VALCON 2010 Restructurings and the Media Sector

1. VALCON 2010 Restructurings and the Media Sector Panelists: February 26, 2010 William Lisecky Oppenheimer & Co. Inc. – New York, NY Thomas E. Hill Alvarez & Marsal North America, LLC – Chicago, IL David L. Eaton Kirkland & Ellis LLP – Chicago, IL Thomas J. Allison Moderator Mesirow Financial Consulting, LLC

2. Discussion Topics • The Current State of the Print Media Industry • Transition from Print to Digital Media • Declining Advertising & Circulation Revenue • Financial Instability & Bankruptcy • Evolution of Media Operating Models • “Content Providers” • Strategic Partnerships • Leveraging Technology to Generate Revenue • The Competitive Landscape for Media Companies has Broadened • Valuation trends

3. The Transition from Print to Digital Media • As many media company’s struggle to find new opportunities to offset declining advertising, circulation and other revenues, they will also need to create innovative ways to reach consumers. • The Esquire: Augmented Reality • The Sports Illustrated App for the iPad developed by Wonderfactory

4. The Transition from Print to Digital • A recent study by the Boston Consulting Group found that 48% of regular Internet users in the United States would pay to read the news online • Online • The WSJ has set up a “pay wall” charging consumers for access to online content • Rupert Murdoch believes that quality content should cost money • Mobile Phones (via dedicated “Apps” or via mobile internet browsers) • The WSJ will begin charging for mobile phone “App” access in addition to their online wsj.com site access ($1.00 per week if you are also an online subscriber or $2.00 per week if not) • E-Reader / Internet Tablets (Kindle, Nook, Sony, pending Apple I-PAD, etc.) • Is there room for another consumer electronic device in additional to smart phones & laptops? • Will the next generation of these devices be a game-changer? How long will it take for this device to penetrate the market? • Recently, five magazine publishers (News Corp., Time Warner Inc., Conde Nast Publications Inc., Hearst Corp., and Meredith Corp.) announced they are creating a digital store with common technology and advertising standards to sell their titles • Integration of Advertising with Digital Content • How successfully publishers integrate advertising onto these platforms could determine the winners and losers

5. Traditional Media Vs. New Media • Traditional Media Companies have been losing market capitalization to “New Media” (ie Google). Market Capitalization of Google vs. Traditional Media Companies Source: FactSet, Year end 2006, 2007, 2008 and 2009 Note: Large-Cap Media is comprised of the following companies: NWS, CBS, VIA, DIS, TWX Radio Index is comprised of the following companies: BBGI, CMLS, EMMS, ETM, ROIA, RGCI and SALM Television Index is comprised of the following companies: BLC, EVC, GTN, HTV, TVL, NXST and SBGI Newspaper Index is comprised of the following companies: AHC, GCI, GHSE, JRN, LEE, MEG, MNI, NYT, SSP and WPO

6. U.S. Advertising Expenditure vs. Nominal GDP Growth • Changes in advertising expenditure are typically correlated to movements in nominal GDP, but changes in advertising expenditure demonstrate much greater variability than changes in nominal GDP Source: MAGNA; Bureau of Economic Analysts; J.P. Morgan estimates.

7. Circulation- Declining Readership • Newspaper readership has been falling for decades in the U.S. as the number of news/ information sources have proliferated. Source: Newspaper Association of America

8. Advertising Dollars Follow Consumer Media Consumption • Advertisers tend to follow their customers wherever customers are spending time • As highlighted in the chart above, a typical person spends 1/3rd of his/her total media time on the Internet, yet, the Internet currently attracts only 12% of total advertising budgets. This gap is expected to close over the next 18-36 months as advertisers continue to follow their customers Source: Forrester Research.

9. Declining Advertising Expenditure • Newspapers are experiencing a significant decline in advertising revenues (which generally comprises 70% of total revenue). • The continued challenges in the U.S. economy has led to advertising expenditure declines across all media sectors. The substantial decline of advertising spend in the newspaper industry has been due to both cyclical factors and secular changes Source: Newspaper Association of America.

10. Newsprint Pricing Moving into 2010 • Decreasing newsprint prices have been a bright spot for publishers in 2009, helping to offset revenue losses and stabilize cash flow margins • Major suppliers announced a series of price increases in the latter part of 2009 and it is yet to be determined if these increases can hold going into 2010. Any increase in price will have a detrimental impact on publishers cashflows. Source: Foex Pricing Index

11. Media Industry—Financial Instability Led to Several Bankruptcy Filings in 2009

12. Legacy issues: Antiquated labor structure • Mature union relationships. The unions tend to be "old-line" organizations, such as the communications workers, graphic artists, typographers, machinists, Newspaper Guild, etc.. These unions, including some of the bargaining unit employees, likely will have been involved in significant labor disputes with the employer in the past, and won many of them.“ • Adversarial bargaining relationships. Union-management relationships tend to be adversarial, and the Unions demanding and insensitive to changed and changing economic realities confronting the industry, and often protecting union membership in bargaining units that are declining in size. • Union Jurisdictional Disputes. Lines have blurred between the different types of bargaining units (e.g., typesetters, lithographers, machinists, operators, technicians), and newspaper unions tend to have been slower to adapt fully to the fundamental changes in the newspaper business that have led to this blurring. With restructuring, the employer often has leverage enough to complete this transformation union jurisdictional disputes (i.e., which union "owns" the work) can be anticipated, as each separate union seeks to preserve its representational status at the expense of the others. • Onerous collective bargaining agreements. CBA's tend to be long and complex, with types of provisions that reduce operational efficiency, raise costs and impede cost-cutting efforts.   • Ever-escalating wage rates that fail to account for business downturns  • Strict work rules (that restrict, e.g., management's ability to schedule work, require overtime, transfer employees between jobs, maintain and repair equipment, introduce technology advancements, subcontract or relocate bargaining unit work, implement short-term furloughs/layoffs based on work loads, etc.)  • Strict seniority rules (that tend to insulate longer-tenured employees from even-handed enforcement of disciplinary and performance standards)  • Costly employee benefits plans (above-market vis-a-vis other industries), e.g., health insurance, disability benefits, severance pay, vacation, paid sick/personal leave, training/tuition reimbursement, etc. 

13. Print Media Industry: Response to Current market • Cost Cutting Initiatives - Aligning expenses with the new revenue realities has been the focal point of publishers for the past year • Headcount reductions, furloughs, suspension of benefits are all tactics that have been undertaken by publishers as they seek to streamline operations and maintain positive cash flow • Centralize certain back office and editorial operations across all publications (e.g., sales support staff and writers and editors for national news) • Web width reductions have become common practice in the industry, as newspapers seek to shrink the size of the pages within the newspaper • Decrease the number of pages printed as well as increase the ratio of advertising to editorial content • Vendor concessions have also produced cost-savings for newspaper publishers • Negotiate labor concessions with unions • Defer capital expenditures and reduce discretionary spending • Modify advertising pricing programs and provide discounts to incent advertisers to continue to spend • Increase single-copy (newsstand) and home delivery price for newspaper; however, increased price leads to reduced circulation, so need to evaluate potential net impact on revenue • Debt Restructuring - As the credit markets have thawed in the latter half of 2009 newspaper publishers have increasingly looked to restructure their debt profile, either through refinancing to push out maturities or straight buy-backs of debt at depressed prices • Gannett completed a $500mm senior note offering in October 2009 aimed at refinancing existing debt • In March 2009 , New York Times redeemed $250mm of notes due 2010 at a discount with proceeds from a sale/leaseback transaction • Minneapolis Star Tribune emerged from bankruptcy in September 2009 with its main lenders becoming the new owners and its debt level reduced by 80% • In May 2009, McClatchy announced an exchange offer for over $1bn in outstanding public notes at a significant discount

14. Evolution of Media Operating Models

15. The Web and the Creation of Content Aggregators Content Providers vs. Content Aggregators Among the top Internet Properties, the vast majority aggregate content from outside sources and repackage it into well organized and often customizable websites Original content providers now create material especially for the Internet or reconstitute their content for online consumption Subscriptions on the Internet are like traditional subscription models; users pay to obtain content that they would not be able to get elsewhere Over the past few years, users have shown a general reluctance to pay for online content, however, a variety of entities such as ESPN, RealNetworks Inc., and the Wall Street Journal, have shown that Internet users will pay for online content if it is unique, compelling, and reasonably priced A la carte purchasing options, whereby users pay for a specific article or song, are growing increasingly prevalent, largely as a result of the success of Apple Inc.’s iTunes and individual applications for mobile devices Source: comScore. 15

16. Strategic Partnerships • As advertising and circulation revenue continue to shift away from newspapers, publishers must shift their focus toward increasing their online presence and attracting advertisers and readers with online products; initiatives include: • Some publishers have formed cooperatives in order to leverage buying power and create new online ventures aimed at traditional Classified arenas • Careerbuilder.com, a nationally recognized online avenue for employment postings and placements, is jointly owned by Tribune Co., Gannett and McClatchy • Classified Ventures, LLC is an operator of web portals which provide classified advertising for autos and real estate. Significant assets include Cars.com, Apartments.com and Homegain.com. Classified Ventures is jointly owned by Tribune Co., Gannett, McClatchy, The Washington Post and Belo Corp. • These initiatives have seen some success, however publishers have not been able to come close to effectively replacing lost Classified revenues • Competition with free sites such as Craigslist has limited the monetary success of pay-sites • Bundling pricing for advertisers to promote both newspaper and online advertising to minimize loss of newspaper advertising • Many publishers have hired specialized sales personnel to sell online advertising • Publishers have also partnered with internet leaders such as Google and Yahoo! in an attempt to maximize online revenue

17. Valuation Trends • Valuations in the newspaper industry have been declining over the past several years with an increase seen in 2009 related to improving advertising revenue trends as well as improving cashflow margins related to cost cutting/de-leverageing initiatives. • Note: LTM = Latest Twelve Months • NM = Not Meaningful; NA = Not Available • (1) Stock price as of February 18, 2010 • (2) Market Value reflects fully diluted shares (common shares outstanding, options, warrants, in-the-money convertibles) • (3) Firm Value (FV) equals Market Value plus debt less cash • Newspaper index includes GCI, LEE, MEG, MNI, NYT, SSP, and WPO • Newspaper index includes BLC, GCI, GHS, JRN, LEE, MEG, MNI, NYP, SSP, and WPO

18. Valuation Trends • The following table demonstrates valuations in the newspaper industry since 2002:

19. “New Media” vs. “Traditional Media”—Historic Valuation Metrics • “New Media” includes: • Google, Yahoo, Apple “Traditional Media” includes: Gannett, Washington Post, New York Times Source: CapitalIQ.

20. “New Media” vs. “Traditional Media”—Historic Valuation Metrics • “New Media” includes: • Google, Yahoo, Apple “Traditional Media” includes: Gannett, Washington Post, New York Times In 2001, YHOO and AAPL both suffered 30-35% revenue declines Y/Y resulting from the macro tech environment. As a result, both companies suffered financial setbacks as reflected in their financial statements and financial ratios Source: CapitalIQ.

21. Questions and Answers

22. Appendix

23. Circulation Revenue Continues to Decline • As total paid circulation continues to decrease, advertisers will continue to search for new mediums to reach consumers • From 1998-2008, the Average Year/Year % Circulation Decline was 1.5% for Daily Papers and 2.0% for Sunday Papers • From 1998-2008, the Total Circulation Decline was 15.6% for Daily Papers and 22.3% for Sunday Papers Source: Editor and Publisher International Yearbook.

24. Circulation- Declines Since 2007 • Although circulation figures had been slowly falling for years, the pace of declines has increased rapidly since 2007 • Publishers have sought to fight against declining circulation revenue by increasing subscription and single copy prices significantly through 2008 and 2009 • While price increases have helped to stem circulation revenue losses , many publishers fear they are testing the upper bounds of how much loyal customers are willing to pay for a physical newspaper Source: JP Morgan Equity Research October 2009

25. Advertising Mix Continues to Shift • The adverting media mix has changed dramatically over the past 30 years • In 1980, newspapers and magazines (“Print Media”) were the largest mediums, comprising 38% and 16%, respectively, of the overall advertising market, as compared to 16% and 10% in 2009 • Revenue for Print Media has decreased by approximately $29.0 billion (-41.3%) since 2000, while online media has increased by $14.9 billion (183.9%) • Online media is now one of the largest mediums behind TV and newspapers, with 14% of the overall mix • The growth of online media is expected to continue in the future, potentially surpassing newspapers in 2010 • The trend toward online media is expected to continue in the future (a) Includes Political and Olympic spending, (b) Includes Lead generation, internet yellow pages, paid search and local online revenues, (c) Online revenues for each media are included in this line item. Source: Brian Wieser, MAGNA, July 2009.

26. Media Industry—Financial Instability Led to Several Bankruptcy Filings in 2009

27. Growing Trend Toward Advertising on the Internet • As stated above, total U.S. Internet advertising as a percentage of total U.S. advertising is estimated to increase from 7.6% in 2007 to 12.6% in 2012 • The main reason for the migration of advertising dollars from traditional media to the Internet: • The Internet allows advertisers to deliver their market communication messages to their target audiences in the most effective, timely, and cost-efficient way with a high degree of measurability Source: Universal McCann; IAB & PricewaterhouseCoopers; Collins Stewart LLC estimates.

28. Response to the Current Market: in their own words • Excerpted from the Reader’s Digest Disclosure Statement: • “The debtors and their predecessors have been at the forefront of the highly-competitive media and direct marketing industry for more than 80 years and, as a result, have engendered strong brand loyalty among their customers and established substantial credibility among distributors, marketing partners and competitors. The Debtors also recognize that the traditional publishing supply chain is evolving, in some cases rapidly, to keep pace with the digitalization of popular culture. As more and more consumers access media through digital channels, the Debtors’ online presence has grown commensurately. With 65 branded websites and strategic allegiances with leading Internet destinations, the Debtors believe they are uniquely able to capitalize on their iconic heritage and trusted brands, and leverage their media and marketing expertise to expand into multi-platform brands in the medium that best suits the “networked generation.” • “Through expanded digital investments and the development of new mobile, video and multimedia applications, including rolling out a new suite of products under the “Reader’s Digest Version” banner, the Debtors are well-positioned to satisfy the growing consumer preference for on-demand, easily digestible content in a flexible format (e.g., accessible, quick-hit content delivered through new media channels such as social networks, blogs and tags) and expand market penetration and grow brand equity in a new, younger consumer market.”

29. “New Media” vs. “Traditional Media”—Current Valuation Metrics Source: CapitalIQ.