Radio One (ROIAK)

Founded in 1980 and based in Lanham, Maryland, Radio One, Inc. (ROIAK) is the seventh largest radio broadcasting company in the U.S, owing and/or operating 53 radio stations in 16 of the nation's largest markets. The company primarily targets African-American markets and, with 10 million listeners weekly, is the largest broadcaster to do so. Radio One also owns a 36% interest in TV One (an African-American cable TV channel), its joint venture with Comcast Corporation. The company also acquired a 51% ownership in Reach Media, owner of the Tom Joyner Morning Show. Additionally, the company programs "XM 169 The POWER", an African-American news/talk channel on XM Satellite Radio, and acquired certain assets of Giant Magazine. Besides strengthening its current areas of operation, Radio One focuses on expanding into markets with a significant African-American presence.

During 2007, 59% of the company's net revenue was generated from local advertising and 36% was generated from national spot advertising including network advertising. The balance of revenue was generated from tower rental income, ticket sales and revenue related to sponsored events, management fees, and other processes.

Sale of LA radio station provides financial flexibility and ability to consolidate TV One

Radio One's recent sale of its L.A. radio station will enable the company to reduce leverage, provide breathing room with its debt covenants, and potentially exercise its option to acquire an additional 10% stake in TV One, its cable TV channel joint venture with Comcast, of which it now owns 36%. We view TV One as a potential driver of both growth and diversification and if Radio One exercises its option and boosts its stake to 46%, it will likely consolidate TV One for accounting purposes, resulting in significant accretion to ROIAK's shares and establish a platform for future growth.

Sale of unprofitable assets and expense reduction positions ROIAK for growth and profitability

In addition to the LA station sale, ROIAK recently sold other unprofitable stations (eg. Miami and Georgia) and has trimmed its operating cost structure to better weather the cyclical downturn. We don't foresee any meaningful improvement in the company's ad revenue until the economy revives, although Radio One did outperform the industry in 1Q08. In the coming quarters, many of the companies markets will be converting to the electronic ratings measurement system, called PPM (Portable People Meter), currently being rolled out by Arbitron, from the legacy handwritten diary system. This creates some uncertainty for Radio One's ad revenue as the ratings of urban formats in the New York, Philadelphia and Houston markets have tumbled when converted to the PPM system. However, the urban format stations are fighting back, charging that the listener sample groups are too small in those very compact areas to be representative and are therefore inaccurate. As a result, we expect Arbitron to address those issues in its PPM system and advertisers to make adjustments in their rates.

Diversification to bolster long-term growth

Radio One is diversifying into businesses that complement its core radio operations, which in the longer-term could offset the secular decline faced by radio. Together with Comcast, the company started African-American cable TV network, TV One, which we expect to become cash-flow positive over the next 12 months. It is also investing in content having acquired a controlling interest (51%) in Reach Media, owner of the Tom Joyner Morning Show, and purchased Giant Magazine. After 1Q08, the company acquired the social networking company, Community Connect, an online social-networking company operating branded websites including BlackPlanet.com, MiGente.com, and AsianAve.com, and launched Newsone.com. CCI allows the company to compete against AOL, Google, and MySpace. This acquisition is another instance of ROIAK's strategy of diversification outside of the radio broadcasting space to deliver a more holistic approach to targeting African Americans. Specifically, this acquisition gives Radio One a strong foothold in the fast growing social networking and multicultural online space. Like most media companies, Radio One is also developing an Internet portal for each of its properties in an effort to tap the rapidly growing Internet market that is usurping advertisers from other media outlets. Internet ad sales from radio websites including Reach Media are growing at a mid-teens rate, albeit off a small base (up 15.2% year over year in 1Q08 to $1.8 million).

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