Urban One Inc (UONEK) 2012 Q1 法說會逐字稿

Welcome to the Radio One, Inc. earnings call. I've been asked to begin this call with the following Safe Harbor statement. During this conference call, Radio One will be sharing with you certain projections or other forward-looking statements regarding future events or its future performance. Radio One cautions you that certain factors, including risks and uncertainties referred to in the 10-K's, 10-Q's, and other Reports that are periodically filed with the Securities and Exchange Commission, could cause the Company's actual results to differ materially from those indicated by its projections or forward-looking statements.

This call will present information as of March 31, 2012. Please note that Radio One disclaims any duty to update any forward-looking statement made in this presentation. In this call, Radio One may also discuss some non-GAAP financial measures in talking about its performance. These measures will be reconciled to GAAP either during the course of this call or in the Company's press release, which can be found on the website at www.radio-one.com.

A replay of the conference call will be available from 12.30 p.m. Eastern Time, May 3, 2012 until 11.59 p.m. March 5, 2012. Callers may access the replay by calling 1-800-475-6701. International callers may dial direct 320-365-3844. The replay access code is 247035. Access to live audio and a replay of the conference call will be also available on Radio One's corporate website at www.radio-one.com. The replay will be made available on the website for seven days after the call. No other recordings or copies of this call are authorized or may be relied upon.

I will now turn the conference call over to Alfred C. Liggins, Chief Executive Officer of Radio One, who is joined by Peter D. Thompson, Chief Financial Officer. Mr. Liggins, you may begin.

Thank you very much, Operator, and welcome, everyone, to our first-quarter results conference call. You obviously have seen the press release. We're excited about our Q1 earnings and our forward-looking pacings for Q2.

I'm going to let Peter D. Thompson, our Chief Financial Officer, get into the details of the numbers, and then we'll open it up for questions about our business and future business conditions, and anything else you might like to discuss. Peter?

Thanks, Alfred. Net revenue was approximately $103 million for the quarter ended March 31, 2012, an increase of 58.5% from approximately $65 million for the same period in 2011. We began to consolidate results of TV One in the second quarter of 2011, and recognized approximately $32.2 million of net revenue in the cable television segment in the first quarter.

The Radio division, excluding Reach Media, produced net revenues of $52.7 million, up 9.3% from the same period last year. Normalizing for a change in timing of the One Love Gospel Cruise, the Radio division net revenue was up approximately 6.4%. The markets in which we operate declined 1.1% for the quarter. Reach Media had net revenues of $13.6 million in the quarter, which was down 8% year-to-year. This decline was primarily due to a change in the affiliation agreement between Reach Media and Radio One, effective January 1, 2012.

The Interactive division had net revenues of $5.8 million, up 64.6% year-to-year. TV One had net revenues of $32.2 million in the quarter, an increase of 4.6% over Q1 2011. Our four largest clusters performed as follows -- Atlanta was up 7.6%; Baltimore was up 3.8%; Houston was down 5%; and Washington, D.C. was flat. Except for Dallas and Houston, all of our other clusters posted net revenue growth in the quarter. most notably in Atlanta, Cincinnati, Cleveland, Detroit, and Raleigh.

By advertising category, retail was our largest category at 14% of the total and was up 4% year-to-year. Financial was up 21%; healthcare was up 21%; government and public was up 11%, due to approximately $355,000 in political revenue in the quarter; and the services category was up 18%. Entertainment, telecom, auto, and food and beverage were down in the quarter.

Operating expenses, excluding depreciation and amortization and stock-based compensation, increased to approximately $79.5 million in Q1, of which $20.3 million relates to the newly consolidated cable television segment. Excluding the cable television expenses, operating expenses were up 8.8% year-to-year. Radio division operating expenses, including corporate expenses, increased by 9%. The increase is primarily due to the cost of the One Love Gospel Cruise, plus increased salary and marketing expenses for Houston's new News 92 FM station and increased revenue-related expenses.

These increases were partially offset by reductions resulting from a change in the affiliation agreement with Reach Media, as well as credits to bad debt expense as a result of improved collections. Reach's operating expenses increased by 3.1% as a result of the newly executed management agreement between Reach Media and Radio One.

The Internet segment's operating expenses increased by 8.2%, mainly due to the higher cost of revenue. Excluding non-cash intercompany charges, Internet division adjusted EBITDA for the quarter was approximately $321,000 compared to a loss of $1.3 million for the same period in 2011. For the first quarter, consolidated station operating income was approximately $33.1 million, up 86% compared to the same period in 2011.

Adjusted consolidated EBITDA was $23.5 million, an increase of approximately 122%, including TV One. Attributable EBITDA was up 36% for the quarter. Stock-based compensation decreased by 95% to approximately $44,000 for the quarter. Depreciation and amortization expense increased to approximately $9.7 million, compared to approximately $4.1 million last year. Approximately $6.7 million of that was recorded for the fixed and intangible assets of TV One.

Interest expense increased to approximately $23.7 million for the first quarter from approximately $19.3 million for the same period in 2011, an increase of 22.8%. The increase in interest expense was due to higher interest rates associated with the new 2011 senior credit facility, new senior subordinated notes, and the notes issued by TV One. Approximately $3 million of the increased interest expense relates to the debt recorded as part of the consolidation of TV One. The Company made interest payments of approximately $15.5 million in the quarter.

The provision for income taxes for the quarter ended March 31, 2012 was approximately $65.3 million compared to $45.6 million for the quarter ended March 31, 2011. The increase is attributable to certain investment-led intangible amortizable -- sorry -- indefinite live assets amortizable for tax purposes but not for book purposes. Cash taxes paid were approximately $60,000 in the first quarter.

Net loss was approximately $79.2 million or a loss of $1.58 per share compared to a net loss of approximately $64.2 million or $1.23 per share for the same period in 2011. For the first quarter, capital expenditures were approximately $3 million compared to $1.8 million in the first quarter of 2011. Approximately $1.3 million of CapEx related to the Company's corporate office move to Silver Spring, Maryland. The Company received dividends from TV One in the amount of approximately $4.3 million in the first quarter. We didn't receive any dividends from Reach Media.

As of March 31, 2012, Radio One had total debt net of cash balances of approximately $771.4 million. For bank covenant purposes, our total net debt was approximately $680 million, and our LTM Bank EBITDA was approximately $85.7 million, giving a total leverage ratio of approximately 7.93 times and a senior leverage ratio of approximately 4.19 times.

As of March 31, 2012, the Company's cash and cash equivalents by segment are as follows. Radio One and Internet, approximately $24.4 million; Reach Media, approximately $2 million; and cable television, approximately $17.5 million. In addition to cash and cash equivalents, the cable television segment also had short-term investments of $561,000 and long-term investments of approximately $4.2 million.

In order to reconcile the bank EBITDA, we take the LTM radio, Internet, and corporate segments' EBITDA, which, on an LTM basis, was approximately $61 million, and then add dividends of $1.7 million to Reach Media and $17.1 million to TV One. Then we have non-cash add-backs of approximately $5.9 million on an LTM basis, of which the CEO's TV One award is $4 million.

And with that, I'll hand back to Alfred.

Thanks very much, Peter. Again, very pleased with our quarter. Radio turned in a very strong performance. Interactive One actually made money again, more money than ever. We continue to see that trend in the coming quarters, and expect to make money cash flow positive -- be cash positive at Interactive One for the full year; radio pacings up double digits in Q2; and TV One will be on track to hit the stated guidance that we've given -- that we gave in our -- on our last conference call.

So, we see national being -- continuing to be weak in the large markets, and we expect there to be a nice political bump beginning in Q3. We've been very, very focused on it. And we think that will continue to be wind in our sails. However, the industry itself will probably have modest growth this year, but we expect to be in a position to outperform the industry substantially all year long.

So, with that, I'd like to turn it over to the Operator, who can start taking questions.

(Operator Instructions). Bishop Cheen, Wells Fargo.

Thanks for the update. I have two questions. One is balance sheet and one is Q2 [total] pacings, whatever you want to call it. Let me go to the balance sheet first. Peter, that was great, but you talk fast and I write slow. (laughter) So, I just want to add two pieces. I have the covenant debt, because that all works. To build back up to the covenant EBITDA, I understand the dividends from Reach and from TV One, those are LTM dividends, 1.7 and 17.1.

Yes.

Okay. And then it was, I think you said 9.5 add-back was what?

No. No, sorry, Bishop. It was 5.9, which is the non-cash add-backs.

Got it.

And there's a few components to that. The biggest piece is $4 million, which, as you know, is the non-cash TV One award that will potentially be paid out at some future point to Alfred. So, $4 million of that $5.9 million is that. And then the balance is a combination of one-time severance reorg and other trade non-cash items.

Got it. Okay. That is all helpful. All right. So I've got the balance sheet in shape. You guys must feel a little bit better. I know there are step-downs. And Alfred, going back to your press release from maybe six, eight weeks ago, do you feel that you can stay ahead of the step-downs going forward?

Yes. Now more than ever. We actually had a -- an internal operating plan to stay ahead of the step-downs with flat Q2 revenue growth. That's -- we developed a contingency plan and figured how we would be able to accomplish not falling out of compliance if our Q2 core radio revenue growth was flat. And with it coming in at double digits, we're way ahead of the game.

And now, look, Q2 is just a -- we're one-third into it, but May is very strong. June's pacings have been increasing the last couple of weeks and we just feel really good about our business. So it's too early to talk about Q3. But with political coming into the picture, with our continued ratings trajectory -- and by the way, all of this is happening without our Houston news station really getting great ratings traction yet. We're halfway to our ratings goal, but Houston, which is our biggest market, is really not contributing to all of this growth just yet. I expect it to. So, yes, we're going to stay ahead of it.

Okay. So this is a ramp-up. April was positive; May stronger; and June, whatever presell you're doing in June is even stronger still?

No, no. April was positive, modestly positive; a modestly positive [plus-3]. May is off the charts now -- 20-plus-percent up. Just off the charts. And it's real, because we're in May now, so --

Is it auto? (multiple speakers)

Actually, you know what? We don't -- I knew somebody was going to ask that question. We -- anecdotally, auto is definitely getting stronger, but no, it's not just auto. Auto for us in Q1 was down, but the auto guys are coming back. But it's across the board for us.

I forgot, maybe it was three or four weeks ago when I saw these pacings continuing to be that strong in May. I asked Peter to canvas all of the RVPs and the GMs and find out why. And we dug deep into it, and it was just across the board. I just think the profile of our business today, comps from last year, ratings growth, things we've done, has just positioned us to have this kind of outperformance.

And then -- and in June, today, is not as good as May, but it's better than April. So, it's high singles. So we'll play it out. I mean, we're going to have a great Q2 now. And we're continuing to position ourselves ratings-wise. We're continuing to be a [hot one] cost and we intend to claw back our EBITDA that we lost last year.

Right. Look, I'll pass it on but in your comments, I love it -- just us just a feel for when you think Houston starts.

Look, the last thing that -- I learned a long time ago never try to second-guess the ratings gods. You know? It's the first time we've ever done a format like this. Everybody that I talk to who has done it say that it's a slow build. Because I was so excited about the opportunity in doing something new, I probably was more optimistic that it would happen faster, even though our consultant had told me to slow down, yes.

And so, I don't know how long it's going to take. But I rests on this premise. The number six market in the United States of America should have a 24-hour all-news radio station that makes a good deal of money and successful. And if you -- I ask you to go online, it's News92FM.com. It sounds great, you know? And so, we'll see. But in the meantime, the revenue pacings on it are starting to ramp up. There's (multiple speakers) --

Yes. (multiple speakers)

Go ahead, Peter.

Well, the other thing is, if you look -- I've just got a Amelia Kaplan in front of me, and we were in line with a market there -- the Houston market, for the first quarter, was down 5.4%. We were down 5%. So, relative to the market, that format change is not a drag for us. We just followed the market. And we're in the market. Local revenue for the market was flat. It was plus-0.2. National was down 24.5% and Houston, which goes back to Alfred's earlier comment about what we're seeing in national in the top 10 markets, in the big markets.

Yes. Now, look, national, I've got a theory that national is going to continue to be a drag, because I think that's where digital money is coming from is national. National advertising pockets from other traditional media, like radio, newspaper, magazines -- the good thing about news in Houston is these news stations are largely local advertiser based.

And so I don't know how long it's going to take, but we think it's the right play. We're continuing to put resources. We've got a great management team there. And, like I said, they say the most successful things come from simple basic premises. And I submit that the number six market in the United States deserves one all-news radio station.

Okay, very helpful. Thank you.

Michael Kass, Blue Mountain Capital.

Hi, guys, and congratulations on a great quarter. The -- I was hoping to understand maybe the radio OpEx a little bit better, given kind of the puts and takes, in terms of -- I guess, when I look at the impact of that Gospel Cruise, it generated about $1.5 million in revenue. What are the costs associated with that, that kind of flowed into the quarter? And then, what were the savings from renegotiation of the Reach Media agreement? I'm just trying to kind of get a sense for what organic OpEx growth was (multiple speakers) on radio.

(multiple speakers) Yes, great question. I'm going to have to be a little bit -- I can't give you a perfect answer on the Cruise. I'll give you what I can.

The two revenue streams from it, the cabin sales, which is about $1.6 million, and then their sponsorships, which is about $1.3 million; so, total revenue on the Cruise about $2.9 million. Costs on the Cruise, about $2.4 million. So net profit on it, around about $500,000. The problem is, when you compare the last year, the fact that we weren't in Q2, some of that sponsorship money was already in Q1 last year. So some of it was in. But I can't break it out, which is why I say I can't give you a perfect answer. But that gives you a feel for the size of it and the costs that were embedded.

Okay.

And now on the other stuff, here's what I think you need to know. The Houston format change added about $1.1 million of costs in the quarter, so it's about $4 million -- $4.4 million full-year cost impact. So you've got $1.1 million extra there. The affiliation fees saved us $1 million in the quarter. And that's representative of what will happen for the full year. So it's about a $4 million saving on the cash affiliation fees that we'll no longer be paying to Reach.

And then some other things that will help you normalize -- we got a pickup from bad debt collections of just under $0.5 million in the first quarter, and we've been really focused on that. We had about $800,000 of additional commissions, which just followed the revenue. That's in the cost line in radio. And then Arbitron, we've got contractual increases there. It's about $300,000. And then across all the other lines of salaries, severance and so on, about $600,000 cost increase. And they're really the key items.

Okay. Just to briefly -- the Houston costs, is that one-time in nature? Or is that kind of just increase in OpEx that's going forward from the new format?

It's increase in OpEx going forward. Yes.

Okay. The -- I was wondering, the pickup that you saw in radio revenues, do you attribute any of that to kind of the change in Arbitron? Or what do you attribute it to?

The pickup in radio revenues?

Yes.

The change in Arbitron? What change are you --?

Oh, just -- I had thought that there was a kind of a new methodology around the PPM that was implemented. (multiple speakers)

(multiple speakers) No, there is, but that methodology is almost 5 years old now. And -- but that methodology rolled out, so --

It cycled through.

Yes. So, what you've seen in a place like Indianapolis is a great example. So, with the new methodology, urban radio and Hispanic saw immediate hits in their ratings. Our ratings went down 40%, 45% in a lot of our markets. And you know, you take a hit. You don't take a 40%, 45% hit in revenue, but you take a hit.

Once you actually realize where you're going to settle out and you adjust your programming strategy, and then you lap that revenue hit year, then you stop declining and you've got sort of equilibrium. You've hit the bottom and you can figure out how you claw back.

So Indianapolis is one of those places where we took our hit, we cycled through the full-year, our ratings actually started to come back. And when I say our ratings, our rank started to come back. So now we're number 1 or 2, 18 to 34; top 3, 25 to 54 with our stations, even though our actual ratings are still down. But we can start building rate stability and pricing pressure back when your ratings are stabilized and your rank improves.

You know, it's sort of kind of tantamount to broadcast television, which has had declining ratings for the last 40 years but they just keep improving their CPMs. But you've got to hit bottom and cycle back before you can start trying to get rate improvement. So, we've cycled through all of our PPM markets. Indianapolis, I think, was the last one to go.

So, it's an issue from the standpoint of, it's created a new lower equilibrium on what our average quarter hour rating is. And then we've got to start to build back some sort of pricing power off of that base -- off of that new base.

Got you. And then just on, briefly, on Reach Media, what's the status of the negotiations with Joyner? And then I was kind of curious what the impact is of kind of the lower profitability there?

Joyner's contract is not up for another two -- three years? Almost three years? It's February of 2015, right? Yes.

And were you referring to the put option or (multiple speakers) --?

That's exactly what I was referring to.

Oh, sorry, sorry. The put option got extended out a year, so it's contractually not an issue to win.

Next February.

Next February. But I've told folks that I don't ever anticipate the put options being an issue. We're great partners with Tom and David Cantor. We collaborate; we try to work in each other's best interest. And I don't see that put ever becoming an issue unless we want it to be an issue. But contractually, they don't have the right to put again until next February.

Okay.

And again, it is a put to Reach Media only; not to Radio One. So it's not like they can force Radio One to do anything. The worst-case scenario is, they can throw Reach into play to be bought by somebody in order to satisfy the obligation. And we happen to be close to 30% of Reach Media's audience. So, you've kind of got to have us be okay with the transaction if you want to continue to have the same audience base and the same revenue base.

And Michael, just speaking to, I think, the fundamentals of your question, Reach Media is going to look different this year, because obviously, we're not paying them $4 million. And we've made some other adjustments as part of renegotiation. So the package of renegotiation, which pushed out the put, extended the affiliation agreement by a year, but meant we didn't have to pay these fees.

So, this is how I would think about it. Radio One is going to benefit by about $4 million of cash fees not being paid, relative to last year, and we're going to get about a $2 million management fee out of that business. But we're not anticipating any dividends coming out of that business this year. And the net-net of all of that is that Radio One will be about $1.4 million better off.

Got you. Thanks a lot for that color. Just real lastly, on TV One, I was wondering if you could provide any kind of operating metrics there, that might help us kind of better understand the business? Like, how many subscribers did it have at the end of the quarter? Kind of what was the break between advertising and affiliate revenue? Any additional kind of color you could provide there that would help us -- kind of -- what do you expect in terms of cost growth for programming? You mentioned in the, I think, in the press release that there would be some programming increases.

Yes. Yes, you know what? That's a good question. We actually probably need to start looking at providing more detail. In the past, we provided no details, so we're kind of easing into this, now that we have it consolidated. So I'd like to be able to punt that to the next call, if you don't mind. Just because you're right, but we just don't -- we don't have a handle on what are the right relevant metrics, et cetera. We also want to talk with our partner to find out exactly what they're comfortable with us disclosing in a public conference call, et cetera.

Understood.

Yes.

Thanks.

(Operator Instructions). Patrick Fitzgerald, Gleacher & Company.

Thanks for taking the question. Is there any way you could give us dividends by -- in your second, third and fourth quarter from TV One and Reach? And also, when that $4 million non-cash add-back to your covenant EBITDA would have been? Is that second -- I think it's second-quarter?

I don't have the dividends by quarter in front of me. I've only got the LTMs. I can email them to you. And we have disclosed them, so I wouldn't be emailing you anything that isn't already out there, I don't think. And the $4 million non-cash add-back, it was -- it increased by about $300,000 during the quarter. So, what are you asking for, a quarterly breakdown of that $4 million as well?

Yes, just -- I thought it came in one-quarter lumps. So, I thought that was second quarter of last year. But I just want to know, because it obviously impacts your LTM covenant EBITDA when that happened.

Yes. Okay. Well, let me -- I think all of that has been disclosed in the past, so I will -- I'll just email it to you, Patrick, if that's okay.

That's great. Okay. And then your dividend capacity at TV One this quarter, you have obviously quite a bit of cash there. So should we look at it as, still, you have to have $15 million of cash on the TV One balance sheet, and then anything in excess of that, you can dividend to Radio One?

Yes. That's the right way to look at it.

Okay. And what do you have to do to -- I know the bond covenant is less restrictive than that. What do you have to do to get down to that $5 million level?

You're talking about the indenture of TV One --

Yes.

-- which is, yes -- the minimum threshold is $5 million. What we would have to do to get down to that is have another conversation with Comcast. We could -- if we want to go down from $15 million to $5 million, it's a conversation with Comcast and they're agreeing on it, yes.

Okay. And then your year-over-year revenue, if I'm calculating this correctly, at TV One, is you're up 5% and your cash costs on a year-over-year basis are down 12%?

Yes.

I mean, when you say $40 million in EBITDA this year at TV One, is that the type of trajectory that we should kind of be modeling? Or is this more of a -- going to turn into a revenue growth story down the road?

That's a great question. It should be more of a revenue growth story. Q1 is a little unusual comparing to last year. They only launched two new series, which means that the programming amortization was significantly lower this year than last -- [by the tune] -- by about $1.5 million. And also the marketing costs were about $800,000 lower, because they didn't have to support so much new programming.

And then the other thing in their numbers and why their costs were down so substantially was, there was over $1 million of debt acquisition costs -- (multiple speakers) sorry, I think we need to mute those lines a little bit. There's about -- over $1 million of debt acquisition costs that was in Q1 last year that weren't this year. So it's a somewhat abnormal quarter for TV One, that their costs are lower year-over-year for the reasons I've just given. And their revenue performance, we expect that to be a stronger revenue story in the future.

All right. And I know your guys' sub fees step up contractually every year. Is there any way that you could give us the percentage of your paying subscribers whose contracts stepped up this quarter, versus last year?

Yes. This dovetails with the question (multiple speakers) from the last one.

Yes, okay, I got it.

We've got to sit with Comcast and find out exactly what they're comfortable with us releasing on TV One. They do own 46.5% of the business. And quite frankly, also, we need to understand from the marketplace what are kind of the most relevant metrics. So we need to put together a dashboard of stuff that we can plumb into our earnings releases that give you guys more visibility.

All right, thank you. I appreciate the answers to the questions.

Operator?

Mark Kaufman, MLK Investment.

I wanted to ask you if you had continued to see the gains in your Internet business, as far as viewership goes, that you had, let's say, fourth quarter and continuing to see that first quarter? And maybe some color into what you see here in the second quarter of this year. And do you think this will translate into -- well, obviously, more advertising revenue? And also thinking about the election revenue back-half of the year. This is a platform I know you had, but it's just not at the level to where it is now -- where it was back in 2008 to where it is right now.

Yes, yes. During Q1, we did see substantial audience gains for our online. In fact, in Q1, I think we reached our audience goals for the full-year. It was largely driven, unfortunately, by Whitney Houston's death and Trayvon Martin's murder. And we got a lot of traffic to our Internet sites because of those two events.

I think in March, we saw a drop-off a bit, but it still -- so it declined, but still robust against what our full-year goal is. And you know what? We got a big revenue growth target for Interactive One this year. We killed it, blew it away in Q1. Q2 will not be as robust, but we'll still be able to make the first-half goal. And we feel good about our ability to get the budget and turn in cash flow positive performance.

But that business is the future. Media is converging; everything is moving online; all these traditional media brands are moving online. And what we've created is a company targeting African-Americans online that has a story that allows it to compete for real digital dollars, not just trading traditional media dollars for digital dollars, and putting people that were on your radio station on your website.

We got about 8 million comScore users right now, which is a big number. It's about 40% of all African-Americans online. And we're still working on other transactions, you know, other rep deals. We have a rep deal with NBC News, where we sell the ad time and collaborate with their black news site and our black news site, News One. We're looking at a number of other deals like that.

So, very focused on that division. It's a very big part of our future. So, yes, I think you'll continue to see substantial ad revenue gains there. But more importantly, because we're a black media company and it's a black Internet company, so we're not going to get some great credit or valuation, because we've got strong traffic growth like Yelp or any of these other companies that have gone public with no EBITDA.

We're focused on creating EBITDA. So, we want to get to some nice number this year, and then figure out what's the fastest way to get Interactive One to $10 million of EBITDA. So that's how we're thinking about it. Yes, it's the Internet. A lot of people get credit for big revenue growth stories, but they don't have to make money. We're looking for revenue audience growth but EBITDA growth at the same time.

Thanks a lot.

(technical difficulty).

Just a quick question on Reach Media. Given the affiliates your revenue came out, would that suggest that ongoing revenue was only down a couple percent on a year-over-year like-for-like basis?

Yes. The only adjustment was that $1 million-ish of affiliation fees. So if you essentially add that back, then that will give you the normalized percentage. There shouldn't be any other adjustment you would need to make.

So, do you think that the transition to the internal sales force, which was kind of ongoing over the course of last year, has worked?

Yes. Yes, that business is stabilized. We're actually looking at other ways to make it stronger. One of the things that happens now is, we own 53% of Reach Media, but we own 100% of a number of other syndicated shows -- The Rickey Smiley Show, The Russ Parr Show, The Yolanda Adams Show, The Al Sharpton Show. And they're sold separately by a separate sales force than Reach Media sales force. So we're going to start shortly figuring out a strategy to put all of these things together and go to market as one, which I think will give each of our syndicated units more leverage in the marketplace, more synergies.

Okay. That was it. Thank you very much.

(Operator Instructions). Michael Guarnieri, Nomura.

Most of mine have been answered. I have a couple of expense questions. One is, you made reference to the increased expenses for the Houston changeover. Does that flow through the entire year? So every quarter, we're going to see an extra $1 million of expense, OpEx versus last year?

Yes.

Okay, terrific. Thank you. And my second question is, as it regards the calculation of covenant EBITDA -- I'm going to follow-up from a question asked earlier -- I understand the components clearly in what you said about Reach and TV One, we can all forecast. As it regards the $5.9 million non-cash add-back, when does that anniversary? So in other words, if we're all forecasting out the next three quarters, when does that not become an add-back any longer?

I've got it in our forecast right through this year.

Okay.

So in my model, I've got that $4 million going out in each of the four quarters.

Okay, terrific. Okay, thank you very much. Those are all my questions. Thank you.

Bishop Cheen, Wells Fargo.

This is more of a big picture. Alfred, you have answered this in theme and variations. But I'm just looking for your view on expense trends. TV One, different set of economics because of the subscriber fees, and radio, all ad-driven. So there's going to be -- sell more, have higher cost of sales. But overall, as you look out to 2012 and beyond, is the cost of doing business just plain old going up? Is it controllable? How do you think about it?

Well, look. The cost of business always goes up. That's the problem, right? Employees expect raises. They don't always get them but they expect them. If you get into any kind of competitive battle for talent, whether it's sales talent, management talent or on-air talent, that drives costs up. Arbitron is the gigantic cost. Five years ago, our Arbitron bill was $6 million. Now it's $11 million. And they're plumbing in the thought that they want to increase their fees as well.

So, I would tell you, the ecosystem is based on continuous rising costs. And because radio is not a high-technology-based sort of operation, it's not like the microprocessor prices for our flatscreen televisions come -- cost comes down every year, and computing power goes up, right? So we've got to figure out a way to control/contain those costs. And we've been doing that.

And you've got to get it from everywhere, right? You know, you've got to get it out of your labor force where you can. You've got to figure out how to do more with less people. You've got to figure out what can you use from a technology standpoint to streamline that labor force. Our talent costs have been going down and will continue to go down, because what you can afford to pay a big personality when there's $20 billion in the industry, versus when there is $15 million or $16 billion in the industry, changes. And when those contracts come up, the new deals have to reflect those realities. Ratings are down for our urban and Hispanic radio, so that's also going to reflect those realities.

In one of our markets, we just -- our lease is up and we just signed a new lease, and we downsized from 14,500 square feet to 10,000 square foot. And so you've kind of got -- I've got this theory that when you're in a tight business, tight industry, that doesn't have revenue growth going with you, you've got to get your cost savings opportunities $50,000, $100,000 at a time. And if you get 20 of those, you save some real money. And that's what we're having to do on the cost side of the business.

In the meantime, you've got to get into areas where revenue is growing, like online. Radio -- our radio websites, even though I talk a lot about Interactive One is not just creating great radio websites -- but our radio websites, which are great, are 2 million, 2.5 million users of our 8 million. It's a big part of our overall audience strategy. And so you use your existing assets, our radio audience, to move you into new areas that are growing.

I'm convinced that radio's cross-promotion of TV One over the last eight years allowed it to build its brand really, really rapidly, and has, I believe, an even larger role to play in its future. So, cost of business always goes up. It doesn't mean that you can't control it to an extent. And in some places, you can actually reduce it. I mean, we've reduced the cost in our Radio division dramatically since the downturn, and we continue to look for opportunities to do that.

But you're right, Bishop. In the old days, you never really had to worry about the cost base that much. And now, you've got to be a hawk on costs, continue to drive them down to innovate. And it's forcing us to be better operators and managers of this business.

Well, I hope so. Look, it's a separate debate about how much you pump into the Web. Because your newspaper cousins have been trying for 14 years, and they still can't make any real money at it. And that should not be a curse upon you. But clearly, the empirical evidence is, for old media, it ain't easy.

No, it's not. No. I mean, look. The Web is a very, very difficult place to operate, but you have to be there. You don't really have a choice.

And knock on wood, I think our situation is different, is that the newspaper guys are competing against a host of other news outlets that are coming after their market. I mean, I remember when you would look for a job, you'd get a newspaper and you'd circle jobs or you'd circle apartments and all that. They lost that entire business, all of it almost -- like, almost 100% of that classified business went to the Web.

Fortunately, there hasn't been a big hunk taken out of radio's foundation by new technology up from that is similar to that instance. So, we've got more time and we're not falling as drastically. But we too have to make our digital transition. And, again, fortunately for us, there is no Yahoo or MSN -- there's nobody doing what we do targeting African-Americans at scale online yet.

So, we have the opportunity to be first there. We weren't first in radio; other people owned black radio stations before Radio One existed. There was Summit Broadcasting, which was the largest urban operator. We weren't first in cable television; BET was. But we really are first online and we've got to turn that into a real business. And we're really kind of the only ones focused on it right now at this kind of scale.

Okay. Hey, Alfred, thank you. Great color. Appreciate it.

Yes. We have time for one more call?

One more question.

One more question. Yes. Time for one more question, Operator.

I'm showing no further questions.

No further questions?

Cool.

Alrighty. Thank you, everyone, again. Any additional questions, we're happy to answer offline via email or telephone. Talk to you next quarter.

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.