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Four analysts and top management from seven sector firms examine the broadcasting sector in this special 57-page Broadcasting Industry issue from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info531.htm

TWST: James, Lee touched on a recent decision by a federal court that ordered the FCC to reconsider the rules that would affect TV stations in small or medium-sized markets. If this rule is struck down, would you expect to see a wave of consolidation in the secondary markets?

Mr. Marsh: I would expect to see some consolidation following changes in the duopoly rules. We think that most action will be related to companies attempting to achieve duopolies rather than for cross-ownership or national caps being lifted. I think mid-sized and smaller markets need a duopoly to be more viable. I think with TV/newspaper cross-ownership, you’re generally going to see one deal per market. But I would expect to see a lot of swaps. I tend to think that typically one newspaper in the market would end up buying one of the local news leaders, probably a big four affiliate, and two of the other big four affiliates will team up as a duopoly and be the other local news leader in that market. I don’t think national TV ownership caps being lifted will impact the mid-sized market players and smaller market players that much. I tend to think that the networks and some of the bigger media players that have the capacity to go out and buy additional stations will generally move down in market from where they are currently with their owned and operated stations. If they’re, for example, in market 1 to 15, maybe they move down to market 16-25. But I would not expect them to move into market, say, 50-75. So I think they’ll move into adjacent markets first. The other thing I would point out, and we’ve been a little bit cautious about what all this consolidation means for broadcast stocks, is that I would be a little apprehensive about deregulation being a panacea for the entire TV group. I wouldn’t be surprised to see private market values below the historical range. Typically, we’ve seen TV stations selling for, say, 13 to 16 times BCF. I think one of the reasons why that has occurred is because there has typically been a supply/demand imbalance, a very high demand to buy stations and a low supply of stations available. But this time around I think deregulation could result in a flood of stations available for sale. Everyone seems to have the same strategy. They all want to unlock the value of the other stations at the same time. A lot of the commercial banks are going to be forcing TV broadcasters to sell stations, once we get better visibility on dereg. So I would be selective in buying TV stocks, simply because of dereg.

TWST: James, what’s your top pick for the second half of 2002? Or do you have a shorter-term framework in mind?

Mr. Marsh: We don’t have a single best-idea designation here, but one name we have a strong buy on is Sirius Satellite Radio (Nasdaq:SIRI). This is a company that had some chip set problems as they rolled out their new service. I think there is a high level of skepticism built into the stock’s share price today. We think the chips do in fact work. We’ve tested it extensively here in New York as well as in other test markets. I think chipset reliability is underscored by the fact that Sirius management accelerated the launch schedule. They also resolved a potential loan covenant problem with Lehman Brothers. It looked as if Sirius would violate its subsector growth covenants at year-end. That was also renegotiated recently. So I think that resolving these two issues really lowered the risk profile for the SIRI shares. SIRI trades at a very steep discount to XMSR, so we’ve been recommending that investors with an appetite for risk look there.

This special issue includes:

1) Broadcasting Industry - In an in-depth (11,400 words) Analyst Roundtable, Frank Bonechak, Founder of Edge Capital, James Marsh Jr., Managing Director at Robinson Stephens and Leland Westerfield, Director for the Communications Group at UBS Warburg, examine the outlook for the sector including regulatory outlook, cross-ownership rules and share specific stock recommendations.

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

3) Radio & Spanish Language Broadcasters - In an in-depth (3,900 words) Interview, Alissa Goldwasser, Research Analyst at William Blair & Company, examines the outlook for the sector and shares specific stock recommendations.

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