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As filed with the Securities and Exchange Commission on January 29, 2002
Registration Nos. 333-
333- -01
333- -02
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
Under
The Securities Act of 1933
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Radio One, Inc.*
Radio One Trust I
Radio One Trust II
(Exact name of Registrant as specified in its charter)
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Delaware 52-1166660 4832
Delaware TO BE APPLIED FOR
Delaware TO BE APPLIED FOR
(State of other jurisdiction of (I.R.S. Employer (Primary Standard Industry
incorporation or organization) Identification No.) Classification Number)
5900 Princess Garden Parkway, 7th Floor
Lanham, MD 20706
Telephone: (301) 306-1111
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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ALFRED C. LIGGINS, III
Chief Executive Officer and President
Radio One, Inc.
5900 Princess Garden Parkway, 7th Floor
Lanham, MD 20706
Telephone: (301) 306-1111
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
With copy to:
TERRANCE L. BESSEY, ESQ.
LAURA S. HARPER, ESQ.
Kirkland & Ellis
655 Fifteenth Street, N.W.
Washington, D.C. 20005
Telephone: (202) 879-5000
* The entities listed on the page following the Registration Fee Calculation
Table (on next page) are also included in this Registration Statement on
Form S-3 as additional Registrants.
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Approximate date of commencement of the proposed sale to the public: From
time to time after this Registration Statement becomes effective, as determined
by market conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, check the following box.
[_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 (the "Securities Act"), other than securities offered only in connection
with dividend or interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule
434,please check the following box. [_]
The Registrants hereby amend this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrants
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said section 8(a), may determine.
RADIO ONE, INC. AND SUBSIDIARIES
Form 10-K
For the Fiscal Year Ended December 31, 2001
TABLE OF CONTENTS
Page
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PART I
Item 1. Business............................................................................ 4
Item 2. Properties and Facilities........................................................... 31
Item 3. Legal Proceedings................................................................... 31
Item 4. Submission of Matters to a Vote of Security Holders................................. 32
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters............... 33
Item 6. Selected Financial Data............................................................. 34
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 36
Item 7A. Quantitative and Qualitative Disclosure About Market Risk........................... 47
Item 8. Financial Statements and Supplementary Data......................................... 47
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 47
PART III
Item 10. Directors and Executive Officers of the Registrant.................................. 48
Item 11. Executive Compensation.............................................................. 50
Item 12. Security Ownership of Certain Beneficial Owners and Management...................... 53
Item 13. Certain Relationships and Related Transactions...................................... 55
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.................... 58
SIGNATURES
Report of Independent Public Accountants......................................................... F-1
Consolidated Balance Sheets as of December 31, 2000 and 2001..................................... F-2
Consolidated Statements of Operations for the years ended December 31, 1999, 2000 and 2001....... F-3
Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 1999,
2000 and 2001.................................................................................. F-4
Consolidated Statements of Cash Flows for the years ended December 31, 1999, 2000 and 2001....... F-5
Notes to Consolidated Financial Statements....................................................... F-6
Consolidating Financial Statements............................................................... F-24
INDEX TO SCHEDULES S-1
2
CERTAIN DEFINITIONS
Unless otherwise noted, the terms ''Radio One,'' ''we,'' ''our'' and ''us''
refer to Radio One, Inc. and our subsidiaries.
Cautionary Note Regarding Forward-Looking Statements
This document contains 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. These forward-looking statements are not historical
facts, but rather reflect our current expectations concerning future results
and events. You can identify these forward-looking statements by our use of
words such as ''anticipates,'' ''expects,'' ''intends,'' ''plans,''
''believes,'' ''seeks,'' "likely," "may," ''estimates'' and similar
expressions. We cannot guarantee that we will achieve these plans, intentions
or expectations. Because these statements apply to future events, they are
subject to risks and uncertainties that could cause actual results to differ
materially from those forecast or anticipated in the forward-looking statement.
These risks, uncertainties and factors include, but are not limited to:
. economic conditions, both generally and relative to the radio
broadcasting industry;
. risks associated with our acquisition strategy;
. the highly competitive nature of the broadcast industry;
. our high degree of leverage; and
. the other factors described in Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operation."
You should not place undue reliance on these forward-looking statements,
which reflect our view as of the date of this report. We undertake no
obligation to publicly update or revise any forward-looking statements because
of new information, future events or otherwise.
3
PART I
ITEM 1. BUSINESS
Overview
Radio One was founded in 1980 and is the seventh largest radio broadcasting
company in the United States based on 2001 pro forma net revenue. We are also
the largest radio broadcasting company in the United States primarily targeting
African-Americans. After we complete our pending acquisition in the Atlanta
market, we will own and/or operate 65 radio stations in 22 markets. Thirty-six
of these stations (26 FM and 10 AM) are in 14 of the top 20 African-American
radio markets. We also program five channels on the XM Satellite Radio system.
Our strategy is to expand within our existing markets and into new markets
that have a significant African-American presence. We believe radio
broadcasting primarily targeting African-Americans has significant growth
potential. We also believe that we have a competitive advantage in the
African-American market and the radio industry in general, due to our primary
focus on urban formats, our skill in programming and marketing these formats,
and our turnaround expertise.
Radio One is led by our Chairperson and co-founder, Catherine L. Hughes, and
her son, Alfred C. Liggins, III, our Chief Executive Officer and President, who
together have over 45 years of operating experience in radio broadcasting. Ms.
Hughes, Mr. Liggins and our strong management team have successfully
implemented a strategy of acquiring and turning around underperforming radio
stations. We believe that we are well positioned to apply our proven operating
strategy to our pending and recently acquired stations in Atlanta, Cincinnati,
Columbus, Dayton, Louisville and Minneapolis, and to other radio stations in
existing and new markets as attractive acquisition opportunities arise.
Significant 2001 Events
High Yield Bond Offering
On May 18, 2001, we completed a private offering of $300 million aggregate
principal amount of 8 7/8% senior subordinated notes due 2011 from which we
received net proceeds of approximately $291.8 million. We used these proceeds
to repay existing indebtedness and for other general corporate purposes. On
November 16, 2001, we consummated an exchange offer of outstanding 8 7/8%
senior subordinated notes for a like amount of 8 7/8% senior subordinated notes
which were registered under the Securities Act of 1933. In connection with this
transaction, we used $91.1 million of the proceeds to redeem our 12% senior
subordinated notes due 2004.
WHTA-FM Atlanta Acquisition
In June 2001, we entered into an agreement to acquire WHTA-FM (formerly
WPEZ-FM) licensed to Macon, Georgia, for approximately $55.0 million in cash.
Upon initiating our operation of this station under a local marketing agreement
in September 2001, we repositioned an existing format onto this stronger signal
to enhance our service to the Atlanta market. This acquisition increases the
number of stations that we own and/or operate in the Atlanta market to four. We
anticipate completing this acquisition during the second quarter of 2002.
Blue Chip Broadcasting Acquisition
On August 10, 2001, we completed the acquisition of Blue Chip Broadcasting,
Inc. for an aggregate purchase price of approximately $188.0 million in cash
and class D common stock. As a result of this acquisition, we own and/or
operate 16 radio stations in the following five markets: Cincinnati, Columbus,
Dayton, Louisville and Minneapolis. These stations complement our existing
business and are located in markets in which we did not previously operate.
4
Our Station Portfolio
We operate in many of the largest African-American markets. Since January 1,
2001, we have acquired or agreed to acquire and/or operate 26 radio stations
and have divested seven non-core stations. A more detailed description of the
acquisitions and divestitures of these stations is provided in this report
under the heading ''Recent and Pending Transactions.''
The table below provides information about the stations that we will own or
operate after giving effect to our pending Atlanta acquisition. Audience share
rank is determined by using a combination of African-American listenership
above a certain threshold in a given market and the average quarter hour share
rating for that station. Audience share data are for the 12+ demographic,
derived from the Arbitron Survey four book averages ending with the Fall 2001
Arbitron Survey. In the Miami market, we provide no audience share data because
we do not subscribe to the Arbitron service for our station, which is
programmed in a non-urban format. Except as otherwise noted above, information
in the table below is from BIA Investing in Radio Market Report ("BIA 2002
First Edition").
Radio One Stations and Markets
Radio One Market Data
----------------------------------- ---------------------------------------------
Number
of African-American Entire
Stations Market Market 2001 MSA Population
-------- ---------------- --------- ----------------------
Four Book
Average Estimated Ranking
(Ending 2001 by
Fall Annual Size of
Audience 2001) Radio African-
Share Audience Revenue American Total African-
Market FM AM Rank Share ($millions) Population (in millions) American%
------ -- -- ---------------- --------- ----------- ---------- ------------- ---------
Washington, DC 2 2 1 12.0 $347.7 3 4.6 28.5%
Atlanta....... 4 -- 2 6.6 326.3 4 4.2 29.9
Philadelphia.. 2 -- 3 5.3 287.0 5 5.1 21.2
Los Angeles... 1 -- 1 3.8 855.4 6 12.4 8.6
Detroit....... 2 1 2 6.3 252.1 7 4.6 22.6
Miami......... -- 1 n/a n/a 251.8 8 3.9 21.9
Houston....... 2 -- 1 12.6 309.8 9 4.7 17.3
Dallas........ 2 -- 3 4.0 374.6 10 5.2 14.3
Baltimore..... 2 2 1 16.2 126.4 11 2.6 28.1
St. Louis..... 1 -- 2 3.2 123.8 16 2.6 18.7
Cleveland..... 2 2 1 13.5 113.8 17 2.2 19.9
Boston........ 1 1 1 3.0 321.8 18 4.5 7.3
Charlotte..... 1 -- 2 3.2 110.3 19 1.5 21.0
Richmond...... 4 1 1 21.5 52.3 20 1.0 30.8
Raleigh-Durham 4 -- 1 19.9 77.9 22 1.2 23.2
Cincinnati.... 1 1 1 6.4 125.6 28 2.0 12.0
Indianapolis.. 3 1 1 14.6 90.7 31 1.5 15.0
Columbus...... 3 -- 1 11.6 94.6 32 1.6 13.9
Minneapolis... 1 -- 1 3.0 162.2 40 3.0 6.1
Augusta....... 4 1 1 14.3 16.3 44 0.5 35.1
Louisville.... 6 -- 1 24.0 53.1 48 1.1 14.2
Dayton........ 3 1 2 11.3 43.6 56 1.0 14.1
-- --
Total......... 51 14
== ==
5
The African-American Market Opportunity
We believe that operating urban-formatted radio stations primarily targeting
African-Americans has significant growth potential for the following reasons:
Rapid African-American Population Growth. From 1990 to 2000, the
African-American population increased from approximately 30.0 million to 36.4
million, a 21.3% increase, compared to a 12.0% increase in the
non-African-American population. Furthermore, the African-American population
is expected to increase to approximately 40.0 million by 2010, a 9.9% increase
from 2000, compared to an expected increase during the same period of 8.3% for
the non-African-American population. (Source: U.S. Census Bureau, Statistical
Abstract of the United States: 2001).
Higher African-American Income Growth. The economic status of
African-Americans improved at an above-average rate over the past two decades.
The per capita income of African-Americans increased 59.0% between 1980 and
2000, while that of the overall population increased 43.3%. (Source: "The U.S.
African-American Market," MarketResearch.com). African-American buying power
was estimated at $572.1 billion for 2001, up 85.9% from 1990, compared to an
increase of 70.4% for the overall population. In 2001, African-Americans
accounted for 8.1% of the nation's total buying power, up from 7.4% in 1990.
(Source: ''Buying Power at the Beginning of a New Century: Projections for 2000
and 2001,'' Dr. Jeffrey M. Humphreys). In addition, the African-American
consumer tends to have a different consumption profile than
non-African-Americans. An annual report published by Target Market News
provides a list of products and services for which African-American households
spent more than white households. In the most recent such annual report, there
were dozens of such products and services listed in categories such as apparel
and accessories, books, cars and trucks, consumer electronics, food, personal
care products, telephone service and transportation. (Source: The 2001 Report
on the Buying Power of Black America, Target Market News).
Growth in Advertising Targeting the African-American Market. We believe
that large corporate advertisers are becoming more focused on reaching minority
consumers in the United States. The African-American community is considered an
emerging growth market within the mature domestic market. It is estimated that
major national advertisers spent $1.6 billion on advertising that targets
African-American consumers in 2001, up from $803 million in 1993. (Source:
Target Market News, 2001). We believe many large corporations are expanding
their commitment to ethnic advertising.
Growing Influence of African-American Culture. We believe that there is an
ongoing ''urbanization'' of many facets of American society as evidenced by the
influence of African-American culture in the areas of music (for example,
hip-hop and rap music), film, fashion, sports and urban-oriented television
shows and networks. We believe that companies as disparate as the News
Corporation's Fox(R) television network, the sporting goods manufacturer
Nike(R), the fast food chain McDonald's(R), and prominent fashion designers
have embraced this urbanization trend in their products as well as their
advertising messages.
Growing Popularity of Radio Formats Primarily Targeting
African-Americans. We believe that urban programming has been expanded to
target a more diverse urban listener base and has become more popular with
listeners and advertisers over the past ten years. The number of urban radio
stations has increased from 450 in 1994 to 672 in 2001, or by 49.3%. (Source:
The M Street Corp., Format Trends from 1992 to 2001, Counts as of June 2001.)
In Fall 1999, urban formats were one of the top three formats in nine of the
top ten radio markets nationwide and the top format in four of these markets.
(Source: INTEREP, Research Division, June 2000 Regional Differences in Media
Usage Study).
Concentrated Presence of African-Americans in Urban Markets. In 2001,
approximately 71.1% of the African-American population was located in the top
60 African-American markets. (Source: BIA 2002 First Edition). Relative to
radio broadcasters targeting a broader audience, we believe we can cover the
various segments of our target market with fewer programming formats and
therefore fewer radio stations than the maximum per market allowed by the FCC.
6
Strong African-American Listenership and Loyalty. In 2001,
African-Americans, age 12 and older, spent 24.0 hours per week listening to
radio. This compares to 20.5 hours per week for all Americans, age 12 and
older. (Source: Arbitron 2001 Black Radio Today and Arbitron 2001 Radio Today,
2002). We believe that African-American radio listeners exhibit greater loyalty
to radio stations that target the African-American community because those
radio stations become a valuable source of entertainment and information
responsive to the community's interests and lifestyles.
Acquisition Strategy
Our acquisition strategy includes acquiring and turning around
underperforming radio stations principally in the top 60 African-American
markets. We also seek to make acquisitions in existing markets where expanded
coverage is desirable and in new markets where we believe it is advantageous to
establish a presence. For strategic reasons, or as a result of an acquisition
of multiple stations in a market, we may also acquire and operate stations with
formats that primarily target non-African-American segments of the population.
7
RECENT AND PENDING TRANSACTIONS
We have acquired or agreed to acquire and/or operate 26 radio stations since
January 1, 2001. These transactions diversify our net broadcast revenue,
broadcast cash flow and asset base. Since January 1, 2001, we have also
divested seven radio stations that were not core components of our business
strategy.
The table below sets forth information regarding each of the completed or
pending transactions since January 1, 2001.
Total
No. of Call Consideration Date
Stations Letters (in millions) Completed
- -------- ------- ------------- ---------
Completed Acquisitions
Dallas III......... 1 KTXQ-FM/(1)/ $ 52.6 2/01
Boston............. 1 WILD-AM 5.0/(2)/ 2/01
Indianapolis II.... 1 WTLC-AM 8.3/(3)/ 4/01
Cincinnati......... 2 WIZF-FM 188.0/(4)/ 8/01
WDBZ-AM/(5)/
Columbus........... 3 WCKX-FM
WXMG-FM
WJYD-FM
Dayton............. 4 WGTZ-FM
WDHT-FM/(6)/
WING-AM
WKSW-FM
Louisville......... 6 WDJX-FM
WBLO-FM/(7)/
WGZB-FM
WULV-FM
WMJM-FM
WLRS-FM
Minneapolis........ 1 KTTB-FM
Lexington.......... 1 WLXO-FM/(8)/
Richmond III....... 4 WCDX-FM 34.0 8/01
WJMO-FM/(9)/
WRHH-FM/(10)/
WGCV-AM/(11)/
Atlanta............ 1 WAMJ-FM/(12)/ -- --
-- ------
Subtotal........... 25 287.9
Pending Acquisition
Atlanta............ 1 WHTA-FM/(13)/ 55.0 --
-- ------
Total.............. 26 $342.9
== ======
Completed Divestitures
Richmond I......... 1 WDYL-FM $ 9.0 2/01
Richmond II........ 1 WARV-FM 1.0 2/01
Greenville......... 2 WJMZ-FM 43.5 2/01
WPEK-FM 2/01
Dallas............. 1 KJOI-AM/(14)/ 16.0 3/01
Kingsley........... 1 WJZZ-AM 0.2 7/01
Lexington.......... 1 WLXO-FM --/(15)/ 10/01
-- ------
Total.............. 7 $ 69.7
== ======
- --------
/(1)/ KTXQ-FM was formerly known as KDGE-FM.
/(2)/ We paid approximately $4.5 million in cash and issued 63,492 shares of
our class A common stock in this transaction.
/(3)/ The approximate purchase price of $8.3 million related to both the
acquisition of WTLC-AM and the acquisition of all of the intellectual
property of WTLC-FM (including the call letters). Approximately $1.1
million of the purchase price was allocated to the acquisition of WTLC-AM
and the remaining $7.2 million
8
was allocated to the completed acquisition of the intellectual property of
WTLC-FM. Prior to the acquisition of WTLC-AM, we operated the station under
a time brokerage agreement.
/(4)/ Total consideration of $188.0 million consisted of cash in the amount of
approximately $106.7 million and approximately 5.8 million shares of our
class D common stock. / /
/(5)/ We operate WDBZ-AM under a local marketing agreement.
/(6)/ WDHT-FM was formerly known as WING-FM.
/(7)/ We operate WBLO-FM under a local marketing agreement. As part of our
acquisition of Blue Chip Broadcasting, Inc., we obtained an option to
purchase WBLO-FM for a purchase price of $2.0 million. This option may
not be exercised until October 1, 2002.
/(8)/ We completed the sale of WLXO-FM during October 2001./ See footnote 15
below. /
/(9)/ WJMO-FM was formerly known as WJRV-FM.
/(10)/ WRHH-FM was formerly known as WPLZ-FM.
/(11)/ A third party currently operates WGCV-AM under a local marketing
agreement.
/(12) /We commenced operating WAMJ-FM under a local marketing agreement during
August 2001. WAMJ-FM was formerly known as WAWE-FM. We currently have no
rights to acquire WAMJ-FM.
/(13)/ We currently operate WHTA-FM under a local marketing agreement. WHTA-FM
was formerly known as WPEZ-FM.
/(14)/ KJOI-AM was formerly known as KLUV-AM.
/(15)/ In October 2001, we completed the sale of WLXO-FM for approximately
$400,000. All proceeds of the sale were paid to the former stockholders
of Blue Chip Broadcasting, Inc.
Completed Acquisitions
Dallas III--KTXQ-FM Acquisition
On February 1, 2001, we acquired the assets of KTXQ-FM (formerly KDGE-FM),
licensed to Gainesville, Texas, for approximately $52.6 million in cash. Prior
to the acquisition, we had been operating KTXQ-FM under a time brokerage
agreement.
Boston--WILD-AM Acquisition
On February 28, 2001, we acquired Nash Communications Corporation, which
owned and operated radio station WILD-AM, licensed to Boston, Massachusetts,
for approximately $4.5 million in cash and 63,492 shares of class A common
stock. Prior to the acquisition, we had been operating WILD-AM under a time
brokerage agreement since May 2000.
Indianapolis II--WTLC-AM and the Intellectual Property of WTLC-FM Acquisition
On January 30, 2001, we entered into a definitive agreement with Emmis
Communications to acquire all of the intellectual property of WTLC-FM
(including its call letters) and the assets of WTLC-AM, licensed to
Indianapolis, Indiana. The approximate purchase price of $8.3 million related
to both the acquisition of the intellectual property of WTLC-FM, which was
completed on February 15, 2001, and the acquisition of the assets of WTLC-AM,
which was completed on April 25, 2001. Prior to the acquisition, we had
operated WTLC-AM under a time brokerage agreement since February 16, 2001.
Following the acquisition of the WTLC-FM intellectual property, we commenced
operating our station formerly known as WBKS-FM under the call letters WTLC-FM.
Blue Chip Acquisition--WIZF-FM and WDBZ-AM in Cincinnati; WCKX-FM, WXMG-FM
and WJYD-FM in Columbus; WGTZ-FM, WDHT-FM (formerly WING-FM), WING-AM and
WKSW-FM in Dayton; WDJX-FM, WBLO-FM, WGZB-FM, WULV-FM, WMJM-FM and WLRS-FM in
Louisville; and KTTB-FM in Minneapolis
On August 10, 2001, we completed the acquisition of Blue Chip Broadcasting,
Inc., owner and/or operator of 16 radio stations (WIZF-FM, licensed to
Erlanger, Kentucky, WMJM-FM, licensed to Jeffersontown, Kentucky, WDJX-FM and
WULV-FM, licensed to Louisville, Kentucky, WLRS-FM, licensed to Shepherdsville,
Kentucky, WLXO-FM,
9
licensed to Stamping Ground, Kentucky, WGZB-FM, licensed to Corydon, Indiana,
KTTB-FM, licensed to Glencoe, Minnesota, WDHT-FM (formerly WING-FM), licensed
to Dayton, Ohio, WING-AM, licensed to Springfield, Ohio, WGTZ-FM, licensed to
Eaton, Ohio, WKSW-FM, licensed to Urbana, Ohio, WJYD-FM, licensed to London,
Ohio, WCKX-FM, licensed to Columbus, Ohio, WXMG-FM, licensed to Upper
Arlington, Ohio and WBLO-FM, licensed to Charlestown, Kentucky, which was
operated under a local marketing agreement, for approximately $106.7 million in
cash, and approximately 5.8 million shares of class D common stock. In
connection with the transaction, we entered into a local marketing agreement
with Blue Chip Communications, Inc. for WDBZ-AM, licensed to Cincinnati, Ohio.
Also, as part of the transaction, we obtained an option to purchase WBLO-FM for
a purchase price of $2.0 million. This option may not be exercised until
October 1, 2002.
Richmond III--WCDX-FM, WJMO-FM (formerly WJRV-FM), WRHH-FM (formerly
WPLZ-FM) and WGCV-AM Acquisition
On August 1, 2001, we acquired the assets of WCDX-FM, licensed to
Mechanicsville, Virginia; WJMO-FM (formerly WJRV-FM), licensed to Petersburg,
Virginia; WRHH-FM (formerly WPLZ-FM), licensed to Richmond, Virginia; and
WGCV-AM, licensed to Petersburg, Virginia, for approximately $34.0 million in
cash. We had operated WCDX-FM, WRHH-FM and WJMO-FM under a time brokerage
agreement since June 1, 1999.
Atlanta--WAMJ-FM Local Marketing Agreement
In August 2001, we commenced the operation of WAMJ-FM (formerly WAWE-FM),
licensed to Mableton, Georgia, under a local marketing agreement with the
Mableton Investment Group, LLC, an entity in which one of our executive
officers and one of our directors have an interest.
Pending Acquisition
Atlanta--WHTA-FM Acquisition
In June 2001, we entered into an agreement to acquire WHTA-FM (formerly
WPEZ-FM) licensed to Macon, Georgia, for approximately $55.0 million in cash.
Upon initiating our operation of this station under a local marketing agreement
in September 2001, we repositioned an existing format onto this stronger signal
to enhance our service to the Atlanta market. This acquisition increases the
number of stations that we own and/or operate in the Atlanta market to four. We
anticipate completing this acquisition during the second quarter of 2002.
Completed Divestitures
Richmond I--WDYL-FM Divestiture
On February 1, 2001, we sold WDYL-FM, licensed to Chester, Virginia, to Cox
Radio, Inc. for approximately $9.0 million in cash.
Richmond II--WARV-FM Divestiture
On February 1, 2001, we sold WARV-FM, licensed to Petersburg, Virginia, to
Honolulu Broadcasting, Inc. for approximately $1.0 million in cash.
Greenville--WJMZ-FM and WPEK-FM Divestiture
On February 1, 2001, we sold WJMZ-FM, licensed to Anderson, South Carolina,
and WPEK-FM, licensed to Seneca, South Carolina, to Cox Radio, Inc. for
approximately $43.5 million in cash.
Dallas--KJOI-AM Divestiture
On March 29, 2001, we sold KJOI-AM (formerly KLUV-AM) to Clear Channel
Communications for approximately $16.0 million. As part of this transaction,
Clear Channel Communications began operating the station under a time brokerage
agreement on February 1, 2001.
10
Kingsley--WJZZ-AM Divestiture
On July 25, 2001, we sold WJZZ-AM, licensed to Kingsley, Michigan, to Fort
Bend Broadcasting, Inc. for approximately $225,000. As part of this
transaction, Fort Bend Broadcasting, Inc. began operating the station under a
time brokerage agreement on February 7, 2001.
Lexington--WLXO-FM Divestiture
On October 24, 2001, we completed the sale of WLXO-FM, licensed to Stamping
Ground, Kentucky, for approximately $400,000. We had acquired WLXO-FM as part
of our August 10, 2001 acquisition of Blue Chip Broadcasting, Inc. All proceeds
of the sale were paid to the former stockholders of Blue Chip Broadcasting, Inc.
11
Top 60 African-American Radio Markets in the United States
In the table below, boxes and bold text indicate markets where we own and/or
operate radio stations. Population estimates are for 2001 and are based upon
data provided by BIA 2002 First Edition.
African-Americans
as a Percentage of
African-American the Overall
Population in the Population in the
Rank Market Market Market
- ---- ------ ----------------- ------------------
(in thousands)
1. New York, NY 3,771 21.0%
2. Chicago, IL 1,752 19.4
- ---------------------------------------------------------------------------------
3. Washington, DC 1,309 28.5
4. Atlanta, GA 1,255 29.9
5. Philadelphia, PA 1,071 21.2
6. Los Angeles, CA 1,070 8.6
7. Detroit, MI 1,043 22.6
8. Miami-Ft. Lauderdale-Hollywood, FL 860 21.9
9. Houston-Galveston, TX 820 17.3
10. Dallas-Ft. Worth, TX 745 14.3
11. Baltimore, MD 721 28.1
- ---------------------------------------------------------------------------------
12. San Francisco, CA 561 8.2
13. Memphis, TN 538 43.7
14. New Orleans, LA 495 38.3
15. Norfolk-Virginia Beach-Newport News, VA 494 32.5
- ---------------------------------------------------------------------------------
16. St. Louis, MO 488 18.7
17. Cleveland, OH 428 19.9
18. Boston, MA 330 7.3
19. Charlotte-Gastonia-Rock Hill, NC 320 21.0
20. Richmond, VA 310 30.8
- ---------------------------------------------------------------------------------
21. Birmingham, AL 286 28.7
- ---------------------------------------------------------------------------------
22. Raleigh-Durham, NC 281 23.2
- ---------------------------------------------------------------------------------
23. Milwaukee-Racine, WI 268 15.8
24. Greensboro-Winston Salem-High Point, NC 263 20.8
25. Tampa-St. Petersburg-Clearwater, FL 261 10.8
26. Nassau-Suffolk, NY 257 9.3
27. Jacksonville, FL 251 22.1
- ---------------------------------------------------------------------------------
28. Cincinnati, OH 239 12.0
- ---------------------------------------------------------------------------------
29. Kansas City, MO 237 13.4
30. Orlando, FL 234 16.0
- ---------------------------------------------------------------------------------
31. Indianapolis, IN 224 15.0
32. Columbus, OH 222 13.9
- ---------------------------------------------------------------------------------
33. Middlesex-Somerset-Union, NJ 217 13.7
34. Jackson, MS 204 46.0
35. Nashville, TN 200 16.0
36. Pittsburgh, PA 198 8.4
37. Baton Rouge, LA 197 32.3
38. Seattle-Tacoma, WA 194 5.4
39. San Diego, CA 184 6.5
- ---------------------------------------------------------------------------------
40. Minneapolis-St. Paul, MN 182 6.1
- ---------------------------------------------------------------------------------
41. Columbia, SC 178 32.7
42. Charleston, SC 173 31.3
43. W. Palm Beach-Boca Raton, FL 173 15.0
- ---------------------------------------------------------------------------------
44. Augusta, GA 169 35.1
- ---------------------------------------------------------------------------------
45. Greenville-Spartanburg, SC 162 17.6
46. Riverside-San Bernardino, CA 157 8.4
47. Greenville-New Bern-Jacksonville, NC 156 26.7
12
African-Americans
as a Percentage of
African-American the Overall
Population in the Population in the
Rank Market Market Market
---- ------------------------- ----------------- ------------------
(in thousands)
-------------------------------------------------------------------
48. Louisville, KY 151 14.2
-------------------------------------------------------------------
49. Mobile, AL 150 27.6
50. Shreveport, LA 149 37.9
51. Sacramento, CA 146 7.9
52. Buffalo-Niagara Falls, NY 144 12.3
53. Westchester, NY 144 15.5
54. Fayetteville, NC 143 33.3
55. Lafayette, LA 141 27.4
-------------------------------------------------------------------
56. Dayton, OH 140 14.1
-------------------------------------------------------------------
57. Las Vegas, NV 139 9.8
58. Phoenix, AZ 135 4.3
59. Denver-Boulder, CO 134 5.5
60. Montgomery, AL 132 39.4
Operating Strategy
To maximize net broadcast revenue and broadcast cash flow at our radio
stations, we strive to achieve the largest audience share of African-American
listeners in each market, convert these audience share ratings to advertising
revenue, and control operating expenses. Through our national presence we also
provide advertisers with a radio station advertising platform that is a unique
and powerful delivery mechanism to African-Americans. The success of our
strategy relies on the following:
. market research, targeted programming and marketing;
. strong management and performance-based incentives;
. strategic sales efforts;
. radio station clustering, programming segmentation and sales bundling;
. marketing platform to national advertisers;
. advertising partnerships and special events; and
. significant community involvement.
Market Research, Targeted Programming and Marketing
Radio One uses market research to tailor the programming, marketing and
promotions of our radio stations to maximize audience share. To achieve these
goals, we use market research to identify unserved or underserved markets or
segments of the African-American community in current and new markets and to
determine whether to acquire a new radio station or reprogram one of our
existing radio stations to target those markets or segments.
We also seek to reinforce our targeted programming by creating a distinct
and marketable identity for each of our radio stations. To achieve this
objective, in addition to our significant community involvement discussed
below, we employ and promote distinct, high-profile on-air personalities at
many of our radio stations, many of whom have strong ties to the
African-American community.
Strong Management and Performance-based Incentives
Radio One focuses on hiring highly motivated and talented individuals in
each functional area of the organization who can effectively help us implement
our growth and operating strategies. Radio One's management team is comprised
of a diverse group of individuals who bring expertise to their respective
13
functional areas. We seek to hire and promote individuals with significant
potential, the ability to operate with high levels of autonomy and the
appropriate team orientation that will enable them to pursue their careers
within the organization.
To enhance the quality of our management in the areas of sales and
programming, general managers, sales managers and program directors have
significant portions of their compensation tied to the achievement of certain
performance goals. General managers' compensation is based partially on
achieving broadcast cash flow benchmarks which create an incentive for
management to focus on both sales growth and expense control. Additionally,
sales managers and sales personnel have incentive packages based on sales
goals, and program directors and on-air talent have incentive packages focused
on maximizing overall ratings as well as ratings in specific target segments.
Radio Station Clustering, Programming Segmentation and Sales Bundling
We strive to build clusters of radio stations in our markets, with each
radio station targeting different demographic segments of the African-American
population. This clustering and programming segmentation strategy allows us to
achieve greater penetration into each segment of our target market. We are then
able to offer advertisers multiple audiences and to bundle the radio stations
for advertising sales purposes when advantageous.
We believe there are several potential benefits that result from operating
multiple radio stations in the same market. First, each additional radio
station in a market provides us with a larger percentage of the prime
advertising time available for sale within that market. Second, the more
stations we program, the greater the market share we can achieve in our target
demographic groups through the use of segmented programming. Third, we are
often able to consolidate sales, promotional, technical support and corporate
functions to produce substantial cost savings. Finally, the purchase of
additional radio stations in an existing market allows us to take advantage of
our market expertise and existing relationships with advertisers.
Strategic Sales Efforts
Radio One has assembled an effective, highly trained sales staff responsible
for converting audience share into revenue. We operate with a focused,
sales-oriented culture which rewards aggressive selling efforts through a
generous commission and bonus compensation structure. We hire and deploy large
teams of sales professionals for each of our stations or station clusters, and
we provide these teams with the resources necessary to compete effectively in
the markets in which we operate. We utilize various sales strategies to sell
and market our stations as stand-alones, in combination with other stations
within a given market and across markets, where appropriate.
Marketing Platform to National Advertisers
Through our acquisitions, we have created a national platform of radio
stations in some of the largest African-American markets. This platform reaches
over 10 million listeners weekly, more than any other media vehicle primarily
targeting African-Americans. Thus, national advertisers find advertising on all
our radio stations an efficient and cost-effective way to reach this target
audience. Through our corporate sales department we bundle and sell this
national platform of radio stations to national advertisers thereby enhancing
our revenue generating opportunities, expanding our base of advertisers,
creating greater demand for our advertising time inventory and increasing the
capacity utilization of our inventory and making our sales effort more
efficient.
Advertising Partnerships and Special Events
We believe that in order to create advertising loyalty, we must strive to be
the recognized expert in marketing to the African-American consumer in the
markets in which we operate. We believe that we have achieved this recognition
by focusing on serving the African-American consumer and by creating innovative
advertising campaigns and promotional tie-ins with our advertising clients and
sponsoring numerous entertainment events each year. In these events,
advertisers buy signage, booth space and broadcast promotions to sell a variety
of goods and services to African-American consumers. As we expand our presence
in our existing markets and into new markets, we plan to increase the number of
events and the number of markets in which we host these major events.
14
Significant Community Involvement
We believe our active involvement and significant relationships in the
African-American community provide a competitive advantage in targeting
African-American audiences. In this way, we believe our proactive involvement
in the African-American community in each of our markets significantly improves
the marketability of our radio broadcast time to advertisers who are targeting
such communities.
We believe that a radio station's image should reflect the lifestyle and
viewpoints of the target demographic group it serves. Due to our fundamental
understanding of the African-American community, we believe we are able to
identify music and musical styles, as well as political and social trends and
issues, early in their evolution. This understanding is then integrated into
all aspects of our operations and enables us to create enhanced awareness and
name recognition in the marketplace. In addition, we believe our multi-level
approach to community involvement leads to increased effectiveness in
developing and updating our programming formats. We believe our enhanced
awareness and more effective programming formats lead to greater listenership
and higher ratings over the long term.
Turnaround Expertise
Many of the stations we have acquired have been, in our opinion,
underperforming. By implementing our operating strategy, we have succeeded in
increasing the ratings, net broadcast revenue and broadcast cash flow of many
of the FM stations we have owned and/or operated. We have achieved these
improvements while, in many instances, competing against larger media
companies. Our turnaround strategy has been especially successful with respect
to our operations in Washington, D.C., Los Angeles, Detroit, Atlanta,
Philadelphia, Baltimore, Dallas, Cleveland, Boston and Richmond.
Our Station Portfolio
The following table sets forth selected information about our portfolio of
radio stations. Market population data and revenue rank data are from BIA 2002
First Edition. Audience share and audience rank data are based on Arbitron
Survey four book averages ending with the Fall 2001 Arbitron Survey unless
otherwise noted. As used in this table, "n/a" means not applicable or not
available and ''t'' means tied with one or more radio stations.
15
Market Rank Four Book Average
------------------ --------------------------------
Audience Audience Audience Audience
Share in Rank in Share in Rank in
2001 2001 12+ 12+ Target Target
Metro Radio Year Target Age Demo- Demo- Demo- Demo-
Market Population Revenue Acquired Format Demographic Graphic Graphic Graphic Graphic
- -------------- ---------- ------- -------- ----------------- ----------- -------- -------- -------- --------
Washington, DC 7 6
WKYS-FM...... 1995 Urban 18-34 5.3 2(t) 10.7 2
WMMJ-FM...... 1987 Urban AC 25-54 5.3 2(t) 6.2 1
WYCB-AM...... 1998 Gospel 25-54 0.7 27(t) 0.5 31(t)
WOL-AM....... 1980 Urban Talk 25-54 0.7 27(t) 0.6 29(t)
Atlanta 11 7
WPZE-FM...... 1999 Gospel 25-54 n/a n/a n/a n/a
WJZZ-FM...... 1999 NAC/Jazz 25-54 2.7 17 3.4 13
WHTA-FM/(1)/. (pending) Urban 18-34 3.9 10 6.9 3(t)
WAMJ-FM/(2)/. n/a Urban AC 25-54 n/a n/a n/a n/a
Philadelphia 6 10
WPHI-FM...... 1997 Urban 18-34 2.8 14(t) 5.5 5(t)
WPLY-FM...... 2000 Alternative Rock 18-34 2.5 16 5.4 7
Los Angeles 2 1
KKBT-FM...... 2000 Urban 18-34 3.8 7 5.7 4
Detroit 10 11
WDTJ-FM...... 1998 Urban 18-34 4.1 10 7.7 4
WDMK-FM...... 1998 Urban AC 25-54 1.5 21 1.9 19
WCHB-AM...... 1998 Urban Talk/Gospel 35+ 0.6 27 0.8 26
Miami 12 12
WVCG-AM/(3)/. 2000 Ethnic 35-64 n/a n/a n/a n/a
Houston 9 9
KMJQ-FM...... 2000 Urban AC 25-54 6.1 3 7.3 2
KBXX-FM...... 2000 Urban 18-34 6.5 2 10.4 1
Dallas 5 5
KBFB-FM...... 2000 Urban 18-34 3.1 14 5.3 7
KTXQ-FM/(4)/. 2001 Urban AC 25-54 0.8 29(t) 1.0 25(t)
Baltimore 20 19
WERQ-FM...... 1993 Urban 18-34 9.6 1 17.9 1
WWIN-FM...... 1992 Urban AC 25-54 5.9 4 7.6 3
WOLB-AM...... 1992 Urban Talk 25-54 n/a n/a n/a n/a
WWIN-AM...... 1993 Gospel 35+ 0.7 18 0.8 17
St. Louis 19 21
WFUN-FM...... 1999 Urban 18-34 3.2 15(t) 6.8 4
Cleveland 25 23
WENZ-FM...... 1999 Urban 18-34 6.2 4 12.2 1
WERE-AM...... 1999 News/Talk 25-54 -- -- -- --
WZAK-FM...... 2000 Urban AC 25-54 5.9 6 7.1 4(t)
WJMO-AM...... 2000 Gospel 35-64 1.4 18 1.5 16(t)
Boston 8 8
WBOT-FM...... 1999 Urban 18-34 1.8 19 3.6 9
WILD-AM...... 2001 Urban AC 25-54 1.2 23(t) 1.5 20(t)
Charlotte 37 25
WCHH-FM/(5)/. 2000 Urban 18-34 3.2 14 5.3 5(t)
Richmond 56 48
WCDX-FM...... 2001 Urban 18-34 10.5 1 19.7 1
WKJS-FM...... 1999 Urban AC 25-54 5.3 6 6.4 5
WJMO-FM/(6)/. 2001 R&B/Oldies 25-54 4.9 8 5.8 6
WRHH-FM/(7)/. 2001 Urban 18-34 n/a n/a n/a n/a
WGCV-AM/(8)/. 2001 Gospel 35-64 0.7 23(t) 0.6 25
Raleigh-Durham 46 37
WQOK-FM...... 2000 Urban 18-34 8.4 1 14.2 1
WFXK-FM...... 2000 Urban AC 25-54 2.4 15 3.2 15
WFXC-FM...... 2000 Urban AC 25-54 3.0 13(t) 3.7 13(t)
WNNL-FM...... 2000 Gospel 25-54 6.1 4(t) 6.4 5
16
Market Rank Four Book Average
------------------ --------------------------------
Audience Audience Audience Audience
Target Share in Rank in Share in Rank in
2001 2001 Age 12+ 12+ Target Target
Metro Radio Year Demo- Demo- Demo- Demo- Demo-
Market Population Revenue Acquired Format Graphic Graphic Graphic Graphic Graphic
- ------------------ ---------- ------- -------- ---------------- ------- -------- -------- -------- --------
Cincinnati
- ---------- 26 20
WIZF-FM 2001 Urban 18-34 5.5 5 8.4 3
WDBZ-AM/(9)/ n/a Urban Talk 35-64 0.9 18 1.1 15
Indianapolis/(10)/ 40 30
WHHH-FM 2000 CHR 18-34 5.4 7 9.1 3
WTLC-FM/(11)/ 2000 Urban AC 25-54 5.7 5(t) 6.2 4
WYJZ-FM 2000 NAC/Jazz 25-54 2.2 15 2.1 15
WTLC-AM 2001 Young Gospel 25-54 1.3 18 0.9 19
Columbus
- -------- 36 29
WCKX-FM 2001 Urban 18-34 7.7 3 11.4 2
WXMG-FM 2001 R&B/Oldies 25-54 2.7 10 3.4 9
WJYD-FM 2001 Gospel 25-54 1.2 22 1.3 20(t)
Minneapolis
- ----------- 16 16
KTTB-FM 2001 Urban 18-34 3.0 12(t) 4.8 8
Augusta/(12)/ 112 117
WAEG-FM 2000 R&B/Oldies 25-54 0.4 25(t) 0.5 24
WAEJ-FM 2000 R&B/Oldies 25-54 0.7 22(t) 0.2 28
WAKB-FM 2000 Urban AC 25-54 3.7 12(t) 5.4 8
WFXA-FM 2000 Urban 18-34 8.0 2 10.8 3
WTHB-AM 2000 Gospel 35+ 1.5 17 1.8 16(t)
Louisville
- ---------- 55 47
WDJX-FM 2001 CHR 18-34 6.9 3 10.3 2
WBLO-FM/(13)/ n/a Urban 18-34 3.4 10 6.3 5(t)
WGZB-FM 2001 Urban AC 18-34 5.5 5 7.8 4
WULV-FM 2001 Soft AC 25-54 2.9 11(t) 3.6 11
WMJM-FM 2001 R&B/Oldies 25-54 2.4 15 2.6 12
WLRS-FM 2001 Alternative 18-34 2.9 11(t) 6.3 5(t)
Dayton
- ------ 58 51
WGTZ-FM 2001 CHR 18-34 4.8 6 8.0 5
WDHT-FM/(14)/ 2001 Urban 18-34 4.6 8(t) 5.9 8
WING-AM 2001 News/Sports/Talk 25-54 0.8 19 1.0 15
WKSW-FM 2001 Country 25-54 1.1 16 0.9 16(t)
- --------
/(1)/ We commenced operating WHTA-FM under a local marketing agreement during
September 2001. We have entered into an agreement to acquire WHTA-FM and
expect to complete the acquisition during the second quarter of 2002.
WHTA-FM was formerly known as WPEZ-FM.
/(2)/ We commenced operating WAMJ-FM under a local marketing agreement during
August 2001. WAMJ-FM was formerly known as WAWE-FM.
/(3)/ We do not subscribe to the Arbitron service for this market.
/(4)/ KTXQ-FM was formerly known as KDGE-FM.
/(5)/ WCHH-FM was formerly known as WCCJ-FM.
/(6)/ WJMO-FM was formerly known as WJRV-FM.
/(7)/ WRHH-FM was formerly known as WPLZ-FM.
/(8)/ A third party operates WGCV-AM under a local marketing agreement.
/(9)/ We operate WDBZ-AM pursuant to a local marketing agreement.
/(10) WDNI-LP (formerly W53AV), the low power television station that we
acquired in Indianapolis in June 2000, is not included in this table. /
/(11)/ WTLC-FM was formerly known as WBKS-FM.
/(12)/ For the Augusta market, Arbitron issues its radio market survey reports
on a semi-annual basis, rather than a quarterly basis as in our other
markets.
/(13)/ We currently operate WBLO-FM under a local marketing agreement. As part
of our acquisition of Blue Chip Broadcasting, Inc., we obtained an
option to purchase WBLO-FM for a purchase price of $2.0 million. This
option may not be exercised until October 1, 2002.
/(14)/ WDHT-FM was formerly known as WING-FM.
17
Advertising Revenue
Substantially all of our net broadcast revenue is generated from the sale of
local and national advertising for broadcast on our radio stations. Additional
net broadcast revenue is generated from network compensation payments and other
miscellaneous transactions. Local sales are made by the sales staffs located in
our markets. National sales are made by firms specializing in radio advertising
sales on the national level, in exchange for a commission from Radio One that
is based on a percentage of our net broadcast revenue from the advertising
obtained. Approximately 73% of our net broadcast revenue for the year ended
December 31, 2001 was generated from the sale of local advertising and 25% from
sales to national advertisers, including network advertising. The balance of
net broadcast revenue is derived from tower rental income, ticket and other
revenue related to special events hosted by Radio One.
We believe that advertisers can reach the African-American community more
cost effectively through radio broadcasting than through newspapers or
television. Advertising rates charged by radio stations are based primarily on:
. a radio station's audience share within the demographic groups targeted
by the advertisers;
. the number of radio stations in the market competing for the same
demographic groups; and
. the supply and demand for radio advertising time.
Advertising rates are generally highest during the morning and afternoon
commuting hours.
A radio station's listenership is reflected in ratings surveys that estimate
the number of listeners tuned to a radio station and the time they spend
listening to that radio station. Each radio station's ratings are used by its
advertisers to consider advertising with the radio station, and are used by us
to chart audience growth, set advertising rates and adjust programming.
Strategic Diversification
We continue to explore opportunities in other forms of media that are
complementary to our core radio business which will allow us to leverage our
expertise in marketing to African-Americans and our significant listener base.
Such opportunities could include an urban-oriented cable network, an
urban-oriented radio network, outdoor advertising in urban environments, music
production, publishing and other related businesses. To that end we currently
have investments in:
. iBiquity Digital Corporation, a leading developer of in-band on-channel
digital broadcast technology;
. PNE Media Holdings, LLC, a privately-held outdoor advertising company
with a presence in several of the markets in which we own radio stations;
. New Urban Entertainment Television, an urban-oriented cable television
programmer; and
. Quetzal/J.P. Morgan Partners, L.P., an entity formed for the purpose of
investing in minority-owned telecommunications entities.
Competition
The radio broadcasting industry is highly competitive. Radio One's stations
compete for audiences and advertising revenue with other radio stations and
with other media such as television, the Internet, newspapers, direct mail and
outdoor advertising, some of which may be controlled by horizontally-integrated
companies. Audience ratings and advertising revenue are subject to change and
any adverse change in a market could adversely affect our net broadcast revenue
in that market. If a competing station converts to a format similar to that of
one of our stations, or if one of our competitors strengthens its operations,
our stations could suffer a reduction in ratings and advertising revenue. Other
radio companies which are larger and have more resources
18
may also enter markets where we operate. Although we believe our stations are
well positioned to compete, we cannot assure you that our stations will
maintain or increase their current ratings or advertising revenue.
The radio broadcasting industry is also subject to technological change,
evolving industry standards and the emergence of new media technologies.
Several new media technologies have been or are being developed, including the
following:
. audio programming by cable television systems, direct broadcast
satellite systems, Internet content providers (both landline and
wireless) and other digital audio broadcast formats;
. satellite digital audio radio service, which has resulted in the
introduction of two new subscriber-based satellite radio services with
numerous channels and sound quality equivalent to that of compact discs;
. in-band on-channel digital radio, which could provide multi-channel,
multi-format digital radio services in the same bandwidth currently
occupied by traditional AM and FM radio services; and
. low power FM radio, which has resulted in additional FM radio broadcast
outlets that are designed to serve localized areas.
We are party to a programming agreement with XM Satellite Radio Inc., a
satellite digital audio radio service and have also invested in iBiquity
Digital Corporation, a developer of digital audio broadcast technology.
However, we cannot assure you that these arrangements will be successful or
enable us to adapt effectively to these new media technologies. We also cannot
assure you that we will continue to have the resources to acquire other new
technologies or to introduce new services that could compete with other new
technologies.
Antitrust Regulation
An important part of our growth strategy is the acquisition of additional
radio stations. The agencies responsible for enforcing the federal antitrust
laws, the Federal Trade Commission and the Department of Justice, may
investigate certain acquisitions. After the passage of the Telecommunications
Act of 1996, the Department of Justice became more aggressive in reviewing
proposed acquisitions of radio stations. The Justice Department is particularly
aggressive when the proposed buyer already owns one or more radio stations in
the market of the station it is seeking to buy. The Justice Department has
challenged a number of radio broadcasting transactions. Some of those
challenges ultimately resulted in consent decrees requiring, among other
things, divestitures of certain stations. In general, the Justice Department
has more closely scrutinized radio broadcasting acquisitions that would result
in local market shares as a significant percentage of radio advertising
revenue. Pursuant to a recent Memorandum of Agreement between the Justice
Department and the FTC, the Justice Department will now have primary
responsibility for merger reviews and antitrust enforcement in the media,
including the broadcast industry.
We cannot predict the outcome of any specific Department of Justice or FTC
investigation. Any decision by the Department of Justice or FTC to challenge a
proposed acquisition could affect our ability to consummate an acquisition or
to consummate it on the proposed terms. For an acquisition meeting certain size
thresholds, the Hart-Scott-Rodino Act requires the parties to file Notification
and Report Forms concerning antitrust issues with the Department of Justice and
the FTC and to observe specified waiting period requirements before
consummating the acquisition. If the investigating agency raises substantive
issues in connection with a proposed transaction, then the parties frequently
engage in lengthy discussions or negotiations with the investigating agency
concerning possible means of addressing those issues, including restructuring
the proposed acquisition or divesting assets. In addition, the investigating
agency could file suit in federal court to enjoin the acquisition or to require
the divestiture of assets, among other remedies. Acquisitions that are not
required to be reported under the Hart-Scott-Rodino Act may be investigated by
the Department of Justice or the FTC under the antitrust laws before or after
consummation. In addition, private parties may under certain circumstances
bring legal action to challenge an acquisition under the antitrust laws. As
part of its increased scrutiny of radio station acquisitions, the Department of
Justice has stated publicly that it believes that local marketing agreements,
joint sales
19
agreements, time brokerage agreements and other similar agreements customarily
entered into in connection with radio station transfers could violate the
Hart-Scott-Rodino Act if such agreements take effect prior to the expiration of
the waiting period under the Hart-Scott-Rodino Act. Furthermore, the Department
of Justice has noted that joint sales agreements may raise antitrust concerns
under Section 1 of the Sherman Act and has challenged joint sales agreements in
certain locations. As indicated above, the Department of Justice also has
stated publicly that it has established certain revenue and audience share
concentration benchmarks with respect to radio station acquisitions, above
which a transaction may receive additional antitrust scrutiny. However, to
date, the Department of Justice has also investigated transactions that do not
meet or exceed these benchmarks and has cleared transactions that do exceed
these benchmarks.
Similarly, the Federal Communications Commission staff has adopted
procedures to review proposed radio broadcasting transactions even if the
proposed acquisition otherwise complies with the FCC's ownership limitations.
In particular, the FCC may "flag" assignment and transfer control applications
that raise competitive concerns, and the staff may conduct a public interest
analysis, including a competitive analysis of the particular market. However,
the FCC has expressed its intent to resolve expeditiously those applications
that require a competitive analysis, and has established a timetable for staff
review and disposition of such applications.
Federal Regulation of Radio Broadcasting
The radio broadcasting industry is subject to extensive and changing
regulation by the FCC of programming, technical operations, employment and
other business practices. The FCC regulates radio broadcast stations pursuant
to the Communications Act of 1934, as amended. The Communications Act permits
the operation of radio broadcast stations only in accordance with a license
issued by the FCC upon a finding that the grant of a license would serve the
public interest, convenience and necessity. The Communications Act provides for
the FCC to exercise its licensing authority to provide a fair, efficient and
equitable distribution of broadcast service throughout the United States. Among
other things, the FCC:
. assigns frequency bands for radio broadcasting;
. determines the particular frequencies, locations, operating power, and
other technical parameters of radio broadcast stations;
. issues, renews, revokes and modifies radio broadcast station licenses;
. establishes technical requirements for certain transmitting equipment
used by radio broadcast stations;
. adopts and implements regulations and policies that directly or
indirectly affect the ownership, operation, program content and
employment and business practices of radio broadcast stations; and
. has the power to impose penalties, including monetary forfeitures, for
violations of its rules and the Communications Act.
General. The Communications Act prohibits the assignment of an FCC license,
or other transfer of control of an FCC licensee, without the prior approval of
the FCC. In determining whether to grant requests for consents to assignments
or transfers, and in determining whether to grant or renew a radio broadcast
license, the FCC considers a number of factors pertaining to the licensee (and
any proposed licensee), including restrictions on foreign ownership, compliance
with FCC media ownership limits and other FCC rules, the character of the
licensee and those persons holding attributable interests in the licensee, and
compliance with the Anti-Drug Abuse Act of 1988.
The following is a brief summary of certain provisions of the Communications
Act and specific FCC rules and policies. This summary does not purport to be a
complete listing of all of the regulations and policies affecting radio
stations and is qualified in its entirety by the text of the Communications
Act, the FCC's rules, regulations and policies, and the rulings and public
notices of the FCC. You should refer to the Communications Act and these FCC
notices, rules and rulings for further information concerning the nature and
extent of federal regulation of radio broadcast stations.
20
A licensee's failure to comply with the requirements of the Communications
Act or FCC rules and policies may result in the imposition of various
sanctions, including admonishment, fines, the grant of a license renewal of
less than a full eight-year term, the grant of a license or license renewal
with conditions or, for particularly egregious violations, the denial of a
license renewal application, the revocation of an FCC license and/or the denial
of FCC consent to acquire additional broadcast properties.
Congress and the FCC have had under consideration or reconsideration, and
may in the future consider and adopt, new laws, regulations and policies
regarding a wide variety of matters that could, directly or indirectly, affect
the operation, ownership and profitability of our radio stations, result in the
loss of audience share and advertising revenue for our radio broadcast stations
or affect our ability to acquire additional radio broadcast stations or finance
such acquisitions. Such matters include or may include:
. changes to the license authorization and renewal process;
. proposals to impose spectrum use or other fees on FCC licensees;
. fees for radio stations streaming audio over the Internet;
. restatement in revised form of the FCC's equal employment opportunity
rules;
. proposals to change rules relating to political broadcasting including
proposals to grant free air time to candidates, and other changes
regarding political and non-political program content;
. proposals to restrict or prohibit the advertising of beer, wine and
other alcoholic beverages;
. technical and frequency allocation matters;
. the implementation of digital audio broadcasting on both a satellite and
terrestrial basis;
. changes in broadcast multiple ownership, foreign ownership,
cross-ownership and ownership attribution policies, including the
definition of the local market for multiple ownership purposes;
. proposals to allow telephone companies to deliver audio and video
programming to homes in their service areas; and
. proposals to alter provisions of the tax laws affecting broadcast
operations and acquisitions.
Finally, the FCC has adopted procedures for the auction of broadcast
spectrum in circumstances where two or more parties have filed mutually
exclusive applications for authority to construct new stations or certain major
changes in existing stations. Such procedures may limit our efforts to modify
or expand the broadcast signals of our stations.
We cannot predict what changes, if any, might be adopted, nor can we predict
what other matters might be considered in the future, nor can we judge in
advance what impact, if any, the implementation of any particular proposals or
changes might have on our business.
FCC License Grants and Renewals
The Communications Act provides that a broadcast station license may be
granted to any applicant if the public interest, convenience and necessity will
be served thereby, subject to certain limitations. In making licensing
determinations, the FCC considers an applicant's legal, technical, financial
and other qualifications. The FCC grants radio broadcast station licenses for
specific periods of time and, upon application, may renew them for additional
terms. A station may continue to operate beyond the expiration date of its
license if a timely filed license renewal application is pending. Under the
Communications Act, radio broadcast station licenses may be granted for a
maximum term of eight years.
Generally, the FCC renews radio broadcast licenses without a hearing upon a
finding that:
. the radio station has served the public interest, convenience and
necessity;
. there have been no serious violations by the licensee of the
Communications Act or FCC rules and regulations; and
21
. there have been no other violations by the licensee of the
Communications Act or FCC rules and regulations which, taken together,
indicate a pattern of abuse.
After considering these factors, the FCC may grant the license renewal
application with or without conditions, including renewal for a term less than
the maximum otherwise permitted, or hold an evidentiary hearing to determine
whether, or under what conditions, the renewal should be granted.
In addition, the Communications Act authorizes the filing of petitions to
deny a license renewal application during specific periods of time after a
renewal application has been filed. Interested parties, including members of
the public, may use such petitions to raise issues concerning a renewal
applicant's qualifications. If a substantial and material question of fact
concerning a renewal application is raised by the FCC or other interested
parties, or if for any reason the FCC cannot determine that grant of the
renewal application would serve the public interest, convenience and necessity,
the FCC will hold an evidentiary hearing on the application. If as a result of
an evidentiary hearing the FCC determines that the licensee has failed to meet
the requirements specified above and that no mitigating factors justify the
imposition of a lesser sanction, then the FCC may deny a license renewal
application. Only after a license renewal application is denied will the FCC
accept and consider competing applications for the vacated frequency. Also,
during certain periods when a renewal application is pending, the
transferability of the applicant's license may be restricted. Historically, our
licenses have been renewed without any conditions or sanctions imposed.
However, there can be no assurance that the licenses of each of our stations
will be renewed or will be renewed without conditions or sanctions.
Types of FCC Broadcast Licenses. The FCC classifies each AM and FM radio
station. An AM radio station operates on either a clear channel, regional
channel or local channel. A clear channel is one on which AM radio stations are
assigned to serve wide areas, particularly at night. Clear channel AM radio
stations are classified as either: (1) Class A radio stations, which operate
unlimited time and are designed to render primary and secondary service over an
extended area, or (2) Class B radio stations, which operate unlimited time and
are designed to render service only over a primary service area. Class D radio
stations, which operate either daytime, during limited times only, or unlimited
time with low nighttime power, may operate on the same frequencies as clear
channel radio stations. A regional channel is one on which Class B and Class D
AM radio stations may operate and serve primarily a principal center of
population and the rural areas contiguous to it. A local channel is one on
which AM radio stations operate unlimited time and serve primarily a community
and the suburban and rural areas immediately contiguous to it. A Class C AM
radio station operates on a local channel and is designed to render service
only over a primary service area that may be reduced as a consequence of
interference.
FM class designations depend upon the geographic zone in which the
transmitter of the FM radio station is located. The minimum and maximum
facilities requirements for an FM radio station are determined by its class. In
general, commercial FM radio stations are classified as follows, in order of
increasing power and antenna height: Class A, B1, C3, B, C2, C1, C0 and C. The
FCC has adopted a rule that subjects Class C FM stations that do not satisfy a
certain antenna height requirement to an involuntary downgrade in class to
Class C0 under certain circumstances.
22
Radio One's Licenses. The following table sets forth information with
respect to each of our radio stations. A broadcast station's market may be
different from its community of license. "ERP" refers to the effective radiated
power of an FM radio station. "HAAT" refers to the antenna height above average
terrain of an FM radio station. The coverage of an AM radio station is chiefly
a function of the power of the radio station's transmitter, less dissipative
power losses and any directional antenna adjustments. For FM radio stations,
signal coverage area is chiefly a function of the ERP of the radio station's
antenna and the HAAT of the radio station's antenna. The height of an AM radio
station's antenna is measured in meters and the height of an FM radio station's
antenna is measured by reference to HAAT.
ERP (FM) Antenna
Power Height (AM) Expiration
Station Call Year of FCC (AM) in HAAT (FM) Operating Date of FCC
Market Letters Acquisition Class Kilowatts in Meters Frequency License
- ------ ------------ ----------- ----- --------- ----------- --------- -----------
Washington, DC WOL-AM 1980 C 1.0 90.8 1450 kHz 10/01/2003
WMMJ-FM 1987 A 2.9 146.0 102.3 MHz 10/01/2003
WKYS-FM 1995 B 24.5 215.0 93.9 MHz 10/01/2003
WYCB-AM 1998 C 1.0 81.9 1340 kHz 10/01/2003
Atlanta WPZE-FM 1999 C3 7.9 175.0 97.5 MHz 04/01/2004
WJZZ-FM 1999 C3 25.0 100.0 107.5 MHz 04/01/2004
WHTA-FM /(1)/ C2 41.0 150.0 107.9 MHz 04/01/2004
WAMJ-FM /(2)/ A 3.0 143.0 102.5 MHz 04/01/2004
Philadelphia WPHI-FM 1997 A 0.34/(3)/ 305.0 103.9 MHz 08/01/2006
WPLY-FM 2000 B 35.0 183.0 100.3 MHz 08/01/2006
Los Angeles KKBT-FM/(4)/ 2000 B 5.3 916.0 100.3 MHz 12/01/2005
Detroit WDTJ-FM 1998 B 20.0 221.0 105.9 MHz 10/01/2004
WCHB-AM 1998 B 50.0 71.1 1200 kHz 10/01/2004
WDMK-FM 1998 B 50.0 152.0 102.7 MHz 10/01/2004
Miami WVCG-AM 2000 B 50.0 90.0 1080 kHz 02/01/2004
Houston KMJQ-FM 2000 C 100.0 524.0 102.1 MHz 08/01/2005
KBXX-FM 2000 C 100.0 585.0 97.9 MHz 08/01/2005
Dallas KBFB-FM 2000 C 100.0 491.0 97.9 MHz 08/01/2005
KTXQ-FM 2001 C 100.0 578.0 94.5 MHz 08/01/2005
Baltimore WWIN-AM 1992 C 1.0 102.5 1400 kHz 10/01/2003
WWIN-FM 1992 A 3.0 91.0 95.9 MHz 10/01/2003
WOLB-AM 1993 D 1.0 103.5 1010 kHz 10/01/2003
WERQ-FM 1993 B 37.0 174.0 92.3 MHz 10/01/2003
St. Louis WFUN-FM 1999 C3 24.5 102.0 95.5 MHz 12/01/2004
Cleveland WERE-AM 1999 B 5.0 200.0 1300 kHz 10/01/2004
WENZ-FM 1999 B 16.0 272.0 107.9 MHz 10/01/2004
WZAK-FM 2000 B 27.5 189.0 93.1 MHz 10/01/2004
WJMO-AM 2000 C 1.0 190.9 1490 kHz 10/01/2004
Boston WBOT-FM 1999 A 2.7 150.0 97.7 MHz 04/01/2006
WILD-AM 2001 D 1.0 101.3 1090 kHz 04/01/2006
Charlotte WCHH-FM 2000 A 6.0 100.0 92.7 MHz 12/01/2003
Richmond WKJS-FM 1999 C1 100.0 299.0 104.7 MHz 10/01/2003
WCDX-FM 2001 B1 4.5 235.0 92.1 MHz 10/01/2003
WRHH-FM 2001 A 6.0 100.0 99.3 MHz 10/01/2003
WJMO-FM 2001 A 2.3 162.0 105.7 MHz 10/01/2003
WGCV-AM/(5)/ 2001 C 1.0 181.5 1240 kHz 10/01/2003
Raleigh-Durham WQOK-FM 2000 C1 100.0 299.0 97.5 MHz 10/01/2003
WFXK-FM 2000 C1 100.0 299.0 107.1 MHz 12/01/2003
WFXC-FM 2000 A 2.59 153.0 104.3 MHz 12/01/2003
WNNL-FM 2000 C3 7.9 176.0 103.9 MHz 12/01/2003
Cincinnati WIZF-FM 2001 A 1.25 155.0 100.9 MHz 10/01/2004
WDBZ-AM /(6)/ C 1.0 89.6 1230 kHz 10/01/2004
Indianapolis WHHH-FM 2000 A 3.3 87.0 96.3 MHz 08/01/2004
WTLC-FM 2000 A 6.0 85.0 106.7 MHz 08/01/2004
WYJZ-FM 2000 A 6.0 100.0 100.9 MHz 08/01/2004
WTLC-AM 2001 B 5.0 221.0 1310 kHz 08/01/2004
23
ERP (FM) Antenna
Power Height (AM) Expiration
Station Call Year of FCC (AM) in HAAT (FM) Operating Date of FCC
Market Letters Acquisition Class Kilowatts in Meters Frequency License
- ------ ------------ ----------- ----- --------- ----------- --------- -----------
Columbus WCKX-FM 2001 A 1.9 126.0 107.5 MHz 10/01/2004
WXMG-FM 2001 A 2.59 154.0 98.9 MHz 10/01/2004
WJYD-FM 2001 A 6.0 100.0 106.3 MHz 10/01/2004
Minneapolis KTTB-FM 2001 C1 100.0 176.0 96.3 MHz 04/01/2005
Augusta WAEG-FM 2000 A 3.0 100.0 92.3 MHz 04/01/2004
WAEJ-FM 2000 A 6.0 100.0 100.9 MHz 04/01/2004
WAKB-FM 2000 C3 0.75 416.0 96.7 MHz 04/01/2004
WFXA-FM 2000 A 6.0 92.0 103.1 MHz 04/01/2004
WTHB-AM 2000 D 5.0 154.9 1550 kHz 04/01/2004
Louisville WDJX-FM 2001 B 24.0 218.0 99.7 MHz 08/01/2004
WBLO-FM /(7)/ A 3.0 100.0 104.3 MHz 08/01/2004
WGZB-FM/(8)/ 2001 A 3.0 100.0 96.5 MHz 08/01/2004
WULV-FM 2001 A 4.3 87.0 102.3 MHz 08/01/2004
WMJM-FM 2001 A 2.0 59.0 101.3 MHz 08/01/2004
WLRS-FM 2001 A 1.55 136.0 105.1 MHz 08/01/2004
Dayton WGTZ-FM 2001 B 40.0 168.0 92.9 MHz 10/01/2004
WDHT-FM 2001 B 50.0 150.0 102.9 MHz 10/01/2004
WING-AM 2001 B 5.0 200.0 1410 kHz 10/01/2004
WKSW-FM 2001 A 3.2 124.0 101.7 MHz 10/01/2004
- --------
/(1)/ We entered into an agreement to acquire WHTA-FM during June 2001. We
commenced operating WHTA under a local marketing agreement during October
2001. We expect to acquire WHTA during 2002.
/(2)/ We commenced the operation of WAMJ-FM under a local marketing agreement
during August 2001.
/(3)/ WPHI-FM operates with facilities equivalent to 3 kW at 100 meters
/(4)/ We also hold a license for K261AB, a translator for KKBT-FM.
/(5)/ WGCV-AM is currently operated by a third party under a local marketing
agreement.
/(6)/ We currently operate WDBZ-AM under a local marketing agreement.
/(7)/ We currently operate WBLO-FM under a local marketing agreement. As part
of our acquisition of Blue Chip Broadcasting, Inc., we have an option to
purchase WBLO-FM.
/(8)/ We also hold a license for WGZB-FM1, a booster for WGZB-FM.
Ownership Matters. The Communications Act requires prior approval of the
FCC for the assignment of a broadcast license or the transfer of control of a
corporation or other entity holding a license. In determining whether to
approve an assignment of a radio broadcast license or a transfer of control of
a broadcast licensee, the FCC considers, among other things:
. the financial and legal qualifications of the prospective assignee or
transferee, including compliance with FCC restrictions on non-U.S.
citizen or entity ownership and control;
. compliance with FCC rules, regulations and policies, including rules
limiting the common ownership of media properties in a given market;
. the history of the parties' compliance with FCC operating rules; and
. the ''character'' qualifications of the transferee or assignee and the
individuals or entities holding ''attributable'' interests in them.
To obtain the FCC's prior consent to assign or transfer a broadcast license,
appropriate applications must be filed with the FCC. If the application to
assign or transfer the license involves a substantial change in ownership or
control of the licensee, for example, the transfer or acquisition of more than
50% of the voting stock, the application must be placed on an FCC public notice
for a period of 30 days during which petitions to deny the application may be
filed by interested parties, including members of the public. Informal
objections may be filed any time until the FCC acts upon the application. If an
assignment application does not involve new parties, or if
24
a transfer of control application does not involve a "substantial change" in
ownership or control, it is a pro forma application, which is not subject to
the public notice and 30-day petition to deny procedure. The pro forma
application is nevertheless subject to informal objections that may be filed
any time until the FCC acts on the application. If the FCC grants an assignment
or transfer application, interested parties have 30 days from public notice of
the grant to seek reconsideration of that grant. The FCC usually has an
additional 10 days (from the end of the 30-day period) to set aside such grant
on its own motion. When ruling on an assignment or transfer application, the
FCC is prohibited from considering whether the public interest might be served
by an assignment or transfer to any party other than the assignee or transferee
specified in the application.
Under the Communications Act, a broadcast license may not be granted to or
held by any persons who are not U.S. citizens, whom the Communications Act and
FCC rules refer to as "aliens," including any corporation that has more than
20% of its capital stock owned or voted by non-U.S. citizens or entities or
their representatives, by foreign governments or their representatives, or by
non-U.S. corporations. Furthermore, the Communications Act provides that no FCC
broadcast license may be granted to or held by any corporation directly or
indirectly controlled by any other corporation of which more than 25% of its
capital stock is owned of record or voted by non-U.S. citizens or entities or
their representatives, or foreign governments or their representatives or by
non-U.S. corporations, if the FCC finds the public interest will be served by
the refusal or revocation of such license. These restrictions apply in modified
form to other forms of business organizations, including partnerships and
limited liability companies. Thus, the licenses for our stations could be
revoked if more than 25% of our outstanding capital stock is issued to or for
the benefit of non-U.S. citizens.
The FCC generally applies its broadcast ownership limits to "attributable"
interests held by an individual, corporation, partnership or other association
or entity, including limited liability companies. In the case of a corporation
holding broadcast licenses, the interests of officers, directors and those who,
directly or indirectly have the right to vote five percent or more of the stock
of a licensee corporation are generally deemed attributable interests, as are
positions as an officer or director of a corporate parent of a broadcast
licensee. The FCC treats all partnership interests as attributable, except for
those limited partnership interests that under FCC policies are considered
"insulated" from "material involvement" in the management or operation of the
media-related activities of the partnership. The FCC currently treats limited
liability companies like limited partnerships for purposes of attribution.
Stock interests held by insurance companies, mutual funds, bank trust
departments and certain other passive investors that hold stock for investment
purposes only become attributable with the ownership of 20% or more of the
voting stock of the corporation holding broadcast licenses. In March 2001, the
FCC revoked a rule that had provided that interests of minority shareholders in
a corporation were not attributable if a single entity or individual held 50%
or more of that corporation's voting stock. However, in December 2001 the FCC
suspended the elimination of the "single majority shareholder" exemption for
broadcasters and cable operators, pending resolution of related issues in a
cable rule making proceeding. Currently, for purposes of the multiple ownership
rules, no minority voting interest is attributable if there is a single holder
of more than 50% of the outstanding voting stock of the corporate broadcast
licensee, cable television system, or daily newspaper in which the minority
interest is held. This rule could be upheld, modified, or eliminated again
depending upon the outcome of the cable proceeding.
To assess whether a voting stock interest in a direct or an indirect parent
corporation of a broadcast licensee is attributable, the FCC uses a
"multiplier" analysis in which non-controlling voting stock interests are
deemed proportionally reduced at each non-controlling link in a
multi-corporation ownership chain. A time brokerage agreement with another
radio station in the same market creates an attributable interest in the
brokered radio station as well for purposes of the FCC's local radio station
ownership rules, if the agreement affects more than 15% of the brokered radio
station's weekly broadcast hours.
Debt instruments, non-voting stock, options and warrants for voting stock
that have not yet been exercised, and insulated limited partnership interests
where the limited partner is not "materially involved" in the media-related
activities of the partnership generally do not subject their holders to
attribution.
25
The FCC has adopted a rule, known as the equity-debt-plus or EDP rule, that
causes certain creditors or investors to be attributable owners of a station,
regardless of whether there is a single majority shareholder or other
applicable exception to the FCC's attribution rules. Under this rule, a major
programming supplier or a same-market media entity will be an attributable
owner of a station if the supplier or same-market media entity holds debt or
equity, or both, in the station that is greater than 33% of the value of the
station's total debt plus equity. For purposes of the EDP rule, equity includes
all stock, whether voting or nonvoting, and equity held by insulated limited
partners in limited partnerships. Debt includes all liabilities, whether
long-term or short-term. A major programming supplier includes any programming
supplier that provides more than 15% of the station's weekly programming hours.
A same-market media entity includes any holder of an attributable interest in a
media company, including broadcast stations, cable television and newspapers,
located in the same market as the station, but only if the holder's interest is
attributable under an FCC attribution rule other than the EDP rule.
The FCC's rules also specify other exceptions to these general principles
for attribution.
The Communications Act and FCC rules generally restrict ownership, operation
or control of, or the common holding of attributable interests in:
. radio broadcast stations above certain numerical limits serving the same
local market;
. radio broadcast stations and television broadcast stations above certain
numerical limits serving the same local market; and
. radio broadcast station and a daily newspaper serving the same local
market.
These rules include specific signal contour overlap standards to determine
compliance, and the FCC defined market will not necessarily be the same market
used by Arbitron, Neilsen or other surveys, or for purposes of the HSR Act.
Under these "cross-ownership" rules, we, absent waivers from the FCC, would
not be permitted to own a radio broadcast station and acquire an attributable
interest in any daily newspaper in the same market where we then owned any
radio broadcast station. Our stockholders, officers or directors, absent a
waiver from the FCC, may not hold an attributable interest in a daily newspaper
in those same markets. However, the FCC has initiated a review of whether it
should revise or revoke its rule barring common ownership of a broadcast
station and a daily newspaper in the same market.
Under the radio/television cross-ownership rule, a single owner may own up
to two television stations, consistent with the FCC's rules on common ownership
of television stations, together with one radio station in all markets. In
addition, a television owner will be permitted to own additional radio
stations, not to exceed the local ownership limits for the market, as follows:
. In markets where 20 media voices will remain after the consummation of
the proposed transaction, an owner may own an additional five radio
stations, or, if the owner only has one television station, an
additional six radio stations; and
. In markets where 10 media voices will remain after the consummation of
the proposed transaction, an owner may own an additional three radio
stations.
A "media voice" includes each independently-owned and operating full power
television and radio station and each daily newspaper that has a circulation
exceeding 5% of the households in the market, plus one voice for all cable
television systems operating in the market.
Although current FCC nationwide radio broadcast ownership rules allow one
entity to own, control or hold attributable interests in an unlimited number of
FM radio stations and AM radio stations nationwide, the
26
Communications Act and the FCC's rules limit the number of radio broadcast
stations in local markets in which a single entity may own an attributable
interest as follows:
. In a radio market with 45 or more commercial radio stations, a party may
own, operate or control up to eight commercial radio stations, not more
than five of which are in the same service (AM or FM).
. In a radio market with 30 to 44 commercial radio stations, a party may
own, operate or control up to seven commercial radio stations, not more
than four of which are in the same service (AM or FM).
. In a radio market with 15 to 29 commercial radio stations, a party may
own, operate or control up to six commercial radio stations, not more
than four of which are in the same service (AM or FM).
. In a radio market with 14 or fewer commercial radio stations, a party
may own, operate or control up to five commercial radio stations, not
more than three of which are in the same service (AM or FM), except that
a party may not own, operate, or control more than 50 percent of the
radio stations in such market.
Recently, the FCC launched a comprehensive examination of its rules and
policies concerning multiple ownership of radio stations in local markets. In a
rule making proceeding initiated in November 2001, the FCC has sought public
comment on a wide range of matters relating to local ownership limits,
including the public interest mandate for such limits and the impact of the
limits on diversity and competition. The FCC has also invited comments on how
it should define local "market" for purposes of its numerical limits. It
currently uses a complex formula based on the mutual overlap of principal
community contours of radio stations to determine how many stations are in a
particular radio market and the number of stations that a single entity may own
within the market. The FCC has proposed to consider alternate methods of
defining markets, including using geographic boundaries based on Arbitron
markets. The FCC will also consider how it should measure the market share of
competitors, whether by revenues or audience share, and how market
concentration impacts local ownership limits. The FCC has sought comment on
whether it should use numerical limits in evaluating market concentration, or
whether it should review transactions on a case-by-case basis. If the latter,
the FCC has asked how it should evaluate local marketing agreements, time
brokerage agreements and joint sales agreements in the context of analyzing
market concentration.
The FCC has established an interim policy for processing assignment
applications while the multiple ownership rule making is pending. Under the
interim processing procedures, the FCC will examine the potential competitive
effects of proposed radio station combinations. Where the proposed assignment
would give one owner 50% or more, or two owners 70% or more, of the radio
advertising revenue share of the relevant Arbitron metro market, the
application will be marked for further FCC review. This is similar to the
"flagging" procedure the FCC has used informally in the past. The FCC continues
to have discretion to review individual cases that involve what it views as
excessive market concentration issues, or that present unusual cross-interest
relationships, on a case-by case basis.
The outcome of this FCC proceeding could affect our business in a number of
ways, including, but not limited to, the following:
. If the FCC adopts a market definition based upon Arbitron or other
geographic measures, it could have an adverse effect on our ability to
accumulate stations in a given area.
. If the FCC changes its policies with respect to local marketing, time
brokerage or joint sales agreements (for example, if it should decide to
"attribute" joint sales agreements for multiple ownership purposes), we
could be limited in our ability to buy or sell time on certain stations.
. In general terms, if the FCC changes the way it defines markets or
determines excess market concentration for purposes of the broadcast
multiple ownership rules, we could be limited in our ability to acquire
new stations in certain markets, in our ability to operate stations
pursuant to certain agreements, and in our ability to improve the
coverage contours of our existing stations.
Because of these multiple and cross-ownership rules, if a stockholder,
officer or director of Radio One holds an ''attributable'' interest in Radio
One, such stockholder, officer or director may violate the FCC's rules if such
person or entity also holds or acquires an attributable interest in other radio
stations, television stations, daily
27
newspapers, or cable systems, depending on their number and location. If an
attributable stockholder, officer or director of Radio One violates any of
these ownership rules, it may affect our ability to obtain from the FCC one or
more authorizations needed to conduct our radio station business and our
ability to obtain FCC consents for certain future acquisitions.
Programming and Operations. The Communications Act requires broadcasters to
serve the ''public interest.'' The FCC gradually has relaxed or eliminated many
of the more formalized procedures it developed to promote the broadcast of
certain types of programming responsive to the needs of a radio station's
community of license. Nevertheless, a broadcast licensee continues to be
required to present programming in response to community problems, needs and
interests and to maintain certain records demonstrating its responsiveness. The
FCC will consider complaints from listeners about a broadcast station's
programming when it evaluates the licensee's renewal application, but
listeners' complaints also may be filed and considered at any time. Such
complaints are required to be placed in a station's public file. Stations also
must pay FCC regulatory and application fees, and follow various FCC rules that
regulate, among other things, political advertising, the broadcast of obscene
or indecent programming, sponsorship identification, the broadcast of contests
and lotteries and technical operation, including limits on human exposure to
radio frequency radiation.
In December 2000, the United States Copyright Office ruled that broadcasters
that simulcast (by a process known as streaming) their over-the-air signals on
the Internet would incur copyright liability for the use of copyrighted
materials, including music programming, with such liability perhaps extending
retroactively to 1998. In response to the December 2000 ruling, the National
Association of Broadcasters filed suit in federal court seeking to overturn the
ruling. The court declined to overturn the ruling, and the matter has been
appealed. The outcome of the proceeding, which does not affect our over-the-air
broadcasting operations, cannot be predicted.
In February 2002, the Copyright Office announced the royalty fees to be
charged for streaming radio signals on the Internet. The fees are to apply
retroactively to 1998, and to future Internet streaming. A group of broadcast
companies has filed a petition to set aside or reduce the announced rates. We
cannot predict the outcome of this proceeding or its effect on our future
streaming activity, nor have we calculated our potential liability for
streaming royalty fees. Internet streaming is not and has not been a material
part of our operations.
The FCC's rules prohibit a broadcast licensee from simulcasting more than
25% of its programming on another radio station in the same broadcast service
(that is, AM/AM or FM/FM). The simulcasting restriction applies if the licensee
owns both radio broadcast stations or owns one and programs the other through a
local marketing agreement, and only if the contours of the radio stations
overlap in a certain manner.
The FCC requires that licensees not discriminate in hiring practices. For
many years, it also required that licensees develop and implement programs
designed to promote equal employment opportunities, and submit reports to the
FCC on these matters annually and in connection with each license renewal
application. However, the FCC's employment rules, as they related to outreach
efforts for recruitment of minorities and the reporting of such outreach
efforts, were struck down as unconstitutional by the U.S. Court of Appeals for
the D.C. Circuit in 1999. The FCC responded with new EEO rules in 2000, but in
2001 the Court found a portion of the new rules unconstitutional. In December
2001, the FCC issued a new rule making proceeding, proposing rules similar to
the 2000 rules, but modified in response to the Court's concerns. The proposed
new rules prohibit employment discrimination by broadcast stations on the basis
of race, religion, color, national origin, and gender, and require broadcasters
to implement programs to promote equal employment opportunities at their
stations. The proposed rules generally require broadcast stations to
disseminate information about job openings widely so that all qualified
applicants, including minorities and women, have an adequate opportunity to
compete for the job. Broadcasters would be required to fulfill this requirement
by sending the station's job vacancy information to organizations that request
it, and by implementing a number of job recruitment efforts from a specific
list of choices, such as participating in community outreach programs and job
fairs, and sponsoring internships at the station. Broadcasters with five or
more full-time employees would have to keep records of their recruitment
efforts, and place a report of those efforts in their public files annually.
Radio broadcasters with 10 or more full-time employees must file their annual
reports with the FCC midway through their license term. Broadcasters also would
be required to file employment information annually with the FCC, for
statistical purposes.
28
From time to time, complaints may be filed against Radio One's radio
stations alleging violations of these or other rules. In addition, the FCC
recently has proposed to establish a system of random audits to ensure and
verify licensee compliance with FCC rules and regulations. Failure to observe
these or other rules and policies can result in the imposition of various
sanctions, including fines or conditions, the grant of ''short'' (less than the
maximum eight year) renewal terms or, for particularly egregious violations,
the denial of a license renewal application or the revocation of a license.
Local Marketing Agreements. Often radio stations enter into local marketing
agreements or time brokerage agreements. These agreements take various forms.
Separately owned and licensed radio stations may agree to function
cooperatively in programming, advertising sales and other matters, subject to
compliance with the antitrust laws and the FCC's rules and policies, including
the requirement that the licensee of each radio station maintain independent
control over the programming and other operations of its own radio station. One
type of time brokerage agreement is a programming agreement between two
separately owned radio stations that serve a common service area whereby the
licensee of one radio station programs substantial portions of the broadcast
day of the other licensee's radio station, subject to ultimate editorial and
other controls being exercised by the radio station licensee, and sells
advertising time during these program segments. The FCC has held that such
agreements do not violate the Communications Act as long as the licensee of the
radio broadcast station that is being substantially programmed by another
entity (1) remains ultimately responsible for, and maintains control over, the
operation of its radio station, and (2) otherwise ensures the radio station's
compliance with applicable FCC rules and policies.
A radio broadcast station that brokers time on another radio broadcast
station or enters into a time brokerage agreement with a radio broadcast
station in the same market will be considered to have an attributable ownership
interest in the brokered radio station for purposes of the FCC's local
ownership rules if the time brokerage arrangement covers more than 15% of the
brokered station's weekly broadcast hours. As a result, a radio broadcast
station may not enter into a time brokerage agreement that allows it to program
more than 15% of the broadcast time, on a weekly basis, of another local radio
broadcast station that it could not own under the FCC's local multiple
ownership rules. Attribution for radio time brokerage agreements applies to all
of the FCC's multiple ownership rules applicable to radio stations (daily
newspaper/radio cross-ownership and radio/television cross-ownership) and not
only the local radio ownership rules. In addition, such agreements are
attributable for purposes of the FCC's prohibition against simulcasting a
commonly-owned, same-service station serving the same geographic area,
discussed above.
Joint Sales Agreements. Over the past few years, a number of radio stations
have entered into cooperative arrangements commonly known as joint sales
agreements. While these agreements may take varying forms, under the typical
joint sales agreement a station licensee obtains, for a fee, the right to sell
substantially all of the commercial advertising on a separately-owned and
licensed station in the same market. The typical joint sales agreement also
customarily involves the provision by the selling party of certain sales,
accounting and services to the station whose advertising is being sold. The
typical joint sales agreement is distinct from a local marketing agreement in
that a joint sales agreement normally does not involve programming other than
advertising content. The FCC has determined that issues of joint advertising
sales should be left to enforcement by antitrust authorities, and therefore
does not generally regulate joint sales practices between stations. Currently,
stations for which another licensee sells time under a joint sales agreement
are not deemed by the FCC to be an attributable interest of that licensee.
In general, radio stations have operated under local marketing, time
brokerage and joint sales agreements with very little regulation by, or
scrutiny from, the FCC with respect to such agreements. However, in the context
of its review of multiple ownership of radio stations in local markets, the FCC
has sought public comment on the relevance of such agreements to its analysis
of market concentration, and on whether such agreements should be attributed
for purposes of the multiple ownership rules. Thus far, the FCC has not
determined what relevance, if any, such agreements may have upon its evaluation
at license renewal time of a licensee's performance.
RF Radiation. In 1985, the FCC adopted rules based on a 1982 American
National Standards Institute (''ANSI'') standard regarding human exposure to
levels of radio frequency (''RF'') radiation. These rules
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require applicants for renewal of broadcast licenses or modification of
existing licenses to inform the FCC at the time of filing such applications
whether an existing broadcast facility would expose people to RF radiation in
excess of certain limits. In 1992, ANSI adopted a new standard for RF exposure
that, in some respects, was more restrictive in the amount of environmental RF
exposure permitted. The FCC has since adopted more restrictive radiation limits
which became effective October 15, 1997, based in part on the revised ANSI
standard, and which were to be fully complied with by September 1, 2000.
Digital Audio Radio Service. The FCC allocated spectrum to a new
technology, digital audio radio service (''DARS''), to deliver satellite-based
audio programming to a national or regional audience and issued regulations for
a DARS service in early 1997. DARS was intended to provide a medium for the
delivery by satellite or terrestrial means of multiple new audio programming
formats with compact disc quality sound to local and national audiences. The
nationwide reach of satellite DARS could allow niche programming aimed at
diverse communities that Radio One is targeting. Two companies that hold
licenses for authority to offer multiple channels of digital,
satellite-delivered S-Band aural services could compete with conventional
terrestrial radio broadcasting. The licensees may sell advertising and lease
channels in these media. Both of the satellite radio licensees have launched
satellites, and have begun providing service.
The FCC has established a Wireless Communications Service (''WCS'') in the
2305-2320 and 2345-2360 MHZ bands (the ''WCS Spectrum'') and awarded licenses.
Licensees are