| RADIO ONE INC ITEM 1A RISK FACTORS Our future operating results could be adversely affected by a number of risks and uncertainties, the most significant of which are described below |
| Our revenues are substantially dependent on spending by advertisers, and a decrease in such spending would adversely affect our revenue and operating results |
| Substantially all of our revenue is derived from sales of advertisements and program sponsorships on our stations to local and national advertisers |
| Generally, advertising tends to decline during economic recession or downturn |
| As a result, our advertising revenue is likely to be adversely affected by a recession or downturn in the United States economy, the economy of an individual geographic market in which we own or operate radio stations, or other events or circumstances that adversely affect advertising activity |
| 21 _________________________________________________________________ We may lose audience share and advertising revenue to competing radio stations or other media competitors |
| We operate in a highly competitive industry |
| Our radio stations compete for audiences and advertising revenue with other radio stations and station groups, as well as with other media such as broadcast television, newspapers, magazines, cable television, satellite television, satellite radio, outdoor advertising, the Internet and direct mail |
| Audience ratings and market shares are subject to change |
| Any adverse change in a particular market, or adverse change in the relative market positions of the stations located in a particular market could have a material adverse effect on our revenue or ratings, could require increased promotion or other expenses in that market, and could adversely affect our revenue in other markets |
| Other radio broadcasting companies may enter the markets in which we operate or may operate in the future |
| These companies may be larger and have more financial resources than we have |
| Our radio stations may not be able to maintain or increase their current audience ratings and advertising revenue |
| In addition, from time to time, other stations may change their format or programming, a new station may adopt a format to compete directly with our stations for audiences and advertisers, or stations might engage in aggressive promotional campaigns |
| These tactics could result in lower ratings and advertising revenue or increased promotion and other expenses and, consequently, lower earnings and cash flow for us |
| Audience preferences as to format or programming may also shift due to demographic or other reasons |
| Any failure by us to respond, or to respond as quickly as our competitors, could have an adverse effect on our business and financial performance |
| We cannot assure you that we will be able to maintain or increase our current audience ratings and advertising revenue |
| If we are unable to successfully identify, acquire and integrate businesses pursuant to our diversification strategy, our business and prospects may be adversely impacted |
| We are pursuing a strategy of acquiring and investing in other forms of media that complement our core radio business in an effort to grow our business and diversify our revenue streams |
| We will not be able to pursue these acquisitions and investments if we cannot find suitable acquisition or investment opportunities or obtain acceptable financing |
| The negotiation of transactions, as well as the integration of an acquired business, could require us to incur significant costs and cause diversion of management’s time and resources |
| In addition, the transactions we pursue may prove to be unprofitable or fail to achieve the anticipated benefits |
| As such, we can provide no assurance that our diversification strategy will be successful |
| We must respond to the rapid changes in technology, services and standards, which characterize our industry in order to remain competitive |
| The radio broadcasting industry is subject to evolving industry standards and the emergence of new media technologies, which may impact our business |
| We cannot assure you that we will have the resources to acquire new technologies or to introduce new services that could compete with these new technologies |
| Several new media technologies are being, or have been, developed, including the following: • satellite delivered digital audio radio service, which has resulted in the introduction of several new satellite radio services with sound quality equivalent to that of compact discs; • audio programming by cable television systems, direct broadcast satellite systems, Internet content providers and other digital audio broadcast formats; and • digital audio and video content available for listening and/or viewing on the Internet and/or available for downloading to portable devices |
| We cannot assure you that we will be able to adapt effectively to these new media technologies |
| The loss of key personnel, including on-air talent, could disrupt the management and operations of our business |
| Our business depends upon the continued efforts, abilities and expertise of our executive officers, including our Chief Executive Officer (“CEO”), Chief Financial Officer, Chief Operating Officer and Chief Administrative Officer, and other key employees, including on-air personalities |
| We believe that the unique combination of skills and experience possessed by our executive officers could be difficult to replace, and that the loss of any one of them 22 _________________________________________________________________ could have a material adverse effect on us, including the impairment of our ability to execute our business strategy |
| Additionally, we employ or independently contract with several on-air personalities and hosts of syndicated radio programs with significant loyal audiences in their respective broadcast areas |
| These on-air personalities are sometimes significantly responsible for the ranking of a station, and thus, the ability of the station to sell advertising |
| In addition, since we derive revenue from syndicating programs hosted by these on-air personalities, the loss of such on-air personalities could impact our revenues |
| We cannot be assured that these individuals will remain with us or will retain their current audiences |
| Our growth strategy could be hampered by a lack of attractive opportunities or other risks associated with integrating the operations, systems and management of the radio stations we acquire |
| Our growth strategy partially depends on our ability to identify underperforming radio stations or stick stations in attractive markets, to purchase such stations at a reasonable cost and to increase ratings, revenue and cash flow from such radio stations |
| Some of the material risks that could hinder our ability to implement this strategy include: • increases in prices for radio stations due to increased competition for acquisition opportunities; • reduction in the number of suitable acquisition targets; • failure or unanticipated delays in completing acquisitions due to difficulties in obtaining required regulatory approval, including possible difficulties in obtaining antitrust approval for acquisitions in markets where we already own multiple stations or potential delays resulting from the uncertainty arising from legal challenges to the FCC’s adoption of new broadcast ownership rules; • difficulty in integrating operations and systems and managing a large and geographically diverse group of radio stations; • failure of some acquisitions to prove profitable or generate sufficient cash flow; • issuance of large amounts of common stock in order to purchase radio stations; • need to finance acquisitions through funding from the debt markets; and • inability to finance acquisitions on acceptable terms |
| Our business depends on maintaining our licenses with the FCC We could be prevented from operating a radio station if we fail to maintain its license |
| Radio broadcasters depend upon maintaining radio broadcasting licenses issued by the FCC These licenses are ordinarily issued for a maximum term of eight years and are renewable |
| Our radio broadcasting licenses expire at various times through August 1, 2013 |
| Although we may apply to renew our radio broadcasting licenses, interested third parties may challenge our renewal applications |
| In addition, we are subject to extensive and changing regulation by the FCC with respect to such matters as programming, indecency standards, technical operations, employment and business practices |
| If we or any of our significant stockholders, officers, or directors violate the FCC’s rules and regulations or the Communications Act of 1934, or is convicted of a felony, the FCC may commence a proceeding to impose fines or sanctions upon us |
| Examples of possible sanctions include the imposition of fines, the renewal of one or more of our broadcasting licenses for a term of fewer than eight years or the revocation of our broadcast licenses |
| If the FCC were to issue an order denying a license renewal application or revoking a license, we would be required to cease operating the radio station covered by the license only after we had exhausted administrative and judicial review without success |
| There is significant uncertainty regarding the FCC’s media ownership rules, and such rules could restrict our ability to acquire radio stations |
| The radio broadcasting industry is subject to extensive and changing federal regulation |
| Among other things, the Communications Act and FCC rules and policies limit the number of broadcasting properties that any person or entity may own (directly or by attribution) in any market and require FCC approval for transfers of control and assignments of licenses |
| 23 _________________________________________________________________ In June 2003, the FCC issued a media ownership decision, which substantially altered its television, radio and cross-media ownership restrictions (the “2003 rules”) |
| The FCC’s media ownership restrictions apply to parties that hold “attributable” interests in broadcast station licensees |
| With respect to radio, the 2003 rules, among other things, (a) retained the pre-existing numerical limits on the permissible number of radio stations in FCC-defined local radio markets in which a party may co-own or have an attributable interest; (b) redefined local radio markets to rely on Arbitron Metro Survey Areas (Arbitron Metros) (in portions of the country where they exist) in place of the contour-overlap methodology previously used; (c) grandfathered existing local radio combinations that conflict with the 2003 rules based on the Arbitron Metro definition of local radio markets until the combination is sold; (d) provided that a contract to sell more than 15prca per week of the advertising time on another in-market radio station (Joint Sales Agreement or JSA) constitutes an attributable interest; and (e) replaced radio-TV and daily newspaper-broadcast cross-ownership rules with a more relaxed single set of new cross-media ownership restrictions |
| In addition, the FCC instituted a rulemaking to determine how to define local radio markets in areas outside Arbitron Metros |
| The challenges were consolidated before the US Court of Appeals for the Third Circuit, which initially issued a stay of the 2003 rules before they became effective and subsequently remanded many of them to the FCC for further proceedings, keeping the judicial stay in place and retaining jurisdiction |
| The FCC also filed a petition to partially lift the judicial stay as it relates to the new local radio ownership restrictions |
| The Third Circuit lifted the stay as it relates to the FCC’s decision to (i) make JSAs an attributable interest, (ii) define local radio markets based on Arbitron Metros, and (iii) grandfather certain local radio combinations only until the combination is sold |
| The court declined to lift the stay as to “matters pertaining to numerical limits on local radio ownership and the AM ‘subcap’ |
| ” In response, the FCC revised its application forms for transfers of control and assignments of licenses to incorporate these aspects of the 2003 rules, and the FCC is now applying such revisions to all pending and new applications |
| The FCC’s media ownership rules remain in flux and subject to further agency and court proceedings |
| Certain of the parties to the Third Circuit’s decision requested review by the US Supreme Court, which request was denied |
| At the FCC, the 2003 rules are currently on remand from the Third Circuit and the FCC has not yet instituted further proceedings |
| Also, the FCC has not yet ruled on pending petitions for reconsideration of the decision adopting the 2003 rules |
| In addition to the FCC media ownership rules, the outside media interests of our officers and directors could limit our ability to acquire stations |
| The filing of petitions or complaints against Radio One or any FCC licensee from which we are acquiring a station could result in the FCC delaying the grant of, or refusing to grant or imposing conditions on its consent to the assignment or transfer of control of licenses |
| The Communications Act and FCC rules and policies also impose limitations on non-US ownership and voting of our capital stock |
| Increased enforcement by FCC of its indecency rules against the broadcast industry |
| In 2004, the FCC indicated that it was enhancing its enforcement efforts relating to the regulation of indecency |
| Congress is considering legislation that would dramatically increase the penalties for broadcasting indecent programming and potentially subject broadcasters to license revocation, renewal or qualification proceedings in the event that they broadcast indecent material |
| In addition, the FCC’s heightened focus on the indecency regulatory scheme, against the broadcast industry generally, may encourage third parties to oppose our license renewal applications or applications for consent to acquire broadcast stations |
| Two common stockholders have a majority voting interest in Radio One and have the power to control matters on which our common stockholders may vote, and their interests may conflict with yours |
| As of March 3, 2006, our Chairperson and her son, our President and CEO collectively held approximately 72dtta8prca of the outstanding voting power of our common stock |
| As a result, our Chairperson and the CEO will control most decisions involving us, including transactions involving a change of control, such as a sale or merger |
| In addition, certain covenants in our debt instruments require that our Chairperson and the CEO maintain a specified ownership and voting interest in us, and prohibit other parties’ voting interests from exceeding specified amounts |
| In addition, the TV One operating agreement provides for adverse consequences to Radio One in the event our 24 _________________________________________________________________ Chairperson and CEO fail to maintain a specified ownership and voting interest in us |
| Our Chairperson and the CEO have agreed to vote their shares together in elections of members to the board of directors |
| Our substantial level of debt could limit our ability to grow and compete |
| As of March 3, 2006, we had indebtedness of approximately dlra952dtta5 million |
| In June 2005, we borrowed dlra437dtta5 million under our new credit facility to retire all outstanding obligations under our previous credit facilities |
| Draw downs of revolving loans under the credit facility are subject to compliance with provisions of our credit agreement, including, but not limited to, the financial covenants |
| Currently, we are permitted to borrow up to an additional approximately dlra103dtta4 million under our new credit facility |
| ” We may reborrow under our revolving credit facility as needed to fund our working capital needs, for general corporate purposes and to fund permitted acquisitions and investments |
| A portion of our indebtedness bears interest at variable rates |
| Our substantial level of indebtedness could adversely affect us for various reasons, including limiting our ability to: • obtain additional financing for working capital, capital expenditures, acquisitions, debt payments or other corporate purposes; • have sufficient funds available for operations, future business opportunities or other purposes; • compete with competitors that have less debt than we do; and • react to changing market conditions, changes in our industry and economic downturns |
| The foregoing list is not exhaustive |
| There can be no assurance that we have correctly identified and appropriately assessed all factors affecting our business or that the publicly available and other information with respect to these matters is complete and correct |
| Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial also may adversely impact our business |
| Should any risks or uncertainties develop into actual events, these developments could have material adverse effects on our business, financial condition, and results of operations |