Urban One Inc (UONEK) 2003 Q3 法說會逐字稿

Good morning and welcome to the Radio One third quarter earnings conference call. All participants will be able to listen only until the question-and-answer session of this call. This conference is being recorded. If you have any objection, you may disconnect at this time. I would now like to introduce Mr. Alfred Liggins, President and CEO of Radio One. Mr. Liggins, you may begin.

Thank you, everybody, for joining us for the third quarter conference call. With me today is our Chief Financial Officer, Scott Royster and our Chief Operating Officer, Mary Catherine Sneed. Before we get started, Scott is going to read a little something here.

This conference call includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Security 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 conmpany or radio station and the potential inability to integrate acquired businesses, need for additional financing, high degree of leverage, seasonal nature of the business, granting of rights to acquire certain portion of the acquired companies or radio stations, operations, market ratings, variable economic conditions and consumer tastes as well as restrictions imposed by existing debt and future payment obligations. Important factors that could cause actual results to differ materially are described in Radio One's reports on Forms 10-K and 10-Q and other filings with the Securities and Exchange Commission.

As you have all seen by now, we've released our results, even though it is a very tough environment out there, I think we're generally pleased with what we've posted, one percent net revenue growth, 6% operating profit growth, our core advertising business grew about 3%. We've peeled back on some of our NTR events which reduced our NTR revenue and also a fairly sizable revenue stream for us had been record company independent promotion money which is all but dried up due to the trials and tribulations of the record industry, due to downloading. You know, we have had some strong ratings performances in our summer book.

We're pretty proud of Dallas, Atlanta, Houston, and Washington, being four really strong markets for us. I've said in the press release we're feeling anecdotally better about business. We feel as a company we've bottomed out in a number of our tougher competitive markets like Columbus, Richmond, Houston, one of our Philadelphia radio stations, so we're feeling pretty good about our position going forward. We are going to talk a little bit more about guidance M&A activity of the cable network, on the other side of Scott going into some of the numbers.

Thanks, good morning, everyone. Once again, the radio industry had a tough quarter for the third quarter of 2003 and Radio One was no different although our revenue results were in line with guidance and we showed solid expense management which beat guidance, leading to good growth in station operating income, earnings per share, and free cash flow. The company has elected to not incorporate EBITDA in its press release in 10-Q per the new regulatory environment but I will be referring to it later as our bank covenants are still based off of EBITDA. Radio One’s net revenue in the quarter increased 1% to approximately $81.5 million.

While station operating income, formally known as broadcast cash flow, increased 6% to approximately $45.6 million. Net income was approximately $16.7 million or 16 cents per share, up 30% from last year. And free cash flow increased 39%, to approximately $26.5 million dollars.

Now, for a bit more color on these results. Cash advertising revenue, which is the core of our business, and represented greater than 95% of our revenue in the quarter, increased 3% for the quarter, while special events and independent record revenue decreased 30%, as we continued to rationalize our special events portfolio, and much of the independent record rep money went away along with the reps themselves.

Thus our core business is pretty healthy and is growing in line with the industry. Notably, we continued to underperform in Houston in the quarter. But actually outperformed the market in September. And we feel that things are definitely improving in that market for us.

Other markets with significant underperformance included Richmond, Boston, Louisville and Dayton, but we have taken or are taking steps in all of those markets to improve our performance.

Markets showing relative strength included Atlanta, Detroit, Dallas and Indianapolis and Baltimore also outperformed its market nicely for the quarter for the first time in a while.

On the expense side, the company did a fantastic job of managing expenses in all areas during this tough time.

Station operating expenses decreased 4% for the quarter, partially aided by an approximately $765,000 reversal of overaccrued license fees for BMI, associated with the new contract between BMI and the radio industry. Corporate expenses excluding noncash compensation also decreased 4%. This strong expense management enabled the company to post a 6% increase in station operating income. With the continued reduction in interest expense from last year and an otherwise fairly clean P&L, the company posted strong growth in net income.

Further, as capital expenditures came in significantly below last year's level for the third quarter, at approximately $1.5 million dollars, a 40% reduction from last year, free cash flow increased 39%, and we ended the quarter with approximately $64.1 million dollars of cash and cash equivalents. The company used this cash to further pay down debt by approximately $13.1 million dollars at the end of the quarter. The next $13.1 million principal payment will be made on December 31, 2003, also out of free cash flow. Thus, the company ended the quarter with total debt of $610.6 million dollars and net debt net of cash balances of $546.5 million dollars, or well under four times debt to EBITDA. Also during the quarter, the company closed on its investment and TV One LLC, the joint venture with Comcast Corporation formed to launch TV One an adult-oriented urban cable channel.

Let me give you details on this investment and I hope everyone listens closely because there is a lot of detail and a lot of numbers here. I know folks have been waiting on this. The total capital commitment of the investor group in TV One is $130 million. Radio One is investing approximately $74 million of that amount. The initial capital call to fund TV One was $32.5 million on August 1, 2003. Radio One's share of that capital call was $18.5 million. The total capital is expected to be invested over four years with this initial draw expected to last until sometime in the middle of next year before the next draw occurs. It is fairly safe to assume for now that the annual draw amounts will be roughly the same over a four-year period, although that is subject to significant change based on the ultimate execution of the TV One business plan by its management team.

In addition to Radio One's cash contribution, Radio One has received an additional equity stake in TV One associated with its commitment of radio advertising time over the next five years, and an equity stake in quarterly management fee, associated with a management agreement it has with TV One, whereby it will provide various corporate services over that same time frame. Thus, when you see Radio One's balance sheet in the 10-Q you will notice the following entries associated with TV One. An investment in affiliates asset in the amount of approximately $35.5 million, which is an aggregation of the $18.5 million cash investment, transaction costs, and the value of the equity associated with the ad time and our management agreement. Secondly, a deferred revenue current liability of approximately $3.4 million, which is the expected value of the ad time and management services to be contributed to TV One over the next 12 months.

Third, a deferred revenue long-term liability of approximately $13.6 million, which is the expected value of the ad time and management services to be contributed to TV One over the four-year period beyond the next 12 months.

On the income statement, you will notice the following. Equity in net loss of affiliate company of $939,000 for the quarter. This is simply Radio One's pro rata share, or approximately 40%, of the net loss of TV One from inception until the end of the third quarter. Every quarter hereafter, we will book approximately 40%, assuming that is our ownership stake, of the net loss or income whichever the case may be of TV One. The investment in affiliate asset account will then be increased by our pro rata share of the income, or decreased by the pro rata share of the loss every quarter. I hope all that is clear and if there are any question, we would be happy to answer them in the Q&A session.

Now, looking to the future for Radio One. While we would like to be the voice of optimism, we can only continue to be the voice of reality and the reality is that while the environment in general is definitely not as tough as it was several months ago, it is not appearing to get markedly better and market pacing supports this. In the face of tough political comps, October and November are both showing negative pacings and December is now showing flat pacings and 2004 is much too early to call. However, we think that all the right dynamics are in place to cause 2004 to be a modestly good year for the industry, and we look forward to basically exiting 2003 and going into what will hopefully a stronger year for Radio One and for the industry.

As for Q4 guidance we are calling for revenue to be flat to down 2%, for station operating expenses to be flat to down 2%, and corporate expenses to be flat to up slightly. This revenue outlook is generally in line with how the industry looks today for Q4 and what other operators are saying and seeing. We will continue to hold expenses in check and thus should show at least flat growth in station operating income and GAAP operating income.

With that, why don't I turn it back over to Alfred and he will have a few more comments and then we will open it up for questions.

Hi. We debated about whether to say this prior to the conference call but when we look at guidance, our guidance for Q4 is roughly similar to what other companies are saying. However, today, you know, we are actually looking at positive pacings for Q4. We think that there is risk there. And we can't -- the visibility is low. We have seen deterioration in the past. We've seen deterioration week to week, you know, pretty much as the norm, over the last 2 1/2 to 3 years. But as we said today, we do have reason to be positive.

And you know, we -- you know, we're guiding to protect our downside here, so we can't tell you if in fact this is the turn, as Scott said, '04 is too early to call, but that's all the information that we have, in a nutshell and you can make your own value judgments as to which way you think the industry is going, and what you think about our business prospects going forward.

As far as M&A activity is concerned, it is light for us. We continue to be focused on three fill-in acquisitions, you know, all under the $40 million mark, for each transaction, you know, we're excited about them because we think it is an opportunity to build bigger clusters in markets that we already operate in, but we've got our eyes focused on our core business, and managing through that, and building these clusters that we already operate.

The cable network, Scott talked to you about the capital commitment and how it is accounted for it. Is actually going to launch on January 19. Which is Monday, January 19. It is Martin Luther King's birthday. Sunday will -- the midnight on the -- on Monday the 19th will be the actual launch.

And so, you know, we will lead up to it Sunday, you know, pull the switch on -- at midnight and we will be in business and up in the sky on the 19th. So that's pretty historic and we're very excited about it. As we go out and talk to other operators, where we are seeing good traction, and making good progress, you know, we have every reason to believe that this network will get a fair amount of analog carriage and will not just be a digital network. We believe that it has every opportunity to be a digital and analog hybrid.

We're starting -- the indications that we're getting from our partner Comcast and also from the other operators is that in markets where there are large African-American populations, these operators are really considering this as a possible analog network. So we should start to see, you know, over the next few months, particularly as we lead up to launch, other operators coming in, and we will start announcing some of our distribution rollout here within the next month to 45 days.

So with that, Mary Catherine do you have anything you want to add about the radio business before we turn it over to questions?

No, I think you covered it Alfred.

Operator if you would open it up to questions.

Thank you, sir and at this time if you wish to ask a question, please press star one on your touch-tone phone. And if you are using speaker equipment, please lift your handset prior to pressing star one. To cancel your question is star two. Once again, that is star one to ask a question. And star two to cancel. Our first question comes from James Marsh with SG Cowen. You may ask your question.

Hi, gentlemen. A couple quick ones here. One, Alfred, could you reconcile -- it sounds like you're talking about two different things in pacings. I thought Scott was saying, for October, November, December, down, down flat and Alfred, you suggested that maybe fourth quarter pacings are up and it seems like you couldn't be up with Scott's description.

Let me be clear. When I talk about pacings, in fact, when I almost always talk about pacings I'm talking about industry pacings. I'm not talking specifically about Radio One and what Alfred was saying was that as of today, Radio One is showing positive growth, slightly positive growth in the fourth quarter. In the face of negative to flat market pacings.

Okay. Understood.

Secondly, on the cost side, a couple quarters back, you mentioned a salary and hiring freeze and I wondered if that was still in effect. And lastly, maybe you could just comment on whether you are picking up share in your markets based on your calculations, maybe in total, and then if you just want to look at spot only?

Whether the hiring and salary freeze is in place, today, it is in place, we're loosening that starting now, on a case by case basis, we don't want to cut into the muscle of the organization, so there are some places where we absolutely have to invest in terms of people, personnel resources, and so we're starting to do that. So it is not a company-wide lifting of it. But we are -- we are moving in the direction of adding economic resources to our personnel base. In terms of --

As far as market share is concerned, in some markets we are gaining share and some markets we are not gaining share. Overall, pretty much flat.

Okay. Thanks a lot. Thanks, guys.

Thank you. Our next question comes from Victor Miller with Bear Stearns.

Good morning. Thanks. Scott, could you give us a sense of what the political, you know, how much of your fourth quarter last year is political, what impact do you think NTR will have in the fourth quarter and your pay for play in the fourth quarter just so we can get a sense of just how much your core, you know, core advertising is up?

And secondly, in the second quarter, you showed programming and technical cost growth of about 8%.

This quarter, it is down two. And second quarter, SG&A was up one. And now it is down five. It is quite a remarkable change in the growth there. Where does that BMI money come in? I imagine it is program and technical?

It is program. That is the difference in programming right there.

So that is -- instead of being plus eight you would be plus 3 1/2, so still, you know, five to six points of improvement on both of those, in the third quarter, versus second quarter, could you tell us how you are able to get that done? Thanks.

And Victor, before we go, you referred to the independent record promotion money is pay for play and that's exactly what it is not. So let's be clear about that. Because that is illegal. And you know, we have relationships with those independents that are allowed to come in and promote to our stations, but it has no bearing on what our play list represents or what we ultimately end up playing. That is strictly determined by our radio stations and Radio One management.

Stuck on Feingold’s term, sorry.

All right, with regard to -- a lot of questions there, Victor. Let's see if we can touch on what you're looking for. With regard to political, about $2 million was in Q4 of last year. We had about $3 million of political overall.

With regard to sort of cash advertising, which is the core of our business, for Q4, if you look at our guidance, flat to down two, when you look at what Alfred just said about the business currently being up slightly, suffice it to say that cash advertising is up more than guidance and what the overall business is looking like right now, and in fact, you know, NTR, and the independent record rep money, and you will see a further decline in Q4.

And so that dynamic continues. Obviously, that will moderate as we go into '04 and as we calendarize the rationalization on the NTR side and as we calendarize the falloff in the independent record rep money, so you're right, you’re going to see a similar dynamic in Q4.

So your political is about 3% of 4 Q. So NTR and the rep money be another 1, 1 1/2% in terms of difficult comp for you?

Those numbers are pretty good numbers.

Okay. And then on the expense side. Thanks.

Well, on the expense side, you know, we're just holding the line. I wish I could tell you that there are specific initiatives in place outside of the hiring freeze, and not giving raises, you know, I think people are watching their travel, and their travel costs, and we're -- you know, we're not spending above and beyond what we need to with regard to marketing and promotion. But I think on the programming side, a lot of the Delta truly is in the reversal of the accrual. You know, additionally, while we had a very good summer book, the ratings prior to that book weren't necessarily as strong as we would have liked.

And so, you know, a lot of -- not a lot , but a certain percentage of the programming costs relate to ratings bonuses that get paid out after the book comes out. And you know, so those -- those bonuses will get paid, probably Q4 and into next year. Given that the ratings growth is something that, you know, we experienced fairly recently.

And on the G&A side, you know, that is a fairly high fixed cost category.

But, you know, again, if you're not -- I mean we're not taking bonus accruals up as much as we have in the past. Obviously, because people aren't necessarily earning their bonuses because they may not be hitting their budgets, and you know, travel costs are down fairly significantly and I think really those two things are what are enabling us to hold the line in those two areas.

Thanks a lot.

Sure.

Thank you. Our next question comes from Jason Helfstein with CIBC World Markets.

Thanks. Three questions. The first, can you give us an update on the rep situation? And perhaps how Radio One performed in national revenue versus your markets, maybe according to Miller-Kaplan and I don't know if you want to highlight any outliers, either, specifically better, specifically worse.

Second question, Scott, I don't know if you're prepared to talk about it, but kind of any idea of what fixed expense growth would look like for next year if you had begun the budgeting process?

And then lastly, I'm sorry for being so long, Alfred, if you could discuss how you see senior management responsibilities perhaps changing now with your involvement in TV One, and maybe any additions you're considering to the senior management, or operating management bench. Thanks.

Mary Catherine you want to handle the national rep question first?

Yes, we're in discussions on that still. We saw improvement nationally, but we're still not happy with the performance by either one of our rep firms, so we are discussing it.

That's a tough question, Jason. Because I know you, you know, you've seen Citadel go to cap and you've seen, I guess Saga just went to cap, so it kind of interrupts on the ropes, but yeah, I don't know, I mean at the end of the day, there is still something that is kind of uncomfortable about throwing your eggs into the basket of, you know, your number one competitor, all your national eggs. And the idea of starting your own rep firm is not very appealing, either. You know, it would be great if, you know, there were two strong rep firms out there that were both doing a good job. And you know, we've got cases where we've got big markets with cap that are not doing as well as we would like. So it is not like we can say that they are doing a great job and the inner rep is doing a horrible job and in some places inner rep is doing a good job for us, so it is not an easily, you know, answered question. Scott --

Yeah, with regard to the growth in the quarter, national was up in the high singles and local was up in the very low singles. And, you know, for the most part that was in line with what the industry did, obviously consistent with our overall growth being in line with the industry.

And with regard to fixed expense growth for '04, we have no comments on '04 at this point. And then lastly, the management --

Yeah, in terms of management, we are in the process of thinking through our current structure and what we can do to add to it in order to, you know, help the company operate more efficiently. We haven't settled on what that is. And it will probably involve us at some point in time hiring a search firm to help us source candidates.

One of the -- one of the problems that I find is that, you know, we have pretty high expectations in terms of performance, and I think the market, you know, in the past has certainly had high expectations of us as well, so we're really -- we're really focused on getting the very, very best people possible, you know, but you also run into sort of the retread factor in the radio industry and we just don't want to, you know, hire the same old people that have done the same old jobs and that just necessarily have gotten displaced you know, by consolidation, because contrary to popular belief, I would like to think that the companies that did consolidate kept the better people, and displaced, you know, the people who were not so good. Now, some people fall through the cracks and good people for political reasons get fired sometimes.

But long story short, one of the things that we are going to consider is, you know, we may have to go outside the industry to find, you know, that next great Radio One executive. And you know, I think we're prepared to do that. But it is high on our priority list.

TV One is taking up, you know, a fair amount of my time, but, yeah, it also dovetails perfectly into what I'm doing with the radio, in fact I'm actually spending more time in the market, in the radio markets now while I'm out working with TV One to try to get cable carriage. As an example, I was in Houston a week and a half ago to meet with the Time-Warner cable system there.

That's what I did in the morning and for lunch I had a meeting at the station with senior management and I went on sales calls in the afternoon and I hadn't been to Houston in quite some time. That is generally a trip that Mary Catherine makes, so I'm seeing that repeated in many, many different markets so I think it is actually a positive. But that still does not change the fact that I feel that we need deeper management ranks and we're focused on it.

Thank you.

Yup.

Thank you. Our next question comes from Paul Sweeney with Credit Suisse First Boston.

Thanks very much. Good morning. Just a couple of questions, I guess, for Alfred and Mary Catherine. If you could just talk a little bit in the third quarter maybe going into the fourth quarter about the pricing environment out there. As you guys well know, there is a concern not just cyclically what's going on in pricing in radio but perhaps a little bit more on a longer term secular basis, if you could just comment on how you're seeing pricing in the radio business and perhaps versus other media.

And then number two, just on the Houston cluster that was identified in the second quarter, something as a market that cost the company some significant growth and I know Scott mentioned it turned up a little bit in September. So, if you could just give us an update? Do you think Houston has "been fixed" or has turned and if you could talk about the market and your position in that market. Thanks.

Mary Catherine, let me take the first one and you take Houston. Everybody always asks the pricing the question and I think I'm going to try to just simplify it, you know, once and for all. When business is weak, it is irrational to think that players in the industry are not going to price for share and that is going to make prices weak. That is just the way it happens. I mean the whole thought process behind we're going to hold rates, I mean I guess that is all fine and good but once you lose a buy or two, and you miss your budget by even more than you would have in the first place, you get shocked back into reality. You know, and when demand is weak, pricing is going to be weak. And when demand firms up, then we will have more pricing power. So a lot of the companies that are out there saying that they're not slashing rates, you know, they're not pricing for share, I just, you know, I just don't see how that is not -- I don't think it is possible that they're not. That's my perspective.

And is there anything unusual today versus past cycles I guess is another way to put it?

When you say unusual, what is unusual about today, the last recession that I participated in was the '91, '92, when it was -- and it was like, you know, it was a year and a half or two years, it was short. I mean we're into our third year now. That's unusual. You know, from my experience base. Because I've only had -- I've only been in the radio business for one other recession and this one is way too long for me. So yeah, that would be unusual.

But I -- I tell you, I mean I don't have any specifics on pricing beyond what I just said and I think that the length of this slowdown is just adding to the woes. Now, it has gotten better. I mean it has firmed -- you know, it is not as drastic and you know, people are not as terrified as they have been in the past. You know, but -- and hopefully, it becomes a positive environment soon. You know, but it is what it is. MC, you want to talk about --

Houston, yeah, we certainly hope that it has turned. There has been intense focus on the reps all year long there, as you know. We've mentioned -- local is just fine, and as far as -- that's a big NTR market for us. In fourth quarter, we have one of our biggest NTR events in the whole group in fourth quarter and it just happened and it was awesome. It was phenomenal. So we spent a lot of time focusing on that as well.

So I would like to say, I hope it has turned as far as national. But it has been so uneven all year long, and just when you think it is getting better, you will -- we will start to see it dive the other way. And the frustration with national is, of course, that you don't have total control over that from the local level. Because it is handled in essence by somebody else, the bigger part of it is, but it looks a lot better right now.

Okay. Thank you.

Thank you. Our next question comes from Bishop Cheen with Wachovia Securities.

Good morning, Alfred and Mary Catherine, Scotty. Going back to cost control, you guys have been pretty good with this. Have you been shifting around -- it is a two-part question. Shifting around your promotion budgets, number one? Based on what is going on in the industry. And number two, have you experienced any new aggressive competitive attacks that are worth talking about?

Bishop, the day they get your name right is the day that business is going to turn. That's my prediction.

Okay.

Do you want me to talk about the competitive situation?

Yeah, and the promotion budgets as well. Take them both.

Well, you know, we are really good at controlling costs, I think, and also I think very creative, so the biggest budgets that we have generally to go to for cost cutting, it is always promotions, and our program directors work very closely with the sales department. So they can come up with something if they need to. And cut costs at the same time. As far as promoting the radio stations. And that's what we've done all year long. And that's what we do anyhow. What was the other question?

Well, I was just wondering if you shifted your promo budgets around some, significantly and whether any markets have come under --

Shifted from one market to another, no, we haven't done that and as far as competitive situations we haven't had a real attack here in a while.

In my earlier comments, I thought that we were bottoming out in some of our more competitive markets. Houston is what it is now, and you know, like Mary Catherine just said, hopefully it is getting better, Richmond is what it is, Baltimore, the competitor, you know, went out of format. L.A. is still status quo. So, I mean you know we could draw a competitor in some other places, but right now, things seem to be pretty stable.

And this is Scott. Let me make one other comment about expenses. We've talked about the fact that we rationalized our NTR and that means we've cut back or eliminated certain nontraditional revenue categories, or special events or whatnot. You should also know that the reason we did that is because those were some of the lower margin events which means they obviously had a higher cost base so when you look at our expense reduction for the quarter, keep in mind that along with that revenue going away, the expenses associated with those events also went away. And that's one of of the things that really drove our margin.

I mean we didn't talk about it, but one of the things we're very proud of is in the quarter we had a 56% station operating income margin which is clearly the highest in the industry, and frankly, one of the highest margins we've ever had on a consolidated basis, and it is up from 53.6% last year. So people should understand that, you know, while there is obviously some near-term downside associated with our revenue not going up with regard to these NTR events, because there are expenses associated with those events also going away it is actually making the company more profitable and that's something we want everybody to be mindful of.

Yeah, that’s a great point. Alfred, when do you think you are going to know the mix of analog and digital and your lineup with the January launch come so quickly?

I mean, put it this way. You don't know what the ultimate mix is going to be because you don't know who is going to ultimately carry you where. I mean there is, you know, 80 million cable and satellite households out there. So, you know, are we going to get all 12 million direct TV subs or are we going to get 3 million of them, or are we going to get all of charter or just get digital basic? We will get analog in some markets and digital in a lot of others. It is very tough to say. However, I did think about it before this call, and nobody quote me on this, I mean our -- you can quote me but don't quote me.

You can trust us, Alfred.

Don't hold me to it. But I think that a safe number for us to assume is that I think at least 20% of our subs will be analog. And I'm basing this off of stuff that I know that is going to -- that hasn't been announced yet that is going to come out of Comcast, and you know, and other MSOs that we're talking to. Markets that have already said that they want to launch us on analog and they have the space to do it. You know, so this is -- you know, this is informed information, and you know, I would hope to, you know, my goal would be to beat that percentage, but I did think about a percentage that I would feel comfortable saying on a conference call and I think that at least 20% of our subbase will be analog.

And your goal subbase would be how much?

100. Basic everywhere but that's not going to happen.

The launch, what are you looking for?

What's the goal? I'm not going to put a number out there. I think that, you know, the marketplace should be excited that I could even say that I think that 20% of our subs would be analog because when we put this business plan together, we based it off of digital only, all right? When we decided to do this deal and invest the $74 million, we -- and we built the business plan that just tracked digital growth in the industry. And our expenses are reflective of the digital network. But this network will not be a strictly digital network. That is for absolute sure.

Okay. Thank you, guys.

Thanks.

Thank you. Our next question comes from Jim Boyle with Wachovia.

Good morning. Mary Catherine, would you estimate, perhaps the kind of average cost per point range, what it would be in your largest markets compared to maybe six months ago or perhaps versus a year ago, and also is there any change in the typical length or amount of the avail requests coming down these days?

God, I don't think cost for points have changed that much. You know, I'm not going to say for sure for each of the large markets, but I just don't think there is that big a change and as far as the avail requests coming down, I don't see that having changed that much either and I'm starting to think maybe this is the way it is going to be going forward.

Even as far as -- I know you didn't ask this, but as far as annuals, it seems to be the same as last year, coming in late, and as you know, what we saw this year is a lot of annuals turned into almost quarterlies, and maybe that is going to be the wave of the future, too. So I think it is pretty status quo on all fronts.

Okay. Scott, at what level debt, barring any acquisitions in the offing would you consider share buy backs and how much lower would the share price have to go before you seriously consider share buy-backs?

Well, Jim, I guess you need to look at the overall balance sheet, and sort of the state of the company and what we're trying to accomplish as a company, when you think about share buy-backs. I mean at the end of the day, my number one priority for this company with regard to the balance sheet is to convert our convert to common stock. And the convert price is $18.73. You know, we've obviously been below that, but we've gotten, you know, at times fairly close to that threshold and we think that at some point when the economy clearly improves and the industry's outlook is brighter, and cable channels up and running, and you know, showing good growth, that, you know, there will be an opportunity to convert that, and so given that, you know, that may -- hopefully it will be 100% conversion from convert to common, but, you know, part of my strategy might be to use some of our liquidity as an inducement to convert that.

I want to keep my powder dry for that and then, of course Alfred described a few M&A opportunities and we have the continued required debt pay-down under our term loan and then we have our TV One investment. So when you sort of look at the landscape over the next couple of years, we've got enough places where we can use our capital in different ways that to buy back stock, while sort of conceptually, theoretically it is something that we very much, we believe in and think it is right for management teams to look at that as one of the ways they allocate their capital, I would tell you that for the next couple of years, I think we've -- the capital is kind of spoken for and I think I've sort of addressed the four or five things that probably will take priority over a share buy-back.

A question, Mary Catherine, how is your top few ad categories acting these days?

Well, the number one category, auto, is actually a little soft right now. You know, that's been pretty awesome for the -- for the first part of the year and we're starting to see that lag, which is not a good thing. Scott, I think you might have the category detail.

Yeah, actually, the categories that for Q3 at least did fairly well for us, included financial, and retail, and telecom. The categories that lagged to some extent were certain entertainment categories, healthcare, travel, transportation, and government. And auto has been a bit of a mixed bag. Some category -- because there are a lot of sub categories under these bigger categories, some auto categories did okay, and others were kind of soft, like parts and service and repair weren't as strong as the actual dealers which actually showed pretty decent growth in the quarter.

In telecom are you seeing any wireless number portability activity yet?

See, I don't know what your answer is, mine is no, I've talked to a bunch of people and we're sort of anticipating it and waiting on it and we expect that’s going to show up at some point and I have heard from folks who are closer to that industry that they are kind of waiting for next year so that it doesn't get lost in the clutter of holiday and it is still apparently a fairly complicated and confusing process and now that you might even have home number portability, I think that confuses it even more but my sense is that is still going to be a fairly significant opportunity for us. MC, I don't know if you’ve heard anything different.

Yes, it is going to be and it will start before Christmas.

Oh, it will? Great.

Thank you.

Thanks.

Thank you. Our next question comes from Tim Wallace with UBS Warburg.

Thank you. Scott or Mary Catherine, have you seen an incremental slowdown in either pacings or business trends in the fourth quarter?

And then to Alfred, would you characterize any of your markets as actually strong? And you know, what does strong mean? And how does that look going forward?

And then I guess to Alfred as well, on TV One, have you begun preselling that? Or when will you begin preselling advertising for that? Thanks.

When you say strong, for us, or the market?

Talking about the markets. Well, let me take that one. This is Scott. L.A. actually is actually looking pretty good. Particularly for December. And so, while that market had a good first half, and it softened a little bit into the third quarter, and started out a little soft in Q4, it seems to be picking up in December. Other than that, there’s just, as you've heard from other operators a tremendous amount of variability.

I would tell you that I think October and November for the industry are going to be fairly soft, probably down, low single digits and that is pretty consistent across the board but December, if there is a bright spot on the horizon, it's probably the bright spot where some markets are actually pacing up nicely, and some are still negative. I would say that there has been a little bit of softening as we've gone through the quarter. But we sort of predicted that. Because obviously, the political money that came in last October and even early November last year came in very late. It's not like it got bought two or three months in advance.

It might have gotten bought a week in advance, so I expected to see the pacings soften for October and November as we were comping up against the realtime political buys that occurred last year. December has softened a little bit in the last couple of weeks. And so, you know, I mean you can sort of look at that as glass half full or glass half empty. It looks better than October or November but it has softened but, you know, MC saying that number portability might hit before the end of the year, the fact that the retailers are doing particularly well and people are predicting one of the stronger holiday selling season, I think that all bodes well for December being potentially a pretty decent month.

Scott, how much of December have you sold at this point?

We are at 60% of our forecast. Which is not a bad place to be.

And as far as preselling to advertisers, TV One, the ad sales executives just got -- well, just started about two to three weeks ago. A guy name Keith Bone, he is the number three executive at Turner, and their ad sales unit, and that's a big coup for us, so we're just starting. We've made some pretty high level pitches that were actually joint TV One and Radio One pitches that we're working on now, so we're getting, you know, good feedback from advertisers. We haven't booked any business yet. But we're just -- we're starting a process and we've got, you know, good early acceptance from advertisers. In fact, the month of November, I will be in budgets all of November, but the month of November, the head of ad sales and the CEO are doing the agency road show in New York going to see all of the top cable network buyers and introduce them to TV One.

And then Alfred, just a follow-up on programming, where are you in terms of programming?

If you check out the -- just keep looking in the -- in the trades or keep, you know, or check, you know, our press releases, because we're sending out, you know, as they come up, we announce that we did a deal with King World, to pick up two pretty solid African-American dramas, "City Of Angels" and "Under One Roof" that were both on CBS and had a lot of popular acclaim, particularly with this audience. We're getting close to signing up other programming deals and we're going to start announcing them as they get signed so that's coming together nicely. Can't launch a channel in mid-January if you don't know what the programing is today. Once we sign this stuff then we will announce it.

Okay. Thanks a lot.

Sure.

Thank you, our next question comes from Marc Nabi with Merrill Lynch.

Thanks very much. Alfred I just wanted to make sure I clarify again the M&A activity were you talking about the three fill-ins, have you already done those transactions?

No, we, you know, we are negotiating them. They haven't been signed. You know, are they definitive? No. Could they fall apart? Yes.

Do we think we are going to get them? Yes. And you know, many of them are struggling because they're not necessarily just sellers who are saying hey, I have a radio station, pay me my number and buy it. Some of them are move-in stations that aren't already in the markets and there are FCC clearances that need to be gotten. And so on and so forth.

But did you say, on average, the transactions for each of them is under $40 million?

That's correct.

Okay. I just want to make sure I heard that properly. And a question for Scott, looking forward, Scott, you're talking about your expenses and did you a very good job on the expense front for the back half of 2003. When you said when you strip out the NTRs, next year is going to be a more normalized pattern, then, right? Because you have comparable year over year numbers. So would your guestimation be that you will go -- you will head towards the rate you were in prior years?

No guestimation nor comment on 2004. Sorry.

Just one would think that with the NTR business -- and the other question I would have is with respect to NTRs - it sounds like from what Mary Catherine said, you're still doing them, right? So I guess you have a threshold or a hurdle rate that you're trying to look into as, you know, you do this type of business?

Scott, let me --

Go ahead.

What we did actually two years ago is we took a look at everything we were doing, and put a certain margin on NTR. And we got rid of a lot of events. Actually, two years ago. And then as we went into this year, what we've seen -- and I -- NTR is getting a black eye right now, I think, because it is becoming a little bit of a scapegoat. I love NTR. Because it is fun. It is easy. It is great for clients. It works for programming and sales. And the margins can be very big.

But what we found is that we had some heritage events in our company, and I think we hung on to them too long, just because they're heritage doesn't necessarily mean they are necessarily greater than any more, and over the years, they had just gotten not as exciting as they were, so we needed to recreate those events. And we did that with a few. And then some of them we've gotten rid of. And as we're going through this budget process, we're getting rid of even more. If they don't perform, we're just not going to do them. But I would suspect that we will have new events to take their place, or new NTR projects. NTR pops up all the time.

I mean you can just create something, you know, on the common and it becomes a huge NTR event and all of a sudden you're selling all sorts of things around it. So I don't want to you think that we're just abandoning that category, because it is a very good category for us.

As a matter of fact, fourth quarter, we've got three of the biggest NTR events that we do all year, in three big markets. And we just did the first one, it was incredible, and the other two look like they're going to be very big. But perhaps we're just focusing can on them more and we should have done that in the past, too, because they're really being managed I think a lot better now.

Yeah and I would just -- just to color in that a little data behind it, you know, our target threshold, Mark, is 50% in terms of the margin, but we're, you know, not wedded to that, if there is particularly a strategic event that, you know, looks like it might come in at 40, you know, we will probably do it. And then there are a number of events where, you know, if they are structured and executed the right way, they can achieve margins well north of 50. So as a basket, we shoot for 50 and then there is some variability around that threshold.

Also, quick question related to CapEx. Because the CapEx actually was so low in the third quarter, what are you anticipating for 2003 now for a total CapEx?

I should have been clear on this when I was going through my overview. The number for the year actually hasn't changed. Probably 10 1/2 to 11 1/2. Just through timing in Q3. I mean, we could have ,quite frankly, just deferred a lot of what we didn't do in Q3 to next year but for the most part, you know, given that we’re feeling pretty good about the environment, and we certainly have, you know, the liquidity and these are things that we need to invest in, you will see -- you will see a bigger number in Q4 that will get us up to that 10 1/2 to 11 1/2 number which was the original guidance.

Great. Also, Alfred, one thing. You had mentioned a minute ago, mentioned earlier, that, you know, you're going in there, talking with advertising executives for both Radio One and TV One, have you gotten any incremental business with your discussions with some advertisers at Radio One from your discussions with you know, about the TV One channel?

I mean we just started it. TV One is not even up yet. But the answer to the question is that we will. Because there are advertisers that are primarily television advertisers, and they, you know, no matter how hard we sell, the attributes of radio, the fact that we don't have a picture keeps us out of a large pool of dollars. And I think that we will have an opportunity to create joint campaigns that will ultimately end up providing incremental dollars for the radio group. So it is -- you know what? It is a great entree. People want to talk to you more. If you got more assets, more media assets, that they find attractive, and spaces that they find attractive, like African-American target media, then are you going to get higher level meetings and a higher level of interest.

Great. Thanks very much.

Thanks.

Thank you. Our next question comes from Drew Marcus with Deutsche Bank.

Hi, everybody. A question, Scott, you had mentioned that Radio One is going to get a management fee from TV One, also get some credit for some of the synergies you provide. How is that going to be -- I presume so it is basically -- you're getting equity in TV One in return for -- for these services. How is it going to be booked on the income statement?

Okay, --

It is equity, not cash, right?

Well, the management -- there is several components. The management services agreement is a combination of cash and equity. The 40% ownership that we have, the approximately 40% ownership in the enterprise is our gross ownership that was derived from both our cash investment as well as the equity that we're getting for our advertising commitment and for our management services. But there is a cash component to the management fee that gets booked as revenue.

And that cash component starts when?

It started in Q3.

Any sense of the magnitude of it?

The magnitude of the management fee? I'm not sure we're at liberty to disclose that.

It is -- it is not a lot. I mean it is less than a million dollars.

A year.

Thanks a lot.

Thank you.

Thank you. Our next question comes from Alissa Goldwasser with William Blair Company.

Thank you. You mentioned that your markets, I think, were down in October. I was wondering if you could talk about the performance at your stations and whether that is part of the reason for your optimism for a positive 4 Q?

The markets were down low singles, as were we. We performed in line with our markets.

And then can you --

So it is -- to follow-up, our -- the optimism that we have for the quarter, if that's what you want to call it, I guess it is tempered optimism is partly based on somewhat better performance in November, and the potential for December to be a pretty decent month.

Okay. And then along those lines, can you describe what your thought is for November?

I'm sorry, what is?

Your sell-out.

I mean we're at -- we're at 90-ish percent now which is where we need to be.

Great. And then one other question. On TV One, I think you mentioned that it is funded through the middle of 2004. When do they start spending those dollars? Is it ahead of the launch in the fourth quarter? Or will the dollars really start to be put to work in the first quarter?

Again, we took a $939,000 loss to our P&L in this quarter, which is 40% of what TV One has lost inception to date, through September 30, 2003, so TV One is spending that money now, because they're an operating company. I mean they've got -- they've got probably three quarters of their management team already in place, and they're traveling, and they're doing deals, and buying programming, et cetera.

Now, with regard to the programming costs, which are obviously fairly significant, you either have sort of direct cash programming costs or you have amortization of programming costs when you acquire something and then you run it over a period of time. The amortization of the programming costs won't occur until after the channel launchs in January.

Okay. So for the fourth quarter, prorated for a full quarter, it should look something like third quarter?

I would say that, you know, because the TV is in rampup mode, chances are the losses in the fourth quarter will be higher than the third quarter. But you know, by maybe a factor of 25%. Maybe 30 to 35%.

Great. Thanks a lot.

Thanks. We are going to take our last question, operater.

Thank you, our next question comes from David Bank with RBC Capital Markets.

Thanks, guys. A couple of questions. One is a follow-up on something that I guess someone had asked before, but I think you guys have done a really good job in terms of the expense control side in the back half. And you probably aren't getting that much credit for it in the stock.

Because -- because you sort of haven't indicated whether or not it is a real paradigm shift, right, and so -- you know, just a little clarity -- and I understand that you're tempering expenses to meet the environment, but do you see a greater paradigm shift in expenses versus where -- you know, where expenses are historically?

And then second, you can give a little more clarity on when, you know, on both revenues and expenses, this NTR and -- the independent promoter dollars, when all this stuff is going to calendarize?

Let me -- the first part, I mean we have the highest margins in the industry for a reason and that's because we've always run our company extremely lean and so whenever our expenses were growing at a level that perhaps were faster than what other people were growing, our revenue was probably growing significantly faster as well. So I mean we didn't get to where we are today as a company because historically we've, you know, shown outside expense growth. And so I just want to be clear on that. I think we've always done a very good job of managing our expenses for the environment and for the dynamics of our business at any given point in time.

Secondly, I would not call a hiring freeze and a salary freeze a paradigm shift. I mean that is a pretty sad state of affairs if that is a paradigm shift. So I mean that is kind of the driver of our cost structure right now. And you know, while I think we may -- we may very well moderate future growth in our employee base and in our salary increases, absolutely, because the world is different than it was four, three, four years ago, in terms of compensation scale, I mean at the end of the day, you know, we have really good people working in this company who work very hard and they deserve to make more money every year. And so, you know, we certainly would expect that when the environment improves, you know, those are the types of the things that we are going to be looking to do to make sure that our people feel as though they are -- they are well compensated.

With regard to NTR, you know, I mean MC just put a little more color on which I thought was really good, because it is an evolving process, we're not abandoning the business. There are certain lower margin events or events that we've been doing for a long time that were either, you know, changing or terminating. But new ones will come to the fore. And so I think what you will probably start to see next year is more stability in the year-to-year numbers. You know, growth or decline more modest than what we're showing now.

And you should hopefully see better margins on those events. And that, you know, what you will start to see probably in the second quarter of next year and then from there on out, I think it will be a fairly sort of consistent core part of our business that will grow, you know probably in line with our business.

And can I throw in one more follow-up? You had highlighted a couple of markets that were good or strong, a couple of markets that were less strong. Were there any significant ratings changes in those particular markets?

Well, we've had a lot of significant ratings changes, almost all positive, although the summer -- the summer book would not have necessarily had a direct impact on the performance of our markets in the third quarter. So --

Okay but --

But as an example, in Baltimore, we lost our competitor earlier this year, March, April, and so certainly Baltimore's performance is due to the fact that it no longer has the competitor, and its ratings have done very well. Dallas, certainly, the ratings have been improving and with Steve Harvey there, he is a contributor to the improvement in that market. So yeah, to some extent, but Houston, you know, we're to some extent calendarizing the competitor there, and we're also doing a better job of operating in that market. So it is really a combination of things.

Okay. But so generally speaking in the summer book, you didn't really see a significant ratings falloff anywhere? Or.

Actually no, the summer book was like gigantic for us. There were very few stations in our portfolio that declined. We are very, very happy with the performance of our stations from a ratings perspective in the summer book.

Terrific. Thanks, guys.

Thank you.

All right. We appreciate everybody tuning in and as usual, Scott and I are available offline if you have any other questions and operator, if you want to give --

Finish the call for us, please.

Thank you. For attending today's conference and have a great day. You may disconnect at this time.