Industry Trends and Media Valuations

2013 Media Industry Tax ConferenceMay 15 - 17, 2013Wild Dunes ResortIsles of Palms, South Carolina

FASB Accounting Topics STILL Underway

ASC 840 – Accounting for Leases requires lessor to set up an asset and the lessee a liability. Requires testing for Fair Value impairment - Another Exposure Draft.

ASC 320 Investments – Debt and Equity Securities – SEC Suggested Additional Changes

ASC 825 Financial Instruments – provide guidance on measuring the Fair Value of financial assets and liabilities and recognizing impairment - Now a Proposed Accounting Standards Update.

AICPA Practice Aid (Working Draft) Valuation of Privately-Held Company Equity Securities Issued as Compensation – Still in Draft, Not Updated Since 2004

Time Spent with Media (2009 - 2012)

8%

16%

43%

25%

8%

27%

11%

43%

19%

0.5%0%

10%

20%

30%

40%

50%

Print Radio TV Internet Mobile

% o

f Tot

al M

edia

Con

sum

ption

Tim

e or

Adv

ertis

ing

Spen

ding

Time Spent Ad Spend

Source: eMarketer.Note: Print includes newspaper and magazines. $20B opportunity calculated assuming Internet and Mobile ad spend share equal their respective time spent share. Source: eMarketer 3/13.

% Time Spent vs. % Ad Spend

~$20B Opportunity

in USA

4

Advertising Revenue by Segment

5

Source: eMarketer and Wall Street Research.

35.7% 36.3% 37.9% 37.9% 38.6% 38.1% 37.7% 37.4% 37.9% 39.4% 40.9% 41.2% 42.1%

3.2% 3.1% 2.9% 3.5% 4.6% 6.2% 8.4% 10.8% 13.1%15.1% 16.4% 17.9% 18.7%

33.4% 32.7% 31.7% 31.3% 30.3% 29.3% 28.0% 26.3% 24.2%22.3% 20.3% 19.2% 18.2%

13.1% 13.1% 12.6% 12.2% 11.8% 11.7% 11.5% 11.2% 10.7% 9.6% 8.9% 8.4% 7.9%

9.2% 8.9% 9.2% 9.2% 8.9% 8.7% 8.3% 8.0% 7.7% 7.3% 7.2% 7.1% 6.8%

5.6% 5.9% 5.8% 5.9% 5.8% 6.0% 6.1% 6.3% 6.3% 6.2% 6.2% 6.2% 6.3%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011E 2012E

Television Internet Newspapers Magazines Radio Outdoor

$61

$612

$119

$1,100

$225

$1,400

$580

$2,135

$379

$1,707

$789

$2,250

$527

$3,200

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011E 2012E

TV Broadcast – Political Spending

POLITICAL SPENDING (1999-2012E)($ in millions)

Odd Year CAGR: 20% (1999-2011) Even Year CAGR: 15% (2000-2012)

Note: CAGR is based on the specific even/odd year periods of the data range presented.

SPENDING BY CATEGORY (2012E)

Party/PACs 48.3%

State/Local 22.3%

Presidential 16.4%

Issues 4.9%

U.S. Senate 4.9% U.S. House

3.1%

6

TV Broadcast – Spectrum Value

Source: Bond & Pecaro Inc.

7

Spectrum Value:

2008 – 700mhz spectrum auction averaged $1.28 per Mhz per pop

2011 – Verizon purchase of AWS spectrum (1700/2100mhz) from SpectrumCo and Cox averaged $0.69 per Mhz per pop (was $0.46 in 2006)

2013 Estimate – Average 700mhz spectrum value of $1.65 per Mhz per pop based on AWS appreciation

Implied License Values as Telecom Spectrum:

New York Market: $1.65 per pop x 27.0 mil. population x 6 Mhz of spectrum = $267.3 mil. license value

Los Angeles Market: $1.65 per pop x 22.0 mil. population x 6 Mhz of spectrum = $217.8 mil. license value

Chicago Market: $1.65 per pop x 11.5 mil. population x 6 Mhz of spectrum = $113.9 mil. license value

Traditional Broadcast License Values assuming 2% Market Revenue Share, 30% Margin, and 9x Multiple:

New York Market: $59.0 mil. license value

Los Angeles Market: $66.0 mil. license value

Chicago Market: $41.0 mil. license value

04/19/23 10:20 AM

Radio – Broad Reach Radio has consistently reached a large audience across age groups; the change in usage of new technologies (iPods, digital downloads and satellite products in autos) remain a risk to station owners.

Source: Intermedia Dimensions and Arbitron.

Average Daily Reach of Five Media Medium

Average Weekly Reach of RadioAge Demographic

80.0%

75.0%

52.0%

50.0%

35.0%

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0%

TV

Radio

Newspapers

Magazines

Internet

92.0%

92.3%

92.2%

94.2%

94.2%

86.8%

50.0% 60.0% 70.0% 80.0% 90.0% 100.0%

12+

18+

18-34

25-54

35-64

65+

8

USA TOTAL NEWSPAPER PRINT + ONLINE REVENUE vs. GOOGLE USA REVENUE

Source: Demand MediaNote that Search = ~50% of USA Online Ad Revenue ($15B based on Q2 run rate) in 2011 vs. <5% in 2001; Display = 23% of Online Ad Revenue ($7B) in 2011 vs. 62% in 2011.

Newspapers – Industry vs. Google

$0

$2

$4

$6

$8

$10

$12

$14

$16

Q1:06 Q4:06 Q3:07 Q2:08 Q1:09 Q4:09 Q3:10 Q2:11

Qua

rter

ly R

even

ue ($

B)

USA Total Newspaper Print + Online Revenue Google USA Revenue

10

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

$50,000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Tota

l Cab

le In

dust

ry R

even

ue

Advertising Revenue Affiliate Revenue Other Revenue

Cable Programming – U.S. Cable Programming Network Revenue

From 2001 to 2011, basic cable programming revenue (including affiliate revenue, advertising and other revenue) grew at an estimated 10% CAGR, faster than virtually all other traditional media subsectors.

The basic cable programming business in the U.S. is ~$48 billion in size based on 2011 reported data from SNL Kagan.

9.2%

11.8%

3.9%

CAGR: 10.3%

Source: Wall Street Research and SNL Kagan.

11

20112011 Affil. Rev.

Network Subscribers Per Sub

ESPN/ESPN HD 100,800,000 $4.69ESPN 3D 400,000 2.633net/Discovery 3D 400,000 1.25TNT 101,700,000 1.16Disney Channel 99,900,000 0.94NFL Network 61,900,000 0.81FOX News 99,200,000 0.78ESPN2 100,700,000 0.62USA Network 101,800,000 0.60TBS 102,800,000 0.57

Affiliate Revenue

55%

Other Revenue

3%

Advert. Revenue

42%

46% 55%

27% 33%45%

69%

36% 39%

49% 38%70% 67% 50%

30%

56% 53%

5% 7% 3% 0% 2% 1% 8% 8%

0%

20%

40%

60%

80%

100%

TWX VIAB DIS NWSA DISCA SNI AMCX CMCSA

Total Advertising Total Affiliate Other

Cable Programming – Industry Revenue Mix

MAJOR NETWORKS AFFILIATE vs. ADVERTISING REVENUE BREAKOUT

Source: Wall Street Research and SNL Kagan.

CABLE PROGRAMMING INDUSTRY REVENUE MIX – 2011 TOP 10 – 2011E SUBSCRIBER FEES

12

Growth

2010 2011 2012 2013 Long-range

Outlook

Cable Networks 9.8% 8.9% 10.6% 10.0% 8.5%

Cable MSOs 9.5% 7.4% 10.6% 9.2% 5.0%

Magazines 1.1% -0.8% -2.2% -2.2% 1.2%

Newspapers -6.3% -7.5% -6.0% -3.9% -1.7%

Outdoor 5.2% 5.0% 5.8% 6.2% 6.0%

Radio 7.0% -0.2% 3.4% 1.0% 2.0%

Television 11.2% 1.8% 9.3% 1.2% 3.5%

Profitability

2010 2011 2012 Long-range

Outlook

Cable Programmers 40.8% 41.3% 40.9% 40-43%

Cable MSOs 33.4% 36.2% 34.2% 32-35%

Magazines 17.4% 13.4% 12.9% 12 15%

Newspapers 23.0% 22.7% 22.4% 10-15%

Outdoor 10.0% 16.0% 16.9% 20-22%

Radio 27.1% 26.7% 28.3% 28-30%

Television 36.7% 32.0% 35.8% 35-40%

Recent Transactions

Cable Programming – Very Little Activity. Last major deals were NBCU channels to Comcast and Travel Channel to Scripps. Outdoor Channel in play and Board to vote on prospective purchaser.

Cable MSOs – Cablevision sold Optimum West (formerly Bresnan) to Charter for $1.6 bil., reportedly 8.9x CF. Suddenlink recapitalization and Wave and Atlantic Broadband deals were the other large transactions. Remaining deals are mostly smaller systems. Multiples ranged from 6.0-8.9x CF. Larger deals 8.0–9.0x CF.

Magazines/Newspapers – Surprising level of activity. A number of acquisitions by Warren Buffet and Berkshire Hathaway. Spin-off of former Media General and Freedom newspapers. Multiples have recovered into the 4-5x CF range. Time Warner magazine spin-off underway.

Recent Transactions – Ctd.

Outdoor – NextMedia sale to Lamar in Nov. 2012 last big transaction. Smaller deals are occurring with multiples firming up recently. A few small like-kind exchanges. A number of large outdoor companies are converting to REITs.

Deals have been between 6.0 - 7.0x CF.

Radio – Activity has slowed since 2012. Few deals have occurred. Cox Radio exchange. A few non-commercial transactions. Few large market deals. Multiples have declined slightly. In the 6.5 – 9.0x CF range.

Television – Numerous large transactions: Sinclair purchase of Fisher, Barrington, and Newport properties. Nexstar purchase of CCA and Newport stations. LIN Media purchase of NewVision properties. Largest single station deal was Journal purchase of Landmark Media station in Nashville. Some minor stations and low-power stations being bought by spectrum speculators – NRJ and OTA. Multiples stable in the 8.5 – 10.5x range.