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Executives

Joseph Lovejoy – SVP and CFO

Colleen Brown – President and CEO

Analysts

Bishop Cheen – Wachovia

Tom Kerr – Reed Conner & Birdwell, LLC

Steven Pfeiffer – Wells Capital Management

Jay Weinstein – Oak Forest

Nicolas Napthine [ph]

Fisher Communications, Inc. (FSCI) Q4 2008 Earnings Call Transcript March 12, 2009 4:00 PM ET

Operator

Ladies and gentlemen, welcome to the fourth quarter 2008 Fisher Communications Inc. financial results conference call. My name is Tanya and I will be your operator for today. At this time all participants are in listen-only mode. We will be conducting a question-and-answer session towards the end of this conference. (Operator instructions) I would now like to turn the call over to Mr. Joseph Lovejoy, Senior Vice President and Chief Financial Officer. Mr. Lovejoy please proceed.

Joseph Lovejoy

Thank you and good afternoon everyone and thank you for joining us. Before we get started let me remind you that this call contains forward-looking statements relating to the development of the company's operations, products and services and anticipated future operating results. These statements are based on information available at the time they are made, but are necessarily subject to a number of risks and uncertainties and actual results may differ materially from expectations. Factors that could cause actual results to differ materially from those expectations are described in our annual report on Form 10-K and quarterly reports on Form 10-Q as filed periodically with the Securities and Exchange Commission. The company undertakes no obligation to update publicly any forward looking statements due to new information, events or circumstances after the date of this conference call or to reflect the occurrence of unanticipated events. A webcast of this call is available on the investor relations portion of our web site and will be archived in audio form on the website for a limited period. With that, I will turn the call over to Colleen Brown, our President and Chief Executive Officer.

Colleen Brown

Thanks, Joe. Good afternoon and thanks for joining us. In addition to Joe I am joined by Rob Dunlop our Senior Vice President of Operations. Joe and I will deliver some prepared remarks and then we will open it up for questions. I hope you have had a chance to review our fourth quarter financial results which were released this morning. As you know the economy continued to weaken in the fourth quarter with consumer confidence ending the year at an all-time low. And combined with declines in the other leading economic indicators this market softening impacted the advertising budgets, which in turn negatively affected Fisher. The declines in core advertising categories for the quarter in 2008 as a whole were wide-spread and significant notwithstanding the sweetness Fisher managed to post a positive revenue growth for the year.

Primarily driven by strong political revenue in the third and fourth quarters and the successful integration of our Bakersfield station, which we acquired in January of 2008. Despite little presidential candidate advertising in our markets last year, we experienced strong political spending in 2008 with 23 million of political revenue up from 7 million the previous year. This strong political spending offset declines in our core categories and these include auto, which was down 26% year-to-year, retail which was down 12% in 2008 and professional services, which was down 6% compared to last year. Advertising spending dropped significantly in the second half of the year as the economy continued to worsen with the largest declines coming in the fourth quarter. We expect the trends we saw in the back half of 2008 to continue through 2009. Despite this outlook for advertising I am pleased to report that we have continued to deliver stronger growth than most of our peers. According to the television bureau of advertising, ad revenues for the industry in 2008 was down 5.1%. In comparison, our television reported on a same station growth advertising growth of 2.9%.

We have been able to grow on a same station basis while the market as a whole is declining by continuing to focus on delivering quality content and providing advertisers with solutions as partners and not just sellers. As a result, we are taking a greater revenue share of market. Our performance also reflects the benefits of our strategic plan, which has helped us earn higher revenues increased market share, diversify revenue streams, and improve margins over the last few years. In 2008, we had a number of operational and financial achievements that will help position us as we head into 2009. These include growing our market share of revenue in the majority of our markets including and nearly 400 basis point gain at our new Bakersfield duopoly continuing to improve our overall ratings and scoring several notable victory in the key November rating period. For example, our stations ranked either Number 1 or Number 2 in prime time in six of our seven markets and an early evening news in five of our seven markets in the converted adults 25/54 is demographic, successfully executing our strategy to expand Fisher’s demographic reach to enhance revenue. In 2008, our Spanish language television stations generated strong revenue growth at 24% and broadcast cash flow at these stations increased an impressive 52% over last year.

Leveraging the success of our Internet platform our online business experienced revenue growth of 32% in 2008, while still relatively small Internet revenue represents about 3% of our growth 2008 TV revenue and continues to grow at a significant rate. On average, monthly unique visitors grew 85% from prior year. In fact in December 2008, our online audience reached an all-time high with 30 million page views, an increase of 55% for the month from one year ago. Clearly a growing number of local residents are turning to our online sites and mobile platforms for the latest news, weather, and traffic. Additionally we are focused on increasing our vertical sales and have added automotive online classifieds for our local dealers in Seattle and Portland, we have joined the open mobile video coalition to work towards Nip/Tuck technology that will provide over the year digital television to millions of consumers, while the revenue models are far from developed, we know that revenues will be enhanced in future once the technology is launched and the OMBC’s goal of never miss a minute is achieved. In fact the Seattle market has been chosen as one of the two launch markets. Despite this progress, we are fully aware of the challenges posed by the current macro economic conditions and without the benefit of political advertising in 2009 and with no immediate times of turn around in the economy we recognize this is a difficult period in our industry.

Nevertheless we continue to seek further opportunities to generate new sources of revenues, including expanding our content offerings through affiliations on a multi-platform basis with this TV and the CW network and entering into over 50 new retransmission agreements. In fact, we expect total retrans of revenue of nearly $30 million over the next three years. Notwithstanding our success in negotiating new retrans agreements, we have not yet concluded a new retransmission agreement with Dish Network. Our prior agreement expired in December of last year and since that time our station has been off the platform. While Dish represents approximately 8% of our distribution according to Scarborough research, we have aggressively attempted to resolve the Dish issues so that our viewers who subscribe to this service may once again enjoy our local and network programming. Despite Dish’s claim for the contrary, we are only seeking market terms for the right to retransmit our signals for which they charge their customers, we previously reached an agreement in principal with Dish has negotiators, but Dish leadership refused to consummate the contract. We believe that the real stumbling block is our law suit for breach of contract that we filed against Dish. Ad issue is approximately $1 million that Dish owes us under the prior agreement. Our talks with Dish continue. I want to point out that we have not seen a material impact in our ratings as a result of the stations being of Dish.

Now turning to expenses, we also remain disciplined in our approach to our cost structure. During 2008, we implemented a number of cost cutting initiatives such as further centralization of administrative and technical functions and a reduction in virtually all discretionary spending. These majors will result in annualized savings of nearly $10 million in 2009. As a part of this effort we reduced our work force by about 10% or a 120 position. We are also committed to further cost reductions as we evaluate and restructure our operations. And consistent with our strategic plan, we continue to seek opportunities to redeploy capital from non-core assets as you know, we sold our remaining holdings in Safeco cooperation during the year, at the end of 2008, we had $92 million in cash and short-term investments. Since the end of the year, we have been aggressive in taking advantage of opportunities presented by the debt markets to repurchase our senior notes at a significant discount to face value. So far this year, we have repurchased approximately 10% of our outstanding senior notes with a face value of a slightly more than $15 million at a cost to the company of approximately $13 million. Going forward, we will continue to look for other compelling uses of our cash to deliver this kind of value to our shareholders. Strategic use of our cash resources are our highest priority in this environment. Besides debt reductions capital outlays will be limited to projects that produce a compelling return on investments and immediate DTV completion projects.

Finally, as I said last quarter this company and its employees are committed to the long-term success of Fisher. I remain pleased with the wins we have achieved in these troubled economic times and I am confident that when we emerge from this economic slow down, we will do so as a stronger media company. I have been deeply appreciative of the employees who volunteer to take a pay reduction to help the company through these challenging times especially since many who volunteered where due for an increase based on contractual obligation. I believe this best captures the spirit and the commitment of the people that make up this organization and I greatly value the team effort it takes to not just pursue, but to achieve progress in these difficult times. While we don’t provide guidance looking at 2009, it is evidenced that recessionary conditions will continue to challenge our business resulting in further declines in ad spending. We have taken aggressive steps to reduce or introduce new revenue and programming initiatives or multi-platforms in our 2008 cost management actions along with further steps towards talking in 2009, we will help mitigate some, but not all of the economic pressure we are facing. We are taking proactive steps to conserve cash for further debt reduction including significant curtailment in capital spending and with that I will turn this back over to Joe.

Joseph Lovejoy

Thank you, Colleen. As Colleen mentioned, we issued our quarterly release of financial results this morning and we tend to file our Form 10-K on Monday the 16. Those documents include in-depth information regarding our financial results so please refer to those sources for additional information. Today, I will be discussing certain non-GAAP financial measures such as broadcast cash flow and EBITDA, definitions, and reconciliations of both terms can be found in our press release. Our focus today on the full-year 2008 results, our fourth quarter results are obviously available in this morning’s press release. As you know our fourth quarter and full-year results were impacted by non-cash pre-tax charge of approximately $78.2 million for impairment of an equity investment, as well as goodwill and intangible assets in accordance with Statement of Financial Accounting Standards 142, goodwill and other intangible assets. The asset-tax impairment charge was $51.4 million.

Like many companies in recent months, the accounting rules required that we adjusted the value of goodwill and intangible assets on our balance sheet to fair value, it is important to note that this adjustment is a non-cash item and has no impact on cash flow, EBITDA or our debt covenant. Also our 2008 results were impacted by severance cost that is approximately $750,000 associated with workforce reduction that Colleen just spoke about. To summarize our 2008 financial results, consolidated revenue for the year was $173.8 million, an increase of 7.1% from $162.3 million in 2007. Loss from operations was $72.1 million in the year, primarily due to the non-cash impairment charge in lower radio revenues. Excluding the impairment charge the company would have recorded income from operations of $6.1 million in 2008. Net income was $44.7 million or $5.11 per share for 2008 that is compared to net income of $31.9 million or a $3.65 per share in 2007. Excluding the after-tax effects of the gain from the sale of Safeco stock and the non-cash charges for impairment a change in national representation firm and the expiration of a deposit to acquire TV station, we would have recorded net income of $698,000 in 2008 or $0.08 per share. Consolidated EBITDA in 2008 was $25.6 million, a decrease of $1.6 million in 2007.

The decrease was largely attributable to weak radio market and our continued investment in our digital initiatives. As you know, we report separate financial information for our three business segments, the television business, radio business, and Fisher Plaza. Our television segment reported a revenue increase of 12% in 2008 or 2.7% on a same station basis with Internet revenue included and 1.4% without Internet revenue. TV BCF was $35.6 million compared with $32 million in 2007, in an 11% increase. Same-station TV BCF was $32.9 million, compared with $32 million in 2007, an increase of 3%. The company reported TV BCF margin of 30% in 2008, an increase from 29% in 2007.

In our radio segment, revenue decreased 9% from 2007. Broadcast cash flow was negative $1.4 million compared with BCF of $2.4 million in 2007. The decrease was largely attributable to a 12% decline in Mariners related revenue in the second and third quarters of 2008, and a 10% decline in the overall Seattle market revenue numbers, without the impact of the Mariners contract, we generated a radio BCF margin of 23% in 2008 compared to 30% in 2007. As we previously reported, 2008 was the final year of our broadcasting contract with the Seattle Mariners. And turning to Fisher Plaza, in 2008 our Plaza segment reported revenues of $13.1 million, a 16% increase over 2007. EBITDA was $8.7 million in 2008, an increase from the $7.7 million reported in 2007. The increase was largely attributable to higher rent and service fees received from a new tenant that moved in on January 1, 2008. Fisher Plaza of occupancy remained about 97% at the end of 2008, as well as the year prior.

Lastly as part of our ongoing efforts to provide you more transparency into our business I would like to report on a couple of key metrics. Our trailing fourth quarter operating cash flow as defined by our debt agreement was $29.4 million excluding the effect of our discontinued operations. Sales of this calculation can be found on our website. Based on total debt of $150 million as of year-end our total debt to trailing fourth quarter operating cash flow our ratio was 5.1. Maintaining the strength of our balance sheet remained a priority for the company in 2009 and we ended the year with current assets of $130 million including cash of 31.8 million in short-term investments of $59.7 million. In December, we terminated our $20 million revolving line of credit in order to purchase some of our senior notes. We are in conversations with various lenders to replace to this facility and will update you accordingly. As Colleen mentioned, we repurchased $15.15 million of our notes in the first quarter at an average price of $86 for a yield of 12%. And with that I will turn the call back over to Colleen.

Colleen Brown

Thanks, Joe. Before we take your questions, I would like to conclude with a few comments. Like all companies in our sector, we will be continued to be tested this year, we are operating in the most difficult economic environment in decades and the challenges facing our advertising partners have a direct impact on our performance. To help us successfully navigate these challenging times, the management team remains keenly focused on improving our operational performance while continuing a disciplined focus on controlling costs and preserving our cash on hand. At the same time we have undertaken a number of strategic initiatives to diversify our revenue stream. We have made solid progress in improving our competitive position in overall market share, but we know we must continue to look for opportunities to provide added value to our advertisers, viewers, listeners, and shareholders, while we do not know how deep the recession will be or how long it will last, we will remain optimistic about the future, we believe that the changes we are making today will make us stronger and more competitive, as well as position us for growth and that will be available once the economic recovery takes hold. We remain confident that our stations will continue to be premier local media franchises in our markets as we adapt to new technologies and new business model realities.

Our strength of local brands and the rich field proposition we offer to our viewers on air on demand, on the Internet and on mobile everyday it is fundamentally important to our success. And finally, earlier today we announced the Phelps Fisher is retiring from the Board of Directors effective April 1. On behalf of our board, our employees, our shareholders I would like to thank Phelps for the countless contributions he has made to the Company over the past 55 years. His vision and leadership have had helped Fisher make a regional leader in the broadcasting industry and an interracial part of the community as we serve. We are very grateful and thankful for his service and we wish him only the best in his retirement. And with that we will open the call for your questions. So, operator?

Question-and-Answer Session

Operator

Thank you (Operator instructions) And your first question will come from the line of Bishop Cheen with Wachovia. Please proceed.

Bishop Cheen – Wachovia

Hi, Colleen, Joe, Rob; thank you for taking the question. Let me focus first on the balance sheet. I won’t take long, as we go forward with the Safeco stock now a grand chapter in your history there should be no difference basically between the operating cash flow metrics and the EBITDA metrics, is that correct?

Joseph Lovejoy

There will be some, as you know at a low interest rate, but there will be interest income from the cash and short-term investments that would account the difference, but you are right, most of it was in the form of Safeco dividends and they form our present.

Bishop Cheen – Wachovia

And then pro forma, and by the way, thanks for a great format on the press release, the transparency is very helpful.

Colleen Brown

Thank you.

Bishop Cheen – Wachovia

And the presentation. The cash at $92 million at year end and you spent about 13 in change buying, arbitraging your bond, so roughly we are looking about of 89 of cash as we shift today? 79 of cash on hand?

Joseph Lovejoy

Well we are making an interest payment, so – or we just made one so it is not quite, but that is right. That is pro forma of the debt pre-purchased that is about it.

Bishop Cheen – Wachovia

Got it, alright. So, you know the age old debate is what are going to do with the cash, depending on how you read the language of the covenants you could par put the bonds for the Safeco asset sale, I believe that timeline begins or we could make acquisitions, you could just sit with the cash and sit with the bonds, can you give us any color or what you are thinking is given the difficult environment we are in?

Joseph Lovejoy

Yeah, sure. Happy to do so, as you mentioned given the difficult economic environment we are in and the lack of visibility in terms of how deep the recession will go or how long it will last having more cash than less is a paramount now. So, we are comfortable despite the lower earnings that cash receives these days, a good use of the proceeds is sitting in cash right now, having said that we will opportunistically seek further bond repurchases if they make sense. But in terms of acquisitions there is nothing on the timeline or anything like that.

Bishop Cheen – Wachovia

Okay, that is very helpful. And then two other simple core questions and I will leave you alone. On Fisher Plaza and I just want to make sure I thought the – you gave 8.7 versus was it 7.4 million in cash flow in ’07 for the full-year?

Joseph Lovejoy

That does sound familiar EBITDA.

Bishop Cheen – Wachovia

EBITDA? Okay. 8.7 for ’08?

Joseph Lovejoy

I don’t want to misquote so I just want to go back to that number real quick. 7.7 in 2008.

Bishop Cheen – Wachovia

And the last part of the question is, speaking of Fisher Plaza has there been any developments or any more color you can share with us and your thinking about exploring strategic alternatives for Fisher Plaza i.e. telling it and monetizing it, has there been any more color of what you are thinking if I know it is not the greatest time to do a real estate deal?

Colleen Brown

Well Bishop, this is Colleen. As you know, we suspended the marketing of the Plaza. We had great interest and we are very pleased with the number of individuals who saw an information on the Plaza and then made it into some of the final rounds and just as we are finishing up those rounds and we ended up with about I think there were six in the very final round. We started seeing the softening in the debt market and in any kind of financing started to look suspect and then it got softer as we ask for them to indicate guarantee on financing etcetera. So, we just decided to suspend it rather than continue to incur a costs of what it took to market it as well as the uncertainty in how long this is going to go on, we are still open to marketing the Plaza, but we feel are best in highest use of our attention right now is to run this thing extremely well and that is what we are doing, we have made some significant changes in the management of the Plaza itself and we believe that we will continue to see improved progress on the performance of the Plaza and feel fairly steady that we have got good tenants in here and all of our major leases are signed. So, it is our job now to run this extremely well. So when the markets strengthen and we go back out with marketing the Plaza, it will be in a great shape.

Bishop Cheen – Wachovia

Well said, that is very helpful. Thank you, I will pass at this time.

Colleen Brown

Thanks, Bishop.

Joseph Lovejoy

Thanks.

Operator

And your next question will come from the line of Tom Kerr with Reed Conner. Please proceed.

Tom Kerr – Reed Conner & Birdwell, LLC

Hi everybody.

Colleen Brown

Hi, Tom.

Tom Kerr – Reed Conner & Birdwell, LLC

Two questions, first a quick one on the retrans number that you said was 30 million cumulative I think, did that start off small in the first year and really ramp up or is it more like a 10 million each year type of thing?

Colleen Brown

You know, the average is obviously 10 million, but it starts of in the 9 million range goes to about 10, goes to about 11 average.

Tom Kerr – Reed Conner & Birdwell, LLC

Okay, so it is pretty close. And then since it is the start of the year Colleen can you kind of give us your big picture update on the local television industry and where it is headed, I mean there is obviously some secular issues going on, how do you offset that, where is that growth coming from, is it mobile, is it Internet or is it something else we don’t think about, how can you make sort of this steady grower again?

Colleen Brown

I think that is a great question, Tom. Obviously, we generate most of our money from the very large amounts of advertising that we get in the form of 30 seconds pass on our television stations and on radio as well, but the future is moving away from what we consider the push marketing or the push broadcasting and moving more towards what I have turned the pole of distribution and we have to understand better how the consumer uses this personal media and apply that in a way that you can monetize, it is one thing that have fun with it but it is another thing to make money off of it and I think that that is going to the revolution and I say that because I do think it is, over the next five years, but there is a huge vibrant marketplace particularly in the local spaces whether or not it is through tutor or through any of the Internet logging or any of the interactivity that goes on using the Internet that I like to call off the megaphone, we have the opportunity with the megaphones preparing a awful lot, but we also have the opportunity to pull up the information and make some money based on activity and personal media and targetable meeting and addressability and I think that is going to change a great deal as we move from analog to digital and we are able to track better and be more accountable for our advertising and I think there is a great marketplace for that and this mobile coalition that we are involved in the technology is quite exciting and you will be able to receive television no matter where you are and so it can be in your car, it can be on your laptop, you can move around and actually see television. I think that is very compelling and as you know the broadcast spectrum is a mammoth, as far as distribution and maximizing that distribution is going to be a great opportunity for us and we are just beginning to understand all that that might mean. So, in the mobile world, not just one signal, but multiple signals, you know could be upwards of six to seven signals, can be distributed through our pipe out to moving television sets, including cell phone and then chip manufacturers are working with us on this, so it is an exciting time it is just hard to transition from what I would consider the push media to the pull media, but I think both have great validity and we will be moving in that direction as a company and as an industry. Does that answer your question?

Tom Kerr – Reed Conner & Birdwell, LLC

Yes. That’s good answer and just a follow-up on that. Not withstanding what you just said about cash, preserving cash in this environment, does that transition or process you just described involve acquisitions or development on your own side of how do you get there financially?

Colleen Brown

That is great question. We have done a lot of exploring, we have done some investing on size appropriate kind of exploration, but I think partnering is our best strength. I can guarantee being in Seattle is a remarkable wealth of access to great thinking and it has really created a forward thinking organization at Fisher. We have access to people that just playing our advanced and how they approach the Internet and we are benefitting from that and as a result you know I think the mobile technology test is going to be extremely robust and I think that you know because of the kind of the users that exist in this marketplace, in addition I think that you know what happens in our activity is we are trying to balance that without spending too much money, but still exploring and monetizing it as quickly as we can. We have dedicated a business development effort towards this specifically and everything we do we try to find some marketplace before we go into it. So, it is a fine line and it is a balance, but I don’t think we can go out and buy you know large Internet acquisitions, but I do think we can partner with folks who are pretty smart in this space and they are all desperate and anxious to explore with us and I also think that we can invest where if size appropriate and it is not significant. Does that help?

Tom Kerr – Reed Conner & Birdwell, LLC

Great that helps a lot thank you.

Colleen Brown

You’re welcome.

Operator

Your next question will come from the line of Steven Pfeiffer with Wells Capital Management. Please proceed.

Steven Pfeiffer – Wells Capital Management

I have some similar question for you about the bond repurchases. I understand, based on the sale of Safeco stock, are there any requirements in the debt covenants that require you to give a par purchases asset reinvestments or within a certain long-term asset reinvestment clauses or is it simply just a debt prohibited debt incurrence that prevents you from doing additional debt, trying to figure out exactly what the various covenants are that restrict the ability to use the cash proceeds?

Joseph Lovejoy

There are requirements in the indenture as it relates to the use of net proceeds from Safeco or any sale of assets. We have reviewed and analyzed the indenture and concluded that we will now have a tender for the notes, just based on the past and expect to do future proceeds use.

Steven Pfeiffer – Wells Capital Management

You will not have to tender for those proceeds – do you have to use the asset sales proceeds that is too tender for the bonds.

Joseph Lovejoy

Thanks correct.

Steven Pfeiffer – Wells Capital Management

Alright. Is there any sort of asset reinvestment timeframe then?

Joseph Lovejoy

Well the timeframe is 360 days, but again we – based on the review we are comfortable with that we will utilize it is not just acquisitions that categorize, is it useful – I am sorry, a use of proceeds that are allowed.

Steven Pfeiffer – Wells Capital Management

Use of proceeds. And so what exactly are the use of the proceeds that you have used with the – what was the total amounts of the Safeco stock that you received and what have the uses been then?

Joseph Lovejoy

Well the net proceeds again after-tax and such as just over a 100 million and you read the indenture it is – expenditures useful in the business.

Steven Pfeiffer – Wells Capital Management

Just regular ongoing operating expenses?

Joseph Lovejoy

Capital for large accounts.

Steven Pfeiffer – Wells Capital Management

Capital expenditures I think, would you were doing regular operating expenses or as well?

Joseph Lovejoy

Yes.

Steven Pfeiffer – Wells Capital Management

Okay, that’s an unusual indenture but it allows operating expenses to count as a use of proceeds. Okay and you have 365 days then and you believe that there would be no need for tender regardless of 365 days measure because of the use of the proceeds through such acceptable measures as operating expenses?

Joseph Lovejoy

That’s correct.

Steven Pfeiffer – Wells Capital Management

Okay. Alright, thank you.

Operator

Your next question will come from the line of Jay Weinstein with Oak Forest. Please proceed.

Jay Weinstein – Oak Forest

Hi, good afternoon. One of my question is answered I have two other ones. On the accounting basis I have seen this in another companies press release, did the actual decline of your stock price is that actually part of the trigger of the right down or something intangible assets that in your own stock price and if so would you refresh my accounting memory and explain to me how that works?

Joseph Lovejoy

I would be glad to. This has been near and dear to my heart recently.

Jay Weinstein – Oak Forest

Okay. So it is not so a dumb question, thank you.

Joseph Lovejoy

No. It is not a direct measure of the amount of impairment, but it is considered a factor in terms of the triggering advantage if you read the detail under FAS 142, which I have many times so there is a relevance into the market capitalization at year end and even subsequent to year end in the period when you are doing an analysis so we are mindful of the stock price change and it wasn’t a direct factor into that number, but certainly we need to recognize the markets assessment of the value.

Jay Weinstein – Oak Forest

So, in other words, the fact that your stock went down that much it does sort of prompt you that forces you actually, those are really one I am looking for to go back and look at good will.

Joseph Lovejoy

It prompts. I am not going to say forward–

Jay Weinstein – Oak Forest

Yes, I am not sure what the standard is exactly, Okay. Is that actually a good segue to my more general following question, we all know kind of what is going on in the newspaper industry and the values of newspaper entities, but I think of the less reported story is the apparent outer collapse in the value of local TV station values, not just your stock price, but many others that I follow across the board if these businesses are trading at – almost has a zero value in some cases, what is your general view on what is happening in values in those businesses, you know what’s kind of gone on and why the outer collapse and the values of businesses that have been pretty highly valued for very long period of time and I have always treated it strong valuations.

Colleen Brown

I will make a few comments and then Joe if you want to jump on. I think in general with the markets know how to respond right now, based on all that is going on I don’t think we are seeing any kind of uniform response to the market other than uncertainty and as a result I think that all business is being hit, you know better than I do, but I think on top of that there is a secular thought regarding our industry and what does it all mean and then in addition to that anytime you are dealing with the consumer based business particularly advertising, anytime there is a war or a consumer based economic struggle, which is what we are in right now with the housing market situation which is somewhat more unique than any of the past recessions that we have been in. You are going to see a drop in advertising and I am not sure in this environment with all these things coming together including to some degree a shorter-term memory of these things that people know how to react to what’s going on in the advertising business and or what’s going on in the broadcasting advertising business and so as a result I think you would see other confusion when it comes to the value of these properties. I think both companies that have cash on their book do a little bit better, which is part of our situation. I think there are a lot of companies that over leveraged and that is a little scary in this environment and you get penalized for that. I also think that until the advertising components is back and until there is a belief that that spending is going to happen, some clarity visible if you will on these steps that are being taken to try to fix the economy, I think we are going to continue to suffer, as well as any advertising based business. It is not unusual I remember back in the early 80s when we were struggling with a very strong recession, we took a nick in advertising then that we have strong growth going at the same time and so it was hitting a little bit with the softness in the marketplace, but today we are growing it quickly as an industry for a lot of different reasons, the secular part I talked about and so the softness has impacted the industry and then the confidence factor is absolutely critical in a consumer based advertising business. So, I don’t know, Joe if you want to add anything.

Joseph Lovejoy

Yes a couple of things. I mean I don’t think – the falling up on that I don’t think the markets have appreciated or been able to value some of these great initiatives that are out there. I mean they are not quantifiable in the current time, you know with the mobile and from the digital spectrum uses it is still little too premature I think and I think that is impacting again characterizing industry is a non-growth. I mean if one or two of those can take off, I think that could impact valuations. Now on the other side, more on the private market and deals, I mean there is individual stations, again Colleen mentioned leverage, I mean a lot of the deals that we are out there recently and when I say recently you know year and a half ago now, we are more – some of those multiples paid were highly, highly impacted by the level of leverage that was available from financing institutions in such that as you know provide such a low cost of capital that they were able to inflate the multiples in prices paid for those assets and today as you know that funding is not available, but it is a much more conservative leverage levels.

Jay Weinstein – Oak Forest

You know I am old enough to remember the last correction asset prices, which was basically the 1991 period and it was again prices have been high leverage was plentiful, but this feels different to me, and that, at that time it was really just the function of kind of leverage and price, but the underlying mechanics of the business kind of seemed like they just kind of kept going, it was discretion on pricing and cash flow multiple one chose to put on them, we all know the newspapers business model is destroyed and likely not coming back anytime soon and the TV station business is frankly being priced like the asteroid [ph] is heading for you next, as to say, it doesn’t take a rocket scientist to put some reasonable value on Fisher Plaza and back out the cash and subtract the debt and come up with the value for your – you know the media properties and it is not real high. They are even (inaudible) is pretty low, so that is kind of where I am getting after, where is the asteroid headed is that headed to you?

Colleen Brown

Yes that is always a subject for very robust conversation here and I imagine in every management committee meeting of our peers. I can say that, having spent most of my carrier side-by-side with my television peers, or excuse me, my newspaper peers that the issue with newspapers was really the money coming in from classifieds was monstrous, until monster showed up and took away a lot of the employment advertising and then you got into the cars and then you got into all the competitors that were – the category killers that hurt dramatically hurt what was going on in newspapers that created the cash flow that paid for the paper itself. Today the value is dramatically impaired because what they are going for them are really the inserts and –.

Jay Weinstein – Oak Forest

Sorry to interrupt because I don’t know if you have looked at it, but I can promise you that the value of newspapers in most media companies is not only zero, it is actually quite negative.

Colleen Brown

I understand.

Jay Weinstein – Oak Forest

I mean they are factoring in closing costs for any operating profits that are currently being subscribed to and I mean they are literally valued at serious negative values by the market right now.

Colleen Brown

Yes and I am aware of that with many of my very close peers dealing with it. But what I am trying to do is answer the question regarding is the asteroid heading for television and I think their circumstances are different. I think that the world is moving in a video space and we are very good in the video space and I still believe that it is – if anybody is to survive in this changing marketplace television should be very apt at surviving for a lot of different reasons. You know when you go through the television viewing analysis right now television viewing is up. People love television and so whether or not it is personal, you know person-to-person television or if it is broadcast television people still love television and there is digital technology that does allow some fund monetization of this the full change in the world we are dealing with. So, is the asteroid headed to us? I don’t think it is a same scenario as newspaper, I do think that if anybody is to survive it is going to be those in the television business. I am very encouraged by some of these models that I see, you know time will tell and I think that is the uncertainty Joe was referring to that is difficult for investors to understand how to invest in local media company particularly.

Jay Weinstein – Oak Forest

I don’t think anyone has reminded you about stock repurchase, you talked a little bit about the bond repurchase, which is good and I applaud you for that. And one thing I will tell you, consistently across all industries that everyone is terrified to repurchase those stock that they have, even if they have cash as you guys do, they are petrified to do it, you sound like you are probably close to that petrified category, but I will let you speak –.

Colleen Brown

I think that had we – we were being encouraged strongly a year ago to buy our stock back and had we done that we would be in a world to hurt right now and I think we are very sensitive that to understanding that stock repurchase is the riskier venture than just playing reducing debt, which is obviously a benefit, immediate benefit to the company the rest is little bit more uncertain. As far as buying our own stock back, we run the numbers constantly and then the numbers change.

Jay Weinstein – Oak Forest

Right, exactly and that has been, as I said if I told you a year ago that your stock would trade under ten, you would have said, well even if we have a bad recession – you likely would have said and I had to put words in your mouth, but you likely would have said simply not possible –

Colleen Brown

I would agree. Joe do you have anything you want to add before –

Joseph Lovejoy

I mean, we continue to analyze it, I mean you did the math and anybody can do the math, you know we are (inaudible) indenture to a certain amount and so we are mindful of that, but we continually analyze all options as in terms of use of capital.

Jay Weinstein – Oak Forest

I actually have some of the stock and the debt. So, I am a little bit of both and my recommendation would probably be that we will do a little bit of both, which you have already done on the bond side and – I agree you don’t have to put all your eggs in one basket necessarily, but it is certainly a good option.

Colleen Brown

Yes, we felt things are little more solid and quick moving around, we might consider that, but right now we think are better bet is to buy down under the debt.

Jay Weinstein – Oak Forest

Okay thanks a lot for your free time.

Colleen Brown

You are welcome.

Joseph Lovejoy

You are welcome.

Operator

And your next question will come from the line of Nicolas Napthine [ph], private investor. Please proceed.

Nicolas Napthine

Yes, my name is Nicolas Napthine; I am an investor (inaudible) Washington. I wanted to just ask quick question on -- one of the things that I have kind of been following closely is some of your activity with the no action letter and that kind of things with the SEC and I wanted to just ask you guys especially in light of Phelps retiring today of what your position is on some of those?

Colleen Brown

I am not real clear on what you are asking. You are asking letters with the SEC, yes.

Nicolas Napthine

It looks like there has been some shareholders proposals put forth for upcoming –

Colleen Brown

You are asking about the status of the shareholder proposals.

Nicolas Napthine

Yes and what your position is on them as a company.

Colleen Brown

We really will be putting out our proxy here gosh in a very short amount of time. I think two weeks or so and so we will have an official position. I am not going to go into it on this call, but we are fairly clearly on how we want to stand on the two shareholder proposals that have been proposed. As far as the other elements on I believe you are talking about the alternative slide that has been proposed by the (inaudible) we continue to talk with Mario about that and we are hoping for some sort of revolution, but he has an alternative slate on the document if you will and hopefully we can resolve that.

Nicolas Napthine

I guess my major concern is as a long-term investor we are happy to hold and we enjoy earnings stock in a company that is headquartered here in our state and I guess the thing that really kind of concerns is taking a look at some of these values that we have seen declining in some of that type of thing and I guess it just be nice to have a little bit more candor on some of them I know, I have listened to a lot of these meetings as I have gone forward and I think that are just good to be forthright in recognizing that we probably paid some values that were a little bit too high on the past as well.

Colleen Brown

Yes, I feel like we have been very cantered there is no issue with us trying to be very transparent. It is just these in ordinary course of business we go through these and you will see this all in writing, our position our legal position and I don’t want to get ahead of ourselves here on stating this because you know obviously the board is still involved in working through these issues, so you know we are more than happy to have this conversation after the proxy is out, if you have any question.

Nicolas Napthine

Okay, I understand. I appreciate your time.

Colleen Brown

Okay.

Operator

And your next question will come from the line of Bishop Cheen, which is a follow-up question from Wachovia.

Bishop Cheen – Wachovia

Thanks for taking it. I will be quick, I am just trying to figure out on your press release non-convergent Internet revenue and I apologize for not being up speed here, is that web revenue or is that some sort of specialized treatment of it?

Colleen Brown

I am glad you asked Bishop; one thing that is somewhat unique within Fisher is the definition of revenue they call convergent. In my old world and other companies we call them vertical revenue that is the revenue, convergent revenue as revenue that is driven down by a category like healthcare or health website or a car website it is just tricked advertising –

Bishop Cheen – Wachovia

Special event revenue or –

Colleen Brown

It is vertical we create special websites and special editorial and applications for that revenue, a non-convergent revenue is your typical display and you know regular advertising that you might anticipate on the Internet.

Bishop Cheen – Wachovia

Right. And they can be exclusive to the Internet or up sell revenue?

Colleen Brown

Yes, but we do break them apart.

Bishop Cheen – Wachovia

Okay. Alright.

Colleen Brown

I do want to build on that just for minute, because the advertiser stand in me wants to make sure that you are clear that I think advertising, local advertising if particularly effective – we do a lot of research and there is a lot of anecdotal information about the 30 seconds, the 20 seconds, the 15 seconds, the 10 second commercial has been extremely persuasive for pointing out and for bringing to attention advertising share initiatives. So, if you are an advertiser you want to grow your share the best way to do it is still using television. Transactional, action transactional seems to be were online is making a big difference and I think both of those categories I am extremely interested in for Fisher and for the industry and I think both have a place in the eco-system at this point and I wanted to point that out. So, with that – Do you have anything else Bishop?

Bishop Cheen – Wachovia

Yes. Just real quick. Look we have got two new growing (inaudible) revenue streams for you guys, one is retrans and the other is sort of that umbrella we call the web or imminent base. I don’t know which treatment is going to look like come Monday in UK, but are you planning to keep the line separate to run them into a home video or digital category or how are you going to give us transparency into the way that is growing?

Colleen Brown

Yes, Bishop, that is a great question. We are trying to be as transparent as we can, there is a natural accounting threshold that requires, I will just start separating it, but we will continue to give you the information just anecdotal as we go through these reports, but once it starts being broken out it will actually be an accounting threshold, I don’t know if you know that off the top of your head, but it is a certain percent of revenue.

Joseph Lovejoy

I don’t know, I mean you we don’t plan on combining like some do in terms of digital being Internet and retransmission, we see them as very distinct revenue streams, having said that you know we are limited as Colleen mentioned kind of with GAAP with the 10-K and some of that so we use these phone calls and press releases to elaborate a little more in terms of non-GAAP disclosure to provide a little more insight into what metrics they are important to you the investors, so –

Bishop Cheen – Wachovia

I would encourage you to break it out regardless of the threshold because two reason. Number one, if we put them together you can close your eyes and think of a recovery you can achieve some sort of teenage contribution. Number two, I think that everyone is very much focused on corn business and how bad can it be and then look at the incrementals for adding it back that seems to be the analysis to assure of the TV business and it is very helpful to have that. So, Colleen I know you have been more sappy and early and bullish about so called new media then other folks. When you look out a few years, as a percentage of your top line where do you think your digital revenue is going to be as a contribution?

Colleen Brown

Bishop, I have given this a couple of times so I feel very comfortable restating it. I did it two years ago in front of a very large group. Talking about the future of the business I feel very confident that you are going to see the pole type of advertising that we define right now as mobile digital transactional, the whole accountability and target ability of advertising. I believe very solidly and to be in the 20% range, but we are still working our way towards that number, you know if you would ask me this three years ago we didn’t even have any revenue in this category and now it is moving up to 3% of our revenue right now. Can it be more than that absolutely? How much more we are still feeling our way through it?

Bishop Cheen – Wachovia

That’s twice as good as poor newspaper business which – it seems to have topped out at 7.5%, 8.5% and that when you talk about digital you are separating out that contractual annuity called retrans?

Colleen Brown

Yes.

Bishop Cheen – Wachovia

This is strictly the digitalize you described it.

Colleen Brown

Right. We do not combine our retrans with our Internet activity and in fact mobile and the target ability of advertising is something we are going to have to take a look at where that falls once it becomes significant enough, my guess it will be Internet for a while. I have no trouble breaking out any kind of activity as long as it is worth us tracking it. Once it becomes worth those tracking and paying attention (inaudible).

Bishop Cheen – Wachovia

Okay. I think that is very helpful and from your lips some day. Thank you.

Colleen Brown

Someday. Alright, thank you. Thanks everybody.

Joseph Lovejoy

Thank you.

Operator

There are no further questions at this time. I would now like to turn the call back over to Ms. Colleen Brown, President and CEO for closing remarks.

Colleen Brown

Well, I appreciate everybody’s time today. It is actually sort of fun to once in a while get into a little more of the future of the business and not just backward looking. And I appreciate the types of questions today and we will continue to work towards transparency. Thank you everybody.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect and have a great day.

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Source: Fisher Communications, Inc. Q4 2008 Earnings Call Transcript
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