Urban One Inc (UONEK) 2007 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Radio One second-quarter results conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time. (OPERATOR INSTRUCTIONS) As a reminder, this call is being recorded.

I would now like to turn the conference over to your host, Mr. Alfred Liggins. Please go ahead.

Thank you much, operator, and thank you, everybody, for joining us for our second-quarter results conference call. Joining me today, as usual, is our EVP and Chief Financial Officer, Scott Royster. And also, our Chief Administrative Officer, Linda Vilardo, is here.

With that, I'll turn it over to Scott for a disclaimer, and he can dive into the numbers and then we can go to questions.

Thank you, Alfred. Good morning, everyone. This conference call includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.

Because these statements apply to future events, they are subject to risks and uncertainties that could cause actual results to differ materially, including the absence of a combined operating history with an acquired company or radio station, and the potential inability to integrate acquired businesses; the 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 Forms 10-K and 10-Q and other filings with the Securities and Exchange Commission.

For the second quarter of 2007, Radio One reported mixed results. While there was not much to be happy about, the news is not all bad. Certainly, the radio industry had a tough quarter, and certainly our station in Los Angeles continues to be a drag on our overall results. And while our stations in markets such as Philadelphia, Detroit, and Charlotte are performing below expectations, there are reasons to be more encouraged about the future.

Overall, when you effectively back out the performance of our L.A. station, the Company underperformed the industry by only 50 basis points. Focusing on local revenue, a similar snapshot has the Company outperforming the industry by 40 basis points.

Significant and important management hires over the past year in the areas of operations and programming have greatly enhanced the talent and breadth of the leadership of the Company. This year, noncore asset sales have been announced to the tune of greater than $100 million, and the proceeds from these sales, which we should receive well before year-end, will be used to reduce the Company's leverage significantly.

The Company is working diligently with its very supportive bank group to determine the best long-term solution to various covenant issues we are facing due to our recent performance.

Q3 is looking modestly better than Q2, and we are hopeful that it will actually end better than Q2. TV One continues to perform exceptionally well, and Giant Magazine is off to a good start. Please pick up the latest issue, now available on newsstands nationwide.

Lastly, our long-promised Internet strategy is well on its way to becoming an exciting business model, which we look forward to discussing with you as that team is assembled and the execution phase develops.

Now on to the numbers. On a consolidated basis, net revenue came in at $86.1 million, down 6% from the second quarter of 2006. A little more than half of this decline was due to the decline in L.A. Roughly one-third of this decline was due to a 2.2% decline in industry revenue in our markets. And, as outlined above, several other markets underperformed the industry. Pockets of strength included Atlanta, Cincinnati, and Dallas.

Total spots sold in the quarter increased by 11%, while the average unit rate fell by 14%, as pricing challenges remained prevalent in the industry. Healthcare and financial were the two strongest categories, while auto, entertainment, and travel were some of the weakest.

The variability of growth/contraction in the radio industry was a fairly narrow one in Q2. For the industry, the worst-performing market of all the markets in which we operate was down 9%, while the best-performing market was up just over 8%. While that may sound like a pretty wide spread, most markets were up or down between 0 and 4%. Overall, national was down 3.7% in our markets, while local was down 3.1%.

For the quarter, station operating income was $38.5 million, a decrease of 14% from 2006. Adjusted EBITDA was $29.5 million, a decrease of 20% from 2006. However, these declines are a bit deceiving, as there is a fair amount of noise in the expense numbers in Q2. In fact, beyond the headline numbers, operating expenses, exclusive of non-cash charges, were up only 4.8%. Backing out the expenses from Giant Magazine, they were up 2.1%. And further backing out expenses associated our stock option investigation, they were up 1.1% over last year.

Going forward, there will continue to be a tension between managing expenses in a difficult revenue environment and investing in the future of the Company. But we are highly mindful of the need to control costs and adequately balancing the needs of the enterprise.

Another item I would like to point out, on the income statement, you will note a $3.3 million allocation of loss from TV One on the equity and loss of affiliated company line. This is higher than you have seen recently due solely to an accounting requirement associated with how losses at TV One are allocated after their accumulated accounting losses have become greater than the amount of capital invested into the Company, which happened earlier this year.

That said, rest assured that TV One is well on its way to cash flow breakeven, potentially before the end of this year, and it is likely that they will not require any additional capital from the investor group, even though they have only drawn down just over $100 million of the $130 million committed by the investors. This is a significant milestone, and we are extremely pleased by all that we are seeing at TV One.

This loss allocation methodology will continue until such time as they show an accounting profit; and in fact will reverse itself in our favor for a while after they do so.

Lastly, net loss applicable to common shareholders was $0.08 a share, driven by lower core profitability and exacerbated by a $15.9 million valuation write-down of certain of our radio stations.

For the quarter, capital expenditures were approximately $2.5 million versus $3.8 million last year. And as of June 30, 2007, we had debt net of cash balances of approximately $912 million, and our leverage ratio for bank covenant purposes was approximately 7.25 times.

With that, we would like to turn the call over to the audience for questions.

(OPERATOR INSTRUCTIONS) James Dix.

A couple questions. I guess first, just if you could give a little more color as to where you stand now with your station in L.A. after the Spring book. What are your audience share expectations for the fall? What are you telling advertisers? And what type of revenue traction are you seeing with that station?

Secondly, if you could give a little color as to where you stand in your negotiations with your banks, how the covenants under your current agreement step down versus that 7.25% -- 7.25 leverage that you had at June?

And then, I guess finally, where do you stand with station sales at this point? Are you pretty much done for the near-term? That's it.

Los Angeles, California, we have seen I would call modest ratings growth from its low -- I guess you could if you call 40% modest; we had about a 1 share 12 plus; we're at about a 1.4, 1.5 at this point in time. We're seeing better growth in the key 25-to-54 demographic, and so we feel like we're making -- we think we're making modest, steady progress, and it is shown in the numbers.

We expect sometime in the fourth quarter -- don't know exactly which month -- that we will start to see year-over-year growth. We will lap the real big downdrafts that we've had and start to see year-over-year growth.

And we are going to continue to market the radio station in a consistent fashion. We think the product is right. There are some areas that we can tweak, but we feel really, really good about the product, feel really good about the management staff there.

I guess the biggest issue in L.A. is that is just a lot of radio stations in the urban format. And I think what it is ultimately going to come down to is somebody is going to have to leave. Somebody's got to go away. And that's going to mean that there is going to be a battle that is going to rage for a significant period of time until there's less competitors.

This is the format that we do. We are an African-American targeted broadcaster, an urban targeted Company and specialist in this area. So for us, there really are not any other choices. We're not going Spanish. We're not going general market. We're just going to figure out what the most appropriate strategy is to continue gaining market share.

And it could be a long, drawn out battle, or we could extend our lead and start to really top the competitors, as we have in a number of markets. But we're fighting the good fight, and like I said, I think that we're going to see year-over-year growth starting in the fourth quarter.

Asset sales, I think the big asset sales are done. There may be some nits and nats here and there, but we committed to, when we announced asset sales, somewhere between $100 million and $200 million. I think we're clocking in in the 130s.

Inclusive of Boston from last year.

Inclusive of Boston from last year. When I say nits and nats, we still have a Boston A.M. that is for sale that we have not moved yet. And so for right now, we are sitting where we wanted to be in order to refocus our energies, if you will. So we are -- we think we did a good job there, got some fair prices, and I think that's it.

The last question James had was relative to covenants. James, I think the way you should think about our existing bank deal is there will be covenant constraints on us, given the existing covenants and the stepdowns. And so we are sort of viewing our waiver, which runs through September 15, as a date by which we would like to put something new in place. That either means a new facility or it means a significant amendment to our existing facility, such that we can restructure the covenants to take into account the reality of the environment that we're in today.

We have had numerous meetings with banks in and out of our bank group. And while the debt markets, particularly on institutional side, are constrained right now, the pro rata market, the bank market, the traditional commercial bank market is still healthy. We have very strong existing long-term relationships with most of the banks in our bank group. And so we will be, over the next 45 days or so, working diligently to address these covenant issues in some way.

We have not exactly determined what way that is going to be yet, but we feel highly confident that we will be able to do something to address these issues in the not too distant future.

Okay, just one thing. Where does your current cost of debt stand during this waiver period?

Actually, the pricing has not changed. We obviously -- given that we are higher up on the pricing grid, there was another 25 basis points tacked on, so I think we're at LIBOR plus 225 now at this leverage level on the senior debt. But of course more than half of our balance sheet is actually fixed through the 8 7/8s and 6 3/8s high-yield bonds, as well as through some swaps that we entered into several years ago.

So we actually do not think that there will necessarily be a fundamental repricing of the pricing grid that we currently have, other than obviously the higher your leverage goes, the higher your incremental rate. But there should not otherwise be a fundamental repricing.

Okay, great. Thanks very much.

Victor Miller, Bear, Stearns.

First, you talked about maybe having too many radio stations in the L.A. market. Alfred, at what point do you actually entertain the thought of exiting that market as a person that just owns one station there?

Two, in the numbers you discussed with analysts a couple years ago in terms of TV One, what is the increase you expect in cable fees between '06 and '08? Because you just see what the valuations of TV stocks have done with retrans, and sub fees are essentially your retransmission consent angle?

Lastly, the Philadelphia and Houston market, maybe you want to just talk about PPM and the impact on the urban ratings and how you will deal with that in terms of selling those rating points. Thanks.

Yes, in terms of exiting Los Angeles, Los Angeles is the best radio market in the country. It has got more money in it. And right now, the only thing that we're focused on is getting our position back to a respectable level. So selling that radio station has not even sort of entered the conversation. The conversation is, how do we get our revenue share back and our cash flow back.

So we made an announcement on asset sales, and we were ultimately kind of a little bit agnostic about how we got to our number, provided we did it in a manner that shed call it nonstrategic assets. And we did that. And so, as I said in my earlier comments to the previous question, we feel like we've done what we told the market we were going to do. And now, it's back to improving our business, which actually includes making L.A. better.

Who knows? Over time, we may -- the answer to the problem may not be us getting out of L.A., but getting bigger in Los Angeles, so we can rationalize the competitive situation.

PPM in Houston and Philadelphia, in Houston we do not really have any competition there. I don't want to say we don't have any competition -- Univision has a hip-hop station there. But for the most part, we're the dominant urban broadcaster there, with three radio stations, and it is a big market for us. And PPM is showing that we -- our adult station is showing ratings that are lower than the diary method did. So we are working through that. We're not sure exactly why that is.

The methodology for the panel in Houston is different than the methodology in Philadelphia, and we do not believe there should be the kind of wild swings that are happening. Because some months, we are sixth 25-to-54 and some months we're second 25-to-54. So I agree with Bob Neil that Arbitron has a long way to go in terms of refining and making PPM a better tool.

But as we sit today, that business is doing decent. We changed our Hispanic radio station to gospel and we have doubled the ratings on it. Instead of -- in fact, I think this year we're going to be $800,000. My general manager there is saying that he thinks we're going to be up over $800,000 from last year, and we changed the format just a year ago. And we are actually going to have cash flow on that radio station this year.

Philadelphia, the PPM scenario for us is also going to be a bit different. In that market, it shows the number one urban station, WDAS, still at number 2, and it has not taken that much of a hit, which is ironic to Houston. So who knows why Philadelphia is different, and what you can point at is the difference in the methodology. But what it is also showing is it is showing our hip-hop station really more neck-and-neck and much, much, much, more competitive with the Clear Channel hip-hop station. So that is going to bode well for the particular station in that market.

PPM generally probably is not going to be as favorable to the incumbent or the heritage urban radio station. But net-net, PPM is showing formats with long TSL and loyalty like urban and Hispanic today with lower audiences, and I just do not know why that is. It is also showing sort of soft elevator music ACs, like Jerry Lee's station, WBEB in Philadelphia, as number three and number four, 18-to-34 in the market. And we know that is not the case.

So just because somebody happens to walk by a store that has got WBEB on and the monitor picks it up, does not mean that that 18-year-old is sitting there listening to the commercials and responding to WBEB. But that is what PPM is ranking them, as number three and number, 18-to-34. It makes zero sense.

So the unfortunate part about PPM is that Arbitron -- I believe we have to move to electronic measurement. I want it to be right. But Arbitron is charging the industry a ton more money for a product that is not perfected yet in a time when radio revenues are challenged as it is. So we've got to work -- we have to work through it.

And there was one other question. Cable fees. You know what? When we sign up distributors to carry TV One, our rate card is locked in. It increases, call it, $0.01 a year. It runs from, call it, $0.10 up to almost $0.20 over a ten-year period. So that's sort of a fait accompli. It does not really matter what the market does in terms of strength or weakness. You are kind of locked in, and we have ten-year deals. Fortunately, a stable revenue stream. But the thing that is going to be more variable is the strength and/or weakness of the cable ad market, which this year is having a pretty strong year.

You know, TV One was a really good thing that we did. It will go cash flow positive in '08, probably break even by the end of the year. It will be a great business for us and a good asset, and a really good hedge against a 100% advertiser-supported business like radio.

Did I answer all your questions?

I think you did. Operator, next question.

Marci Ryvicker, Wachovia Securities.

Scott, you said Q3 is doing better than Q2. Can you give us any more color, like in terms of pacing data?

Secondly, Alfred, you say in the press release that significant hurdles remain in the near-term. Are you referring solely to L.A. or are there other issues out there, either for the industry or for Radio One specifically?

Well, PPM is a hurdle for, I think, the industry and for Radio One, for urban and Hispanic radio. We've got to figure that out. I just fundamentally find it difficult to believe that all of a sudden Arbitron says that the diary method was completely erroneous, and the stations that did well under the diary methods are performing radically different under PPM.

Case in point, there is no way that WBEB in Philadelphia is a top four 18-to-34 station. It is just not. And so I think that is a challenge for the industry and a challenge for us.

This performance royalty issue for the industry, I think is a huge, huge, huge issue. And I am really sort of on edge about how that is going to play out. Because I am reading "Inside Radio" and the FCC has got some report that says ad rates have doubled since the 1996 Telecom Bill. And all I know is our CFO just printed out how many spots we sold this quarter versus last quarter; we sold more spots for less money. So I don't know where they're saying that ad rates are getting stronger and the rate card's up. So their information is just really, really, really bad.

And the other thing that bothers me is the FCC and Congress is all over free radio about supporting artists, doing this and doing that. And they are really stringent and focused on sort of payola and pay-for-play. But in the end, if they tax the same people that they want to support free over the air broadcasting and free promotion and support of the artist community, all they do is make it more difficult for us to survive.

It seems like if they are going to do that, then they should free us up to run these as commercial enterprises, as opposed to stewards of the public service. Meaning, why shouldn't we be able to charge for shelf space, just like Wal-Mart does, particularly if we're going to have to pay additional dollars? Because we already pay ASCAP and BMI, for the writers, to play the music. So that is of great concern.

I think that less is more has proven to have the opposite effect on pricing. Because there's more units on the street that are getting sold for less money, and that is just a fact. You can ask any other CEO in the industry. And we have got to figure out how to correct those challenges.

We, on the other hand, have chosen to solve some of our problems by diversifying our Company and becoming more of an urban media company, because it will take time to work some of these big issues for the industry.

Obviously, we have not provided guidance, but I will not be completely silent on you. X L.A., we are pacing down in the low single digits for the third quarter. We are actually forecasting to be better than that. So if we are accurate in how we're seeing the business environment -- we talked about later booking, which has been the case for a long time, but we're seeing it more and more than we ever have recently -- then it could be, again, a better quarter than in the second quarter.

And then if you sort of break apart the pieces, which we tend not to do as much, but for whatever is worth, REACH Media is having a great quarter, up double digits. And our magazine business is going to post some strong numbers for the third quarter relative to the second quarter. So that's what we meant by sort of modest sequential improvement.

Great. Thank you so much.

Bishop Cheen, Wachovia.

Let me ask one big picture and one housekeeping. Big picture, you talked about diversification in your release -- it was the third paragraph -- and you just mentioned it again. Do you have a goal in mind for the diversification mix, the contribution to your economics? And I realize it can be opportunistic, based on what you see out there that you may want to acquire. But based on all the tools you have now.

Yes, the problem is that we do so much. We are a radio company, so creating hundreds of millions of dollars of revenue in other areas does not happen overnight unless you have a big acquisition. But what would I like to see? I'd like to see half of our ultimate revenue stream be terrestrial radio and half the other stuff, cable, online. I look at our print business really as an extension of our online business. But I'd like to see half of our business be radio and half be cable and online over time --.

Time measured in years? Three to five years?

Put this way, yes, I would say that it would probably take us five years to do that.

Then to be clear on that, obviously, TV One is not currently consolidated. So when Alfred says that, he is sort of thinking about the revenue base for TV One, which eventually might be consolidated into our financial results, depending on the ultimate ownership structure of that business.

Understood, okay. Let me go to a couple of housekeeping things. You have still some divestitures and acquisitions pending. The 7.25 bank definition bogey of where your leverage is now. How much does that change pro forma for all the stuff yet to be completed, divestitures and acquisitions?

That is a more complicated question than it may sound, because obviously there is the core performance of the business and whatever the EBITDA is going to be going forward. There is the timing of when these various deals close. Then there is what we do with the cash.

But at the end of the day, if $104 million of divestiture is closing before the end of the year, depending on how much debt we pay down, just sort of based on today's LTM EBITDA, it would take leverage down by, call it, 0.7 times.

Right. That is what I thought. Something around there.

But again, that is not what the reality is going to look like when we ultimately do close the deal, because the EBITDA will be different. Whether or not we take 100% of the proceeds and use it to pay down debt or some very high percentage of that has not yet been determined. But that should give you a ballpark sense.

Yes, it does. And WPRS -- I think those are the calls now -- DC, when you complete that acquisition, how much is that?

That acquisition is $38 million and we have to the end of first quarter '08 to close.

Okay. That is the end of my Grand Inquisition. Thank you.

Kit Spring, Stifle.

Scott, do you have the restated quarters available for the divestitures? Is that final somewhere?

Once the deals close -- I understand where your question is coming from -- we will provide that information so that people can do their year-over-year analysis X the stations that are being sold.

Okay. Can you talk about your appetite for buying TV One, whether that might be possible ahead of your specified time at which you actually have the option?

We have options to take out the financial investors, the venture capitalists that are in there that own, call it, 20% of the Company, that option comes up in about 18 months. And so my sense is that it will run the entire 18 months.

That is really the only near-term option that we have. The other partners that will be left are distribution partners, which, you know, are important partners for you to continue to have. So the only thing that we are really focused on in the near-term is the financial investors.

Are there any other major opportunities in the urban media space that you see on the horizon?

Just like TV One, I spent a lot of time and thought putting together a plan that we felt would make us successful and create shareholder value in the cable business, and we're doing the same thing with our online activities. I feel really strongly that we're going to have a really good game plan there. So yes, I think that is really the biggest opportunity.

One of the things that is also dragging the Company down, it's not helping us, we have not ramped up our Internet efforts at the level that Cox and the other companies have. And the reason is is because we've been focusing on this bigger plan. I did not want to just have good radio websites. I want to have an entire Black-focused online strategy that is really sort of global in nature. So it has retarded the investment and the energy and time we have put into our own radio websites.

That is all going to change. Once we start to execute on our Internet strategy, it is going to turbocharge our radio sites. And I think that they will be exceptionally robust and best-in-class. And we are probably today leaving 5, 6, or $7 million a year of revenue on the table by not having focused on them.

We hired a gentleman by the name of [Tom Newman] to head up our interactive efforts. And he came out of AOL, smart guy that I have known for a very long time. And we are confident that we're going to do some really cool things that people are going to like and we're going to make money at it.

And I have been talking about it a long time. It just takes -- you just don't jump into this. I did not want to jump into stuff, start doing things, following a wrong strategy, spend a bunch of money, and then have to restart. You know, when we press the button on this, it is going to be right.

Okay. Then any update on Tom Joyner, how you think that acquisition has gone, where his ratings are, number of stations, that kind of thing?

I think the affiliate list is still fairly stable at about 120. Scott mentioned that the business region is doing well. Ratings -- his overall nationwide ratings are stable. In some markets, where he is competing with Steve Harvey, Harvey has gained a lot of traction. Unfortunately, Joyner is not doing as well in the markets that we took him off of and put him on our stations, where he had been on the heritage urban station and we put them on our stations. But that is a defined set of markets and it is not a lot of them.

But net-net, I think that business is doing well and we also plan to grow that business, because that will be the mechanism that we will use to syndicate some of our other properties that we have, like Yolanda Adams, and now Rickey Smiley, who is on our Dallas station and we plan to syndicate; we've got a number of other properties. So we're hopeful that we can grow reach more into a network as opposed to just a Tom Joyner company.

Okay, thank you.

Eileen Furukawa, Citigroup.

Since you have been at the center of buying and selling radio assets lately, can you just give us some color where you see private market multiples on radio stations these days? Also, have you seen them contract over the time period you have been trying to sell your stations?

And then also, when we first saw the ratings drop in L.A. about a year ago, you spoke about lowering your cost structure there, and that if you got to a 2.5 share, you could actually get to the same cash flow that you had pre Steve Harvey on the air, when he was on the air. I was just wondering does the math still work or with more competition do you have to increase spend (inaudible) a higher share? And do you still think that is a realistic goal to get back there?

That is all still true. I think if we get back to a 2.5 share, 12 plus, we can make the same amount of money that we did when we had a 3.3 share or 3 share, and we had the expense of Harvey. So I don't think that has changed, but the question is can we get to that 2.5 given the current competitive landscape. We are going to have to take it from somebody.

So I think that that battle -- put it this way, it has already gotten ugly for us. Cash flow has gone from high teens to 0. So we have taken all of our pain, all of our medicine. It can only get better from here, which means it is going to get worse for others in that market. So once it starts to get worse for others in that market, we will see how much tolerance everybody has.

All I know for sure is that we're not going anywhere. And it could be long and ugly, but it is what it is. We did not cause the competition. I would say that the other competitors in the market have been the irrational competitors, but that this market is just not big enough for everybody to survive.

Multiples. You know what? We just sold our stuff. There was a range. Minneapolis was high teens. Dayton and Louisville were sort of, call it, 12ish. So I kind of think today -- and I guess Cumulus just went private at 12 or 13ish. So I think 12 or 13 is kind of the average of what private multiples are today. And depending on -- it always depends on who wants a property and how bad they want it. But net-net, I think sort of cash flow multiples are probably in that 12, 13 range.

Then just a quick housekeeping. You talked about pacing without L.A., but what are you pacing with L.A. right now?

Down mid singles.

Okay. Thanks a lot.

Jonathan Jacoby, Banc of America.

Just a few questions, and some of them are not even company-specific. But it seems like yourself and others were in another quarter -- and it is almost -- I don't want to say a death spiral -- but it is clearly not encouraging -- of increasing units and decreasing sort of price per unit. What is it going to take to sort of get a pullback in inventory? How do we get some inventory management back in the system?

Then I was wondering in Los Angeles, as you look out, it clearly sounds like no pickup in the near-term. But perhaps as you look later in the year, is there anything from the revenue side that you find encouraging? Thanks.

Well, put it this way -- our ratings in Los Angeles are up. They are up significantly. The station was down as low as a 1 share, and they are up significantly in a more attractive demographic. So we are seeing more advertisers coming back to the station, different advertisers, adult advertisers, people getting really good response from it. And we are also starting to see higher rates than we have had there. So it is encouraging.

I'm just saying that for our goal, to get back to a 2.5 share 12 plus, somebody has got to either lose really badly or go away. So that's -- I am very encouraged by the progress that we're making. Because, like I said, we already took our medicine, we went from high teens to 0. So now we're coming back; we have capable leadership there.

There was -- the other question. Oh, [units]. You know what? I am focused on diversifying our Company because I cannot control our competitors. You can't control the marketplace.

You're saying that each operator -- it seems like some --

You know what? Put it this way -- well, first of all you cannot collude. That is illegal. And if you cannot control your competitors, when Clear Channel went out with their " Less Is More," we all said -- I think all the other radio companies said, you know what? Okay, you are going to have less time, less actual commercial minutes, and the entire idea was to get prices up.

So I think we were all very positive, let's wait and see. And we didn't say anything neg -- were actually really encouraged by it. But what has actually happened is that advertisers are going, "Great. I can buy a 30-second spot for 65% of a 60-second spot. I've bought radio in Los Angeles. I have now bought radio in Philadelphia and Detroit. I am done."

So what's it ultimately had the effect on is putting more actual units out on the street -- even though there's less minutes, there's actually more commercial units, and it has hurt prices. And I don't run Clear Channel. I cannot go over there and say hold your rate. I don't run CBS. I don't run Cox. I don't run EMMIS.

So when you say what can we do, I don't know what we can do. I don't know at all. Particularly if you add the fact that you've got $20 billion of online revenue out there. So you have advertisers already sort of looking seriously at other alternatives and shifting dollars that way.

What I do think is positive for the radio business, though, I do think there is a huge advantage that radio advertisers -- excuse me -- radio companies have with their existing audiences in driving online traffic to their website and developing businesses off of those websites. Because now, one of the disadvantages radio has generally had is they did not have sight and motion. They only had sound.

Now they have a medium that allows them to have sight and sound and motion. And so as we develop our online strategies and our websites, we can become sort of more useful and important to advertisers. That is going to take time, but the point is at least now we've got something that can also put us on more equal footing with some of the other mediums.

Thank you.

Laraine Mancini, Merrill Lynch.

A couple questions. What has the advertiser reaction been to the lower PPM ratings in Houston and Philadelphia? Are they pushing for a full cut in rate equivalent to what they're seeing in ratings, or are they just taking a modest cut? And if you get this fixed with Arbitron, will the advertisers come back with the old rate?

Second, do you expect to benefit from political in the fourth quarter, as so many primaries have moved up to February?

Finally, some of your (technical difficulty) talked about Web revenue now being over 1% of total revenue and that the growth is in the 20 to 30% range. What are you seeing now?

Do you want to do PPM rates first?

Yes, I mean PPM rates. One, I think that if Arbitron ultimately figures out sort of the system and the inconsistencies, will advertisers certainly react to that. Yes, I think answer is yes. Advertisers are doing what they think is their job and they are negotiators, so they want to try to get more for less. Radio stations have to decide whether or not they're going to cave to that.

Fortunately for us, we operate in a number of markets where we've got some very strong positions and we have the ability to probably take a tougher rate stance. But it is a challenge and it is a negotiation and we have been doing that. You know, quite frankly, in Houston, Texas we really own the African-American marketplace there. And so if people want to address this 17 or 18% of that market that is Black, they should do business with us and have value for our consumer. And if in fact that means that they are paying a higher cost per point, then it is still probably the right investment for them to make.

And we have got to sell through that and sell that home. Because ultimately you're not just selling cost per point or -- rating points; you should be selling results. And if you do not address the market at all, then you're limiting the kind of results that you can get for your clients. But right now, they are using it to beat folks up and I just don't know how it is all going to play out. But we -- it is one of the industry challenges that I laid out earlier.

There was another question there.

With regard to Internet, recent performance, about 2% of revenue grow and [15%] a year.

And political?

You know what? I think we're going to benefit, obviously, because this race is going to really pivot on the Black vote. I just can't tell you what the magnitude is. It is going to be better than it has been in the past.

One follow-up on rate. Is there a way for you to contrast what you've seen in terms of your rates in the PPM markets versus the overall portfolio? Is the rate down more or is it consistent?

Literally, PPM is not even six months old yet, so the answer is no. I would not make a statement that would sort of infer some sort of trend with the limited amount of data that I have today. I've got an e-mail from my Houston GM that has got four clients that we've had challenges with. And there's a lot more than four clients on our radio station there. So I just don't know how it is ultimately going to play out.

Thank you.

John Blackledge, JPMorgan.

Just wondering on TV One, current number of subs, expectations for year-end subs, then sub growth over the next few years.

Also, just the mix of subscriber revenues and advertising revenues currently at TV One. And do you have the first right of refusal for the equity stakes from the financial owners right now?

Then just wondering when you're going to ultimately press the button on your Internet strategy. Thanks.

What was your last question on the Internet strategy?

Just when are you going to press the button, so to speak --.

Press the button, yes. TV One, we are about 40 million subs now. It all depends on -- there are two big distributors that we do not have deals with, and that is EchoStar and Cablevision -- and we are working on them. And it's all going to depend on when those guys decide to join the rest of the industry and support the fast-growing cable network in America last year. We have had good discussions with them, but they are notoriously tough distributors in terms of adding new services. But we think we're got a great proposition, and ultimately we will make a deal with them. Once we make a deal with those guys, then that is when it becomes a 50 million sub network.

The Internet strategy, all I can tell you is that we are deep into it, don't know when I'm going to push the button. Put it this way, the button has already been pushed, okay? I don't know when I'm going to sort of lay out what that strategy is and how we're going to articulate it. And quite frankly, I don't really -- I am not in a hurry to do that just to satisfy the market.

Because I do not believe that the market is really going to give credence to the verbalization of the strategy when we announce it. All it is going to do is let our competitors know exactly what we're doing. So I would rather be further along on our strategy, because ultimately the market is going to give us credence and vote affirmatively or negatively on our strategy once they see whether or not it is working -- and that means if we're going to be able to make money. So that is where we are at on it.

Just one follow-up. What is your mix of subscriber revenues and advertising revenues (technical difficulty) right now?

Right now, it is almost 100% ad revenue because our subscriber fees have not kicked in yet. But the reason that we're going cash flow positive next year is because that is when our free period starts to really roll off en masse and we start to get subscriber revenues. But I'm not going to give you detailed mix now.

But today, it is probably 90% ad revenue, 10% affiliate fees. But ultimately, it is going to be much a higher affiliate fee percentage. But I'm not going to going into detail with it.

Thank you.

David Bank, RBC Capital Markets.

A couple questions. The first one is, Scott, can you tell us what was the original stepdown that is supposed to occur on September 15?

No, there is no stepdown on September 15. That is just a date that the banks were comfortable going out to.

Okay, so what is the stepdown that exists and when does it take place?

The next stepdown would be to six times at the end of the year.

Okay. And second question is, I guess maybe you don't want to give us a whole bunch of pro formas for a deal that hasn't closed yet, but just sort of ballpark what is going to go down to the discontinued ops line. Could we take --?

(multiple speakers) It is already there, David. It is all in discontinued ops. You had sent me an e-mail on this earlier. It is Dayton, Louisville, and Minneapolis.

Right, but sort of for a 3Q comp for the next quarter --.

Well we have not provided any guidance, so we're not going to get into any Q3 discussion on anything, other than the pacing information I gave earlier.

Okay. Two more. The first is -- I'm sorry, I may have just misheard, but you said Reach was -- you were looking for double-digit -- or seemed to be growing double digits at this point. Was that year-over-year or was that sequential?

Year-over-year.

And the last question, for both you and Alfred, the Google audio stuff rolled out of beta in the beginning of July. I was wondering if you had seen any impact out in the market, if you think it is doing anything to pricing, or is it not really of critical mass enough to be impacting the market? Has your view changed at all in terms of what is going on with Google audio and how you might want to participate or not want to participate?

A, we're not participating, because I do not need any more help commoditizing my inventory than we are already getting. And I have no idea whether or not -- put this way, I am sure that it is affecting pricing on the margin, but they do not have scale yet. But I cannot dissect how much it's impacted pricing.

Okay, thanks.

John Klim, Credit Suisse.

Quick question. Could you speak more in depth about some of the synergies that you have been able to realize by now owning properties across radio, Internet, cable, and print? Thanks.

I think the biggest synergy is the fact that we've got scale and we reach so many African-Americans that we're able to A, cross-promote; B, we do a fair number of platform deals out of our corporate sales department now. If we had not been big and had tremendous overlap with Comcast, I don't think we would be in the cable business. We created some significant value there.

And I think that our concentrated size of audience is going to be a real effective tool in helping us be successful online. So put it this way. If we were not doing these other things, then we would just be another radio company in an industry that is not growing, with our expenses growing 2 to 3% a year and our cash flow going down every year. That is all we would be.

John, so I think it is very much a top line synergistic relationship, as well as, as Alfred mentioned, the cross-promotion. If you're focused on expenses at all, that is -- I mean, they are modest, right? TV One is a stand-alone business with its own substantial infrastructure, although we do support them in a variety of ways. But on the magazine side and on the Internet side, there is certainly more back-office support provided to those two entities, legal, finance, human resources, et cetera. So there is some of that, but again, it is fairly modest.

We have time for one last question.

James Farrant, Morgan Stanley.

Actually, just two quick ones. The first one, you mentioned in the Q3 looking better than Q2. How is Philadelphia and Houston sort of performing early on? Are the -- is it still very weak, but accelerating, is it getting better?

The second question is can you talk a little bit about auto? Is it national or local that is weaker, domestic or international? Can you just sort of give us a split-out there?

Houston is actually having a good quarter. They were soft a few weeks ago. But again, sort of consistent with what we have been seeing, more so in some markets than others. Their outlook has improved fairly significantly. So where we sit today, Houston is looking like it is going to have a decent quarter. And Houston for us has actually been a market that has fairly consistently outperformed.

And Philadelphia sucks for us, but that is more not PPM related, but it is more operational related. And we've got a new general manager that started last week. We've got a new programming person that's started. We hired Andy Rosen, who ran a Clear Channel cluster for New York and then went to Cumulus Media Partners for a year; and he is our new market manager in Philly.

And we hired a gentleman by the name of Elroy Smith to be our operations/programming head in Philadelphia. And he also recently started. So we've got operational challenges in that market which we're addressing. And we are up -- we've been significantly upgrading the talent in this Company over the last year. And so we're doing badly in Philadelphia and I think we can do a lot better.

Actually, Alfred would be pleased to know that we're not doing that bad in the third quarter. Things certainly look better in Q3 in Philly than in Q2. So if their current trends hold, they'll have okay quarter versus a pretty bad quarter in Q2.

And a bad year-to-date.

And a bad year-to-date. He is absolutely right about where things have stood. But Andy Rosen is coming in at a good time, because it looks as though perhaps things are improving a bit in that market.

With regard to your question on automotive, I really cannot provide you on this call with any more color in terms of it. It is a good question in terms of international versus domestic, local versus national. Have to dig a little deeper into the databank to get you that information. So if you want to do that off-line -- I do not view that as material to any conversation we might have. I can work on that for you.

Okay, thanks.

Thank you, operator. Would you close us out please?

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