Urban One, Inc.
Q3 2016 Earnings Call Transcript

Published: 6 Nov 2016

[Operator:]

I have been asked to begin this call with the following Safe Harbor statement. During this conference 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-Ks, 10-Qs and other reports it periodically files with the Securities and Exchange Commission, could cause the Company's actual results to differ materially from those indicated by the projections or forward-looking statements. This call will present information as of today, November 3, 2016. Please note that Radio One disclaims any duty to update any forward-looking statements made in the presentation. In this call Radio One may 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 its website at www.radioone.com. A replay of this conference will be available from 12 PM Eastern Time today, November 3 until 11

[Alfred Liggins:]

Great, thank you, operator, and welcome everybody to our third quarter results conference call. Also joining today is Jody Drewer who is the Chief Financial Officer at TV One. Since it is such a big part of our business, this is her second call in case there is any detailed follow-up on TV One numbers. As the press release states, even though we had lower revenues than anticipated and we guided to that, we were still happy that through our cost control measures we were able to deliver positive adjusted EBITDA growth for the quarter. We are also reaffirming our full year guidance of $133 million to $137 million of adjusted EBITDA. We said that as well and that continues to be the case. Political has been very interesting, as you guys can see on television and in the newspaper. And while I think everybody felt that it was coming in much slower than anticipated, the race has heated up and tightened in the last few days. And we are starting to see some real upticks in our political revenue across the platform that we are pleasantly surprised at. Currently radio pacings are in the 3% plus range for Q4, so we believe that Q4 is going to end up in positive territory. Peter -- TV One, one of the issues we have had in third quarter and this year was under delivery in audience primarily due to us selling a higher rate card estimate and not delivering on those estimates. And so we had to make good a lot of stock. The marketplace is aware that about a year ago we lost Martin. I think we lost at the end of September, the beginning of September, which we had to adjust to. We knew that we were going to have a ratings decrease because of that and we had to figure out what a new programming strategy was to make that up. And I am happy to report that we are lapping that issue and we are feeling that we've put this whole ADU issue, excessive ADU issue behind us and in the rearview mirror. Q4 we are looking at positive ratings trends currently for TV One currently pacing about up 6%. So we think that things are of course corrected and back on target there. I am going to turn it over to Peter who is going to take you into more detail. And then when it comes back to me we can talk a little bit about MGM, the tower sale and the name change. And we will also touch on one of the issues that have come up quite a bit, what are we going to do about the term loan maturity that is our nearest term maturity at the end of 2018. Peter?

[Peter Thompson:]

Thanks, Alfred. So net revenue is down 4.3% for the quarter ended September 30, 2016 and approximately $110.9 million. And a breakout of the revenue by source can be found on page 5 of the press release and a breakout by segment can be found on page 7. Our Charlotte, Washington DC, Richmond and Indianapolis clusters showed positive revenue growth in the third quarter. However, this was offset by declines in other clusters most notably in Houston and Detroit, also Atlanta, Baltimore, Columbus, Dallas and Philadelphia. For the third quarter local radio revenue was down 4.7% and national radio revenue was down 1.5% for the radio stations. According to Miller Kaplan the radio markets in which we operate were down 3.0% for the quarter while we were down 6.4%. We fared a little better in total spot revenue where we were down 4.3% against the markets down 3.2%. And that is partly down to the elimination of some low margin NTR events. Net political revenue was approximately $477,000 compared to approximately $413,000 last year. However, we have seen a fairly strong uptick as we ramp up into fourth quarter, so in the last couple of weeks the political has started to flow a little more strongly. Looking by category, sales were up 5.5% in the telecommunications category which was our largest category. Following in order of volume, retail was down 11%, entertainment was down 6%, government public was up 2.8%, food and beverage was up 2%. Automotive category was weak, that was down 19%, healthcare was up 2%, services were down by 9%, financial sector was down by 24%, and travel transportation was up 23%. Radio ratings were up significantly year-over-year with 12-plus ratings up 7% and in the P25-54 demo we were up 10%. Ratings growth continued in Q3 in all key metrics and we continue to outpace or be on par with our markets in most demos. We had double-digit ratings increases in six of our markets including Baltimore and Washington DC. For the fourth quarter our radio business today is pacing up 4%, it has been hovering between 3% and 4% in the last few days, as Alfred said, so 3% plus. It probably ticks down a little as the political tapers off. And we have got about -- just over $4 million of political revenue booked on our radio stations for the fourth quarter, which brings our annual total for the radio division to just over $7 million, around $7.3 million today -- which in the context of where we thought it was headed in Q3 is actually not too bad. You probably recall our budget for the year was around $7.5 million and we are not going to be too far off that at all. Pacing's, excluding political, would be down mid-single-digits for the fourth quarter. Net revenue for REACH Media was down 7.1% for the third quarter. Net revenues for our Internet business decreased 2.3% for the quarter. Direct Internet advertising sales grew by 24%; however declines in the other revenue categories offset that growth. We recognized approximately $46.8 million of revenue from our cable television segment during the quarter compared to approximately $47.6 million for the same period in 2015, which is a decrease of 1.6%. And as Alfred mentioned, the advertising revenues were impacted by audience under delivery relative to our 2015-2016 upfront rate card. Ad revenue was down 5% or $1.1 million with average unit rates up 4.3%. However the number of units sold was down due to the under delivery and the need to use those units to manage the ADU liability. Ad revenue was up sequentially quarter to quarter driven by average unit rate increases. Cable subscribers as measured by Nielsen finished the quarter at 59.9 million, up from 57.9 million at the end of June. Operating expenses excluding depreciation, amortization impairments and stock-based compensation decreased by 9.3% to approximately $77.1 million in Q3. Radio operating expenses were down 12.7% driven by various cost-cutting measures including eliminating unprofitable events, a favorable year-to-date true up of music royalties and lower contractual SG&A costs. REACH expenses were down 5.9% due to lower staff bonus expense. Operating expenses at Interactive One were flat. TV One expenses were down 10.6% year-over-year due to lower marketing and promotional spending and lower programming content amortization. For the third quarter consolidated broadcast and Internet operating income was approximately $43 million, up 2.9% from last year. Consolidated adjusted EBITDA was $34.9 million, an increase of approximately 5.6% year-to-year with TV One and Radio One driving that growth. Interest expense was approximately $20.3 million for the third quarter compared to approximately $20.4 million for the same period last year. The Company made cash interest payments of approximately $19.8 million in the quarter. Net loss was approximately $423,000 or $0.01 per share compared to the net loss of approximately $18.1 million or $0.38 per share for the same period in 2015. For the third quarter capital expenditures were approximately $1.6 million compared to $1.5 million in the third quarter of 2015, and Q3 cash taxes paid was approximately $39,000. The Company repurchased 619,418 shares of Class D common stock during the quarter in the amount of approximately $1.9 million. As of September 30, 2016 Radio One had total debt net of cash balances OID and issuance costs of approximately $933.6 million. And for bank covenant purposes, pro forma LTM bank EBITDA was approximately $132 million. And net debt was approximately $951.7 million for a total leverage ratio of 7.21 times and a net senior leverage ratio of 4.73 times. And with that I will hand back to Alfred.

[Alfred Liggins:]

Thank you. When we talk about radio a bit -- when you look at our spot business, our spot business actually was just a slight underperformance to the market where we are falling off as in NTR and network and digital revenue. And one of the items in the press release is -- digital has been a struggle for us all year and for a number of reasons. One was a misplaced switch from standard pricing of the product to an impression-based pricing strategy which didn't go well and the transition. But also just not enough of a singular focus on it. And we have made digital a priority this year; we hired a consultant to help us companywide with the digital strategy. And then we also recruited a very senior digital executive, a guy named Mark Charnock who was formerly the Senior Vice President of Sales at Monster. They were a client of ours for a number of years, so I have known Mark for a long time and were impressed with his knowledge base. He is also based in the Washington area which was helpful. And he recently joined as the Chief Digital Revenue Officer for the radio division and REACH Media so we are pretty excited about that. Moving to TV One, the upfront is finished. Our volume was down about 5%, but that was on purpose because what we did is we churned a number of low rate advertisers and basically opted not to take that business because we feel that we will replace it with higher rate advertisers and scatter and with DR. And on average our CPMs were also up about 5%. Another item that people want to know about is the MGM casino investment, that casino is almost done and will open December 8. We are in the final stretches of getting our application to increase our stake above 5% vetted by the Maryland Gaming Authorities. In fact, we had our final interviews a little over a week ago. We suspect that those -- or we are hopeful that those applications will be approved before the casino opens and we can make the final $35 million investment in National Harbor. We talked about selling our towers. We ran a process, had a bunch of really, really solid offers. Ended up honing in on the offer we liked the most, with the party we liked the most, signed a letter of intent. And they are in the middle of the due diligence process and we think that that transaction closes in Q4. Also we made the announcement that we are officially changing the name of the parent Company, which will take place in January 2017, to Urban One, and our tagline is representing Black culture. And it really reflects more of the fact that the Company is a multimedia entity targeting African-Americans and leveraging Black culture to help brands and advertisers grow their business with this community. The individual divisions, Radio One, TV One, Interactive One, will all keep their individual names and the umbrella Company will move to Urban One. We think that it is a long time coming; many investors have asked us to consider that. The Company is 50% non-radio now and likely could morph even higher. And so we are going to roll out a new branding package, et cetera. And Linda Vilardo is our Chief Administrative Officer and her team has been leading that effort. So we are happy that it is on deck and actually happening. And then lastly, we have been focused on what to do about our nearest term maturity, which was our term loan that matures at the end of 2018. There was -- 12-31-2018. There had been some momentum to look at doing an amend and extend. And we looked at pricing to get that done and we thought there was some motivation from some of the term loan holders to do it early for some portfolio management reasons. That seems to have dissipated and in fact there is -- even though it is a term loan it has a significant non-call make whole penalty on it for taking out before April it appeared.

[Peter Thompson:]

It was about $8 million.

[Alfred Liggins:]

Yes -- April, was it at the end of April or what is the --?

[Peter Thompson:]

No, it is the middle of April, the second anniversary of when we signed.

[Alfred Liggins:]

Yes. So at one point in time we thought because of the motivation that the make whole would not be an issue, but it is about an $8 million penalty. So at this point in time we are going to sit tight on that term loan until we get to the other side of April and look at our options at that point in time. So with that, operator, I would like to open it up to question and answers.

[Operator:]

[Operator Instructions] First question from the line of Aaron Watts with Deutsche Bank. Please go ahead.

[Aaron Watts:]

Good morning. A couple questions from me, I will start on the radio side. Alfred, you talked about some of the positive ratings trends you are seeing. When do you think that starts to show up in terms of the revenue performance? I think you talked about down mid-single-digits again in the fourth quarter excluding political. I don't know if political has had some push out there, but do you think that you can at least perform in line with your markets if not better than that as you roll into 2017?

[Alfred Liggins:]

Look, it is a good question. One of the contributing factors to the negative trajectory is we are in a bad set of markets. Our markets on average are down and we continue to deal with competitive pressures particularly in Houston from a format attack there that is probably going into its second year, and rate pressure. So in Houston, which has been our biggest market, you've got downward revenue in the marketplace, you've got downward CPMs and we have got a direct competitor that we haven't had before. And so ratings are up good, but markets that we operate in are down bad. And then, yes, we have got underperformance. And so we are focused on trying to correct the underperformance. Even once we correct that underperformance and again, I think Peter pointed out that our spot business isn't all that bad. And so -- but when you look at NTR and network, I think a lot of what is going on is some of the bigger companies are utilizing their larger networks to put money into -- at the station level. And even though we have a radio network we don't have a network the size of Premier that -- we don't have a network that can actually change the complexion of the revenue mix in a market. We consciously got rid of a number of unprofitable events this year and that has affected our NTR number. But it also has helped us on the bottom line. So even though our revenue trajectory is not looking great where we are doing a good job on the bottom line and getting to our EBITDA growth target so that was intentional. And I elaborated on what our digital issues have been earlier. So we are focused on improving on all those things. And so look, I wish I could give you a time -- and I thought our radio issue was fixed back at the end of Q1. I was really optimistic about the radio business turning and it did turn for a while, for about four months and then it fell out of bed again on us. And it really fell out of bed mostly because a number of these markets really started to downturn. Washington is a good example. We are having a good year in Washington, but I've got to tell you Q3 and Q4 where the market was doing really, really well, the market is not doing so well. So it is a mix of things in the radio business and we have just got to work harder, it is not an excuse. We have got to work harder and we've got to continue to watch our costs and find ways to increase our EBITDA there come hell or high water. Which, look, we have done in 2016. And now we are putting together a plan to do that in 2017 and increase our EBITDA again. So, Peter, do want you have anything to add?

[Peter Thompson:]

Yes, let me -- it was a pretty comprehensive answer, but just to put a bit of -- some numbers around it. So in three of our four big markets we outperformed in Q3. So we beat the market in Atlanta, the market in Atlanta was down 4.1%, we were down 3.5%. Baltimore we beat the market, that market was down 6.5% for the quarter, we were down 5.7%. And then in DC we were up 4.1% in a market was down 4.6%. So really strong outperformance in DC. So the only one of our big four that is underperforming its market right now is Houston. And obviously given its size that is kind of dragging us down. And then there are probably three turnaround markets we are really looking to for next year, obviously Houston. But aside of that we need Philadelphia, Detroit and Columbus to turn around. And if we can get -- we are very focused on those three markets and I think that can -- I think that gets at a level if not better than the market if we do a good job in those three.

[Aaron Watts:]

That is helpful. If I could ask just one follow up on that. When you look at a weaker market like Columbus, Detroit or Philly that you called out and compare it to kind of what is going on in Charlotte or DC, setting aside some of the weakness you might have seen in DC recently, what is kind of the distinguishing factor? They are all relatively large markets. Why are --

[Alfred Liggins:]

Yes. Columbus is like Houston; we took a competitor from iHeart. It is not a very big Black market; it is not like we were making a ton of money there. But they had a radio station that was doing nothing and they flipped it against us and then we have significant cash flow erosion. We ended up -- at one point in time we sold a station there because we didn't think we needed that many stations to serve the urban market because we didn't think anybody would come in to go after this market because it wasn't really enough. Then iHeart does it, and so we end up buying for not a lot of money two more radio stations to bulk up and get more competitive. But that is a competitive issue. Philadelphia and Detroit -- Philadelphia has just been a perennial market here we haven't been able to get the product right, we have product issues, and we had sales issues. The market hasn't been great; the market has been going down for years. I think -- what is it doing?

[Peter Thompson:]

Minus -- Philly was minus 3 in the third quarter. So right about where [Multiple Speakers] was.

[Alfred Liggins:]

Yes. But the fact of the matter is we have $1 million of cash flow in Philadelphia, a little over $1 million on three FM radio stations which is ridiculous, right? We should be able to do better than that doing broker time. And so, we have got a game plan in place to improve that dramatically.

[Peter Thompson:]

And it is not brokered time.

[Alfred Liggins:]

And it is not brokered time. And Detroit is also -- less of a product issue there because our ratings aren't bad, more of a sales issue. And we did just draw -- recently draw a competitor there from Greater Media. They changed a station from sports to classic hip-hop. And we invented the classic hip-hop format, the boom format and we know it well. We invented it, we were the first to enter it and now we are the first to exit it because it is -- it is not a sustainable long-term ratings getter. It settles out pretty low. So we think that the competition in Detroit, which went up like a rocket to number one, will come down to earth just like it did -- the competitor did in Indianapolis when we took it and how all of our stations have done. And actually in Philadelphia, even though we didn't change the name of the station, we have actually reoriented our boom format to be much more current music based because we think that we'll get a -- we will end up with a better ratings position, a better competitive position than we have now. So they are different. Detroit, Philadelphia just sort of execution issues and negative market issues. And Columbus, which is I think a fairly healthy market, has been -- was a competitive issue.

[Aaron Watts:]

Okay, great. And one last one for me. I appreciate the time. A quick one on the TV side. Empire has had somewhat choppy ratings in first run for Fox. Just curious how that has been performing for you and that is it for me. Thank you.

[Alfred Liggins:]

We -- our deal with Empire is only -- we have it basically over the summer. I think we get it right before Memorial Day and then it ends -- Jody, when does it --?

[Jody Drewer:]

So we get a midseason marathon, we get it for the summer and then we get the last season played. And so in September of 2018 then we begin getting it year round.

[Alfred Liggins:]

Year round, yes. So right now it is not on the air, so it is not playing out.

[Jody Drewer:]

And it performed -- when taking our Thursday night plays and our marathons it performed exactly how we expected it to when we signed up for it. So even though some of the repeats -- we only had two seasons worth this summer and we aired it quite a bit. And the later airings got soft. But when you look at it in the aggregate over prime it performed spot on to how we expected.

[Operator:]

And our next question is from the line of David Farber with Credit Suisse. Please go ahead.

[David Farber:]

Good morning, guys. How are you? I wanted to quickly just touch upon the rate card that you brought up. I wanted to get a better sense for if you thought you had corrected that going forward. Your press release sort of states and I am curious if you think that will happen again. And then I had some follow-ups on the tower as well as the casino. Thanks.

[Alfred Liggins:]

Jody, do you want to give a head.

[Jody Drewer:]

Yes, so going forward why folks mentioned that we have corrected the problem. So what we have done is we have brought our 2016-2017 rate card into the realm of possibility. So in other words we based it on our actuals. And then we applied the contractual universe increase that will be rolling on in the first quarter -- beginning of first quarter along with the CPM increases that we already recognized in the upfront sales process. So, that combined with how we are trending on our ratings, we put in an ad number for next year that is a decent increase over this year, but it's purely been built by our actual information. So we are not putting much of a bump over top of just trending up what we know.

[Peter Thompson:]

Yes, I think we got a double whammy last year. So our ratings in Q1, Q2 were strong last year and we used those as a baseline for setting the upfront rate card. And we also put pretty much a 10% bump on those because we thought they were going to continue on that same trajectory. They didn't and we lost mass. So we sold the rate card for last year's broadcast -- well, for 2015-2016 that we just couldn't live up to. And so we are not going to make that same mistake again is really what Jody is saying in terms of setting the rate card much more in line with the actual delivery that we have right now. And then in terms of the upfront, we probably sold roughly 10% less units but at a mid-single-digit CPM increase. So we are actually taking some -- we are deliberately taking less dollars at better rates and that frees up inventory that will subsequently convert at higher scatter or DR rates. So they are the key things that we are doing to make sure we don't end up in the same position again in terms of ADU.

[Jody Drewer:]

And having the ADU that we do have does protect us if the -- if for some reason the economy went soft.

[Alfred Liggins:]

You had some follow-up questions; you said the casino and [Multiple Speakers]

[David Farber:]

Yes, I wanted to -- can you discuss just sort of the tower sale in terms of magnitude? Any discussions around the ties and proceeds?

[Peter Thompson:]

Yes, David, we are under an MDA, so I don't want to say too much. We are probably a couple of weeks out from hopefully signing the definitive agreement and we will talk more about it then. But we have said in the past that we had an asset sale basket in our credit documents of $25 million and that we were looking to kind of fill that from the tower sale. That is really what it was earmarked for. And so, I think that is the sort of proceeds you should be expecting to see. And we have already kind of signaled that, that is not new information. Aside from that there is not a lot more we can say until we sign the definitive doc which will be two or three weeks, I think.

[David Farber:]

Understood. And should it close, what do you intend to do with the proceeds? And then I had two other ones and that is it. Thanks.

[Peter Thompson:]

Well, we have got $35 million going out on the MGM Casino investment. That should go out in December which should be around about the same time as the tower sale proceeds clear. So you can think of it that net-net we will be out $10 million on that MGM investment that is one way of thinking about it. I don't think we have decided what to do with the cash on the balance sheet. Obviously we bought back some bonds earlier in the year at a discount. I don't think that is off the table. I think that is a good return -- a good risk free return for the Company. So we may look at that again. Aside from that we will just keep it there as we think about the balance sheet refinance going into next year.

[Alfred Liggins:]

Yes, I mean I think stockpiling cash to selectively delever whether it is through bond repurchases and having that cash to position ourselves for the refinancing is important.

[David Farber:]

That makes sense. Okay, and then in terms of just maybe next year a little bit, do you have any high-level thoughts around how you think the cable business will perform? And separately, do you have any updated thoughts on how you think what kind of impact you will see on EBITDA from the casino given that is just so -- it is just in a short period of time. Curious if you have any updated thoughts and either of those two pieces. And then I have [(Multiple Speakers].

[Alfred Liggins:]

Well, look, we are finishing up our budget processes -- our budget process across divisions and everybody is budgeted for EBITDA increases. The cable business budgeted for an increase over the [75.5] that we have guided to this year. Even the radio division has budgeted for an increase. Cable is much more predictable than radio is because of over 50% of the revenue being contracted. And so I can be pretty confident that we can grow the EBITDA there. We grew the radio EBITDA this year. But next year we won't have political so it will be more challenging next year. But we have got a game plan, which includes fixing underperforming assets, getting better terms on deals that we have in the radio division going forward, et cetera. It is not -- there is just not one lever that you pull to increase your EBITDA, it is top line revenue -- it is top-line revenue, it is expense savings and synergies, a number of different things. Look, the only projections that we have for the MGM project are the projections that the state of Maryland has put out there for gaming revenue and that MGM has basically stood behind. And the number everybody is projecting is still $700 million of gaming revenue.

[Peter Thompson:]

Of which we will get our 1%.

[Alfred Liggins:]

Exactly. We have been thinking that it is going to be $6 million or $7 million to us in that revenue stream. I can tell you that the resort is unbelievable. I mean it is very expensive, it is very high class, it looks like something out of Las Vegas, it is in an amazing location and DC is an exceptionally affluent market. And this location is in Maryland, but it is literally right across the river from DC and right across the river from Northern Virginia too. So I know MGM thinks it is going to be a raging success. So we are sticking to that number. So kind of the way we look at it, we should be able to add $6 million or $7 million of EBITDA -- I don't know how we are going to account for this yet, but just call it EBITDA for now based on that -- on a $40 million investment of which we have already made $5 million. We are going to get some uplift from TV One for sure. And we are budgeting to get uplift from radio. But even if you hold radio flat you could see the Company add some significant EBITDA next year. So managing our balance sheet and figuring out a way to maybe cut our interest expense through some bond repurchases, increase our free cash flow and if we can get north of $7 million, $7 million to $10 million of EBITDA lift on these other -- between TV One and the casino we could turn in another good year. So that is how we are thinking about it.

[Operator:]

And our next question is from the line of Lance Vitanza with Cowen. Please go ahead.

[Lance Vitanza:]

Hi, guys. I think most of my questions have been answered, but I did want to ask you when you do get back to addressing the term loan I guess next spring; do you see any advantages to potentially going to more of an all bond structure? Or do you just think that the lower price in the term loan market is just going to be too compelling?

[Alfred Liggins:]

I don't know at that point in time. I guess it is going to depend on what we are thinking about our business. People go to the all bond structure or people suggest it to give themselves more runway and time to get their business on the right track. Today, we feel like we are -- we like the lower -- we like the lower pricing and the lower interest rate. I think we have got an exceptionally low interest rate right now on our term loan. And one of the reasons when it was priced and the people that did it, they were betting that interest rates were going to rise faster than they actually did. And then as you well know they didn't rise that fast. In fact, they still haven't risen. And so they priced it with that in mind and we were the beneficiaries of it. So, yes, I think it is all going to depend on -- put it this way, my hope in April is that I am feeling really good about where the business is headed, that we opt for the lowest price money that we can get. Because taking high price money to give yourself more time is -- it gives you more time but it is also I mean -- look, you know this. You sign up for many, many, many, many years, okay, of high coupon servitude. And you ultimately -- it is very difficult to create equity value with an expensive capital structure. You can stay in business for a long time, but it is very difficult to create equity value.

[Operator:]

Now to line of Ash Thomas with Bybrook Capital. Please go ahead.

[Ash Thomas:]

Hi, guys. Simple question for me I think just a modeling one. What is your current subscriber number on the TV One front?

[Alfred Liggins:]

Who is going to Jody or --

[Jody Drewer:]

I can say the latest is actually our October Nielsen UE, which is 60 million.

[Alfred Liggins:]

UE is universe --

[Jody Drewer:]

Universe estimate, sorry. So we just surpassed the 60 million mark in October for Nielsen.

[Operator:]

Now to line of Andrew Finkelstein with CQS. Please go ahead.

[Andrew Finkelstein:]

Hi, guys, thanks. Just want to come back to expenses maybe for Peter. It looks like there was $4 million that you saved out of the cable which I wasn't expecting that on the radio side as well I think almost $4 million spread on the programming and the SG&A. I was just wondering if you could give us a little more color on where the savings came from. And also, do you think this is a good run rate going forward? And there I am just also -- obviously you guys want to invest in both TV One and the radio business for growth and turnarounds and things you talked about. So I just want to know is it sustainable going forward and how you feel about the cuts you made?

[Peter Thompson:]

Yes, some of it, and I kind of called out one thing in my earnings script. So we had a true up in our music licensing fees for radio of about $1.6 million. And that would obviously skew the run rate. So I would probably -- I would adjust -- so you talked about -- it is roughly $8 million down in the quarter. So about $1.6 million of that probably needs to be adjusted as a one timer or a non-recurring. Other than that the rest of the stuff is pretty sustainable. There was maybe one other kind of bonus LTIP related adjustment of a couple hundred grand. So I would say $1.7 million, $1.8 million would be the adjustment if you are looking for something that is more of a run rate. And then within that, at TV One the marketing spend was down to year to year and that really is dependent on the release schedule and what we are airing. So there was $1.7 million less spent in marketing quarter over quarter. And then the other thing within TV One is we were charging them a management fee out of corporate last year of $425,000 a quarter. We no longer charge them any management fees and nor do we plan to. So that is not something you would adjust but I will just call it out. And then the other things -- within radio, the savings we made there generally are sustainable. We renegotiated a bunch of contractual commitments so that is kind of locked in. That was about $1 million roughly of the savings. And then Alfred had talked earlier about some events that were low margin. And we saved in the radio division $822,000 on not doing those events. So I think the revenue associated with those is about $600,000 and the expenses were just north of $800,000. So whilst it looks like the revenue was bad actually the bottom line impact was positive of taking those events out. So they were really the key expense drivers. And as I say probably $1.7 million, $1.8 million is what I would adjust for in terms of run rate.

[Andrew Finkelstein:]

Okay, that is great. And then just going back to the TV comments you were making. I mean Martin is gone; Empire was a summer programming it sounds like. Is there -- I'm not sure what you guys were selling for next year. Is there any new programming on the slate that will drive ratings but also maybe increase expenses for TV One coming up?

[Alfred Liggins:]

Yes, no new acquisitions. Empire was an acquisition. Just our standard programming budget -- programming budget is going to be what, $70 million next year?

[Jim Foung:]

Yes.

[Alfred Liggins:]

About $70 million. And what percent of that is acquired and what percent of that is original?

[Jody Drewer:]

About $60 million will be new original programming assets put into place, put into service.

[Alfred Liggins:]

So of the $70 million that we spend, only $10 million of it is acquired. About $60 million of it is on original -- and the original stuff, a lot of it is returning stuff that is working. And then we are taking a number of new shots next year, but nothing crazy.

[Jody Drewer:]

And we still have a large acquired library that is already in the run rate. I think Alfred mentioned it at the beginning, but we are four weeks into Q4, so this is our first apples-to-apples without Martin. And we are up 6% so far in prime versus Q4 of last year. And we made some scheduling changes early in first quarter that have stuck. I pulled July, just to give you all an example, and I ran all of ad supported cable so that includes the sports networks too. And five of the seven nights we are a top 10 African-American network and the other two nights we are still in the top 20. So we have been focusing on a night by night strategy and been seeing growth. So we are trying to build consistency -- so that our viewers know what to expect on any given night.

[Andrew Finkelstein:]

Okay. And then how your upfront is -- just kind of - but how is the scatter market looking for you guys? What are you guys seeing?

[Jody Drewer:]

Well, I mean the current scatter market; we are still seeing 20%-30% premiums. But I don't know what we are going to -- budgeting wise I am not putting any kind of 10% scatter premium for next year, but that is just me from being conservative. I don't have any insight into next year's market.

[Andrew Finkelstein:]

Okay. Because you sold less in the upfront so you are taking a little more of a bet there that scatter will hold.

[Jody Drewer:]

The scatter will hold. But we also have DR pricing as well too. So our DR rate in many cases is higher than our fourth and fifth tier national advertisers.

[Alfred Liggins:]

And DR has been -- historically been stronger for this network. A lot of the DR is performance-based, they advertise with you if the phone rings. And so, I think our audience tends to respond well to DR. So as long as I have been sort of really in the weeds on the network DR has always been a strong revenue source for TV One.

[Andrew Finkelstein:]

Okay. And then, Alfred is there any bigger -- or contracts with the MVPDs coming up to expand carriage?

[Alfred Liggins:]

To expand carriage, no, I mean most of the stuff that we have done is in place and it is rolling out. So Charter is signed and the subs are rolling out and that stuff will -- those subs will roll out over the next 18 months.

[Jody Drewer:]

Not even.

[Alfred Liggins:]

Not even? Next year?

[Jody Drewer:]

Yes, Charter will start rolling out over the next just few months. Comcast the same. Those are the big drivers.

[Alfred Liggins:]

Yes, Verizon already happened, so it is really Comcast, Charter -- and Cox.

[Jody Drewer:]

Cox, but I didn't know if that has been signed.

[Alfred Liggins:]

Yes, yes, and we should get some additional subs. We have negotiated to get some additional subs at Cox. The contract is not inked yet but it is agreed upon.

[Jody Drewer:]

Based on where we are right now we are looking contractually it can be anywhere from 3 million to -- we will call 3 million to 5 million incremental subs. Which then when you put the Nielsen bump on it, that's going to be about 3.5 million to 5.5 million. So you'd take the 60 million and add that to it.

[Andrew Finkelstein:]

3.5 million to 5.5 million, okay.

[Jody Drewer:]

Yes, it depends. So the MVPDs have some options to take -- to roll this out more if they choose.

[Andrew Finkelstein:]

Right, and then the affiliate fee rate card with Alfred next year a 3% to 5% bump annual.

[Alfred Liggins:]

Our escalators are mid-single-digits.

[Andrew Finkelstein:]

Mid-single-digit, that is good. Okay, so that is a good wind on the back for TV.

[Peter Thompson:]

Yes. The only thing I would say about that --.

[Alfred Liggins:]

It is not on the rate card.

[Peter Thompson:]

Well -- not what I was going to say, but there are obviously -- as the realignments and mergers kick then the other thing that may move is volume discounts which could mitigate some of that. So I just want to be clear. I am not sure, Jody, that we would just put our 5% against that right now.

[Jody Drewer:]

No.

[Andrew Finkelstein:]

Okay have you not renegotiated or had conversations with Charter I guess is the big one, Time Warner?

[Jody Drewer:]

Yes, we have a standard rate card, the standard rate card the increase is, to Alfred's point, mid-single-digits. Then to that standard rate card we have volume discount tables based on size and that varies. So from a true net effective rate you are probably looking at -- the net effective rate on our baseline is probably in the low-single-digits.

[Andrew Finkelstein:]

Okay. And then last one for me, I appreciate the time. With the tower deal, I know it hasn't been signed yet, but I think there is some ramp you guys are going to pay back into that. Is it material for thinking about next year's expenses, Peter?

[Peter Thompson:]

Yes. So it is about -- so there are a few components to it. The rent is just north of $1 million roughly. I mean these are ballpark numbers that I think have been talked about before. So I am not being specific to this one deal. But you should expect about $1 million of tower rent. And then we lose the rent that we were collecting on those towers. So all in it is kind of -- it is sub $2 million loss of EBITDA if that makes sense, about $1.6 million, $1.7 million less EBITDA is the kind of ballpark that we have been looking at across a number of deals.

[Operator:]

And our last question from line of Jeff Rosen with Apollo. Please go ahead.

[Jeff Rosen:]

Hi, thanks guys. How are you doing? Most of the questions were asked by Andrew there. But I was -- just one quick follow up on the -- when you talked about the budget stuff, the color for next year and you thought radio might be up. Is that including or excluding political? So is that just the core radio or is that including whatever you got from political this year? Thanks.

[Alfred Liggins:]

That is year-over-year, so that includes --.

[Peter Thompson:]

That includes political.

[Alfred Liggins:]

That includes our political revenue for this year, yes, so --.

[Alfred Liggins:]

Thanks a lot. Operator, is that it? Is that it?

[Operator:]

There are no further questions in queue.

[Alfred Liggins:]

All right, thank you very much, everybody, and we will talk to you soon.

[Operator:]

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation. You may now disconnect.