The following information should be read in conjunction with "Selected Financial Data" and the Consolidated Financial Statements and Notes thereto included elsewhere in this report.

Overview

In 2008, our net revenue declined compared to the previous year principally due to a decline in our radio segment. Consistent with the radio broadcast industry in general, our markets also experienced a net revenue decline; however, we did modestly outperform the markets in which we operated. Given the current severe economic downturn, we anticipate there will be continued advertising and marketing cutbacks, which will result in continuing revenue declines throughout the radio industry. In light of the economic turmoil and state of the radio industry, our focus will be on increasing our radio market share and closely managing expenses given the anticipated lower revenue levels. In addition, we will also remain focused on executing our internet strategy, including leveraging our recent acquisition of Community Connect Inc. ("CCI"), an online social networking company, as a means to grow and further diversify our revenue.

The weakened economy, competition from digital audio players, the internet, cable television and satellite radio, among other new media outlets, are some of the reasons the radio industry has seen such slow or negative growth over the past few years. In addition to overall cutbacks, advertisers have shifted their advertising budgets away from traditional media such as newspapers, broadcast television and radio to these new media outlets. Internet companies have evolved from being large sources of advertising revenue for radio companies in the late-1990s to being significant competitors for radio advertising dollars. While these dynamics present significant challenges for companies such as ours that are highly staked in the radio industry, through our print and online properties, which includes Giant Magazine, CCI, and other online verticals, we are well poised to provide advertisers and creators of content with a multifaceted way to reach African-American consumers.

Results of Operations

Revenue

We primarily derive revenue from the sale of advertising time and program sponsorships to local and national advertisers on our radio stations. Advertising revenue is affected primarily by the advertising rates our radio stations are able to charge, as well as the overall demand for radio advertising time in a market. These rates are largely based upon a radio station's audience share in the demographic groups targeted by advertisers, the number of radio stations in the related market, and the supply of, and demand for, radio advertising time. Advertising rates are generally highest during morning and afternoon commuting hours.

During the year ended December 31, 2008, approximately 56.0% of our net revenue was generated from local advertising and approximately 37.6% was generated from national advertising, including network advertising. In comparison, during the year ended December 31, 2007, approximately 57.9% of our net revenue was generated from local advertising and approximately 37.0% was generated from national advertising, including network advertising. During the year ended December 31, 2006, approximately 56.7% of our net revenue was generated from local advertising and approximately 38.4% was generated from national advertising, including network advertising. National advertising also includes advertising revenue generated from our internet and publishing segments. The balance of revenue was generated from tower rental income, ticket sales and revenue related to our sponsored events, management fees, magazine subscriptions, newsstand revenue and other revenue.

In the broadcasting industry, radio stations often utilize trade or barter agreements to reduce cash expenses by exchanging advertising time for goods or services. In order to maximize cash revenue for our spot inventory, we closely monitor the use of trade and barter agreements.

CCI, which the Company acquired in April 2008, currently generates the majority of the Company's internet revenue, and derives such revenue principally from advertising services, including diversity recruiting. Advertising services include the sale of banner and sponsorship advertisements. Advertising revenue is recognized either as impressions (the number of times advertisements appear in viewed pages) are delivered, when "click through" purchases or leads are reported, or ratably over the contract period, where applicable. CCI has a diversity recruiting agreement with Monster, Inc. ("Monster"). Under the agreement, Monster posts job listings and advertising on CCI websites and CCI earns revenue for displaying the images on its websites. This agreement expires in December 2009.

In December 2006, the Company acquired certain net assets ("Giant Magazine") of Giant Magazine, LLC. Giant Magazine derives revenue from the sale of advertising, as well as newsstand and subscription revenue generated from sales of the magazine.

In February 2005, we acquired 51% of the common stock of Reach Media, Inc. ("Reach Media"). A substantial portion of Reach Media's revenue is generated from a sales representation agreement with a third party radio company.
Pursuant to a multi-year agreement, revenue is received monthly in exchange for the sale of advertising time on the nationally syndicated Tom Joyner Morning Show, which is currently aired on 108 affiliated stations. The annual amount of revenue is based on a contractual amount determined based on number of affiliates, demographic audience and ratings. The agreement provides for a potential to earn additional amounts if certain revenue goals are met. The agreement also provides for sales representation rights related to Reach Media's events. Additional revenue is generated by Reach Media from this and other customers through special events, sponsorships, its internet business and other related activities. The agreement expires December 31, 2009.

Expenses

Our significant broadcast expenses are (i) employee salaries and commissions,
(ii) programming expenses, (iii) marketing and promotional expenses, (iv) rental of premises for office facilities and studios, (v) rental of transmission tower space and (vi) music license royalty fees. We strive to control these expenses by centralizing certain functions such as finance, accounting, legal, human resources and management information systems and the overall programming management function. We also use our multiple stations, market presence and purchasing power to negotiate favorable rates with certain vendors and national representative selling agencies.

We generally incur marketing and promotional expenses to increase our radio audiences. However, because Arbitron reports ratings either monthly or quarterly, depending on the particular market, any changed ratings and the effect on advertising revenue tends to lag behind both the reporting of the ratings and the incurrence of advertising and promotional expenditures.

In addition to salaries and commissions, major expenses for our internet business include membership traffic acquisition costs, software product design, post application software development and maintenance, database and server support costs, the help desk function, data center expenses connected with internet service provider ("ISP") hosting services and other internet content delivery expenses. Major expenses for our publishing business include salaries, commissions, and costs associated with printing, production and circulation of magazine issues.

Measurement of Performance

We monitor and evaluate the growth and operational performance of our business using net income and the following key metrics:

(a) Net revenue: The performance of an individual radio station or group of radio stations in a particular market is customarily measured by its ability to generate net revenue. Net revenue consists of gross revenue, net of local and national agency and outside sales representative commissions consistent with industry practice. Net revenue is recognized in the period in which advertisements are broadcast or, in the case of Giant Magazine, the month in which a particular issue is available for sale. Net revenue also includes advertising aired in exchange for goods and services, which is recorded at fair value, revenue from sponsored events and other revenue. Net revenue is recognized for CCI as impressions are delivered, as "click throughs" are reported or ratably over contract periods, where applicable.

(b) Station operating income: Net (loss) income before depreciation and amortization, income taxes, interest income, interest expense, equity in loss of affiliated company, minority interest in income of subsidiaries, gain on retirement of debt, other expense, corporate expenses, stock-based compensation expenses, impairment of long-lived assets and gain or loss from discontinued operations, net of tax, is commonly referred to in our industry as station operating income. Station operating income is not a measure of financial performance under generally accepted accounting principles. Nevertheless, we believe station operating income is often a useful measure of a broadcasting company's operating performance and is a significant basis used by our management to measure the operating performance of our stations within the various markets. Station operating income provides helpful information about our results of operations, apart from expenses associated with our physical plant, income taxes, investments, impairment charges, debt financings and retirements, corporate overhead, stock-based compensation and discontinued operations. Station operating income is frequently used as a basis for comparing businesses in our industry, although our measure of station operating income may not be comparable to similarly titled measures of other companies. Station operating income does not represent operating loss or cash flow from operating activities, as those terms are defined under generally accepted accounting principles, and should not be considered as an alternative to those measurements as an indicator of our performance.

(c) Station operating income margin: Station operating income margin represents station operating income as a percentage of net revenue. Station operating income margin is not a measure of financial performance under generally accepted accounting principles. Nevertheless, we believe that station operating income margin is a useful measure of our performance because it provides helpful information about our profitability as a percentage of our net revenue.

Summary of Performance

  The table below provides a summary of our performance based on the metrics
described above:

                                                                  Years Ended December 31,
                                                        2008            2007                    2006
                                                                      (As Adjusted - See Note 1 of our
                                                                     Consolidated Financial Statements)
                                                             (In thousands, except margin data)

Net revenue                                          $  316,416     $     319,552           $    321,625
Station operating income                                129,958           144,456                157,481
Station operating income margin                            41.1 %            45.2 %                 49.0 %
Net loss                                               (302,944 )        (391,500 )               (6,730 )

The reconciliation of net loss to station operating income is as follows:

                                                                  Years Ended December 31,
                                                        2008            2007                    2006
                                                                      (As Adjusted - See Note 1 of our
                                                                     Consolidated Financial Statements)
                                                                       (In thousands)

Net loss as reported                                 $ (302,944 )   $    (391,500 )         $     (6,730 )
Add back non-station operating income items
included in net loss:
Interest income                                            (491 )          (1,242 )               (1,393 )
Interest expense                                         59,689            72,770                 72,932
(Benefit from) provision for income taxes               (45,200 )          54,083                 18,260
Corporate selling, general and administrative,
excluding stock-based compensation                       35,280            27,328                 26,296
Stock-based compensation                                  1,777             2,991                  4,633
Equity in loss of affiliated company                      3,652            15,836                  2,341
Gain on retirement of debt                              (74,017 )               -                      -
Other expense, net                                          361               347                    283
Depreciation and amortization                            19,124            14,768                 13,890
Minority interest in income of subsidiaries               3,997             3,910                  3,004
Impairment of long-lived assets                         423,220           211,051                      -
Loss from discontinued operations, net of tax             5,510           134,114                 23,965
Station operating income                             $  129,958     $     144,456           $    157,481

                        RADIO ONE, INC. AND SUBSIDIARIES

                             RESULTS OF OPERATIONS

  The following table summarizes our historical consolidated results of
operations:

Year Ended December 31, 2008 Compared to Year Ended December 31, 2007 (In
thousands)

                                               Years Ended December 31,               Increase/(Decrease)
                                               2008                 2007
                                                             (As Adjusted -See
                                                               Note 1 Below)
Statements of Operations:
Net revenue                                $     316,416        $    319,552       $    (3,136 )        (1.0 )%
Operating expenses:
Programming and technical, excluding
stock-based compensation                          81,934              73,574             8,360          11.4
Selling, general and administrative,
excluding stock-based compensation               104,524             101,522             3,002           3.0
Corporate selling, general and
administrative, excluding stock-based
compensation                                      35,280              27,328             7,952          29.1
Stock-based compensation                           1,777               2,991            (1,214 )       (40.6 )
Depreciation and amortization                     19,124              14,768             4,356          29.5
Impairment of long-lived assets                  423,220             211,051           212,169         100.5
Total operating expenses                         665,859             431,234           234,625          54.4
Operating loss                                  (349,443 )          (111,682 )         237,761         212.9
Interest income                                      491               1,242              (751 )       (60.5 )
Interest expense                                  59,689              72,770           (13,081 )       (18.0 )
Gain on retirement of debt                        74,017                   -            74,017             -
Equity in loss of affiliated company               3,652              15,836           (12,184 )       (76.9 )
Other expense, net                                   361                 347                14           4.0
Loss before (benefit from) provision for
income taxes, minority interest in
income of subsidiaries and loss from
discontinued operations, net of tax             (338,637 )          (199,393 )         139,244          69.8
(Benefit from) provision for income
taxes                                            (45,200 )            54,083           (99,283 )      (183.6 )
Minority interest in income of
subsidiary                                         3,997               3,910                87           2.2
Net loss from continuing operations             (297,434 )          (257,386 )          40,048          15.6
Loss from discontinued operations, net
of tax                                            (5,510 )          (134,114 )        (128,604 )       (95.9 )
Net loss                                   $    (302,944 )      $   (391,500 )     $   (88,556 )       (22.6 )%

Note 1 - Certain reclassifications associated with accounting for discontinued
operations have been made to prior year and prior quarter balances to conform to
the current year presentation. These reclassifications had no effect on any
other previously reported net income or loss or any other statement of
operations, balance sheet or cash flow amounts. Additionally, the 2007 financial
data reflects the correction of an error to increase the equity in loss of
affiliated company by approximately $4.4 million.


Net revenue

 Year Ended December 31,     Increase/(Decrease)
    2008         2007
  $316,416     $319,552      $(3,136)    (1.0)%

For the year ended 2008 we recognized approximately $316.4 million in net revenue compared to approximately $319.6 million during 2007. These amounts are net of agency and outside sales representative commissions, which were approximately $34.6 million in 2008, compared to approximately $37.0 million in 2007. Declines in net revenue in our radio markets more than offset an increase in net revenue of approximately $11.7 million generated by CCI, an online social networking company, which was acquired by the Company in April 2008. For our radio business, based on reports prepared by the independent accounting firm Miller, Kaplan, Arase & Co., LLP ("Miller Kaplan"), the markets in which we operate declined 8.8% in total revenues, 10.9% in national revenues and 9.6% in local revenues for the year ended December 31, 2008. Consistent with the markets we operate in, we also experienced a decrease in net revenue, with national revenue driving more of a decline. On a per market basis, we experienced considerable revenue declines in our Atlanta, Houston and Washington, DC markets, and more modest declines in our Dallas, Detroit, Cleveland and Raleigh-Durham markets. We experienced growth in net revenue in our Indianapolis and Philadelphia markets, as well as increases in net revenue from a special event, revenue from new syndicated programs and increased internet revenue from our station websites. Reach Media had a decline in net revenue due to TV licensing revenue which ended in 2007, and less events revenue resulting from fewer events and less sponsorships compared to 2007. Excluding the approximately $11.7 million generated by CCI, net revenue declined 4.6% for the year ended December 31, 2008 compared to 2007.

Operating expenses

Programming and technical, excluding stock-based compensation

Year Ended December 31, Increase/(Decrease) 2008 2007
$81,934 $73,574 $8,360 11.4%

Programming and technical expenses include expenses associated with on-air talent and the management and maintenance of the systems, tower facilities, and studios used in the creation, distribution and broadcast of programming content on our radio stations. Programming and technical expenses for radio also include expenses associated with our programming research activities and music royalties. Expenses associated with the printing and publication of Giant Magazine issues are also included in programming and technical. For our internet business, programming and technical expenses include software product design, post application software development and maintenance, database and server support costs, the help desk function, data center expenses connected with ISP hosting services and other internet content delivery expenses. Increased programming and technical expenses were primarily due to approximately $5.5 million in spending by CCI, which was acquired in April 2008 and approximately $1.4 million more spent for our broader internet initiative. Related to our radio business, additional programming and technical spending was also driven by additional staffing, in part for our web sites, higher on-air talent expenses, mostly for our new syndicated radio shows, additional tower related expenses and increased music royalties. The increased radio programming and technical expenses were offset in part from savings in research, savings from ceasing our 401(k) match program, the absence of Reach TV syndication costs and lower circulation and issues costs for Giant Magazine. Excluding approximately $6.9 million in increased spending for our internet initiative and CCI's expenses, programming and technical expenses increased 2.0% for the year ended December 31, 2008 compared to 2007.

Selling, general and administrative, excluding stock-based compensation

Year Ended December 31, Increase/(Decrease) 2008 2007
$ 104,524 $ 101,522 $3,002 3.0%

Selling, general and administrative expenses include expenses associated with our sales departments, offices and facilities and personnel (outside of our corporate headquarters), marketing and promotional expenses, special events and sponsorships and back office expenses. Expenses to secure ratings data for our radio stations and visitors' data for our websites are also included in selling, general and administrative expenses. In addition, selling, general and administrative expenses for radio and internet also include expenses related to the advertising traffic (scheduling and insertion) functions. Selling, general and administrative expenses also include membership traffic acquisition costs for our online business. Increased selling, general and administrative expenses were primarily due to approximately $5.7 million in spending by CCI, which was acquired in April 2008. Another approximately $3.4 million increase was due to additional spending on our broader internet initiative, which includes $550,000 for costs associated with a certain membership traffic agreement. Increases in selling, general and administrative expenses for our radio business were driven by expenses for a large special event held in first quarter, increased bad debt expenses, driven in part by client bankruptcies and higher ratings research associated with a new contract with Arbitron and their new portable people meter ("PPM") methodology. With our efforts on reducing expenses, these increases were offset partially from savings associated with less promotional spending, reduced travel and entertainment, less legal and professional spending, savings from the suspension of our 401(k) match program and less sponsored events expenses. Our declining revenue performance also resulted in less commissions and national representative fees. Excluding the approximately $9.1 million in increased spending on our internet initiative and CCI's spending, selling, general and administrative expenses decreased 6.1% for the year ended December 31, 2008 compared to the same period in 2007. Excluding the approximately $10.9 million in increased spending for the internet initiative, CCI's spending and expenses for the large first quarter special event, selling, general and administrative expenses decreased 7.9% for the year ended December 31, 2008 compared to 2007.

Corporate selling, general and administrative, excluding stock-based

compensation

 Year Ended December 31,     Increase/(Decrease)
   2008         2007
  $35,280     $  27,328       $7,952      29.1%

Corporate selling, general and administrative expenses consist of expenses associated with maintaining our corporate headquarters and facilities, including personnel. Increased corporate selling, general and administrative expenses were primarily due to compensation costs associated with new employment agreements for the Company's Chief Executive Officer ("CEO") and its Founder and Chairperson. Specifically, the increased compensation included approximately $10.1 million in bonuses for the CEO, of which approximately $5.8 million was for a signing and a "make whole" bonus paid, and another approximately $4.3 million was recorded, but not paid, for a bonus associated with potential distribution proceeds from the Company's investment in TV One. Increased corporate selling, general and administrative expenses were also due to an approximate $2.4 million retention bonus reduction recorded in 2007 for the former Chief Financial Officer ("Former CFO"), given his early departure in December 2007, a $620,000 reduction in severance also recorded in 2007 for an obligation that never materialized and additional bad debt expense. In addition, during 2008, the Company incurred $485,000 in costs, mainly severance, associated with a reduction in its radio division workforce. These increased expenses were offset in part by approximately $2.4 million less bonus expense, the absence of approximately $2.7 million in spending for legal and professional fees incurred in 2007 for the voluntary review of our historical stock option grant practices, savings from the suspension of our 401(k) match program, reduced travel and entertainment, reduced contract labor and consultant spending, less research expenses and reduced recruiting expense. Normalizing for spending of approximately $2.7 million for the stock options review, approximately $2.4 million for the reduction in the Former CFO's retention bonus, the $620,000 severance reduction in 2007, the approximate $10.1 million bonus for the CEO's new employment agreement, and the $485,000 in severance for the 2008 radio division workforce reduction, corporate selling, general and administrative expenses decreased 10.7% for the year ended December 31, 2008 compared to 2007.

Stock-based compensation

Year Ended December 31, Increase/(Decrease) 2008 2007
$1,777 $ 2,991 $(1,214) (40.6)%

Stock-based compensation consists of expenses associated with our January 1, 2006 adoption of Statement of Financial Accounting Standards ("SFAS") No. 123(R), "Share-Based Payment." SFAS No. 123(R) eliminated accounting for share-based payments based on Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and requires measurement of compensation cost for all stock-based awards at fair value on date of grant and recognition of compensation over the service period for awards expected to vest. The decrease in stock-based compensation for the year ended December 31, 2008 was primarily due to a decline in the fair value awards issued in 2008 due to a significant decline in the value of the Company's stock price, cancellations and forfeitures for former employees and the completion of the vesting period for certain stock options. The decrease was offset in part due to expense for additional stock options and restricted stock awards associated with new employment agreements for the CEO, the Founder and Chairperson and the Chief Financial Officer ("CFO").

Depreciation and amortization

Year Ended December 31, Increase/(Decrease) 2008 2007
$19,124 $ 14,768 $4,356 29.5%

. . .