Urban One Inc (UONEK) 2004 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen. And welcome to the Radio One third quarter earnings release. Hosting today's conference call is Mr. Alfred Liggins, President and CEO. Sir, you may begin your conference call.

Welcome to the third quarter results Radio One conference call. With me today I have Scott Royster and Mary Catherine Sneed. As you know, Scott is our Executive Vice President and Chief Financial Officer, and Mary Catherine is our Chief Operating Officer.

We have released earnings and we're very pleased to be up 4 percent on net revenue and 4 percent on station operating income. The environment continues to be challenging, but we're hopeful that things will begin better soon. With that I'm going to turn over to Scott who is going to read over something and then go into the numbers.

This conference call includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Because these statements apply to future events they are subject to risks and uncertainties that could cause actual results to differ materially, including the absence of the combined operating history with an acquired company or a radio station, and the potential inability to integrate acquired businesses, need for additional financing, high degree of leverage, the seasonal nature of the business, granting of rights to acquire certain portions 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 Form 10-K and 10-Q and other filings with the Securities and Exchange Commission.

Radio One performed well for the third quarter of 2004. Despite the fact that the markets in which we operate realized negative revenue growth in the third quarter, Radio One was able to significantly outperformed that weakness. The Company continues to be positioned well. And is one of the few -- very few radio companies that is finding significant strategic growth opportunities.

This year alone we have acquired, or agreed to acquire, four radio stations located in four different major markets at attractive valuations. We have witnessed the continued expansion of TV One, our Comcast joint venture cable property. We're in the process of building an Internet platform for the Company. And we're seeing an uptick in various interesting M&A opportunities that should help enhance the value of the enterprise going forward.

Thus, as opposed to buying back stock, which in our minds is antigrowth, we're looking to actively and strategically deploy our shareholders' capital to continue to build a long-term competitive sustainable enterprise. As a public company we believe that that is our primary responsibility.

As for more detail on this past quarter's results, net revenue came in at $84.4 million, up 4 percent from the third quarter of 2003. This compares to a decline of radio industry revenue of approximately 1 percent in the markets in which we operate. For the quarter, local revenue was up 6 percent versus flat in our markets, and national was down 4 percent as opposed to down 9 percent in our markets. September finished the quarter as the strongest month, up 5 percent. Categories of relative strength included automotive, health care, government, public and services and telecom, while retail and entertainment were weak.

Station operating income came in at approximately 47.2 million, also up 4 percent from last year. Station operating income would have been up an additional 100 basis points on a normalized basis save for the approximately $600,000 net expense reduction taken in last year's third quarter associated with the BMI music license fee radio industry settlement. The station operating income margin held at 56 percent for the quarter, probably one of, if not the highest, station operating income margin in the industry.

Adjusted EBITDA was 42.8 million, up 2 percent from last year. This slower growth relative to station operating income was due entirely to a 19 percent growth in corporate expenses, primarily related to higher fees and expenses associated with Sarbanes-Oxley 404 compliance.

Free cash flow was approximately $26 million for the quarter, down 2 percent as the Company's CapEx for the quarter was approximately 3.5 million versus $1.5 million last year, although this is all timing related. For the year to date period capital expenditures are down approximately 1 percent to approximately $7.5 million, from 7.6 million last year. And free cash flow was up 21 percent year-to-date.

As for TV One, our share of their loss for the quarter was approximately 2.1 million, and approximately $5.9 million for the year to date period. TV One continues to benefit from very strong advertising revenue and good expense management, as well as good subscriber growth, which I'm sure Alfred will talk about in more detail during Q&A.

As for the balance sheet, net debt stood at approximately $571 million at the end of the quarter, while the Company's leverage for bank covenant purposes stood at approximately 3.9 times EBITDA. Thus we have been able to maintain relatively low leverage levels while also using our balance sheet to help fund acquisitions.

During the quarter we borrowed $50 million against our revolver to help fund the acquisition of KROI-FM in Houston, which closed in late September and began broadcasting in a Spanish language format soon thereafter. We also announced the acquisition of WABZ-FM in Charlotte.

Looking forward, Q4 is off to a very active start. In October we completed the acquisition of our fourth Atlanta radio station for $35 million, WAMJ-FM. We borrowed $25 million against our revolver to help fund that purchase. Earlier this week we began broadcasting our new Charlotte station, WABZ-FM under an LM&A (ph) in a gospel format. And we expect to close on that acquisition before the end of year.

Later this month we will make our second capital contribution to TV One in the amount of $18.5 million. After this contribution we will have contributed 37 million of the 74 million we have committed to fund the growth of TV One. Also, as I said earlier we're seeing some decent M&A activity, and are excited by the prospects of other value enhancing deals in the upcoming months and quarters.

As for our growth expectations in the fourth quarter, we expect net revenue growth to be in low single digits for the fourth quarter of 2004. While the industry continues to struggle, things do have appeared to have stabilized, and there was some decent political activity in the couple of months leading up to the election. We have entered the month of November at above 80 percent of goal, which is pretty healthy. National is doing better and local is holding its own.

But we continue to be guarded as we do not expect the radio industry's woes to be fixed over night. As we have been saying for a while, there are some fundamental issues that need to be addressed by our industry, and management and investors need to be patient as the industry finds more solid footing in what is clearly a challenging environment as it relates to the economy, technological innovation and competitive pressures.

For Radio One, we look to address these challenges by leveraging our very powerful radio platform into complementary businesses, and staying hyper focused on the fast growth niches that define our strategy and vision. With that I will turn it back over to Alfred.

As Scott mentioned, we did launch a new Spanish language format called La Mera Mera (ph) in Houston Texas. We've got a very big presence in that market. We own the two biggest urban radio stations there. It got great ratings. In fact, it is one of the markets where we had stellar ratings this last book. KBXX, our young end station was number 1 12 plus, and our urban adult station was number 3.

But when we look at the market and sort of demographics kind of told us what we really need to be focused on when you look to the market, and that is north of 30 percent Hispanic. And it is about 16 or 17 percent African-American. It made a lot of sense to put a product on the air that gave us a foothold in that particular demographic. And in fact, in that market UniVision is the big Hispanic player there. And they actually have a hip-hop station. Got sort of a second-tier hip-hop station to our KBXX. But they compete with us a little bit in that market, and so we now also serve that particular -- the Hispanic demographic in that market as well. So we think that is really (indiscernible) to our customers.

We are excited about it. It is a new area for us. But we realize that when you're in Texas and you're in California and some other places, you can't ignore this demo. And I have been excited about Charlotte all year long since we were able to get the Tom Joyner Morning Show away from our competitor, which in that market is Infinity, and put it on our station. And are ratings zoomed up the rankings. I think we're either 1 or 2 25 54. I think we may be -- what are we running to, 25 54, third?

In what market?

In Charlotte.

In Charlotte I think we're second.

Second, 25 54, which was a huge jump for us in our revenues following. And we recently launched a gospel format to pair up with our urban adult, which is going to give us a nice toehold in the adult demographics there as well.

And still yet to go on the air is a new format in Philadelphia. It is our third station there, and we're making plans to get that launched. So we're real excited about our developing stations in these six that are going on the air.

We have had great ratings books so far. Some highlights, Atlanta, we have about 14.6 share points in that market. And our station, WHTA there is number 1, 18 to 34, which is great. Also good books in Baltimore. I mentioned Charlotte. Cincinnati, our station, WAIB out there was number 1, 18 to 34. Great ratings in Columbus. Dallas, a killer story there.

Our station KBFB was number 2 12 plus. That is a big market, almost $400 million of radio revenue there. Houston, I mentioned. LA had a nice book, one of the best books we've had in a while with a 3 6 share 12 plus. Raleigh and Washington D.C. So we've got good ratings momentum, which obviously will drive our revenue upside going forward. And that bodes well for the future.

Speaking of TV One, we are getting close to finishing up some major distribution deals. And we will probably be announcing some in the very near future. We continue to be excited about distributors' interest in our network, both from the cable landscape and the satellite landscape.

And we get asked all the time when are we going to give more detail about distribution? And our game plan really is to aggregate enough deals, commitments for subs to the point where we have enough to sort of show the market how we're going to get to break even and cash flow positive. So until then we will probably just be announcing distribution deals that talk about the kinds of markets or the numbers of markets that we are going to launch in, and not give any real hard figures. Although we will give hard figures quarterly in terms of how many homes we're in.

But once we get enough of these deals under contract where we can show in detail how we have enough commitments to get to break even is when we will sort of open the kimono, and therefore analysts and investors can kind of see their way to value TV One and determine what kind of value they want to give Radio One for that.

Radio acquisitions going forward. We are starting to see some interesting stuff. We would be interested in anything that Infinity might divest. I know that Les Moonves said they were looking at maybe paring some of their smaller market stuff. There could be some interesting things there for us.

We're focused on the top 30 African-American markets and building on our platform there. There's only one market where we are really up against the caps -- the ownership caps at Louisville, so we have got headroom everywhere else.

And with that, Mary Catherine, do you have anything to add?

No.

Okay. Why do we turn it back over to questions.

Holly, could we open it up for questions please.

(OPERATOR INSTRUCTIONS). Bishop Cheen.

The company name is Wachovia Securities. Two questions. One to Alfred, you talked about -- to investing in -- I think you used the word compatible businesses. What do you see as good compatible businesses to radio?

Right now we're focused on the radio business, cable television network business and the Internet. And that is our focus right now. And so -- and that is a lot of wood to chop. Because we don't want to just enter those businesses, we want to enter those businesses and become dominant players. So beyond that I'm really not focused. I could think of probably two or three different other areas that we would look at, but nothing that I really want to talk about now, because I want to give anybody the impression that we are unfocused, because we are not. And it would just be idle conversation because we don't have any specific initiatives at this point in time.

I can say that something that we have started to take a closer look that does really fit in our current rule (ph) house. So yes, I really see them as new businesses per se, but I think content is very important -- content and programming. So we're looking at ways to extend our self into more programming assets that -- particularly programming assets that might fit with radio and with the cable network.

Content -- it goes back and forth between whether content is king or distribution is king. I don't know exactly where we're at now. But as a radio company we have distribution and we want to make sure there we have the best programming assets in the house, and also the same goes for our efforts at TV One.

And also, the press release did not talk about specific guidance for expenses for Q4. Can you give us some outlook please?

No, we're just sticking with our revenue guidance for now.

Drew Marcus.

Deutsche Bank. The question is number one, on politicals can you talk about how much political you saw? And then second, for the fourth quarter just give a sense of how the scope of your guidance -- how is guidance relative to what you're seeing so far in October and November?

Political was good, it ended up being pretty strong. Probably still tabulating but several million dollars. Probably consistent with what we saw in 2000, so we feel very good about that. A lot of it was fairly concentrated in the Midwest. But in that process the political monies are both direct from the candidates or any groups associated with the candidates, and then issue money as well. So that is how we count it. So it is perhaps a larger scope than maybe the way other people look at it.

And in terms of Q4, the guidance is for low single digits. And we're seeing decent numbers consistent with the guidance, and actually consistent across the three months to a great extent for October, November and December. Did you want to add anything with regard to sort of the state of the business or --?

No, I think Scott is right. Low single is probably where it is going to end up. Business is decent right now, as he said, it is not spectacular. We're looking to end the year on a pretty positive note. So hopefully going into next year it will get better.

Jim Boyle.

Wachovia Securities. Not to being a nit picker, but you said in the press release that you're poised to continue to outperform the industry. You had great rating books and you have got low single digit Q4 guidance. And the consensus by the Street for Q4 is a shade underneath 3 percent. Do we just not know the sector is much weaker than that, or are you just being really conservative?

We would say the sector is much -- I don't think there's any benefit for us to sort of go out on a limb on guidance. I was very pleased to see the other radio companies do well for Q3 and to give decent Q4 guidance. In fact I guess David Field talked about him seeing pricing increases going into '05. That is all good for all of us. We believe that our strategy will allow us to ultimately have -- to continue to have a superior growth rate. May -- it won't be quarter in and quarter out, but over the long haul I think it has proven that it works. And so we put guidance on the Street that gives you an idea of which direction we're going to be headed. And I think we have been good at sort of meeting or exceeding it.

I guess to comment more specifically on -- to your question, obviously consensus is put together by a bunch of folks who are sort of outside of the industry, if you will, in terms of the Wall Street analysts. And the performance this year has been one where people have pretty much taken their numbers down fairly consistently throughout the year. So even though there is a 3 percent number out the right now, that doesn't mean where that is where the quarter is going to end up. If history is any guide, I assume that numbers will continue to come down as they have all year. And so that is one point.

Secondly, we don't get forward pacings anymore as an industry, which we all think is a good thing. But we have historically tried to be pretty upfront and straightforward with the marketplace in terms of what we're seeing for our business. And we have also I think pretty consistently outperformed the industry. So maybe we're wrong. Maybe the Wall Street analysts are wrong. But that is sort of the current snapshots as we see it today.

Mary Catherine, if you can give us any feel for -- going into November at over 80 percent booked sounds pretty good. (technical difficulty) advertising rates these days compared to prior quarter or earlier in the year?

I think for us we are seeing some rate increases, but I believe that is a function of our ratings. And we have done quite a few annuals so far, and we have seen some decent rate increases there as well. But again it is a function of having a lot of markets where we've got some really decent -- some numbers, decent ratings.

Now you say on your annuals some decent increases. Can you quantify? Is that low single or mid single digits?

I couldn't quantify that. I have been on so many and we have talked about so many, there's no way I could compete that.

Ofer Aliacum (ph).

Ofer Aliacum stepping in for Jason. Just had three questions for you. I wondered if you can give us some color on the Philadelphia market, and competitive landscape, ratings, and Clear Channel (indiscernible) more impact on that market?

Number two, if you can remind us what your debt to trailing 12 months EBITDA is, and what your covenants can get you up to? And if you were going to do any kind of stock buy back, what would that limit be? And if you have changed your mind on that. And then I have another follow-up.

Philadelphia has been a challenging market for us. The beaver stations (ph) came in into a young end format and kind of shaved ratings off of us and one of the Clear Channel radio stations. They came in with a bang. And they actually went down significantly in the last rating books. But still more of the shares are being split there for our young end urban stations. Our modern rock station is doing fine. And then we've got our third signal that we're going to launch here in the quarters with a new to be determined format.

We believe that the addition of our third signal is actually going to turn -- help us turn the quarter in that market. And because we only have one urban station in that market, and Clear Channel has a five station cluster. So we need something to give us a little more girth there.

So clearly for us it has been a challenging market, but we think it is going to get better. And on the Clear Channel, less is more. I know they highlight their station, the BNSL or SNI, (indiscernible) the calls there as one of the stations -- the first stations they put less is more into action and got positive feedback. I hope that they are very successful in converting advertisers to less is more, because it only helps the industry.

I don't think that we have seen a major impact yet, because it is still new. Although I can tell you that advertisers are starting to talk about it. In fact I had one advertiser in Houston tell me that they were specifically going to start making more 30 second radio copy for '05, which means that they are going to be running more 30s, which means they probably intend to make a deal with Clear Channel. And so that was a good sign.

As for your other questions, and as we stated in our opening comments, we view stock buy backs as antigrowth. We have way too many growth opportunities, and so we are not going to be using shareholder capital today to do stock buy backs when we can put it to use in faster growing assets.

And in terms of leverage, I had mentioned that we are leveraged at about 3.9 times. Covenants is 5.5 times, so we've got some breathing room. Although actually your question is a good one, because it is something that I have been focused on. If we were to consider a stock buy back, which we are not, we would be extremely limited I think to the tune of like 10 million bucks or something crazy like that.

So this is a legacy bank deal that has been in place for about four or five years. And one of the things that we're going to focus on at some point in the next probably one or two quarters is putting in place a new bank deal that will give us a lot more flexibility and room for future growth.

One more follow-up. In terms of your revenue guidance, does the revenue guidance include your originally acquired station, Houston, Charlotte, Philadelphia?

Well Philadelphia it -- the answer is no. Although I'm not sure you will notice a difference either way. Because Philly we may not even generate revenue on in the fourth quarter. If we do it will be diminimus. Charlotte maybe a little bit. Houston maybe a little bit. But we will clarify that when we actually release our fourth quarter results. But it will be immaterial no matter how you look at it.

Paul Sweeney.

Sean Fell (ph) stepping in for Paul. Alfred, can you talk about Baltimore and Washington D.C. and how those markets are performing? I know they have been real strong markets -- they have been throughout the year.

Baltimore and Washington for most of year have actually been pretty strong markets. And I think because of all the Homeland Security money being spent, a lot of it is being spent in Washington and Baltimore, I think. I think the whole Sarbanes-Oxley effort has strengthened the region's economy. Because when you put these things in place there has to be people to execute them and deal with government, so the economies have been pretty strong. However, Washington as a market is definitely having a much weaker second half than they did in the first half. But I would say overall it is pretty healthy.

Did you want to --?

Those two markets were both positive -- low single digit positive in the third quarter, but nowhere near as strong as they were earlier in the year. Baltimore year-to-date and D.C. for that matter, are both up high single digits. But like I said in the third quarter they were only up low single digits. So yes, and it is hard to really know how they are facing for a fourth quarter at this point.

Victor Miller.

You talked about in your opening remarks how you saw -- you thought a buy back was wasted growth opportunity. Is there enough opportunities out there you think it is an accretive basis where not buying back your stock is not prudent? And you had about 9.7 percent -- well, on our basis of weighted ratings gains in the spring of 2004. How is that translating your marketplace, again, kind of going back to what Jim Boyle asked relative to what do you think the general market radio business looks like? Thanks.

Scott?

In terms of the stocks -- yes -- I think it will be the third time we have said it on this call. Yes, we believe that there are lots of acquisition opportunities that will be accretive. And we will be able to put a fair amount of our capital to work here over the next one to two years.

So in other words, at better valuations than the EBITDA multiples that you trade at right now currently as just plain old shares?

You know we end up buying a lot of sticks (ph) as well. And so there isn't an EBITDA multiple there. And I haven't seen a cash flow deal in a while that we were going to play for. We didn't play for the New Orleans and Memphis assets that Citadel bought.

So if Infiniti does in fact decide to spin off stuff, it will be interesting to see what those assets come out at. I can tell you that I think it is difficult and probably stupid for a public radio company to go out and pay 18 times when we're all trading at 13. And hopefully if somebody does something like that, the market will penalize them so nobody else will do it again. But you never know.

If somebody does something like that and the market doesn't do anything it is just going to sort of breed more people to go out and make acquisitions that are not accretive. At least when we look at it, we think, wow, investors really wouldn't like this. And if the stock goes down, than that sort of the opposite of what we're supposed to do and that is increase shareholder value. And all three of us are large shareholders in Radio One, so we really do care which way the stock goes.

But my sense is that I get a feeling that people will be more rational. The only people who are going to sell today are going to be motivated sellers. And if they are motivated -- they know that the business has changed and valuations have changed. And so if they decide to sell today then I think that they will -- they will sale at a market rate or a market multiple. But I could be wrong. I have heard about some assets out there that are coveted by some people that may go for some -- for a big multiple. It will be interesting to see how the market reacts if and when somebody does that.

Victor, would you repeat your ratings question?

Actually, this is Tracy Young (ph). He had to step away. He was just asking in terms -- we have on our rate of basis that you are up about 10 percent for the spring books. Just wondering how that can translate into rate?

Into rates?

Yes.

Rate going to rate (ph).

I think I talked about that a little bit already. And that is that it does and has translated into rate increases for us. Right now and as we also indicated on the annual set that are coming up in many of our markets. So it is a good thing.

Kit Spring.

First of all, Mary Catherine, what are your salespeople saying about the main objectives to price increases? Is it the economy or is it competition from cable or the Internet, or people aren't listening, or iPods or satellite -- what are you hearing? And then for Alfred or Scott, what is your Internet strategy? What are you thinking about and what might the potential size of an investment be there? Thanks.

We're going to launch websites for all of our stations, which is something that we haven't had before. So that would be the beginning of our Internet strategy. And then we're contemplating putting together a portal, if you will, an African-American focused portal that debt would -- these radio station sites will drive traffic to, and the radio stations will drive traffic to.

The size of investment at this point in time -- we're looking at sort of the way we have always kind of done things and tried to make -- find unique opportunities that don't cost a lot of money and create and grow them. So this is not an initiative where we're looking at putting 10, 15, $20 million into. We're still formulating what it is going to cost us. We actually have a budget for our -- and a game plan for our radio station websites, such that if we do our jobs and we're good at selling, those websites we're able to at least breakeven on them in the first year out.

So I don't want anybody to get scared about this Internet thinking that all of a sudden we're going to put $74 million into it like we did TV One. It is a considerably smaller investment profile than that.

I'm not scared. I love the Internet.

Yes, well. I don't -- because we're interested in it. We think that there is opportunity there. But we're not sold that it is an area where you don't need to be cautious yet. Where you just go in head first and you grab as much market share as possible, particularly in the space that we're looking at.

What we believe today is that you can build these businesses. These businesses are small today. Okay? The competitors out there Black Planet, (indiscernible).com. I guess Black Voice just went to AOL. They have revenue. And some of them many millions of dollars of revenue, but nobody is making any real -- nobody is making a lot of money. Some people are making a little bit of money. We believe that will grow. And we also believe that some companies, we believe that we can be that company, can ultimately dominate that over the next five years. And so does that mean that this could be a 50, 60, 70, 80, $100 million business in five years if you have the dominant share of this particular audience on the Internet? Yes, we believe that.

But that doesn't necessitate again an investment of tens of millions of dollars today. You to be cautious, because it is not moving that fast for African-American targeted content on the net.

The question about salespeople and the reasons for business not being as robust as we would like it to be. All of those reasons are reasons that we hear from our sellers and a myriad of others about why business is not better. But I think one thing in this Company that we have gotten really good at is sales training, and also overcoming objections. Because we do specialize in a format where we have had to do that for many years. And at this point it is something I think that we excel in, and we're probably the very best at. Plus that also -- one of the fun parts of sales is to change somebody's mind and get them on the radio station.

I think you mentioned this, before but just to clarify, have you seen any difference in your business kind of before and after the election?

No, I don't think so, not really.

Jonathan Jacoby.

Banc of America Securities. Just a follow-up on the less is more. Can you give us some color -- you compete with Clear Channel in almost every market that you're in. What you are intending to do -- this big roll out, sort of an inventory reduction program. Maybe you can remind us where you are in units versus sort of where Clear Channel is going?

And then secondly, you may have said this and I apologize, but does the guidance include the four stations in terms of Philly, North Carolina, Atlanta and Houston for the fourth quarter?

Yes, let me actually clarify. Yes, we have been asked that question. The three new stations to the portfolio are Charlotte, Houston and Philadelphia. They will not have much revenue at all in the fourth quarter. The guidance doesn't include them, but it wouldn't matter one way or another. Atlanta, we have been LM mained (ph), and so it will be part of the same station calculation because it was in the numbers last year.

As far as less is more, it is not actually a reduction in units, it is a redistribution of units. And I believe what they're planning to do (indiscernible). We actually have been doing research with our in-house research department division, and we don't see a problem with any of our markets as far as running spot loads that are too heavy. It is something that we have focused on a lot.

We did have a situation in one of our markets where we were probably a little bit too top-heavy. But that was the result of when we bought the station from another company the spot load was atrocious. And it took us several years to ramp it down. Because you can't just go from 23 units an hour down to 12 or 14. So it took -- and we planned this, it took us a period of about three years, and I think we're there now. So I don't see that we have any major problems with our spot loads. And our general managers are really great about adhering to what the rules are.

Just a follow-up. The (indiscernible) sort of 25 54 is probably your weakest book in the last -- I don't know maybe four, maybe even eight books. Is it just an anomaly or is it something -- you did a little less promotion?

I don't have that number, but I've got all the markets in front of me, and we were thrilled with our ratings. Ratings are weird. You can actually go down in share and go up in rank. So there are a lot of different factors to look at when you're looking at these numbers. I can just tell you that we were really thrilled with our ratings -- 18 34, 12 plus and 25 54 in the majority of our markets.

Spencer Wang.

J.P. Morgan. Just to go back to the fourth quarter outlook, Scott, you have been generally outperforming your markets for a while now. Do you think you'll continue to do that in the fourth quarter, and how big would the -- do you the difference will be? And then secondly on TV One, can you just tell us how many subs you have? What types of affiliate rates you guys are looking for, and if there's any free carriage period?

Actually we are currently at about 5 million subs. The rate card is, call it starting off at about a dime, just on average. And yes, some operators want fee carriage for one year or two years, three years depending on how many subs they give us. Some operators want to pay a rate from the very beginning, because accounting is going to make them sort of take some sort of charge and amortize it over the life of the contract anyway.

But what it ultimately all comes down to is what we call a net effect of rate over a period of the contract, and the contracts are generally about ten years. And that net effective rate ends up being about a nickel on average. But everybody, this is not a free service. And people are going to carry it because they know that the market is under served and the network looks great. People love it. We're getting great response from it. We've got good people working for us. So we feel more confident today than ever that it will be a huge success.

So to your first question, we outperformed in the third quarter by about 500 basis points. Looking at the most recent month for which we have data, we outperformed by about 430 basis points. So pretty consistent. I meant it obviously moves around a little bit. And we have always said that our goals outperformed by a couple to several hundred basis points. So I haven't seen the October numbers from the industry. I know what we did. And so time will tell, but our goal continues to be to outperform by a couple, several hundred basis points.

Lorraine Mancini.

Merrill Lynch. Two questions. First, we have recently heard that BET is looking to start -- that Viacom is starting -- looking to start to invest a little bit more in BET. Do you think they become a tougher competitor if they do that.

And then the second question is, I'm interpreting what you're saying about the fourth quarter that each month looks pretty similar and in line with your low single digit guidance. While some of your peers have said December is significantly weaker. Are you seeing a different trend there?

Interesting. Right now December of the three is probably the softest. And I don't know how to think about that. I wouldn't say significantly weaker. I certinaly wouldn't say that, but I am also thinking that the -- the numbers are close to close enough for the three months that who knows what happens between now and the end of November? And obviously November benefited a little it bit from political -- a political surge there at the end. And who knows if December will weaken or strengthen from here? But for the most part as far as our quarter, yes, I would say December is the weakest of the three. But there is not a significant enough difference for me to really be overly concerned or to overly focus on that particular month.

What was your other question?

Viacom is --.

BET. Will they be a tougher competitor? I mean if they improve or spend more money in in programming, and they get better and they get higher ratings, that means they will charge more money. And I believe -- so them getting better is actually -- I think at this stage of the market just sort of a nonevent, meaning that the market is so under served that I don't believe that BET is actually going to feel our presence. I don't believe that they will go in into a year and in their negotiations with advertisers ever have to go, oh, we lost money to TV One. Because there is only one network with 13 percent of the U.S. population. So I don't think they will even feel us.

So consequently as they get better I don't think people are not going to give us money because they have gotten better. You can't be all things to all people. And I don't think they're going to walk away from their core 18 to 34, 12 to 34 audience just because we happen to be super serving a 25 plus audience. And so I think that we will happily (indiscernible) this we will each make a lot of money. And we will expand the pie.

And that has been our experience in radio. That you can -- particularly in the early days when the market is not over saturated that two urban radio stations competing can expand the pie. Now there is a point of diminishing return where somebody gets hurt, but we are certainly not there in the black cable network business.

David Dank.

RBC Capital Markets. Sorry, Scott, I just didn't write something down quick enough for stuff, which is you said national for your markets versus the overall market, I think you said -- your markets were down like 9 percent. What were you guys national for the quarter?

We were down four.

Down four, okay. And the rating strength you have been throwing out, these aren't summer book, are they all summer book that you're talking about?

Yes.

Yes.

Okay, and I'm sorry, so overall in the target demos, did you say ratings were up about 10 percent? Did I hear that right?

No, someone else said that.

Okay. Did you say anything like that?

No, we didn't give you a number. (multiple speakers).

Just sort of generally positive?

Yes.

And one last question, which is do you get the sense that you are competing with Clear Channel in the -- for these annual dollars right now that people are talking about, do you think that advertisers are buying around Clear Channel at all?

No. Well, first of all I don't a think Clear Channel is saying if you don't buy 30s, we won't sell you 60s. I think they're trying to position it such that it is in the advertisers' best interest to buy 30s.

They are probably a lot of markets where you can't buying around Clear Channel. You can't shut them out altogether. They own 5 FMs in most of these markets and 2 to 3 AMs. And, yes, probably at least -- at the very least two other stations in that market, if not more, are going to be very strong from a ratings perspective. So I don't think it is possible to shut them out.

In fact, we were talking about it earlier today amongst we on the budget meeting. And if they stick to their guns, they have the ability to really change the industry. Because an advertiser really can't -- they can buy around them for long. They can certainly shut them out for a buy or two buys, but it is not in their client's best interest not to use any -- to shut Clear Channel out altogether, because they've got great radio stations with big audience shares and key demos.

Bob Dunn.

SAM Investments. What are your thoughts in dealing with your 6.5 percent preferred? It has got a remarketing feature next summer? I am just kind of thinking how you guys are going to deal with that?

We're focused on trying to do what is in our and our shareholders best interest. Earlier this year when the stock was around 20 we thought we might have an opportunity to convert it to common. Obviously that opportunity no longer exists with the stock down in the mid 14s. Clearly we could refinance it with debt, either a new bank facility or a high yield, or some combination thereof. Clearly we could go out and do a new preferred offering to take it out, or some commendation thereof. So we're looking at all of our options. And we will do something at some point probably in the next one to two quarters.

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