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Five analysts and top management from eighteen sector firms examine the publishing & information services sector in this special 109-page Publishing & Information Services issue from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info478.htm.

TWST: Alan, what has been most notable about the decline in classified advertising in 2001 prior to and since September 11?

Mr. Szydlowski: Recruitment advertising is down substantially. This trend has only become worse since September 11. I think the really surprising factor, as we look at that segment of advertising for the newspapers, is how well real estate advertising has held up. In the prior recession we saw real estate advertising decline pretty quickly. I think the big fear going forward, if the ad malaise continues, is that the consumer will start to get a little shaky and then real estate advertising will start to fall, and that’s a fairly large component for the classified group. A decline in real estate advertising could be the dark horse among negative surprises.

TWST: Alan, will newspapers and magazines be able to increase pricing in 2002 to advertisers, subscribers, and at the newsstand?

Mr. Szydlowski: It’s funny that a lot of the newspaper and magazine companies increased ad rates and subscription pricing in 2001, despite a weakening economy, and I believe there is some price elasticity with some of these publications. Certainly, a consumer is likely to pay more for the higher quality journalistic properties and those that offer unique content, although I think several of the large national papers may be running up against ceilings in terms of what consumers are willing to pay. For an advertiser there are going to be a couple of key things going on in this industry, which will make advertising in newspapers more appealing. For instance, the more prevalent use of color and digital to plate technology for images. I think newspapers, to a greater extent, will be able to push pricing premiums for color advertising. The Wall Street Journal is going to add a fourth section that will significantly feature color capacity. I think this will be a draw for advertisers and will provide the paper with the ability to leverage ad pricing.

TWST: Alan, what are your expectations for the price of newsprint and for magazine grade paper?

Mr. Szydlowski: The newsprint manufacturers have never really been able to match supply with demand very effectively over the years. And, as of late, they have been trying to put pressure on the smaller participants in the industry to follow their lead in reducing excess newsprint supplies by taking downtime in order to try to keep the price well-balanced and not fall through the floor. But the smaller guys, because of the level of the economy, haven’t really been complying. The newsprint industry, in our opinion, isn’t exactly as tight as OPEC is. So you’ve got leakage coming out of the smaller players, and I think that’s contributing to some of the price declines. But it should rebound when ad volumes return, albeit there may be a little bit more of a lag than we might expect.

TWST: So where does this bring us to in terms of the stocks that you particularly like in this group?

Mr. Szydlowski: I think long term McGraw-Hill (NYSE:MHP) is a very interesting company. Near term I think they have some issues in education in terms of losing market share in California, a key state. California accounts for more than 12% of all educational publishing expenditures. We’re going to have to watch 2002 closely because it is less of a robust adoption year than 2001 was, with spending about 150 million less than last year, due to fewer subjects being adopted in 2002. But I think it’s more critical to watch, as state budgets swing from surpluses to deficits, how monies are used at the school district level, whether it’s for security or hiring and retaining teachers. It’s going to be interesting. So I think losing market share in California is an issue to watch. They’re a candidate for the reading adoption next year, which is significant. I have to see how the results pan out there.

This special issue includes:

1) Publishing & Information Services - In an in-depth (11,400 words) Analyst Roundtable, Douglas M. Arthur, Principal at Morgan Stanley, Mark D. Henderson, Director at ABN AMRO, Inc. and Alan Szydlowski, Vice President of Equity Research Division at U.S. Trust Company, examines the outlook for the sector including pricing outlook, investor sentiment and shares specific stock recommendations.

2) Newspaper & Magazine Publishing - In an in-depth (7,100 words) Analyst Interview, Lauren Rich Fine, First Vice President at Merrill Lynch Global Securities, examine the outlook for the sector including and share specific stock recommendations.

3) Online Content Companies - In an in-depth (3,700 words) Analyst Interview, Paul J. Kim, Vice President of Equity Research at Kaufman Brothers, L.P., examine the outlook for the sector including and share specific stock recommendations.

4) The TWST confidential Off-The-Record survey of management performance at ten sector firms asked market insiders about the ability of management teams to create shareholder value.

5) CEO interviews (average 2,500 words). Top management of eighteen sector firms examine the outlook for their firm and the sector.