Making waves over the air

Broadcasting: Radio One, dominant in the African-American radio market, faces its next challenge: Making its investors happy.

September 02, 2001|By Andrea K. Walker | Andrea K. Walker,SUN STAFF

After a three-year buying frenzy, Radio One Inc. has more than met its goal of dominating the African-American radio market. Now the hard part begins, as the Lanham-based company must make its new stations profitable in an unfavorable economy.

"The thing that people don't understand is that buying radio stations is pretty easy," said Scott Royster, the company's chief financial officer. "There's nothing to celebrate until you've created wealth for your radio stations. We have to make our investors happy."

Founded by Catherine L. Hughes in 1980 with one 1,000- watt station, Radio One has mushroomed to 65 stations in 22 markets. Last year, the company acquired or agreed to acquire 43 stations, including a $1.3 billion, 12-station deal with Clear Channel Communications Inc., its biggest acquisition yet.

Few radio companies have grown as quickly or performed as well financially, industry experts said. "I think they've been one of the real success stories," said Tom Taylor, editor of the New Hampshire-based radio trade publication M Street Daily. "The question now is, where do they go from here?"

For the moment, company officials said they are entering a "digestion and integration stage," with less emphasis on acquisitions and more on the nuts and bolts of running the business.

"Now we're really focusing on operations, promotions and the performance of the radio stations," Royster said. "We're also looking at improving the revenue share."

As with the rest of the media, Radio One has been hit by a decline in advertising sales that could make reaching those goals tougher.

The effects are showing. The company had a second-quarter net loss of $14.6 million, or 22 cents a share, and lowered its revenue expectations for the current quarter from about $73 million to $67.5 million, perhaps even lower.

Shares of Radio One stock have traded as high as $96.50 since the company went public in 1999 and as low as $5.75. It closed Friday at $15.33.

The company has accumulated more than $600 million in long-term debt, much from its buying spree. As of December, it had a 61 percent debt-to-equity ratio - an indication of how well a company is positioned to pay back debt - up from 20 percent in 1999.

The debt initially raised questions by analysts, but Radio One has gained investor confidence that it can pay it off, analysts said. And the company continues to increase its broadcast cash flow, a strong indicator of economic health in the radio industry. It increased 106 percent to $34 million last quarter.

"They have some public bonds and bank debt, as does everybody else," said Jack Messmer, executive editor of trade magazine Radio Business Report. "That's the way you grow a business. They're not over-leveraged. They're certainly not at any level that anyone gets concerned about."

Analysts and those who follow the industry for trade publications say Radio One remains one of the market's strongest radio conglomerates and a well-managed company. They rank it as a good stock buy.

Clear connection

Advertisers see their stations as a clear connection to the African-American audience.

"We have a lot of buys with them both nationally and locally," said Peg Holmes, director of regional and marketing communications with General Motors Corp. "It's a very strong network. "

Eric Geil, an analyst with Standard & Poor's, said the company hasn't felt the economic hit as hard as some other companies.

"Radio One, to its credit, has been able to achieve some strong momentum at these stations that has buffered them some from the declining market even though it hasn't been totally immune," Geil said.

The company's rise wasn't one that happened quickly.

Radio One officials knew that if the company was to grow, it needed to go public to raise capital. On May 7, 1999, Radio One went public, its shares selling at $34.62, 44 percent more than the initial $24 stock price the company had planned.

Hughes serves as the company's chairwoman. Her son, Alfred C. Liggins III - named after his father - is chief executive officer and president, and has led the company's expansion. Together, Hughes and Liggins own 54 percent of the voting stock. Liggins declined to be interviewed.

As did many radio companies that grew in the 1990s, Radio One benefited largely from deregulation made possible by the Telecommunications Act of 1996.

"After the Telecommunications Act the economic drift was either you sell or get bigger; you buy or you get bought," said M Street's Taylor. "Capital was readily available. Wall Street shoveled money in the direction of radio operators, because they saw the doors wouldn't be open very long."

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