Competition

        The financial success of our television stations is dependent on audience ratings and advertising revenues within each station's geographic market. The stations compete for revenues with other television stations in their respective markets, as well as with other advertising media, such as newspapers, radio, magazines, outdoor advertising, transit advertising, yellow page directories, the Internet, direct mail and local cable systems. Some competitors are part of larger companies with substantially greater financial resources than us.

        Competition in the broadcasting industry occurs primarily in individual markets. Generally, a television broadcasting station in one market does not compete with stations in other market areas. Our television stations are located in highly competitive markets.

        A television station's ability to successfully compete in a given market depends upon several factors, including:

•

management experience;



•

signal coverage;



•

local program acceptance;



•

network affiliation;



•

audience characteristics;



•

assigned frequency; and



•

strength of local competition.

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        The broadcasting industry is continuously faced with technological change and innovation, the possible rise in popularity of competing entertainment and communications media, and changes in labor conditions, any of which could have an adverse effect on our operations and results. For example, digital video recorders, which permit consumers to digitally record television programming and then play back that programming, often without commercial advertisement, are increasing in popularity and could have an adverse effect on the our ability to generate advertising revenue.

        Alternate programming, entertainment and video distribution systems can increase competition for a broadcasting station by bringing distant broadcasting signals into its market which are not otherwise available to the station's audience and also by serving as distribution systems for non-broadcast programming. Programming is now being distributed to cable television systems by both terrestrial microwave systems and by satellite. Our stations also compete with home entertainment systems, including video cassette recorders and playback systems, video discs and television game devices, the Internet, multi-point distribution systems, multi-channel multi-point distribution systems, video programming services available through the Internet and other video delivery systems.

        Our television stations also face competition from direct broadcast satellite services which transmit programming directly to homes equipped with special receiving antennas and from video signals delivered over telephone lines. Satellites may be used not only to distribute non-broadcast programming and distant broadcasting signals but also to deliver local broadcast programming which otherwise may not be available to a station's audience. Our stations may also face competition from wireless cable systems, including multi-channel distribution services, or MDS. Two four-channel MDS licenses have been granted in most television markets. MDS operations can provide commercial programming on a paid basis. A similar service also can be offered using the instructional television fixed service, or ITFS. The FCC allows the educational entities that hold ITFS licenses to lease their excess capacity for commercial purposes. The multi-channel capacity of ITFS could be combined with either an existing single channel MDS or a newer multi-channel multi-point distribution service to increase the number of available channels offered by an individual operator.

        In addition, video compression techniques, now in use with direct broadcast satellites and in development for cable, are expected to permit a greater number of channels to be carried within existing bandwidth. These compression techniques, as well as other technological developments, are applicable to all video delivery systems, including over-the-air broadcasting and other non-broadcast commercial applications, and have the potential to provide vastly expanded programming to highly targeted audiences. Reduction in the cost of creating additional channel capacity could lower barriers to entry for new channels and encourage the development of increasingly specialized niche programming. This ability to reach very narrowly defined audiences may alter the competitive dynamics for advertising expenditures.

        We are unable to predict the effect that these or other technological changes will have on our business or ability of the stations to compete in their markets. Commercial television broadcasting may face future competition from interactive video and data services that provide two-way interaction with commercial video programming, along with information and data services that may be delivered by commercial television stations, cable television, direct broadcast satellites, multi-point distribution systems, multi-channel multi-point distribution systems or other video delivery systems. In addition, actions by the FCC, Congress and the courts all suggest an increased future involvement in the provision of video services by telephone companies. The Telecommunications Act of 1996 lifted the prohibition on the provision of cable television services by telephone companies in their own telephone areas subject to regulatory safeguards and permits telephone companies to own cable systems under certain circumstances. We cannot predict the impact of any future relaxation or elimination of the existing limitations on the ownership of cable systems by telephone companies on the stations. The elimination or further relaxation of the restriction, however, could increase the competition the stations face from other distributors of video programming.

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FCC Regulation of Television Broadcasting

        Television broadcasting is subject to the jurisdiction of the FCC under the Communications Act of 1934, as amended. The Communications Act prohibits the operation of television broadcasting stations except under a license issued by the FCC and empowers the FCC to issue, revoke and modify broadcasting licenses, determine the locations of stations, regulate the equipment used by stations, adopt regulations to carry out the provisions of the Communications Act and impose penalties for violation of such regulations. The Telecommunications Act of 1996 was enacted on February 8, 1996 and amends major provisions of the Communications Act.

License Issuance and Renewal

        Television broadcasting licenses are typically granted and renewed for a period of eight years, but may be renewed for as shorter period upon a finding by the FCC that the "public interest, convenience and necessity" would be served by a license for a shorter period. When a station applies for renewal of its television license, parties in interest as well as members of the public may apprise the FCC of the service the station has provided during the preceding license term and urge the grant or denial of the renewal application. A competing application for authority to operate a station and replace the incumbent licensee may not be filed against a renewal application and considered by the FCC in deciding whether to grant a renewal application.

        The FCC grants a renewal application upon a finding that the licensee:

•

has served the public interest, convenience, and necessity;



•

has committed no serious violations of the Communications Act or the FCC's rules; and



•

has committed no other violations of the Communications Act or the FCC's rules which would constitute a pattern of abuse.

        If the FCC cannot make this finding, it may deny a renewal application, and accept other applications to operate the station of the former licensee. In the vast majority of cases, the FCC renews broadcast licenses even when petitions to deny are filed against broadcast license renewal applications. All of our existing licenses are in effect and are subject to renewal during 2005, 2006 and 2007. The main station licenses for our television stations expire on the following dates:

(1)

KRII, Channel 11, Chisholm, Minnesota, is a satellite station that transmits the signal of KBJR into the northern section of the DMA. Although KRII predominantly rebroadcasts the KBJR signal, KRII broadcasts unique news and weather content, as well as certain commercials, separately to this region. KBJR also airs UPN programming over its DTV signal that is carried by virtually all cable operators in the DMA.

        Although there can be no assurances that our licenses will be renewed, we are not aware of any facts or circumstances that would prevent us from having our licenses renewed.

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Ownership Restrictions

        The Communications Act also prohibits the assignment of a license or the transfer of control of a licensee without prior approval of the FCC. In its review process, the FCC considers financial and legal qualifications of the prospective assignee or transferee and also determines whether the proposed transaction complies with rules limiting the common ownership of certain attributable interests in broadcast, cable, and newspaper media on a local and national level. The FCC's restrictions on multiple ownership could limit the acquisitions and investments that we make or the investments other parties make in us. However, none of our officers, directors or holders of voting common stock currently has attributable or non-attributable interests that violate the FCC's ownership rules currently in effect. As discussed below, the FCC released a comprehensive media ownership order on July 2, 2003 in which it revised many of its media ownership rules following completion of a biennial review proceeding commenced in September 2002. This review was conducted pursuant to Section 202(h) of the Telecommunications Act of 1996, which required the FCC to conduct reviews of its media ownership rules every two years. On January 22, 2004, President Bush signed into law the Consolidated Appropriations Act of 2004, which, among other things, amended Section 202(h) of the Telecommunications Act of 1996 to provide that the FCC need only conduct its regular reviews of its media ownership rules on a quadrennial, rather than biennial, basis.

        These revisions of the media ownership rules have not gone into effect because of a stay issued on September 3, 2003 by the United States Court of Appeals for the Third Circuit. The stay remains in effect during the Third Circuit's review of the media ownership order. Oral arguments in the case were held on February 11, 2004. Several parties also have petitioned the FCC for reconsideration of its biennial review media ownership order. This proceeding remains pending. We are unable to predict the eventual outcome or effect of the Third Circuit's review or the FCC's review on reconsideration. In addition, there are numerous proposals currently before Congress to set aside or modify some or all of the rule changes set forth in the media ownership order. We are unable to predict whether any of these proposals will be enacted or the potential effect such changes would have on our business.

Attribution

        Ownership of television licensees is attributed to officers, directors and shareholders who own 5% or more of the outstanding voting stock of a licensee, except that certain institutional investors who exert little or no control or influence over a licensee may own up to 20% of a licensee's outstanding voting stock before attribution results. Under the FCC's "equity-debt plus" rule, a party's interest will be deemed attributable if the party owns equity, including all stockholdings, whether voting or non-voting, common or preferred, and debt interests, in the aggregate, exceeding 33% of the total asset value, including debt and equity, of the licensee and it either provides 15% of the station's weekly programming or owns an attributable interest in another broadcast station, cable system or daily newspaper in the same market. In contrast, debt instruments, non-voting stock and certain limited partnership interests, provided the licensee certifies that the limited partners are not materially involved in the media-related activities of the partnership, will not result in attribution.

        In December 2000, the FCC revised its rules to eliminate the single majority shareholder exception from the broadcast attribution rules. Under that exception, the interest of a minority voting shareholder would not be attributable if one person or entity held more than 50% of the combined voting power of the common stock company holding or controlling a broadcast license. Any minority voting stock interest in a company with a single majority shareholder was grandfathered as non-attributable if the interest was acquired before December 14, 2000. The FCC's decision eliminating the single majority shareholder exception as it applies to cable system ownership was appealed to the United States Court of Appeals for the District of Columbia Circuit, and in March 2001, the court reversed the FCC's decision and remanded the case to the FCC. In December 2001, the FCC suspended its repeal of the single majority shareholder exception for broadcast attribution rules, effectively reinstating the

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exception, until it could act on the court remand. As a result, the single majority shareholder exception from the broadcast attribution rules currently is in effect. The media ownership order did not address the majority shareholder exception.

        In addition, for purposes of its national and local multiple ownership rules, the FCC attributes local marketing agreements in which the broker provides more than 15% of the brokered station's weekly program time. This means that, if an entity owns one television station in a market and has a qualifying local marketing agreement with another station in the same market, this arrangement must comply with all of the FCC's ownership rules including the television duopoly rule. Local marketing agreements entered into prior to November 5, 1996 are grandfathered until the FCC's 2004 biennial review when their status will be reviewed on a case by case basis. Local marketing agreements entered into on or after November 5, 1996 were grandfathered temporarily until August 2001 only. We do not operate any stations pursuant to a local marketing agreement.

        In its recent media ownership order, the FCC concluded that a radio joint advertising sales agreement in which a same-market radio station was the broker for more than 15 percent of the brokered radio station's weekly advertising time would constitute an attributable interest for the broker in the brokered radio station. As a result, the FCC would count the brokered radio station towards the broker's permissible ownership totals under the revised radio ownership rules. The FCC did not attribute same-market joint sales agreements for television stations in its media ownership order. However, the FCC did indicate that it would initiate a proceeding to seek comment on whether to attribute same-market television joint sales agreements. We are not currently a party to any joint sales agreement but may seek to enter into such agreements as part of its acquisition strategy. We cannot predict whether the FCC will decide to attribute television joint sales agreements.

National Ownership Rules

        Prior to the 2002 biennial review, FCC rules provided that no individual or entity could have an attributable interest in television stations that reach more than 35% of the national television viewing audience. For purposes of this calculation, stations in the UHF band, which covers channels 14—69, receive a "UHF discount" and are attributed with only 50% of the households attributed to stations in the VHF band, which covers channels 2—13. In the media ownership order, the FCC raised the national ownership cap from 35% to 45% and maintained the UHF discount. The national ownership cap was subject to a pending appeal before the Third Circuit and, as a result, was stayed pending that review. However, the appropriations act of 2004 amended Section 202(c) of the Telecommunications Act of 1996 by increasing the national ownership cap to 39 percent. This legislation further provided that the national ownership cap would not be subject to the same quadrennial review process as the Commission's other media ownership rules. Although some parties, including the FCC, have argued that the legislation moots the national ownership cap issue, the Third Circuit has not yet made that determination. The UHF discount also is subject to the Third Circuit review. On February 19, 2004, the FCC released a public notice seeking additional comment on the UHF discount, as part of its ongoing reconsideration of the media ownership order, in light of the legislation discussed above. We are unable to predict the result of the Third Circuit appeal or the FCC's reconsideration proceeding.

Television Duopoly Rule

        Prior to the 2002 biennial review, the FCC's television duopoly rule permitted parties to own up to two television stations in the same designated market area as long as at least eight independently owned and operating full-power television stations, or "voices," would remain in the market post-acquisition, and at least one of the two stations was not among the top four ranked stations in the designated market area based on specified audience share measures. Under the duopoly rule, once a company acquires a television station duopoly, the joint owner is not required to divest either station if the number of voices within the market subsequently falls below eight, or if either of the two jointly-

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owned stations later is ranked among the top four stations in the market; however, the multiple television station owner can sell the television combination to a third party only if the joint ownership is in compliance with the duopoly rule at the time of the sale to the third party.

        The FCC revised the duopoly rule in the media ownership order. Pursuant to the revised duopoly rule, a single entity may own an attributable interest in two television stations in the same designated market area provided that one of the stations is not among the top-four rated stations in the market based on audience share. A station's rank is determined by using the station's most recent all-day audience share, as measured by Nielsen, at the time the transfer or assignment application is filed with the FCC. In addition, the media ownership order provides that an entity may own an attributable interest in three television stations in the same designated market area if the proposed acquisition does not involve one of the top-four rated stations and there are at least 18 independent television station voices in the designated market area. Under the revised duopoly rule, the multiple television station owner can sell the television combination to a third party only if the joint ownership is in compliance with the revised duopoly rule at the time of the sale to the third party. Both commercial and non-commercial broadcast television stations are counted to determine the number of television stations that are in a designated market area.

        Under its previous rules, the FCC could grant a waiver of the television duopoly rule if one of the two television stations was a failed or failing station, if the proposed transaction would result in the construction of an unbuilt television station or if compelling public interest factors were present, provided that a waiver applicant demonstrated that no reasonable out-of-market buyer was available. The FCC generally retained this waiver standard in the media ownership order but removed its requirement that an applicant demonstrate the absence of an out-of-market buyer. In addition, the FCC provided for a case-by-case review of other waiver requests in markets with 11 or fewer stations, in recognition that consolidation in markets of this size could lead to significant public interest benefits in some circumstances. The FCC also imposed two limitations on waivers once they are granted. First, at the end of the merged stations' license terms, the combined stations' owner must provide a specific factual showing of the public interest benefits provided from the merger and must certify that the public interest benefits promised by the merger are being fulfilled. Second, a combination owner may not assign or transfer a station combination involving a station acquired pursuant to a waiver unless the assignee or transferee demonstrates that the proposed transaction complies with the waiver standard at the time of the acquisition.

        Prior to the 2002 biennial review, satellite stations authorized to rebroadcast the programming of a parent station located in the same designated market area were exempt from the duopoly rule. The FCC retained this satellite exemption in the media ownership order. As a result, our common ownership of KBJR and KRII is fully consistent with the television duopoly rule under the previous or modified rules.

        The FCC's media ownership order is subject to an appeal before the Third Circuit. Pursuant to a stay issued September 3, 2003, the FCC's previous duopoly rule and waiver standard remain in effect while this appeal is pending. We cannot predict the eventual outcome or the effect of the Third Circuit's review of the media ownership order.

Cross-Ownership Rules

        The FCC's rules previously prohibited the holder of an attributable interest in a television station from also holding an attributable interest in a cable television system serving a community located within the coverage area of that television station. On February 26, 2003, the FCC released an order repealing the broadcast/cable cross-ownership rule, pursuant to a 2002 United States Court of Appeals for the District of Columbia Circuit decision vacating the FCC's previous broadcast/ cable cross-ownership rule.

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        Prior to the 2002 biennial review, the FCC's broadcast/newspaper cross-ownership rule further prohibited the common ownership of a broadcast television station and a daily newspaper in the same local market. The FCC's radio/television cross-ownership rule also restricted the common ownership of television and radio stations in the same market. Under the previous rules, one entity could own up to two television stations and six radio stations in the same market provided that:

•

20 independent media voices, including certain newspapers and a single cable system, would remain in the relevant market following consummation of the proposed transaction, and



•

the proposed combination would be consistent with the television duopoly and local radio ownership rules.

        If fewer than 20 but more than 9 independent media voices would remain in a market following a proposed transaction, and the proposed combination was otherwise consistent with the FCC's rules, a single entity could hold attributable interests in up to two television stations and up to four radio stations. If neither of these "independent media voice" tests was met, a party generally could have an attributable interest in no more than one television station and one radio station in a market.

        The FCC revised its cross-ownership rules in the media ownership order. The new cross-media ownership rules, which limit the number and type of media outlets a single entity may own in a local market, replace both the prior broadcast/newspaper cross-ownership rule and the prior radio/television cross-ownership rule. The new cross-media ownership rules permit cross-media combinations according to the number of television stations within a market. In markets with nine or more television stations, there are no cross-media ownership limits. In markets with between four and eight television stations, one of the following combinations is permitted:

•

a daily newspaper, one television station, and up to half of the radio station limit for that market;



•

a daily newspaper and up to the radio station limit for that market; or



•

two television stations and up to the radio station limit for that market.

        In markets with three or fewer television stations, no cross-ownership among television, radio, and newspapers is permitted; however, an entity may obtain a waiver of this ban by showing that the television station and the cross-owned media do not serve the same area. In addition, the new rule defines the local market according to the number of television stations within the area, not independent voices.

        The FCC's new cross-ownership rules are subject to the appeal currently before the Third Circuit. Pursuant to a stay issued September 3, 2003, the FCC's previous cross-ownership rules remain in effect while this appeal is pending. We cannot predict the eventual outcome or effect of the Third Circuit's review of the media ownership order.

Antitrust Review

        The Department of Justice and the Federal Trade Commission have the authority to determine that a transaction presents antitrust concerns. These agencies have increased their scrutiny of the television and radio industries, and have indicated their intention to review matters related to the concentration of ownership within markets, including local marketing agreements, even when the ownership or local market agreement in question is permitted under the regulations of the FCC. In March 2002, the Department of Justice and Federal Trade Commission reached an agreement through which the Department of Justice would assume primary control over all merger reviews in the media and entertainment industries, however, the Senate Commerce committee has stated an intention to formally review this decision to assign media mergers to the Department of Justice. There can be no

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assurance that future policy and rulemaking activities of the Antitrust Agencies will not impact our operations.

Alien Ownership

        Foreign governments, representatives of foreign governments, non-citizens, representatives of non-citizens, and corporations or partnerships organized under the laws of a foreign nation are barred from holding broadcast licenses. Non-citizens, however, may own up to 20% of the capital stock of a licensee and up to 25% of the capital stock of a United States corporation that, in turn, owns a controlling interest in a licensee. A broadcast license may not be granted to or held by any corporation that is controlled, directly or indirectly, by any other corporation of which more than one-fourth of the capital stock is owned or voted by non-citizens or their representatives, by foreign governments or their representatives, or by non-U.S. corporations, if the FCC finds that the public interest will be served by the refusal or revocation of such license. Non-citizens may serve as officers and directors of a broadcast licensee and any corporation controlling, directly or indirectly, such licensee. As a result, we are restricted by the Communications Act from having more than one-fourth of our capital stock owned by non-citizens, foreign governments or foreign corporations, but not from having an officer or director who is a non-citizen.

Equal Employment Opportunity

        On November 20, 2002, the FCC released a new set of equal employment opportunity rules which became effective on March 10, 2003. The new rules require us to comply with certain recruiting, outreach, record keeping and reporting requirements in addition to complying with the general prohibition against employment discrimination. On February 6, 2003, interested parties filed a joint petition for partial reconsideration of the FCC's new rules. We are unable to predict the resolution of the petition for reconsideration. The new rules remain in effect pending the resolution of this petition for reconsideration.

Must Carry/Retransmission Consent

        The Cable Television Consumer Protection and Competition Act of 1992, or Cable Act, and the FCC's implementing regulations give television stations the right to control the use of their signals on cable television systems. Under the Cable Act, at three year intervals beginning in June 1993, every qualified television station is required to elect whether it wants to avail itself of must-carry rights or, alternatively, to grant retransmission consent. Whether a station is qualified depends on factors such as the number of activated channels on a cable system, the location and size of a cable system, the amount of duplicative programming on a broadcast station and the signal quality of the station at the cable system's head end. If a television station elects retransmission consent, cable systems are required to obtain the consent of that television station for the use of its signal and could be required to pay the television station for such use. The Cable Act further requires mandatory cable carriage of all qualified local television stations electing their must-carry rights or not exercising their retransmission rights. Under the FCC's rules, television stations were required to make their latest periodic election between must-carry and retransmission consent status by October 1, 2002, for the period from January 1, 2003 through December 31, 2005. Television stations that failed to make an election by the specified deadline are deemed to have elected must-carry status for the relevant three-year period. For the three year period beginning January 1, 2003, each of our stations has either elected its must-carry rights, entered into retransmission consent agreements, or obtained an extension to permit us to continue negotiating a retransmission consent agreement with substantially all cable systems in its designated market area.

        The FCC currently is conducting a rulemaking proceeding to determine the scope of the cable systems' carriage obligations with respect to digital broadcast signals during and following the transition

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from analog to digital television, or DTV, service. In its initial order, the FCC tentatively concluded that broadcasters would not be entitled to mandatory carriage of both their analog and DTV signals and that broadcasters with multiple DTV video programming streams would be required to designate a single primary video stream eligible for mandatory carriage. Alternatively, a broadcaster may negotiate with cable systems for carriage of its DTV signal in addition to its analog signal, or for carriage of multiple programming streams within its DTV signal, under retransmission consent. The FCC is expected to reexamine these carriage issues in its next order, which we expect to be issued this year. We are not able to predict whether the FCC will require cable systems to: (i) carry all programming streams within a station's DTV signal and/or (ii) to carry a station's analog and DTV signals simultaneously.

Satellite Home Viewer Improvement Act

        Under the Satellite Home Viewer Improvement Act, or SHVIA, a satellite carrier generally must obtain retransmission consent before carrying a television station's signal. Specifically, SHVIA:

•

provides a statutory copyright license to enable satellite carriers to retransmit a local television broadcast station into the station's local market;



•

permits the continued importation of network signals that originate outside of a satellite subscriber's local television market or designated market areas for certain existing subscribers;



•

provides broadcast stations with retransmission consent rights in their local markets; and



•

mandates carriage of broadcast signals in their local markets after a phase-in period.

        Local markets are defined to include both a station's designated market area and its county of license.

        SHVIA permits satellite carriers to provide distant or nationally broadcast programming to subscribers in "unserved" households. Households are unserved by a particular network if they do not receive a signal of at least a specified intensity from a station affiliated with that network or may qualify as unserved pursuant to other limited circumstances. However, satellite television providers can retransmit the distant signals of no more than two stations per day for each television network. As of January 1, 2002, a satellite carrier retransmitting the signal of any local broadcast station into the station's local market generally must carry all stations licensed to the carried station's local market upon request. The portion of SHVIA that grants satellite carriers a compulsory copyright license to provide distant network signals to unserved households is set to expire at the end of 2004. In January 2004, legislation was introduced in the Senate which would extend the term of this provision to December 31, 2009. Absent an extension of the compulsory copyright license, a satellite carrier may not deliver a distant network signal to households unless it first obtains the agreement of the copyright owners of the copyrighted programming broadcast by the station.

        Pursuant to SHVIA, satellite carriers are beginning to offer local broadcast signals to subscribers in some of the nation's large and mid-sized television markets. As of May 24, 2004, satellite carrier DirecTV carries the signals of our stations KBWB, WDWB and WKBW and announced plans to carry KSEE, and KBJR in the second quarter of 2004 and WPTA and WTVH sometime in 2004 (DirecTV subscribers currently must acquire a "DirecTV Multi-Satellite System" in order to receive WKBW). EchoStar currently carries KBWB, WDWB, WKBW, KBJR, WPTA, WTVH, WEEK and KSEE (EchoStar subscribers currently must acquire a "SuperDISH" from EchoStar in order to receive WPTA, WEEK and WTVH).

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Digital Television

        Pursuant to the Telecommunications Act of 1996, the FCC has adopted rules authorizing and implementing digital television, or DTV, service, technology that should improve the quality of both the audio and video signals of television stations. The FCC has "set aside" channels within the existing television spectrum for DTV and limited initial DTV eligibility to existing television stations and certain applicants for new television stations. The FCC has adopted a DTV table of allotments as well as service and licensing rules to implement DTV service. The DTV allotment table provides a channel for DTV operations for each existing broadcaster and is intended to enable existing broadcasters to replicate their existing analog service areas. The affiliates of CBS, NBC, ABC and Fox in the ten largest U.S. television markets were required to initiate commercial DTV service with a digital signal by May 1, 1999. Affiliates of these networks located in the 11th through the 30th largest U.S. television markets were required to begin DTV operation by November 1, 1999. All other commercial stations were required to construct DTV facilities by May 1, 2002. In November 2001, the FCC modified its digital television transition rules in an effort to ease the burden of the required build out. Among other changes, the FCC relaxed its initial build out requirement. Under the new rules, a station will not have to replicate its entire analog service area until a date to be set in a proceeding initiated in February 2003. The FCC has not established a date by which stations must replicate their analog service area.

        Congress has generally required broadcasters to convert to DTV service, terminate their existing analog service and surrender one of their two television channels to the FCC, on or before December 31, 2006. This 2006 transition date may be extended, however, upon the request of a station, in the event that:

•

one or more of the stations in the station's market licensed to or affiliated with one of the top four largest national television networks are not broadcasting a digital television signal, and the FCC finds that each such station has exercised due diligence and satisfies the conditions for an extension of the applicable construction deadlines for digital television service in that market;



•

digital-to-analog converter technology is not generally available in such market; or



•

15% or more of the television households in the station's market either, do not subscribe to a multi-channel video programming distributor that carries the DTV channels offered in that market; or do not have either at least one television receiver capable of receiving DTV service or at least one television receiver of analog service signals equipped with digital-to-analog converter technology.

        The FCC also has adopted rules that permit DTV licensees to offer ancillary or supplementary services on their DTV channels under certain circumstances. The FCC rules further require DTV licensees to pay a fee of 5% of the gross revenues received from any ancillary or supplemental uses of the DTV spectrum for which the company charges subscription fees or other specified compensation. No fees will be due for commercial advertising revenues received from free over-the-air broadcasting services. The FCC recently adopted rules intended to protect digital television transmissions from unauthorized redistribution. Specifically, the FCC adopted use of a mechanism known as the "broadcast flag" to protect digital transmissions from unauthorized redistribution and also established rules to ensure that equipment on both the transmission and reception side is capable of giving effect to the broadcast flag. The FCC also has initiated a notice of inquiry to examine whether additional public interest obligations should be imposed on DTV licensees. Various proposals in this proceeding would require DTV stations to increase their program diversity, focus more programming and resources on addressing local issues and political discourse, increase access for disabled viewers and improve emergency warning systems.

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        KBWB, WEEK and KSEE have initiated full power operation of their DTV facilities pursuant to an FCC license. WPTA and WDWB have constructed their facilities, begun full-power operation pursuant to automatic program test authority, and filed applications for licenses to cover these operations, which applications remains pending.

        KBJR and WTVH completed construction of their DTV facilities and operate their DTV facilities pursuant to special temporary authorizations for limited build-out operation. The term of KBJR's special temporary authorization expired on April 22, 2004, however, KBJR filed a timely request for extension of this special temporary authorization. The term of WTVH's special temporary authorization expires June 15, 2004. As indicated above, the FCC expressly authorized limited buildout of DTV facilities in order to facilitate the DTV transition, and DTV operation pursuant to a special temporary authorization automatically extends a station's DTV construction permit indefinitely. We may request additional six-month extensions of KBJR's and WTVH's special temporary authorizations as necessary, which we predict will be approved under the FCC's current rules.

        WKBW completed construction of its DTV facilities in March 2004 and operates its DTV facilities pursuant to a special temporary authorization for limited buildout operation, the initial term of which expires August 17, 2004.

        The FCC had previously denied WKBW's request for a third extension of its DTV construction permit on October 16, 2003, and admonished WKBW for failure to complete construction of its DTV facilities before the required deadline. As a result of this denial, WKBW was required to submit regular progress reports documenting its construction efforts. WKBW has petitioned the FCC for reconsideration of the admonishment and predicts that its DTV construction permit will be extended indefinitely by virtue of its limited buildout operation pursuant to a special temporary authorization.

        The FCC has not yet addressed the DTV requirements applicable to satellite stations like KRII.

Class A Television Stations

        In November 1999, Congress enacted the Community Broadcasters Protection Act, which created a new Class A status for low power television stations. Under this statute, low power television stations which previously had secondary status to full power television stations are eligible for Class A status and are entitled to protection from future displacement by modifications to full-power television stations under certain circumstances. The FCC has adopted rules governing the extent of interference protection that must be afforded to Class A stations and the eligibility criteria for these stations. Because Class A stations are required to provide interference protection to previously authorized full-power television stations, these new facilities are not expected to adversely affect the operations of our television stations.

Proposed Legislation and Regulations

        The FCC currently has under consideration, and the Congress and the FCC may in the future consider and adopt, new or modified laws, regulations and policies regarding a wide variety of matters that could, directly or indirectly, affect the operation, ownership, and profitability of our broadcast properties, result in the loss of audience share and advertising revenues for our stations, or affect our ability to acquire additional stations or finance acquisitions. Such matters include but are not limited to:

•

extension of the SHVIA compulsory copyright license for satellite carriers' delivery of local stations;



•

penalties for the broadcast of indecent programming;



•

broadcast ownership limits;

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•

expediting the digital television transition;



•

minority and female involvement in the broadcasting industry;



•

public interest obligations of broadcasters;



•

technical and frequency allocation matters;



•

changes to broadcast technical requirements;



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an examination of whether the cable must-carry requirement mandates carriage of both analog and digital television signals.

        We cannot predict whether such changes will be adopted or, if adopted, the effect that such changes would have on our business.