<PAGE>
 
================================================================================

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549
                                _______________
                                        
                                   FORM 10-Q
                               QUARTERLY REPORT
                                     UNDER
                              SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934

                                _______________

(Mark One)
[X]  QUARTERLY REPORT PURSUANT TO SECTION 13D OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

                      For the quarter ended June 30, 1998
                                      OR
[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

          For the transition period from ____________ to ____________

                        Commission File Number 1-10321

                           THE ACKERLEY GROUP, INC.
            (Exact name of registrant as specified in its charter)

           DELAWARE                                       91-1043807
(State or other jurisdiction of                (IRS Employer Identification No.)
incorporation or organization)

                               1301 FIFTH AVENUE
                                  SUITE 4000
                           SEATTLE, WASHINGTON 98101
                                (206) 624-2888
              (Address, including zip code, and telephone number,
       including area code, of Registrant's principal executive offices)

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:

                             Yes   X    No 
                                 -----     -----

     Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.

           Title of Class                        Outstanding at August 1, 1998
           --------------                        -----------------------------
    Common Stock, $.01 par value                       20,575,006 shares
Class B Common Stock, $.01 par value                   11,051,230 shares

================================================================================
<PAGE>
 
                               TABLE OF CONTENTS

                                                                            PAGE
                                                                            ----
PART I -  FINANCIAL INFORMATION
        
ITEM 1.   FINANCIAL STATEMENTS
        
          CONDENSED CONSOLIDATED BALANCE SHEETS
          JUNE 30, 1998 AND DECEMBER 31, 1997.............................    1
                                                                          
          CONDENSED CONSOLIDATED STATEMENTS OF INCOME                     
          THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1997........    2
                                                                          
          CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS                 
          SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1997..................    3
                                                                          
          NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS............    4
                                                                          
ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF                         
          FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................    5
                                                                          
PART II - OTHER INFORMATION                                               
                                                                          
ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K................................   13
                                                                          
          SIGNATURES......................................................   13

                                       i
<PAGE>
 
                         PART I - FINANCIAL INFORMATION

                         ITEM 1 - FINANCIAL STATEMENTS

                            THE ACKERLEY GROUP, INC.
                     CONDENSED CONSOLIDATED BALANCE SHEETS

                                ---------------
<TABLE>
<CAPTION>
                                                ASSETS
                                                                               (Unaudited)
                                                                                June 30,      December 31,
                                                                                  1998            1997
                                                                               ----------     ------------
                                                                                     (In thousands)      
<S>                                                                            <C>            <C>
Current assets:                                                                               
  Cash and cash equivalents                                                     $  5,329        $  3,656
  Accounts receivable, net                                                        89,818          52,923
  Current portion of broadcast rights                                              4,678           7,349
  Prepaid expenses                                                                11,215          12,360
  Deferred tax assets                                                              6,723          11,499
  Other current assets                                                             4,253           4,734
                                                                                --------        --------
     Total current assets                                                        122,016          92,521
                                                                                              
Property and equipment, net                                                      102,184          94,968
Intangibles, net                                                                  71,892          42,318
Other assets                                                                      28,457          36,578
                                                                                --------        --------
     Total assets                                                               $324,549        $266,385
                                                                                ========        ========
                                  LIABILITIES AND STOCKHOLDERS' DEFICIENCY     
Current liabilities:                                                                          
  Accounts payable                                                              $  6,191        $  9,103
  Accrued interest                                                                 3,813           3,995
  Other accrued liabilities                                                       18,171          19,071
  Deferred revenue                                                                13,963          23,857
  Current portion of broadcasting obligations                                      6,482           8,346
  Current portion of long-term debt                                               52,055          16,130
                                                                                --------        --------
     Total current liabilities                                                   100,675          80,502
Long-term debt, net of current portion                                           230,969         213,294
Litigation accrual                                                                 8,023           8,072
Other long-term liabilities                                                        6,723           9,426
                                                                                --------        --------
     Total liabilities                                                           346,390         311,294
                                                                                              
Stockholders' deficiency:                                                                     
  Common stock, par value $.01 per share--authorized 50,000,000 shares;                       
   issued 21,947,912 shares at June 30, 1998 and 21,855,398 shares at                         
   December 31, 1997; and outstanding 20,572,966 shares at June 30, 1998                      
   and 20,480,452 shares at December 31, 1997                                        219             218
                                                                                              
  Class B common stock, par value $.01 per share--authorized 11,406,510                       
   shares; and issued and outstanding 11,053,270 shares at June 30, 1998                      
   and 11,053,510 shares at December 31, 1997                                        111             111
                                                                                              
Capital in excess of par value                                                    10,309           9,816
Deficit                                                                          (22,391)        (44,965)
Less common stock in treasury, at cost                                           (10,089)        (10,089)
                                                                                --------        --------
  Total stockholders' deficiency                                                 (21,841)        (44,909)
                                                                                --------        --------
  Total liabilities and stockholders' deficiency                                $324,549        $266,385
                                                                                ========        ========
</TABLE>

            See Notes to Condensed Consolidated Financial Statements

                                       1
<PAGE>
 
                           THE ACKERLEY GROUP, INC.
                  CONDENSED CONSOLIDATED STATEMENTS OF INCOME

                                   UNAUDITED

                                ---------------

<TABLE>
<CAPTION>
                                                     For the Three Month              For the Six Month
                                                    Periods Ended June 30,          Periods Ended June 30,
                                                     1998            1997            1998            1997
                                                   --------         -------        --------        --------
                                                    (In thousands, except           (In thousands, except
                                                      per share amounts)              per share amounts)
      <S>                                          <C>              <C>            <C>             <C>
      Revenue                                      $ 85,798         $77,308        $175,427        $156,554
      Less agency commissions and discounts          (9,961)         (9,101)        (18,544)        (16,893)
                                                   --------         -------        --------        --------
      Net revenue                                    75,837          68,207         156,883         139,661
                                                   
      Expenses (other income):                     
      Operating expenses                             61,897          49,489         131,285         108,731
      Depreciation and amortization expense           3,223           3,291           7,066           6,522
      Interest expense                                7,129           6,246          13,639          12,409
      Stock compensation expense                        422             ---             422             ---
      Gain on disposition of assets                 (32,980)            ---         (32,980)            ---
                                                   --------         -------        --------        --------
      Total expenses and other income                39,691          59,026         119,432         127,662
                                                   --------         -------        --------        --------
      Income before income taxes                     36,146           9,181          37,451          11,999
      Income tax benefit (expense)                  (13,748)          1,288         (14,244)          1,664
                                                   --------         -------        --------        --------
      Net income                                   $ 22,398         $10,469        $ 23,207        $ 13,663
                                                   ========         =======        ========        ========
      Net income per common share                     $0.71           $0.34        $   0.74        $   0.44
                                                   ========         =======        ========        ========
     Earnings per common share, assuming          
      dilution                                     $   0.70         $  0.33        $   0.73        $   0.43
                                                   ========         =======        ========        ========
      Dividends per common share                   $  --            $  --          $   0.02        $   0.02
                                                   ========         =======        ========        ========
      Dividends per common share, assuming      
      dilution                                     $  --            $  --          $   0.02        $   0.02
                                                   ========         =======        ========        ========
      Weighted average number of common shares       31,572          31,167          31,572          31,167
 
      Weighted average number of common
      shares, assuming dilution                      31,820          31,767          31,820          31,767
 
</TABLE>

            See Notes to Condensed Consolidated Financial Statements

                                       2
<PAGE>
 
                            THE ACKERLEY GROUP, INC.

                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                   UNAUDITED

                                ---------------

<TABLE>
<CAPTION>
                                                              For the Six Month
                                                            Periods Ended June 30,
                                                             1998             1997
                                                          ---------         --------
                                                                (In thousands)
<S>                                                       <C>               <C>
Net cash provided by (used in) operating activities:      $    (931)        $  8,675
                                                          
Cash flows from investing activities:                     
  Proceeds from sale of property                                763              134
  Capital expenditures                                      (19,268)         (10,163)
  Payments for acquisitions                                 (30,459)             ---
  Other, net                                                   (513)             ---
                                                          ---------         --------
Net cash used in investing activities                       (49,477)         (10,029)
                                                          
Cash flows from financing activities:                     
  Borrowings under credit agreements                        201,592           11,462
  Payments under credit agreements                         (148,190)          (6,458)
  Payments under capital lease obligations                     (424)            (402)
  Dividends paid                                               (633)            (623)
  Proceeds from stock issuance                                   72              ---
  Other, net                                                   (336)             ---
                                                          ---------         --------
Net cash provided by financing activities                    52,081            3,979
                                                          ---------         --------
                                                          
Net increase in cash and cash equivalents                     1,673            2,625
Cash and cash equivalents at beginning of period              3,656            2,910
                                                          ---------         --------
Cash and cash equivalents at end of period                $   5,329         $  5,535
                                                          =========         ========
                                                          
Supplemental disclosure of noncash transactions:          
  Broadcast rights acquired and broadcast                 
    obligations assumed                                   $     864         $    891
  Property and equipment acquired                         
    through barter                                        $     922         $    409
</TABLE>

            See Notes to Condensed Consolidated Financial Statements

                                       3
<PAGE>
 
                           THE ACKERLEY GROUP, INC.

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1.  BASIS OF PRESENTATION

     The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. The balance sheet at December 31, 1997 has been derived
from the audited consolidated financial statements at that date. The
accompanying condensed consolidated financial statements do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
normal and recurring adjustments necessary for a fair presentation of the
financial position and the results of operations for such periods have been
included. These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
contained in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997.

     The results of operations for any interim period are not necessarily
indicative of anticipated results for the full year. The Company's results of
operations may vary from quarter to quarter due in part to the timing of
acquisitions and to seasonal variations in the operations of the broadcasting
and sports & entertainment segments. In particular, the Company's net revenue
and net income historically have been affected positively during the NBA
basketball season (the first, second, and fourth quarters) and by increased
advertising activity in the second and fourth quarters.

     Certain prior year's amounts have been reclassified to conform to the 1998
presentation.

NOTE 2.  DEBT

     In January 1998, the Company replaced its 1996 Credit Agreement with a new
credit agreement (the "Credit Agreement"). The Credit Agreement currently limits
borrowings to $77.5 million, due to restrictions related to the Company's 10
3/4% Senior Secured Notes due 2003 (the "Senior Notes"), including up to $10.0
million in standby letters of credit. The Credit Agreement further provides that
if the Company redeems the Senior Notes prior to December 15, 1998, the maximum
permissible borrowings under the Credit Agreement will be increased by $187.5
million, which will consist of a $120.0 million term loan facility and an
increase in its revolving credit facility of $67.5 million.

     The Company can choose to have interest calculated under the Credit
Agreement at rates based on either a Base Rate or LIBOR rate plus defined
margins. The margins and the fees on the letter of credit facility vary based on
the Company's total leverage ratio. Principal repayments under the Credit
Agreement are due quarterly from March 2000 through June 2005.

     In February 1998, New Century Seattle Partners, L.P., a Delaware limited
partnership that owns radio stations KJR(AM), KJR-FM and KUBE(FM) (the
"Partnership"), replaced its previous credit agreement with a new credit
agreement providing for borrowings up to $35.0 million. The borrowings are
secured by a pledge of all Partnership assets.

NOTE 3.  INCOME TAXES

     The Company has no significant current income tax liabilities primarily as
a result of operating losses incurred in prior years. However, the Company will
continue to pay federal income taxes under

                                       4
<PAGE>
 
the alternative minimum tax until the operating loss carryforwards are
substantially reduced. In addition, the Company will incur state income tax
expense in certain states in which it operates.

     During the first quarter of 1997, the Company reduced the valuation
allowance for deferred tax assets which resulted in the recording of a deferred
tax asset of $1.6 million. The recognized deferred tax asset was based on the
Company's expected utilization of net operating loss carryforwards and reversal
of certain temporary differences between financial statement carrying amounts
and the tax bases of existing assets and liabilities.

NOTE 4.  DISPOSITION OF ASSETS

     On June 30, 1998, the Company sold substantially all the assets of its
wholly-owned subsidiary, Ackerley Advertising, Inc. for a base cash price of
$40.0 million, subject to a possible post-closing increase of up to $4.0 million
under certain circumstances. The company recorded a gain from this transaction
of $20.4 million net of taxes, or $0.64 per share. The $40.0 million base price
is recorded in accounts receivable at June 30, 1998 and was received on July 1,
1998.

               ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview
--------

     The Company reported net income of $23.2 million for the first six months
of 1998, a $9.5 million or 69% increase from the first six months of 1997. Net
revenues for the first six months of 1998 increased over the same period last
year by $17.2 million, or 12%, while the Company's Operating Cash Flow (as
defined below) decreased $5.3 million, or 17%.

     On April 15, 1998, the Company paid a $.02 per share dividend. Effective
April 30, 1998, the Partnership redeemed all the interests of Century
Management, Inc., its general partner ("CMI"), for approximately $17.8 million
following receipt of the required approval of the Federal Communications
Commission. Upon closing, KJR Radio, Inc. became the Partnership's sole general
partner and licensee of the radio stations held by the Partnership and AK Media
Group, Inc., the Company's principal operating subsidiary, became the
Partnership's nominal and sole limited partner.

     On June 30, 1998, the Company sold substantially all the assets of its
wholly-owned subsidiary, Ackerley Airport Advertising, Inc. ("Airport"), for a
base cash price of $40.0 million, subject to a possible post-closing increase of
up to $4.0 million under certain circumstances. Airport's net revenue, operating
expenses, and operating cash flow for the six months ended June 30, 1998, were
$16.2 million, $14.6 million, and $1.6 million, respectively and for the six
months ended June 30, 1997, were $13.4 million, $12.3 million, and $1.1 million,
respectively.

     As with many media companies that have grown through acquisitions, the
Company's acquisitions and dispositions of television and radio stations have
resulted in significant non-cash and non-recurring charges to income. For this
reason, in addition to net income, management believes that Operating Cash Flow
(defined as net revenue less operating expenses before amortization,
depreciation, and interest expenses) is an appropriate measure of the Company's
financial performance. Similarly, management believes that Segment Operating
Cash Flow (defined as Operating Cash Flow before corporate overhead) is an
appropriate measure of the financial performance of the Company's segments.
These measures exclude certain expenses that management does not consider to be
costs of ongoing operations. The Company uses Operating Cash Flow to pay
interest and principal on its long-term debt as well as to finance capital
expenditures. Operating Cash Flow and Segment Operating Cash Flow, however, are
not to be considered alternatives to net income as an indicator of the Company's
operating performance or to cash flows as a measure of the Company's liquidity.

                                       5
<PAGE>
 
RESULTS OF OPERATIONS

       The following tables set forth certain historical financial and operating
data for the three and six-month periods ended June 30, 1998 and 1997, including
net revenue, operating expenses, and Operating Cash Flow information by segment:


<TABLE>
<CAPTION>
                                                      THREE MONTH PERIODS ENDED JUNE 30,
                                          ------------------------------------------------------------
                                                      1998                          1997
                                          ----------------------------  ------------------------------
                                                           (DOLLARS IN THOUSANDS)
                                                             AS % OF                        AS % OF
                                              AMOUNT       NET REVENUE       AMOUNT       NET REVENUE
                                          --------------  ------------  --------------  --------------
<S>                                       <C>             <C>             <C>             <C>
Net revenue............................      $ 75,837         100.0%         $68,207          100.0%      
                                                                                                          
Segment operating expenses.............        57,272          75.5           46,456           68.1       
Corporate overhead.....................         4,625           6.1            3,033            4.4       
                                             --------                        -------         
          Total operating expenses.....        61,897          81.6           49,489           72.5       
                                             --------                        -------                      
                                                                                                          
Operating Cash Flow....................        13,940          18.4           18,718           27.5       
                                                                                                          
Other expenses and income:                                                                                
    Depreciation and amortization......         3,223           4.2            3,291            4.8       
    Interest expense...................         7,129           9.4            6,246            9.2       
    Stock compensation expense.........           422           0.6              --             --       
    Gain on disposition of assets......       (32,980)        (43.5)             --             --     
                                             --------                        -------                    
          Total other expenses and                                                           
           income......................       (22,206)        (29.3)           9,537           14.0

Income before income taxes.............        36,146          47.7            9,181           13.5       
Income tax benefit (expense)...........       (13,748)        (18.1)           1,288            1.9     
                                             --------                        -------          
Net income.............................      $ 22,398          29.6          $10,469           15.4%      
                                             ========                        =======                       
</TABLE>
<TABLE> 
                                                       SIX MONTH PERIODS ENDED JUNE 30,
                                          ------------------------------------------------------------
                                                      1998                          1997
                                          ------------------------------  ----------------------------
                                                           (DOLLARS IN THOUSANDS)
                                                             AS % OF                         AS % OF
                                              AMOUNT       NET REVENUE        AMOUNT       NET REVENUE
                                          --------------  --------------  --------------  ------------
<S>                                       <C>             <C>             <C>             <C>
Net revenue............................      $156,883         100.0%         $139,661         100.0%    
                                                                                                        
Segment operating expenses.............       123,604          78.8           103,660          74.2      
Corporate overhead.....................         7,681           4.9             5,071           3.6      
                                             --------                        --------                    
          Total operating expenses.....       131,285          83.7           108,731          77.8      

Operating Cash Flow....................        25,598          16.3            30,930          22.2      

Other expenses and income:                                                                               
    Depreciation and amortization......         7,066           4.5             6,522           4.7      
    Interest expense...................        13,639           8.7            12,409           8.9      
    Stock compensation expense.........           422           0.3               --            --      
    Gain on disposition of assets......       (32,980)        (21.0)              --            --    
                                             --------                        --------                    
          Total other expenses and            (11,853)         (7.6)           18,931          13.6    
           income......................                                                                  
Income before income taxes.............        37,451          23.9            11,999           8.6      
Income tax benefit (expense)...........       (14,244)         (9.1)            1,664           1.2    
                                             --------                        --------                    
Net income.............................      $ 23,207          14.8           $13,663           9.8%     
                                             ========                        ========                       
</TABLE>

                                       6
<PAGE>
 
<TABLE>
<CAPTION>
                                                    THREE MONTH PERIODS ENDED                 SIX MONTH PERIODS ENDED
                                                            JUNE 30,                                 JUNE 30,
                                                 -----------------------------------------------------------------------
                                                   1998                   1997            1998                    1997
                                                 -------                -------         --------                --------
                                                    (DOLLARS IN THOUSANDS)                  (DOLLARS IN THOUSANDS)
<S>                                              <C>                    <C>             <C>                     <C>
Net revenue:                                     
   Out-of-home media...........................  $33,358                $29,029         $ 59,824                $ 53,933
   Broadcasting................................   25,783                 22,659           53,374                  45,401
   Sports & entertainment......................   16,696                 16,519           43,685                  40,327
                                                 -------                -------         --------                --------
    Total net revenue..........................  $75,837                $68,207         $156,883                $139,661
                                                 =======                =======         ========                ========
                                                 
Segment operating expenses:                      
   Out-of-home media...........................  $20,486                 17,660         $ 39,448                $ 34,968
   Broadcasting................................   17,605                 15,033           34,913                  28,414
   Sports & entertainment......................   19,181                 13,763           49,243                  40,278
                                                 -------                -------         --------                --------
    Total segment operating expenses...........  $57,272                $46,456         $123,604                $103,660
                                                 =======                =======         ========                ========
                                                 
Operating Cash Flow:                             
   Out-of-home media...........................  $12,872                $11,369         $ 20,376                $ 18,965
   Broadcasting................................    8,178                  7,626           18,461                  16,987
   Sports & entertainment......................   (2,485)                 2,756           (5,558)                     49
                                                 -------                -------         --------                --------
    Total segment Operating Cash Flow..........   18,565                 21,751           33,279                  36,001
   Corporate overhead..........................   (4,625)                (3,033)          (7,681)                 (5,071)
                                                 -------                -------         --------                --------
    Total Operating Cash Flow..................  $13,940                $18,718         $ 25,598                $ 30,930
                                                 =======                =======         ========                ========
                                                 
Change in net revenue from prior periods:        
   Out-of-home media...........................     14.9%                   9.7%            10.9%                   13.1%
   Broadcasting................................     13.8%                   7.1%            17.6%                    9.9%
   Sports & entertainment......................      1.1%                 (19.9)%            8.3%                   (4.3)%
    Change in total net revenue................     11.2%                   0.0%            12.3%                    6.5%
                                                 
Segment operating expenses as a % of segment     
 net revenue:                                    
   Out-of-home media...........................     61.4%                  60.8%            65.9%                   64.8%
   Broadcasting................................     68.3%                  66.3%            65.4%                   62.6%
   Sports & entertainment......................    114.9%                  83.3%           112.7%                   99.9%
    Total segment operating expenses as a   %    
     of total net revenue......................     75.5%                  68.1%            78.8%                   74.2%
                                                 
                                                 
Operating Cash Flow as a % of segment net        
 revenue:                                        
   Out-of-home media...........................     38.6%                  39.2%            34.1%                   35.2%
   Broadcasting................................     31.7%                  33.7%            34.6%                   37.4%
   Sports & entertainment......................    (14.9)%                 16.7%           (12.7%)                   0.1%
    Total Operating Cash Flow as a %   of        
     total net revenue.........................     18.4%                  27.5%            16.3%                   22.2%
 
</TABLE>

                                       7
<PAGE>
 
THREE MONTH PERIOD ENDED JUNE 30, 1998 COMPARED WITH THREE MONTH PERIOD ENDED
JUNE 30, 1997

     Net Revenue.  Net revenue for the quarter ended June 30, 1998 increased
$7.6 million, or 11%, to $75.8 million from $68.2 million for the second quarter
of 1997.  Changes in net revenues were as follows:

     .  Out-of-Home Media.  For the second quarter of 1998, the Company's 
        out-of-home media segment's net revenue increased $4.3 million, or 15%,
        compared to the second quarter of 1997. This increase was mainly due to
        increased national advertising sales.

     .  Broadcasting.  The Company's broadcasting segment showed an increase of
        $3.1 million in net revenue, or 14%, for the quarter ended June 30, 1998
        compared to the corresponding period in the prior fiscal year. This
        increase resulted primarily from the addition of television stations
        WUTR and WIVT in June 1997 and July 1997, respectively, as well as
        higher national and local sales at the Company's television and radio
        stations.

     .  Sports & Entertainment.  The sports & entertainment segment's net
        revenue increased $0.2 million, or 1%, for the second quarter of 1998
        compared to the second quarter of 1997, primarily due to increased NBA
        league related revenue.

     Segment Operating Expenses (Excluding Corporate Overhead).  Segment
operating expenses (excluding corporate overhead) for the second quarter of 1998
were $57.3 million, an increase of $10.8 million, or 23%, over segment operating
expenses (excluding corporate overhead) of $46.5 million for the second quarter
of 1997.  Changes in segment operating expenses (excluding corporate overhead)
were as follows:

     .  Out-of-Home Media.  Operating expenses for the Company's out-of-home
        media segment for the quarter ended June 30, 1998 were $20.5 million, an
        increase of $2.8 million, or 16%, over the second quarter of 1997. This
        increase was due mainly to the effects of increased sales activity.

     .  Broadcasting.  Operating expenses for the Company's broadcasting segment
        for the second quarter of 1998 were $17.6 million, an increase of $2.6
        million, or 17%, over the second quarter of 1997. This increase was
        mainly due to the addition of television stations WUTR and WIVT in June
        1997 and July 1997, respectively, and higher program, promotion and
        production expenses in conjunction with the expansion of local news
        programming.

     .  Sports & Entertainment.  Operating expenses from the Company's sports &
        entertainment segment for the second quarter of 1998 were $19.2 million,
        an increase of $5.4 million, or 39%, compared to the second quarter of
        1997. This increase was mainly attributable to increased basketball
        operating expenses related to team costs.

      Corporate Overhead.  Corporate overhead for the quarter ended June 30,
1998 increased by $1.6 million, or 53%, to $4.6 million, mainly due to personnel
costs, travel and entertainment, insurance and the utilization of outside
services, primarily for public relations.

      Operating Cash Flow.  As a result of the above, Operating Cash Flow
decreased $4.8 million or 26% for the three months ended June 30, 1998 from the
same period in 1997.  The $1.5 million increase in the out-of-home media
segment's Operating Cash Flow and the $0.5 million increase in the broadcast
segment's Operating Cash Flow was offset by a $5.2 million decrease in the
sports & entertainment

                                       8
<PAGE>
 
segment's Operating Cash Flow and the $1.6 million increase in corporate
overhead for the 1998 quarter. Operating Cash Flow as a percentage of net
revenue decreased to 18% for the three months ended June 30, 1998 from 27% for
the comparable period in 1997.

      Depreciation and Amortization Expense.  Depreciation and amortization
expenses decreased $0.1 million, or 3%, to $3.2 million in the second quarter of
1998 as compared to $3.3 million in the second quarter of 1997.

      Interest Expense.  Interest expense for the quarter ended June 30, 1998
increased $0.9 million, or 15%, to $7.1 million from $6.2 million in the second
quarter of 1997, mainly due to higher average debt balances during the second
quarter of 1998 compared to the same period in 1997.

      Income Tax Expense.  For the second quarter of 1998, the Company incurred
a $13.7 million income tax expense compared to an income tax benefit of $1.3
million for the second quarter of 1997.  The expense for 1998 resulted primarily
from income tax expense on the gain on sale of substantially all of the assets
of Airport.  The benefit resulted from the recognition of a $4.6 million
deferred tax asset during the second quarter of 1997.

      Net Income.  Net income was $22.4 million, including the $20.4 million
gain on the sale of Airport, net of taxes, for the three months ended June 30,
1998, an increase of $11.9 million, or 113%, from $10.5 million for the
comparable period in 1997.  Net income as a percentage of net revenue was 30%
for the second quarter of 1998, compared to 15% for the second quarter of 1997.
Excluding the sale of Airport, net income was $2.0 million, a decrease of $8.5
million from the second quarter of 1997.  This is due primarily to the decrease
in the Sports & Entertainment segment's Operating Cash Flow described above and
the recognition of the deferred tax asset in 1997.

SIX MONTH PERIOD ENDED JUNE 30, 1998 COMPARED WITH SIX MONTH PERIOD ENDED JUNE
30, 1997

     Net Revenue.  Net revenue for the six months ended June 30, 1998 increased
$17.2 million, or 12%, to $156.9 million from $139.7 million for the six months
ended June 30, 1997.  Changes in net revenues were as follows:

     .  Out-of-Home Media.  For the first six months of 1998, the Company's out-
        of-home media segment's net revenue increased $5.9 million, or 11%,
        compared to the first six months of 1997. This increase was mainly due
        to increased national advertising sales.

     .  Broadcasting.  The Company's broadcasting segment showed an increase of
        $7.9 million in net revenue, or 17%, for the first six months of 1998
        compared to the corresponding period in the prior fiscal year. This
        increase resulted primarily from the addition of television stations
        WUTR and WIVT in June 1997 and July 1997, respectively, as well as
        higher national and local sales at the Company's television and radio
        stations.

     .  Sports & Entertainment.  The sports & entertainment segment's net
        revenue increased $3.4 million, or 8%, for the first six months of 1998
        compared to the first six months of 1997, primarily due to increased
        ticket and Seattle Supersonics team sponsorship sales.

      Segment Operating Expenses (Excluding Corporate Overhead).  Segment
operating expenses (excluding corporate overhead) for the first six months of
1998 were $123.6 million, an increase of $19.9 million, or 19%, over segment
operating expenses (excluding corporate overhead) of $103.7 million for the
first six months of 1997.  Changes in segment operating expenses (excluding
corporate overhead) were as follows:

                                       9
<PAGE>
 
     .  Out-of-Home Media.  Operating expenses for the Company's out-of-home
        media segment for the first six months of 1998 were $39.5 million, an
        increase of $4.5 million, or 13%, over the first six months of 1997.
        This increase was due mainly to the effects of increased sales activity.

     .  Broadcasting.  Operating expenses for the Company's broadcasting segment
        for the first six months of 1998 were $34.9 million, an increase of $6.5
        million, or 23%, over the first six months of 1997. This increase was
        mainly due to the addition of television stations WUTR and WIVT in June
        1997 and July 1997, respectively, and higher program, promotion and
        production expenses in conjunction with the expansion of local news
        programming.

     .  Sports & Entertainment.  Operating expenses from the Company's sports &
        entertainment segment for the first six months of 1998 were $49.2
        million, an increase of $8.9 million, or 22%, compared to the first six
        months of 1997. This increase was mainly attributable to increased
        basketball operating expenses related to team costs.

      Corporate Overhead.  Corporate overhead for the quarter ended June 30,
1998 increased by $2.6 million, or 51%, to $7.7 million, mainly due to personnel
costs, travel and entertainment, insurance and the utilization of outside
services, primarily for public relations.

      Operating Cash Flow.  As a result of the above, Operating Cash Flow
decreased $5.3 million or 17% for the six months ended June 30, 1998 from the
same period in 1997.  The $1.4 million increase in the out-of-home media
segment's Operating Cash Flow and the $1.4 million increase in the broadcast
segment's Operating Cash Flow was offset by a $5.5 million decrease in the
sports & entertainment segment's Operating Cash Flow and the $2.6 million
increase in corporate overhead for the first six months of 1998.  Operating Cash
Flow as a percentage of net revenue decreased to 16% for the six months ended
June 30, 1998 from 22% for the comparable period in 1997.

      Depreciation and Amortization Expense.  Depreciation and amortization
expenses increased $0.6 million, or 9%, to $7.1 million in the first six months
of 1998 as compared to $6.5 million in the first six months of 1997.

      Interest Expense.  Interest expense for the six months ended June 30, 1998
increased $1.2 million, or 10%, to $13.6 million from $12.4 million in the first
six months of 1997, mainly due to higher average debt balances during the first
six months of 1998 compared to the same period in 1997.

      Income Tax Expense.  For the first six months of 1998, the Company
incurred a $14.2 million income tax expense compared to an income tax benefit of
$1.7 million for the first six months of 1997.  The expense for 1998 resulted
primarily from income tax expense on the gain on sale of substantially all of
the assets of Airport.  The benefit resulted from the recognition of a $6.2
million deferred tax asset during the first six months of 1997.

      Net Income.  Net income was $23.2 million, including the $20.4 million
gain on the sale of Airport, net of taxes, for the six months ended June 30,
1998, an increase of $9.5 million, or 69%, from $13.7 million for the comparable
period in 1997.  Net income as a percentage of net revenue was 15% for the first
six months of 1998, compared to 10% for the first six months of 1997.  Excluding
the sale of Airport, net income was $2.8 million, a decrease of $10.9 million
from the first six months of 1997.  This is due primarily to the decrease in the
Sports & Entertainment segment's Operating Cash Flow described above and the
recognition of the deferred tax asset in 1997.

                                       10
<PAGE>
 
LIQUIDITY AND CAPITAL RESOURCES

     On January 28, 1998, the Company replaced its existing $77.5 million credit
agreement with a new $265.0 million credit agreement (the "Credit Agreement").
The Credit Agreement currently permits borrowings of up to $77.5 million, due to
restrictions related to the $120.0 million aggregate principal amount of 10 3/4%
Senior Notes due 2003 (the "Senior Notes"), including up to $10.0 million in
standby letters of credit. The Credit Agreement further provides that if the
Company redeems its Senior Notes prior to December 15, 1998, the maximum
permissible borrowings under the Credit Agreement will be increased by $187.5
million, which will consist of a $120.0 million term loan facility and an
increase in the revolving credit facility of $67.5 million. In addition, in
February 1998 the Partnership replaced its previous credit agreement with a new
credit agreement (the "Partnership Credit Agreement"), which provides for
borrowings of up to $35.0 million.

     As of June 30, 1998, the Company had outstanding revolving credit
borrowings of $74.2 million under the Credit Agreement and $2.5 million
available for future borrowings thereunder, and the Partnership had $30.7
million of borrowings outstanding under the Partnership Credit Agreement and
$4.3 million available for future borrowings thereunder. In July 1998, the
company repaid $32.6 million of the revolving credit borrowings with the
proceeds from the sale of the assets of Airport. The Company will be required to
repay outstanding revolving credit borrowings under the Credit Agreement in
quarterly installments from March 2000 through June 2005. The term loan facility
under the Credit Agreement will become available if the Company redeems the
Senior Notes prior to December 15, 1998. In such event, and if the Company makes
term borrowings under the Credit Agreement, it will be required to repay
outstanding borrowings under the term loan facility in quarterly installments
from March 1999 through June 2005.

     The Company can choose to have interest calculated under the Credit
Agreement at a Base Rate or LIBOR rate plus defined margins. As of June 30,
1998, the annual interest rate of borrowings outstanding under the Credit
Agreement was approximately 7.4% and under the Partnership Credit Agreement was
approximately 8.2%.

     The Company had $32.5 million aggregate principal amount of 11.20% Senior
Subordinated Notes, Series B, due December 15, 1998 and 10.48% Senior
Subordinated Notes due December 15, 2000 (collectively, the "Subordinated
Notes") outstanding at June 30, 1998. The Subordinated Notes require principal
repayments of $12.5 million, $10.0 million, and $10.0 million in 1998, 1999, and
2000, respectively.

     The Company has pledged the stock of all of its corporate subsidiaries to
secure its obligations under the Credit Agreement and the indenture related to
the Senior Notes (the "Indenture"). Similarly, the Partnership has pledged all
its assets as collateral for borrowings under the Partnership Credit Agreement.

     In addition, the Credit Agreement, the Indenture, and the note agreements
related to the Subordinated Notes restrict, among other things, the Company's
ability to assume or issue new debt, declare and pay dividends, repurchase
shares of Common Stock and Class B Common Stock, and dispose of assets. They
also contain restrictive covenants requiring the Company to maintain certain
financial ratios. As of June 30, 1998, the Company was in compliance with all
such ratios and covenants.

     The Company's working capital increased to $21.3 million at June 30, 1998
from $12.0 million at December 31, 1997 primarily due to the sale of the assets
of Airport offset by an increase in the

                                       11
<PAGE>
 
current portion of long-term debt resulting from the refinancing of the
Partnership Credit Agreement described above and the redemption of the general
partner's interest in the Partnership.

     The Company expended $19.3 million for capital expenditures in the first
six months of 1998, compared to $10.2 million in the corresponding quarter in
1997. Capital expenditures for new property and equipment of $20.2 million in
the first six months of 1998 were primarily for a new aircraft for the Seattle
SuperSonics, broadcasting equipment, and advertising signs and displays.

     For the periods presented, the Company has financed its working capital
needs primarily from cash provided by operating activities. Over that period,
long-term liquidity needs, including for acquisitions, have been financed
primarily through additions to long-term debt, principally through bank
borrowings and the sale of senior and subordinated debt securities. Capital
expenditures for new property and equipment have been financed with both cash
provided by operating activities and long-term debt. Cash used in operating
activities for the first six months of 1998 was $0.9 million, a decrease from
cash provided by operating activities of $8.7 million for the first six months
of 1997.

     On April 15, 1998, the Company paid its shareholders a cash dividend of
$.02 per share.

                                       12
<PAGE>
 
                          PART II - OTHER INFORMATION
                                        

                   ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits:

     Exhibit No.    Exhibit
     -----------    -------
         27         Financial Data Schedule for the three-month period ending
                    June 30, 1998, and the six-month period ending June 30,
                    1998.

(b)  Reports on Form 8-K:

     The Company filed a Current Report on Form 8-K on July 15, 1998.  The
     Current Report disclosed under Item 2 the sale of substantially all of the
     assets of the Company's airport advertising operations, and set forth under
     Item 7(a) certain pro forma consolidated financial information.



                                  SIGNATURES
                                  ----------

     Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                  THE ACKERLEY GROUP, INC.


DATED:  August 14, 1998           By:  /s/ DENIS M. CURLEY
                                       Denis M. Curley
                                       Co-President and Chief Financial Officer,
                                       Treasurer and Secretary
                                       (Principal Financial Officer)

                                       13