agreement with Russell Simmons' GlobalGrind site, for which we now provide sales and product support services. All revenue categories for the Internet division posted growth for the quarter.

Our four largest radio clusters performed as follows. Houston net revenue was up 5.8%; Atlanta was up 2.8%; Washington, DC, was up 7.4%; and Baltimore was down 1.8% year-over-year. Cleveland, Richmond, Columbus, St. Louis, and Charlotte clusters posted revenue growth year-over-year while our Philadelphia, Detroit, Indianapolis, Dallas, Cincinnati, and Raleigh clusters posted net revenue declines over last year.

Local revenues for the quarter was down 5.7%, and national revenue was up 11.8%.

Our top five advertising categories were retail at 16% of the total, which is up 10% year-to-year; food and beverage at 14% of the total, down 4% year-to-year; telecom was at 13% of the total, up 9% year-to-year; entertainment at 11% of the total, down 16% year-to-year; and financial at 10% of the total, which was up 7% year-to-year. Auto was our sixth largest category and was down 7% year-to-year.

Cable subscribers, as measured by Nielsen, finished the quarter at 57.1 million compared to 57.4 million at the end of June last year.

Operating expenses, excluding depreciation and amortization, impairments, and stock-based compensation, increased to approximately $81.9 million in Q2. The increase is primarily the result of the timing difference of the One Love Gospel event and the Tom Joyner Fantastic Voyage. Excluding the expense from the 2013 One Love Gospel Getaway, Radio division expenses were well controlled and decreased 0.9% year-over-year.

Expenses at TV One increased 13.9% in the second quarter, primarily due to accelerated programming amortization, reflecting the airing patterns of original shows and sales commission payable on increased advertising revenue. On a cash basis we spent $19.3 million on content assets during the quarter, of which $14.1 million was on original programming.

Excluding $6 million of expenses from the 2013 Tom Joyner Fantastic Voyage, Reach's operating expenses decreased by 14.5%, primarily as a result of discontinuing the management fee to Radio One. Excluding the management fee and related expenses, Reach's operating expenses were down 6%.

The Internet segment's operating expenses increased by 21%, driven by higher partnership revenue shares and higher cost of sales.

For the second quarter, consolidated station operating income was approximately $45.7 million, up 10.4% from last year. Adjusted consolidated EBITDA was $37.7 million, an increase of approximately 19.5% year-over-year.

Interest expense decreased to approximately $22.4 million for the second quarter. The Company made cash interest payments of approximately $21 million in the quarter.

There were non-cash impairment charges of $9.8 million to reduce the carrying value of the Cincinnati, Cleveland, and Philadelphia radio broadcast licenses.

Net loss was approximately $14.2 million or $0.29 per share compared to net income of approximately $42.7 million or $0.85 per share for the same period in 2012. For the second quarter, capital expenditures were approximately $3.6 million compared to $3.8 million in Q2 2012.

Cash taxes paid were approximately $73,000. The Company received dividends from TV One in the amount of $4.1 million in Q2.

As of June 30, 2013, Radio One had total debt net of cash balances of approximately $776.6 million. For bank covenant purposes, our total net debt was approximately $683.1 million, and our LTM bank EBITDA was approximately $92.7 million, giving a total leverage ratio of approximately 7.37 times and a senior leverage ratio of approximately 3.84 times.

The Company's cash and cash equivalents by segment are as follows. Radio and Internet approximately $17.3 million; Reach Media approximately $3.4 million; and Cable TV approximately $19.5 million. In addition to cash and cash equivalents, the Cable Television segment also has short-term investments of approximately $3.2 million and long-term investments of approximately $72,000.

During the quarter, the Company repurchased 24,419 shares of Class A common stock in the amount of $57,306, and 1,166,300 shares of Class B common stock in the amount of $2,673,723. The Company has now exhausted its general restricted payments basket of $15 million.

With that, I will hand back to Alfred.

Thanks, Peter. Things are working well across all of the divisions at present. As I said in the press release, our diversification strategy is absolutely working.

Our total leverage ratio is down to 7.37 times this quarter, and that is down from 8.44 times when we did the bank refinance in March of 2011. As some of you might remember, we hit a rough patch, particularly in the Radio business, in the back half of '11 and got back on track in 2012. And we are looking like we are going to have another year of growth in 2013.

We see leverage continuing to drop throughout the year, and we expect our leverage to be below 7 times by year end. Radio is pacing well for Q3 against some tough political comps. Ratings are strong in a number of our most important stations and our biggest markets. And also, as you may have seen in some of the radio trades, the big markets are actually more healthy than they have been in a long time; and we have got a fair amount of exposure to those markets.

In a nutshell, we continue to feel very bullish about our ability to grow our local Radio business, which is the locomotive of the Company. And my hat is off to our Radio team. We at corporate appreciate their continued focus and performance.

I want to give a note to also Reach Media. As you know, at the end of the last year, beginning of this year, we did a deal where we bought up to 80% of Reach and consolidated our corporate sales division and our syndicated shows in with them, creating really a giant network radio platform that had a number of personalities, not just the Tom Joyner Morning Show. And that is going extremely well.

And something that those of you who follow the Company should know is last year Reach lost money, and this year we expect that to rebound where Reach will probably due north of $5 million of EBITDA, which was something that you probably don't have in your projections. Take note of.

So we are pretty happy with that trajectory and we continue to see that being a growth business. We just announced a new afternoon drive show with the comedian DL Hughley, so we have got a lot of new things going on at Reach including the creation of [Reachnet], which is our answer to a non-personality branded line network that will allow us to compete at lower price points with some of the other players out there.

So we have got a number of products. We have got higher-value, higher-CPM personality products, and now we have got a lower-priced, just inventory-based line network product with Reachnet. So Reach Media is a growth story for us at present.

Interactive One we believe has hits an inflection point. Between their direct advertising sales, their alliance partnerships, and their new studios businesses, they have enough revenue streams to be solidly breakeven. The goal now is to layer on more partnerships and studio deals to build more revenue scale and EBITDA growth.

The Studio business is where we provide tech, operations, advertising, and traffic support for third-party websites in exchange for revenue shares. So we are leveraging the 10 million plus users that we created.

And the team that has built all of that and driven all that, and doing that for other people to further gain scale and now EBITDA growth, we think the Studios business is a great hedge against the volatile display advertising market.

The Internet is a strange, strange land in terms of trying to predict where it is going, and what revenue and profitability are going to be like. But I set out a goal for those guys and said -- look, let's just get a strategy where we know we are going to break even, we know we are going to make at least $1; and then we can stick a periscope up and see where we can sail the ship or the submarine towards the island that's got the most buried treasure. And I think that we are in that place, so hats off to the Interactive One team.

Lastly, TV One is on a ratings roll in 2013 with 50% more original programming in Q2 '13 versus Q2 '12. We have seen great success with new shows like R&B Divas Atlanta, followed by R&B Divas LA, and also Fatal Attraction.

But we also switched to a mirrored prime-time schedule. So we run the same prime-time programming from 8 PM to 11 PM, and then we do it again from 11 PM to 2 AM. And we have seen a substantial jump in ratings particularly in the 11 PM to 2 AM slot. That is because people on the West Coast get to see more of our original programming, and it is one of the things that has also contributed to a significant ratings lift.

Prime-time ratings in the 25-to-54 demo are up 20% in Q2 '13 versus Q2 '12. Now you have heard a number of cable operators say that -- excuse me, cable programming operators saying that flat is the new up. Well, TV One this year is up. We are not flat and we think we still have substantial headroom and the ability to grow our ratings there as well.

TV One will post another strong year of EBITDA growth in 2013, finishing the year between $46 million and $48 million of EBITDA. And that is up from $40 million in 2012.

Our continued focus is improving operating performance so that leverage levels will continue to fall and we will be in a position to refinance our restructured 12.5% notes and significantly lower our interest rate levels. Our leverage is getting very close to where Cumulus's is; and if we can refinance at the rates that they currently trade at, it will result in substantial increase to our 2014 free cash flow.

We get asked the questions all the time from investors -- how do we think about refinance? How do we think about refinancing?

We think about it all the time. In fact, right now it is the single most important thing that we think that we can do to add value, and that is our focus.

So I would like to, operator, open it up for Q&A.

(Operator Instructions) Aaron Watts, Deutsche Bank.

Morning, guys. Albert, just curious; as I think about core Radio, I think you were up around 5% in the first quarter; you came in basically flat in the second. Third quarter seems a little bit better.

What do you think is driving the choppiness or the volatility there, where you can have one good month, one bad month, one good month? And what do you think it takes to steady that up?

I mean, look, the Radio market itself is choppy. Nobody can sit here and say that they know for sure where it is going.

I guess Saga, Ed Christian's coined this MSG, moderately slow growth or sluggish growth or something like that. When you are dealing with markets that are flat to up 1, 2, or whatever, variances and operating performance can swing that number up or down pretty easily.

Now I would say for us we were surprised by June. Our large markets actually performed -- our four biggest markets actually performed pretty well.

We've got some turnaround areas that drug us down. Cincinnati was one of those, where we had switched out of one of the urban formats into a sports formats, and that has been a huge drag on us. So the Cincinnati revenue picture for us was like 25% down year to date.

We recently abandoned that effort, and cut a bunch of expenses and went to an R&B oldies old-school format. And we think that we are going to get a nice ratings pop back, because basically we ran the ratings to zero doing sports. There really wasn't any appetite for an all-sports station in Cincinnati that didn't have play-by-play. And maybe there was an appetite, but we decided not to stick around to find out.

Our ratings in Detroit have been soft in the first half of the year. But we made some promotional marketing moves in that market which caused the ratings to increase over the last three months.

So I think that things like that contribute to us not necessarily -- if those two things hadn't of been there, we would have posted positive radio growth again. But we are on top of it. We fixed it, and we are pacing; we are giving you a low single digits number, but actually today we are pacing better than low single digits for Q3.

We are just saying it is going to be low single digits and we will see where it comes out. I guess long story short, yes, I am not concerned about our ability to grow our Radio business this year. I think that we have got significant headroom to continue to do that even if the market is flat.

Okay. No, that's really helpful. Then, I guess we have seen a lot of activity on the television station side in terms of consolidation. How do you think about that in the Radio world? Do you think consolidation would be beneficial? Do you see Radio One being a participant in that as a buyer or even seller?

We don't really care if there is further deregulation from a business standpoint. And the reason is because we are not up against -- there is only one market I think that we are up against the Kasten, that we can't own more stations.

We would love to be able to consolidate more urban stations in markets where we are a head-to-head competitor with folks, like a Dallas. But you've got to do it at a price point that makes sense.

And when those opportunities come up, we plan to take advantage. And if they don't come up in the near-term, then we will wait. If they don't come up at the right price then we will wait.

But we don't need more radio stations to build a national platform. We have one. What we need to do is figure out a way to grow our EBITDA and create value for the shareholders.

Now from an asset value standpoint, I love to see more deregulation because the more people that can actually own an asset creates more demand for that asset, which raises the price. So I would be up for increased foreign ownership; I would be up for more deregulation just because it would make the assets more valuable.

My sense is, though, that the current political environment, there is zero appetite for more media consolidation, more radio consolidation. I think people feel like the media companies are big enough.

However, there will come a day when the argument that the Internet has really disintermediated the entire media industry and the old rules of looking at concentration don't apply any more, and then I think that there will be another discussion about what is an appropriate level of consolidation.

Okay, okay. That's helpful. Actually on that point, maybe taking that a step further, how are you thinking about streaming radio at this point? When can that become an actual material revenue driver for you?

And do you see that as more additive to your terrestrial business or is it more of a defensive move at this point, just with some of the competition that has popped up?

My personal opinion, I look at it as essentially just a migration of your existing audience to listening to your product on a different platform. Before the Internet, everybody wanted audio. Listen to radio.

So now -- so we had 100% of that audience. And then it went to satellite; and then it goes to Pandora.

So when we look at people shifting to receiving audio or radio stations online, I don't view it as additive. I view it as unfortunately us having to spend extra technology cost just to follow where our audience is.

Because again, at one time free satellite radio had 100% of other than CDs -- or actually 8-tracks and cassettes and then CDs. We had 100% of the audio delivery market.

Okay. Last one for me, and I appreciate you taking all these. Just shifting to the TV side of things, a very visible battle going on right now in some big cities between Time Warner and CBS. As you think about your subscriber fee negotiations going forward, as a single network owner does the landscape get more difficult if the cable companies have to pay these very big increases to CBS and the other broadcast networks? Maybe just your thoughts on that.

Yes, no, I do think it gets more difficult. I think that we are in a unique position, being a minority-owned niche targeted service. I think that diversity in voices at least in this country will always be a discussion point and a consideration.

I think that we were created and successful under the argument that there needed to be diversity of voices, there needed to be more than BET. And the cable industry bought that, and they gave us carriage.

We are performing against our promise. We actually have pretty good ratings for a network that is in 57 million homes, and we are continuing to get better and improve on that by improving our programming.

So yes, a more difficult conversation, but it was a difficult conversation when we launched. So we have also never been of the mindset that we are going to be a cable network that is going to be able to demand huge rate increases. But I am just happy to be in a business where at least the mindset of the industry is that programming costs go up every year. They don't like at what rate that they go up, but at least there is an expectation that they rise because people continue -- networks continue to spend more money on original programming.

By the way, the cable and the satellite operator, they raise your price every year because programming costs go up. So conversely to the Radio business we have all been looking for ways to reduce our expenses because the top line for the industry isn't growing. The top line for the cable industry, cable advertising industry, is continuing to grow.

So a more challenging environment, but a better environment to be than many other media segments. So the two fastest growing areas, online and cable, we are well positioned in and hopefully we can continue to get bigger in those areas.

We have had some preliminary discussions with distributors over the last year, and there is nothing in those discussions that leads me to believe that we are in danger of losing any carriage. And I think ultimately the negotiation will be around what kind of fee increases we can get for the service that we provide.

Perfect. Appreciate all the thoughts.

Lance Vitanza, CRT Capital Group.

Hi, thanks. I had questions on Radio, on Cable, and on Reach, if you'll bear with me. But just on the Radio side, it looks like you saw very big divergence between local and national performance. I am wondering if that is continuing into Q3.

The answer is yes, and that is something that we have got our eye on, that we are concerned about. We have had strong ratings growth. National is the first and the easiest to monetize ratings growth.

We have got the RVP, Regional Vice President team focused on issues surrounding local. Local in and of itself is not as strong industrywide as national, but yes it is a concern that we are focused on.

But I will take it right now. And we are trying to get out ahead of it because national could slow down. But I think again, part of our national growth, as we are outstripping the marketplace by a lot, is the fact that our ratings are up.

Got you. Then just to confirm the pacings that you talked about earlier, that is on a total revenue basis. They are not adjusted or ex-political, right?

No.

Great. Then on the Cable side, could you remind me what percentage ownership you have currently? Exact percent?

51.3%.

Okay. So the increase in revenue and EBITDA, that didn't have anything to do with changes in your ownership position or consolidation and so forth?

No, that is all organic.

Okay, great. Any plans to increase your holdings? Or how do you think about whether or not you might want to do that? Are there any sort of put call dates coming up that we need to know about?

There is a jump ball at the end of 2014 with Comcast that one of us would have to trigger. So my sense is -- we have talked off and on with Comcast about buying the other half of TV One, but there was always something in the way, whether or not it was our balance sheet or the markets at the time. And then our ability to renew our distribution agreement early was problematic, primarily because of some forces outside of our control.

So my sense is that our distribution deal with them is essentially up at the end of 2014; I think it is early January 2015. So we will have to enter into some negotiation between now and then as a normal course of business and negotiate some kind of renewal. And I think that there will be a discussion, a buy/sell discussion at that point in time.

Don't know if something is going to happen. We would love to increase our exposure to the Cable business. But again there is other factors -- price, current condition of the capital markets, cost of capital that we can avail ourselves to at that time.

But it would be our goal to figure out a way to increase our exposure to this. The fastest, most certain way to increase our exposure is to figure out a way to own more TV One.

Got you. Then you've mentioned that if you were able to refinance at more attractive rates obviously there would be a lot better cash flow. Would you imagine that a significant portion of that increased cash flow would be funneled back into TV One to increase the rate at which you are developing original content?

Hey, look. That is a good question. We certainly -- I think the name of the game in the cable TV business is to figure out a way to increase your slate of original programming. Ultimately, content is where we have got to move to as a Company, because the distribution systems are going to be numerous, and who knows what the new ones are going to be, and who knows what the monetization model will be at the time.

So we have got to really focus on becoming more of a content company, and that would mean investing more in original programming. But as always, you have to do it responsibly, right? We have an obligation to create shareholder value as well.

So we need to make sure that our EBITDA continues to increase on an annual basis and a couple things -- that is our overall EBITDA. So we will continue to invest in original programming at TV One as we have been and increasing the number of hours, and we will do it responsibly. But if Radio all of a sudden is much stronger and online, Interactive One, is making more money, maybe that changes how we look at investment at TV One. Maybe we can push the accelerator a little harder because we are growing our cash flow from other areas of the Company.

So I think it is a balancing act and we have been able to manage it thus far, manage our covenants, manage the dividends we need, but also give TV One enough investment to increase original programming and to grow its ratings.

Okay, great. Then just lastly on Reach, there is a minority interest there as well; is that right?

Yes, down to 20%.

20%? Okay, thank you both.

Davis Hebert, Wells Fargo.

Good morning, everyone. Thanks for taking the questions. I wanted to start with Reach. Can you talk about what drove the delta in the cash flow on the Fantastic Voyage?

And I believe I heard you mention, Alfred, you said $5 million of positive cash flow from that segment this year.

Yes.

I just wondered if you could talk to how sustainable that is on a go-forward basis.

I will let Peter answer the delta question, and then I will answer your sustainability.

So in round numbers, the Tom Joyner Fantastic Voyage is about $7.2 million of revenue and about $6 million worth of expense; so it is close to $1.2 million of profitability. So that is how much of the delta related to that.

Then the other thing year-over-year was we'd got an affiliation agreement in New York that was terminated in Q2 last year, and we got just under $0.5 million payment from that which didn't recur this year. So they were the two things that you would need to normalize for and figure out the delta.

Okay. Then Fantastic Voyage, can you help us with what that did in cash flow in 2012?

Similar amount, about $1 million; but it was in Q1.

Right, right, so there was a timing difference. Okay. Then with you owning 80% of Reach, is that now a restricted subsidiary as defined under the credit agreement?

Yes, it is. In fact, it is treated essentially as a wholly owned restricted subsidiary under both the credit agreement and the indenture. And it's signed up as a guarantor.

Okay, got it. All right, so that -- sorry, Alfred, go ahead.

The second part of your question is how sustainable is it. It is very sustainable and actually it is beyond sustainable; it is substantially grow-able. I am really excited about the upside at Reach Media.

One other thing is obviously, as we moved over some of our successful shows into there -- Rickey Smiley, Russ Parr, and those shows, and Yolanda Adams -- and those shows on a standalone basis are profitable. So we actually kind of moved profit that would otherwise have fallen in the Radio division into Reach.

And Reach media now, it is really the African-American network platform. We essentially have every syndicated show in the marketplace. Every substantial syndicated show in the marketplace except for Steve Harvey.

Yes, I actually -- I think that we just had an off-site and I think that David Kantor laid out a little factoid where we have six of the eight top Black syndicated shows. And that is a good place to be, because people carry our -- we have inventory on other people's stations because they want to carry our programming, which is value.

We don't -- there are a lot of networks out there that do comp deals where they pay people for the inventory and they resell it. That is not a really great business model.

It is a much better business model when you've got personalities and programming content that people want, and Reach has that. So there is a lot of upside at Reach Media.

Okay, great. That is really helpful. Then moving to TV One, you talked a little bit about the Comcast agreement coming up for renewal in early '15. Can you remind us? I believe you're underpenetrated on Comcast systems? Can you remind us where you stand on that?

Yes, we have got $13.6 million of their total sub base. I was trying to -- I am not sure if they have 20, 21 or 22 million current subs. But whatever their number is, we have got 13.6 million of it.

Okay. So I imagine that would be a point of discussion as you negotiate that agreement.

I don't know if it is going to be a happy point of discussion (laughter)but we have been lobbying for -- as we do with all of our operators. Just because they are our partner, they are no different. We think that this is a quality service. We think that we provide something to the African-American community that's not being provided.

We have got more things coming at TV One including the launch of a morning news program called News One Now featuring Roland Martin. So it's going to be our answer to The Today Show. This is going to be the first time a company actually has made this kind of commitment to the black news space.

And we are committed to the African-American community. We are giving them things that other companies don't see as incredibly profitable. We ultimately do think it can be profitable; but more importantly, it is a service.

And we think that the fact that we do things like that should indicate that we deserve as wide a distribution as any of the networks owned by majority companies like Viacoms, BETs, and VH1. So that is our argument to all of our distributors and we will be making that argument to Comcast as well.

Okay.

I just want to slightly correct something I said earlier on. Our ownership percentage of TV One as at June 30 was indeed 51.3%. But subsequent of that we bought out about 1% of the shares from the previous CEO, Jonathan Rodgers.

So as we sit here today our ownership interest is up to 51.87%. So I just wanted to clarify that.

Okay. And then I think the previous guidance you have given in the past on TV One dividends has ranged from $15 million to $20 million. Do you feel like you have more certainty into that number? Especially I think year to date you have received $12 million. Just wanted to know if there is an update there.

On dividends was that?

Right, correct.

Yes, I think it is in the $18 million range, but it moves depending on what we feel we need to take out to manage covenant cushion. And we have got plenty of cushion at the moment, so --

We use that dividend flow absolutely -- now that it is at a -- we know it is going to be substantial and we know it is sustainable. We manage the timing to make sure that it gives us the best sort of advantage versus covenant compliance.

Okay. Last question for me, and I appreciate you taking the questions. You mentioned potentially refinancing the senior sub notes. Would the conversation also include the bank debt as well? Are you --?

That is a good point, because obviously if you are able to drop your senior sub notes from 12.5% to 8.5% then your bank debt shouldn't be 7.5%. So the potential upside for a total recapitalization on free cash flow is tremendous.

I think that we need to make sure we know where we sit in terms of any potential TV One buyout before we take out or refinance the first half -- I mean the front part of the capital structure. Because what you don't want to do is refi everything in Q1, the whole capital structure, then find out you are going to do a deal on TV One and blow all of that up to buy in TV One and burn through $20 million of fees unnecessarily.

So, right now we are really thinking about the senior sub notes in the near-term and keeping our powder dry on the front end.

All right. Thanks for the color. Appreciate it.

Patrick Fitzgerald, Baird.

Hey, guys. Nice quarter. When do you renegotiate most of your non-Comcast TV One MSO agreements?

Time Warner, Cox, and Comcast all basically come up at the same time in the next year. Then the following year, DIRECTV and Verizon come up; and then the year after that, AT&T.

So, end of '14 for the first three that you mentioned, then end of '15?

Correct.

Okay. I believe you said in the past there were some concerns of refinancing TV One because of where those sub fees will go. What is your current thinking on that?

Where the sub fees will go? (multiple speakers) Oh, renewal risk? You know what? We hadn't really -- I think we hadn't really delved into that yet with the bankers.

But just off the top of my head, I think that at today's leverage level for TV One I think we probably could refi those notes. Because TV One's EBITDA could drop a fair amount and it would still be able to service the $120 million of debt that it has got. So it could be a lower performing asset than it currently is -- and will be, because it is going to grow again next year -- and still support that debt.

So I definitely think you could refinance it. And I think by the time we start to look at refinancing those, that we will have more clarity on where we are at with renewals.

If we were financing it as a consolidated entity, I think that you look at it differently as well. Because people are going to look at -- okay, how well is the Radio business performing? How sustainable is that cash flow? What is I-One doing? And then they will make some sort of risk analysis on what renewals would be like, and cash flow could potentially be down by X, and can the Company still service the debt?

I think that the answer is yes in all those scenarios. We have had a number of bankers come to us. Actually, I have had the senior lender currently at TV One about six months ago come to us -- maybe it was maybe nine months ago -- and wanting to actually give us more money to buy out Comcast irrespective of the renewal risk.

But we can't do that because there is a debt cap that is instituted from our restructured notes and also exists in our TV One credit agreement that limits the amount of debt there. So I know at least one lender that was willing to take a lend against the renewal risk.

But those bonds are callable at 1.05 right now, aren't they?

But it drops down to 1.025 in February, I think.

Okay. So if I understand you correctly, you are pretty comfortable with the sub fees that you are getting now in terms of when you renew them that they will be at the same level or potentially even higher.

I certainly don't -- I guess the safe answer is I can't sit here and guarantee that every operator is going to give us a rate increase. I can tell you that conversations that I have had with some large operators, one in particular, the conversation centered around some modest rate increase.

It was their expectation they gave us. Hey, we're trying to get our programming costs down to an annualized growth rate of X.

It wasn't -- we are trying to reduce our programming costs from where they are at, and we want you to be a contributor to it. So that was for me a positive sign.

Certainly, if I was an operator I would negotiate from the standpoint -- I don't want our programming cost to go up at all; I would say that you should be flat. My argument would be that for a network with our ratings you are already pay us less than you pay other networks, particularly other mainstream majority-owned networks. And, oh, by the way, our ratings also happen to be up.

So we have a larger audience. Don't we deserve some sort of increase?

And I am sure that the argument -- somebody could make the argument up. Your sub fees should go down. And then I was like, I would think the argument then -- why would our sub fees go down when you're not asking Viacom? Are you just picking on us because we are a small minority-owned independent network? That is an argument that I think has some legs.

The other thing is that, look, we were created for a specific mission -- providing diversity of programming for African-Americans. The industry bought into that. And I think that it would be disingenuous for the industry to turn around and pick on us because we were independent and small, minority owned, when that is why they actually supported us in the first place.

And, lastly, we are not an entity without voice. We do have close to 20 million radio listeners and online. So if we were to ever need support getting to a public skirmish like CBS and Time Warner are undergoing or have going now, it is not like we are without the ability to highlight the issues, tell our story, marshal support.

Great. That's great color. And then just in terms of sub fees versus advertising in the quarter, what was that at TV One?

It is 50-50.

50/50? Okay. Okay, thank you very much.

There are no additional questions in queue at this time.

Great. Thank you, folks, for tuning in and we will talk to you next quarter.

Ladies and gentlemen, that does conclude our conference call for today. On behalf of today's panel, I would like to thank you for your participation in today's Radio One teleconference call. Thank you for using AT&T. Have a wonderful day. You may now disconnect.