Radio One Takes a Long View

By Jerry Knight
Monday, March 6, 2006

Back when Radio One Inc. began buying radio stations, hip-hop was unheard music.

Not unheard of, but unheard on the radio in many major cities.

Radio One put hip-hop and other genres of urban music on the nation's airwaves. Buying underperforming radio stations and turning them into urban-music machines, the Lanham-based company became the largest black-owned, black-oriented radio station group in the country

Today, hip-hop is everywhere. Yesterday's obscure rappers are today's movie stars -- Mos Def upstaged Bruce Willis in "16 Blocks," one of last weekend's movie openings. Stations catering to white kids play what was once considered the blackest music since the blues.

That is one of the problems facing Radio One.

As urban music has gone mainstream, Radio One stock has lost close to two-thirds of its value in the past two years. The shares hit a five-year low of $8.13 on Thursday and closed 9 cents higher on Friday.

The biggest losers in that slide have been Radio One Chairman Alfred C. Liggins III and his mother, Cathy Hughes, the longtime Washington broadcaster who founded the company 25 years ago. Together, their holdings of four classes of Radio One stock add up to an 18 percent stake in the company. Even at today's depressed stock price, their share is worth about $155 million. But since they control the majority of the voting stock, their stake is probably much more valuable than that -- particularly if the company were to be sold.

Radio One's stock price has fallen because the company's original strategy of picking up out-of-favor radio stations on the cheap and giving them new music, new audiences and new advertisers has run its course.

"They have applied their specialty, which is the urban niche, and they have brought these stations up to a solid operating level,'' said analyst Maurice C. McKenzie of Friedman, Billings, Ramsey Group, an Arlington investment firm. "At this point, they are struggling with a challenging radio environment."

There are few bargain radio stations to be had these days. Few cities don't already have stations following what was once the innovative format of Radio One. And the core urban-music franchise is fragmenting, with Latino youths switching from "conventional" hip-hop to the Caribbean-influenced sound known as reggaeton.

Instead of buying more stations, Radio One has been buying back its stock. That can increase earnings per share and sometimes the stock price but often can sacrifice expansion opportunities.

Despite repurchasing $78 million worth of shares, Radio One stock has done badly even by radio standards, McKenzie noted. The stock underperformed the industry last year and continues to do so.

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