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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: Would you say a few words about Cumulus (Nasdaq:CMLS), Emmis (Nasdaq:EMMS) and Salem (Nasdaq:SALM)?

Mr. Marsh: Cumulus is another mid-sized radio consolidator. Salem Communications is also a radio broadcaster. They’re focused more on the Christian and family-oriented market. We get some eye rolls from investors when we start to talk about this, but it’s been a very solid and high-performance business model, even in tough times. We expect them to grow their top line at double-digit rates this year, with cash flow in the teens. This is a company that has a slightly different business model from the typical radio broadcasters. Instead of relying 100% on advertising revenue, they also effectively rent out the station times — what they call block programming. That business is extremely stable and has allowed them to grow their top line by high single digits this year in a very tough ad market. The undiscovered story at Salem is that ad revenue, not block is driving growth this year, driven by a new format called “The Fish.” It’s largely just a Christian contemporary rock station. It’s sold like a CHR, but they have had some major ratings improvements in those stations. These are not typically full-market signals, so they didn’t pay a lot of money for them. But in some markets their ratings have hit 3, 3.5 or 4. They’re not even close to getting paid by advertisers for those types of ratings yet. So we expect their ad share to move closer to their listening share, driving rapid revenue growth. In fact, we are looking for double-digit top-line growth at Salem in 2002 while the rest of the industry might grow 3%-6% in 2002. Despite that the stock trades at a big discount to the group. We have the Salem shares trading at about 12.2 times 2003 BCF — the group’s trading at about 16. So despite the better than average growth rates, Salem trades at a discount.

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.