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ITEM 1.    BUSINESS

This annual report on Form 10-K contains forward-looking statements that involve known and unknown risks and uncertainties, such as statements of our plans, objectives, expectations, and intentions. Words such as “may,” “could,” “would,” “should,” “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate” and variations of such words and similar expressions are intended to identify such forward-looking statements. You should not place undue reliance on these forward-looking statements, which are based on our current expectations and projections about future events, are not guarantees of future performance, are subject to risks, uncertainties, and assumptions (including those described herein) and apply only as of the date of this report. Our actual results could differ materially from those anticipated in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section entitled “Risk Factors” as well as those discussed elsewhere in this annual report.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance, or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We are under no duty to update any of the forward-looking statements after the date of this annual report to conform such statements to actual results or to changes in our expectations.

Company Description

Fisher Communications, Inc. is an integrated media company that has been in the broadcasting business since 1926. We own or operate eleven full power and seven low power network-affiliated television stations and nine radio stations. We also own a 50% interest in a company that owns a 19th television station. We have long-standing network affiliations with ABC and CBS and entered into affiliation agreements with Univision during 2006. Our television and radio stations are located in Washington, Oregon, Idaho and Montana. Seattle and Portland are our two largest markets for both television and radio. We own two ABC and three Univision network affiliates in Seattle and Portland, which are within the top 25 Designated Market Area (“DMA”) television markets as determined by Nielsen Media Research. We also own three radio stations in Seattle, the 14th largest radio market, ranked by population, as determined by the Arbitron Company. Our television stations reach 3.7 million households (approximately 3.4% of U.S. television households) according to Nielsen Media Research. Our stations produce quality local programming and have received numerous awards for broadcasting excellence.

We conduct our operations through two subsidiaries, Fisher Broadcasting Company and Fisher Media Services Company. Our broadcasting operations provided approximately 94% of consolidated revenue from continuing operations in 2006, with television broadcasting accounting for approximately 75% and radio broadcasting accounting for approximately 25% of our 2006 broadcasting revenue.

In November 2006, we completed the purchase of two Univision-affiliated Oregon television stations for $19 million. This transaction was initially announced in December 2005 and included the purchase of two Telefutura-affiliated Idaho TV stations which were finalized in May for $1 million.

In October 2006, we sold eighteen of our twenty-four small-market radio stations located in Montana and Eastern Washington for $26 million. This transaction was structured as a Like Kind Exchange, for tax purposes, and we used a portion of the proceeds, $19 million, to purchase the two Oregon stations in November. The remaining six small-market radio stations were excluded from the original sale of which five continue to be held for sale and the sixth is awaiting approval from the Federal Communications Commission (“FCC”) to complete its sale transaction.

In September 2006, we completed the stock purchase of African-American Broadcasting of Bellevue for $16 million. We purchased 25% of the equity in June 2006 for $4 million and completed the purchase of the remaining 75% equity for $12 million.

In July 2006, we entered into a local marketing agreement to manage four low-power television stations located in Eastern Washington and an option agreement whereby we have the right to acquire the stations until June 30, 2007. The stations provide programming to the Yakima-Pasco-Richland-Kennewick television market in

Washington through an affiliation with Univision. On February 15, 2007 we exercised our option to purchase these television stations for $5.0 million, pending FCC approval and other closing conditions.

The second operating subsidiary, Fisher Media Services Company, owns and operates Fisher Plaza, a facility located near downtown Seattle that is designed to enable companies to distribute analog and digital media content through numerous distribution channels, including broadcast, satellite, cable, Internet and broadband, as well as other wired and wireless communication systems. Fisher Plaza serves as the home of our corporate offices and our Seattle television and radio stations. Fisher Plaza also houses a variety of companies, including media and communications companies. Fisher Plaza was completed in the summer of 2003 and had a net book value of $118 million as of December 31, 2006.

We also own approximately 3.0 million shares of the common stock of Safeco Corporation, a publicly traded insurance and financial services corporation. We have been a stockholder of Safeco Corporation since 1923. The market value of our investment in Safeco Corporation common stock as of December 31, 2006 was approximately $188 million.

Fisher Communications, Inc. was founded in 1910, and is incorporated in the state of Washington. We employed 812 full-time employees as of December 31, 2006. Approximately 14% of our workforce, located primarily at our KOMO TV, KATU TV, and KBCI TV operations, is subject to collective bargaining agreements. We believe we have good working relations with our employees. Note 13 to the Consolidated Financial Statements contains information regarding our segments for 2006, 2005, and 2004. We report financial data for three reportable segments: television, radio and Fisher Plaza.

Television Broadcasting

The following table sets forth selected information about our television stations:

                                             
                        Number of
 		           
                  Average
 		    Commercial
 		           
        DMA(1)
 		    Network
 		  Audience
 		    Stations
 		    Rank in
 		    Expiration Date of
Station
  Market Area   Rank     Affiliation   Share(2)     in DMA     Market(2)     Affiliation Agreement
 
KOMO
  Seattle-Tacoma, WA     14     ABC     9 %     14       2     August 31, 2009
KUNS
  Seattle-Tacoma, WA     14     Univision     NA       14       unranked     September 12, 2011
KATU
  Portland, OR     23     ABC     9 %     10       3     August 31, 2009
KUNP
  Portland, OR     23     Univision     NA       10       unranked     September 12, 2011
KUNP LP
  Portland, OR     23     Univision     NA       10       unranked     September 12, 2011
KVAL
  Eugene, OR     120     CBS     17 %     9       1     February 29, 2016
KCBY
  Coos Bay, OR     120     CBS     17 %     9       1     February 29, 2016
KPIC(3)
  Roseburg, OR     120     CBS     17 %     9       1     February 29, 2016
KIMA(4)
  Yakima, WA     125     CBS     11 %     5       1     February 29, 2016
KEPR(4)
  Pasco/Richland/Kennewick, WA     125     CBS     11 %     8       2     February 29, 2016
KLEW(5)
  Lewiston, ID     NA     CBS     NA       1       NA     February 29, 2016
KBCI
  Boise, ID     118     CBS     10 %     5       2     February 29, 2016
KUNB LP
  Boise, ID     118     Telefutura     NA       5       unranked     May 12, 2011
KIDK
  Idaho Falls-Pocatello, ID     163     CBS     13 %     5       2     February 29, 2016
KPPP LP
  Pocatello, ID     NA     Telefutura     NA       5       unranked     May 12, 2011


(1) DMA represents an exclusive geographic area of counties in which the home market stations are estimated to have the largest quarter-hour audience share. DMA Rank represents the DMA ranking by size of the market area in which our station is located. DMA Rank is based on January 2007 estimates published by Nielsen Media Research. “NA” refers to Not Available.   (2) Except for the Eugene, Oregon market, average audience share and rank in market are based on Nielsen Media Research data for the February, May, July and November 2006 rating periods, Sunday to Saturday, 6 a.m. to 2 a.m. With respect to the Eugene, Oregon market, average audience share and rank in market are based on

BIA Financial Network, Inc. data for the February and May 2006 rating periods, Sunday to Saturday, 9 a.m. to midnight. “NA” refers to Not Available.
 
(3) Fisher Broadcasting owns a 50% interest in South West Oregon Television Broadcasting Corporation, licensee of KPIC.
 
(4) Station ranking is for two-station group designated as KIMA+ by Nielsen Media Research.
 
(5) Although included as part of the Spokane, Washington DMA, KLEW primarily serves the Lewiston, Idaho, Clarkston, Washington audience that is only a small portion of the Spokane DMA.


We have been affiliated with ABC since 1958, CBS since 1999, Univision since 2006, and Telefutura since 2006. In July 2006, we entered into a local marketing agreement to manage four low-power television stations located in Eastern Washington and an option agreement whereby we have the right to acquire the stations until June 30, 2007. The stations provide programming to the Yakima-Pasco-Richland-Kennewick television market in Washington through an affiliation with Univision. On February 15, 2007 we exercised our option to purchase these television stations for $5.0 million, pending FCC approval and other closing conditions.

Television Markets and Stations

KOMO TV and KUNS TV, Seattle-Tacoma, Washington

Market Overview.   KOMO TV operates in the Seattle-Tacoma market, which has approximately 1.7 million television households and a population of approximately 4.3 million. This station has been operating since 1953. In 2006, approximately 71% of the population subscribed to cable and 16% subscribed to alternative delivery systems (alternative delivery service includes program delivery via satellite, satellite master antenna systems or multipoint distribution systems) (Nielsen Media Research). The 2006 television revenue for the Seattle-Tacoma DMA was estimated to be $312.0 million, as reported by Miller Kaplan. Of that number, approximately $20.2 million was attributable to political advertising. Major industries in the market include aerospace, information technology, manufacturing, biotechnology, forestry, transportation, retail and international trade. Major employers include Microsoft, Boeing, Safeco, Paccar, Nordstrom, Costco, Starbucks, the University of Washington, Amazon.com, Washington Mutual, Inc. and Weyerhaeuser.

KOMO TV Station Performance.   KOMO TV’s commitment to be the market leader in local news is manifested on multiple distribution platforms. KOMO TV produces 39.5 hours of live local television news per week on its analog and digital channels. KOMO TV produces the Emmy-winning Northwest Afternoon , a Monday-Friday, 60-minute talk program, which premiered in 1984 and is the longest running locally produced talk show in the Northwest region. The Radio and Television News Directors Association (“RTNDA”) honored KOMO TV News with three Edward R. Murrow national awards — News Series, Hard Feature and Soft Feature in 2006. The National Association of Television Arts and Sciences awarded 15 Emmys to the station for program and individual excellence in 2006.

KUNS TV Station Performance.   KUNS TV went live as Seattle’s first Univision station in January 2007. The Seattle-Tacoma market has approximately 81,000 Hispanic television households with a population of approximately 278,000. The market is the 28 th  largest Hispanic market in the United States. KUNS broadcasts 167 hours of Univision programming per week on its analog and digital channels.

KATU TV and KUNP TV, Portland, Oregon

Market Overview.   KATU serves the Portland market, which has approximately 1.1 million television households and a population of approximately 3.0 million. Approximately 53% of Portland’s population subscribed to cable in 2006, while approximately 25% of households are listed as subscribers to alternative delivery systems (Nielsen Media Research). The 2006 television revenue for the Portland DMA was estimated to be $179 million, as reported by Miller Kaplan. Of that number, approximately $14.6 million was attributable to political advertising. The Portland metro area has a broad base of manufacturing, distribution, wholesale and retail trade, regional government and business services. Major employers in the Portland area include Intel, Nike, Hewlett Packard Development Company, Legacy Health System and Kaiser Permanente.

KATU Station Performance.   KATU currently broadcasts 32.5 hours of live local news weekly. Since 1980, KATU has provided local program production for the Portland market. Central to this commitment, the station produces and airs AM Northwest , one of the country’s longest running live Monday-Friday local talk/information programs. In 2006, KATU won 14 Associated Press awards, including four first place awards for Best Hard News Reporting, Best Feature Reporting, Best Weathercast and Best Investigative Reporting. In addition, KATU News received 18 Emmy nominations, winning three, and was honored with 6 awards from The Society of Professional Journalists, including 2 First Place Awards.

KUNP Station Performance.   KUNP currently broadcasts Univision programming. The Portland market has approximately 73,000 Hispanic television households with a population of approximately 280,000. The market is the 31st largest Hispanic market in the United States.

KVAL TV, KCBY TV, KPIC TV, Eugene, Coos Bay and Roseburg, Oregon

Market Overview.   The KVAL TV broadcast studios are located in Eugene, Oregon. KCBY TV, in Coos Bay and KPIC TV, in Roseburg, are KVAL’s satellite stations which are defined as full-power terrestrial broadcast stations authorized to retransmit all or part of the programming of a parent station that is ordinarily commonly owned. The population of the Eugene/Springfield, Roseburg and Coos Bay/North Bend area is approximately 551,000. The area’s economic base includes forest products, agriculture, high-tech manufacturing, regional hospital and medical services, packaging, tourism and fishing. Major employers include the state’s two major universities — University of Oregon in Eugene and Oregon State University in Corvallis, as well as Hynix Semiconductor, Hewlett-Packard Development Company, Symantec Software, Sacred Heart Medical Center, Monaco Motor Coach, Levi Strauss Company, The Dell Computer Call Center and Roseburg Forest Products.

Station Performance.   KVAL holds the local broadcast rights to the top nationally syndicated programs including Live with Regis and Kelly, Dr. Phil, The Oprah Winfrey Show, Wheel of Fortune and Jeopardy, as well as the longest tenured local newscast in the market. KVAL subscribes to Nielsen Media Research data as well as qualitative data from The Media Audit. KVAL broadcasts 17 hours of live local news per week and rebroadcasts its 6 PM newscast at 6:30 PM on cable Channel 12 on the Eugene/Springfield Comcast Cable System, and simulcasts its 11 p.m. newscast on KEVU TV throughout the DMA. KVAL TV produces a local news window on CNN Headline News 17 times per day, every day. KVAL has a long tradition of award-winning news, public affairs programming and information. KVAL, KCBY and KPIC are unique in their broadcast community in that they can broadcast news, information, weather and commercials regionally. In addition to broadcasting its signal throughout the DMA, KVAL has the ability to distribute unique local content to each of the Eugene, Roseburg, Coos Bay, and Florence areas.

KIMA TV, KEPR TV, KLEW TV, Yakima and Tri-Cities, Washington and Lewiston, Idaho.

Market Overview.   KEPR TV and KLEW TV are KIMA TV’s satellite stations. KIMA TV serves the Yakima, Washington area and KEPR TV serves the Pasco-Richland-Kennewick (the “Tri-Cities”), Washington area. Yakima and the Tri-Cities areas comprise the Yakima DMA, which serves approximately 596,000 people in approximately 214,000 TV households and has a 46% cable penetration and 37% alternate delivery subscribers. At KLEW, 54% subscribe to cable and 36.5% to alternate delivery systems. KLEW TV is the exclusive local station in Lewiston, Idaho and is part of the Spokane, Washington DMA. Lewiston’s KLEW TV serves approximately 165,000 people in approximately 65,000 TV households.

The area covered by KIMA, KEPR and KLEW has an economic base that consists primarily of agriculture, nuclear technology, government, manufacturing and the wholesale food processing, retail service, health care and tourism industries, as well as being the core of “Washington Wine Country.” Major employers include Battelle, Con Agra, Duratek, Tyson, Energy NW, CH2M Hill, Fluor Hanford, Bechtel, Lockheed Martin, Potlatch, Siemens Power Corporation, Shields Bag and Printing, Tree Top, Noel Corp., ATK Mfg., and Boise Corp.

Station Performance.   KIMA and KEPR each broadcast 15 hours per week of scheduled live local news programs. KIMA is a leader in its market. According to Nielsen Media Research, KIMA/KEPR reaches 47% of all of the local news audience at 6 PM against both ABC and NBC local news, and KIMA TV alone has double the

households of the other two news stations combined. KLEW TV broadcasts 12 hours of scheduled local news per week.

Local Marketing Agreement for Spanish Language Broadcasts, In July 2006, we entered into a local marketing agreement to manage four low-power television stations located in Eastern Washington and an option agreement whereby we have the right to acquire the stations until June 30, 2007. The stations provide programming to the Yakima-Pasco-Richland-Kennewick television market in Washington through an affiliation with Univision. On February 15, 2007 we exercised our option to purchase these television stations for $5.0 million, pending FCC approval and other closing conditions.

KBCI TV and KUNB TV, Boise, Idaho

Market Overview.   KBCI serves the Boise, Idaho DMA, which has a total population of approximately 627,000 and approximately 239,000 TV households. An estimated 36% of the television households in the Boise DMA subscribe to cable television with another 34% subscribing to an alternative delivery system (Nielsen Media Research). Boise is the state capital and regional center for business, government, education, health care and the arts. Major employers include high-tech companies such as Micron Technology, Inc. and its subsidiaries, Hewlett-Packard Company, Boise State University, Albertson’s, Saint Alphonsus Regional Medical Center, St. Luke’s Regional Medical Center, DirecTV, U.S. Bank, J.R. Simplot Company, Idaho Power Company, Boise Cascade (formerly Boise/Office Max), Sears Boise Regional Credit Card Operations Center, Washington Group International (formerly Morrison Knudson), Mountain Home Air Force Base, and the Idaho State government. Boise was recognized by Forbes Magazine in 2005 as the Best Place in the United States for business and careers and as the seventh best area in the nation to do business. It was ranked as the second best city in the United States to do business by INC. Magazine in 2005.

KBCI Station Performance.   KBCI currently broadcasts 12 hours per week of live local news programs. In May 2006, KBCI was given two First place, three Second place and two Third place awards by the Idaho Press Club. Paul Fredericks was recognized as “Best News Photographer” and Andrew Marden was recognized for the “Best Sports Segment” by the Idaho State Broadcasters Association in 2006.

KUNB Station Performance.   KUNB currently broadcasts Telefutura programming. The Boise market has approximately 19,000 Hispanic television households with a population of approximately 69,000. The market is the 70 th  largest Hispanic market in the United States.

KIDK TV and KPPP TV, Idaho Falls-Pocatello, Idaho

Market Overview.   KIDK serves the Idaho Falls-Pocatello market, which has approximately 116,560 TV households and a population of approximately 343,000. In 2006, an estimated 35% of the television households subscribed to cable, with another 47% subscribing to an alternative delivery system (Nielsen Media Research). The Idaho Falls-Pocatello DMA consists of 14 counties located in Eastern Idaho and Western Wyoming. Idaho Falls and Pocatello, 50 miles apart, are the two largest cities in the DMA. Battelle Inc., the contractor for operation of the Idaho National Engineering & Environmental Laboratory, is the largest employer in the region. Other major employers include Melaluca, Inc., JR Simplot Company, American Microsystems, Idaho State University, BYU-Idaho, EIRMC, Negra Modelo, Qwest, American Microsystems, Portneuf Medical Center, Converges Corporation and Ballard Medical Products.

KIDK Station Performance.   KIDK broadcasts 17 hours per week of live local news programs. KIDK operates from its main studio in Idaho Falls. It also shares a site in Pocatello with a full service news and sales bureau in Pocatello. Effective January 2006, KIDK became the only station in the market with a designated Upper Valley reporter.

KPPP Station Performance.   KPPP broadcasts Telefutura programming over a low power station in Pocatello serving 6.2% Hispanic households in the city and 6.6% Hispanic Households in the Metro area. The Idaho Falls-Pocatello market has approximately 7,240 Hispanic television households with a population of approximately 27,000. The market is the 117 th  largest Hispanic market in the United States.

Television Broadcasting Industry

Commercial television broadcasting began in the United States on a regular basis in the 1940s. The FCC grants licenses to build and operate broadcast television stations, and currently, a limited number of channels are available for television broadcasting in any one geographic area. Television stations that broadcast over the VHF band generally have some competitive advantage over those that broadcast over the UHF band (channels above 13) because VHF channels usually have better signal coverage and operate at a lower transmission cost. However, the improvement of UHF transmitters and receivers, the complete elimination from the marketplace of VHF-only television receivers and the expansion of cable and satellite television systems have reduced the competitive advantage of stations broadcasting over the VHF band. In addition, as television stations are required to broadcast digital signals, the historical competitive advantage of VHF signals is further diminished.

There are approximately 111 million television households in the United States (household universe estimates), of which approximately 68 million are cable households, and a total of approximately 96 million receive television via cable or an alternative delivery service. Overall household television viewing is 57.6 hours per week, on average (Nielsen Media Research).

Television stations primarily receive revenue from the sale of local, regional and national advertising and, to a much lesser extent, from network compensation, tower rental and commercial production activities. Broadcast television stations’ relatively high fixed costs of operation and heavy reliance on advertising revenue render the stations vulnerable to cyclical changes in the economy. The size of advertisers’ budgets, which are sensitive to broad economic trends, affects the broadcast industry in general and, specifically, the revenue of individual broadcast television stations. We are dependent on advertising revenue, which can be influenced by events such as declines in the national, regional, or local economies, employment levels, network ratings, consumer confidence and the success of national time sales representatives. Political and advocacy advertising can constitute, and in the past has constituted, a significant revenue source in some years, particularly national election years. The amount of our revenue in election years depends on many factors, such as whether Washington, Oregon, and Idaho are contested states in a presidential election and the extent of local and regional ballot initiatives.

Television Broadcasting Competition

Competition within the media/communications industry, including the markets in which our stations compete, is considerable. This competition takes place on several levels: competition for audience, competition for programming (including news), competition for advertisers and competition for local staff and management. Additional factors material to a television station’s competitive position include signal coverage and assigned frequency. The television broadcasting industry faces continuing technological change and innovation, the possible rise in popularity of competing entertainment and communications media, changing business practices such as television “duopolies” (owning and operating two stations in the same market), use of local marketing agreements (“LMAs”) and joint sales agreements (“JSAs”) and governmental restrictions or actions of federal regulatory bodies, including the FCC and the Federal Trade Commission. Any of these factors could change and materially harm the television broadcasting industry and our business in particular.

Audience.   Stations compete for audience on the basis of program popularity, which has a direct effect on advertising rates. During periods of network programming, the stations are totally dependent on the performance of the network programs in attracting viewers. The competition between the networks is keen and the success of any network’s programming can vary significantly over time. During non-network time periods, each station competes on the basis of the performance of its local and syndicated programming using a combination of self-produced news, public affairs and other entertainment or informational programming to attract viewers. The competition between stations in non-network time periods is intense, and here, too, success can vary over time.

Our stations compete for television viewership share against local network-affiliated and independent stations, as well as against cable programming and alternate methods of television program distribution, such as direct broadcast satellite program services. These other transmission methods can increase competition for a station by bringing into its market distant broadcasting signals not otherwise available to the station’s audience, and also by serving as a distribution system for nonbroadcast programming originated on the cable system. To the extent cable

operators and broadcasters increase the amount of local news programming, the heightened competition for local news audiences could have a material adverse effect on our advertising revenue.

Other sources of competition for Fisher’s television stations include home entertainment systems (including video cassette recorder and playback systems, DVD players, digital video recorders, video on demand and television game devices), Internet websites, wireless cable, satellite master antenna television systems, and program downloads to handheld or other playback devices. Our television stations also face competition from direct broadcast satellite services, which transmit programming directly to homes equipped with special receiving antennas or to cable television systems for transmission to their subscribers. We compete with these sources of competition both on the basis of product performance (quality, variety, information and entertainment value of content) and price (the cost to utilize these systems).

Programming.   Competition for syndicated programming involves negotiating with national program distributors, or producers. Our stations compete against in-market broadcast stations, as well as station groups, for exclusive access to syndicated programming. Cable system operators generally do not compete with local stations for programming; however, various national cable networks acquire programs that might have otherwise been offered to local television stations.

Advertising.   Television advertising rates are based on the size of the market in which a station operates, a program’s popularity among the viewers an advertiser wishes to attract in that market, the number of advertisers competing for the available time, the demographic make-up of the market served by the station, the availability of alternative advertising media in the market area, the presence of aggressive and knowledgeable sales forces and the development of projects, features and programs that tie advertiser messages to programming. Our stations compete for advertising revenue with other television stations in their respective markets, as well as with other advertising media, such as newspapers, direct broadcast satellite services, radio, magazines, Internet websites, outdoor advertising, transit advertising, yellow page directories, direct mail and local cable systems. In addition, another source of revenue is paid political and advocacy advertising, the amount of which fluctuates significantly, particularly being higher in national election years and very low in years in which there is little election or other ballot activity. Competition for advertising dollars in the television broadcasting industry occurs primarily within individual markets on the basis of the above factors as well as on the basis of advertising rates charged by competitors. Generally, a television broadcasting station in one market area does not compete with stations in other market areas. Our television stations are located in highly competitive markets.

Radio Markets and Stations

Seattle Radio

The following table sets forth certain information regarding our radio stations located in Seattle, Washington.

                                                     
                      National
 		    Audience Listening      
                      Market
 		    Rank in
 		    Station
 		     
Market
 
Station
    Dial Position    
Power
    Rank(1)     Market(2)     Share(2)    
Format
 
Seattle, WA
                            14                      
      KOMO AM       1000 kHz       50 kW               4T       4.0 %   News
      KVI AM       570 kHz       5 kW               17       2.6 %   Talk
      KPLZ FM       101.5 MHz       100 kW               20       2.2 %   Hot Adult Contemporary


(1) National Market Rank for Seattle, WA is based on 2006 data from the Arbitron Company.   (2) Rank and station information in the above chart refers to average quarter-hour share of listenership to commercial stations among total persons, age 12+, Monday through Sunday, 6 a.m. to midnight, and is subject to the qualifications listed in each report. Source: Seattle, Washington: Arbitron Radio market Report four-book average — Winter 2006 — Fall 2006. There are 56 radio stations in the Seattle market according to BIA Financial Network, Inc. “T” refers to tie.

Our Seattle radio stations broadcast to a six-county metropolitan population of approximately 3,700,000 with news and entertainment radio services. The 2006 radio revenue for the Seattle-Tacoma Metropolitan Statistical

Area (“MSA”) was estimated to be $208 million, as reported by Miller Kaplan. KOMO (AM), KVI (AM) and KPLZ (FM) have been in operation since 1926, 1926 and 1959, respectively. Since November 2002, KOMO (AM), which utilizes an all news format, has been the flagship station for Seattle Mariners baseball serving 40 network affiliated radio stations in five states. KVI (AM) is the market’s Fox News and Talk radio station with a mix of local and national issue-oriented programming. KPLZ (FM) programs “Hot Adult Contemporary” music with veteran morning personalities Kent Phillips and Alan Budwill.

Effective March 1, 2002, Fisher Broadcasting Seattle Radio LLC entered into a Joint Sales Agreement with classical music station KING FM. Pursuant to the agreement, the licensee of the station, Classic Radio, Inc., retains all operating accountability, while we pay KING FM a flat fee, subject to annual adjustment, and a share of the net revenue generated by the sale of advertising time for the right to sell substantially all the commercial advertising on the station. This agreement was amended during 2006 and the term was extended through June 30, 2011.

Fisher Radio Regional Group

In October 2006, we sold eighteen of our twenty-four small-market radio stations known as Fisher Radio Regional Group with stations located in Montana and Eastern Washington for $26 million. The remaining six small-market radio stations, located in Great Falls, Montana were excluded from this sale of which five continue to be held for sale and the sixth is awaiting FCC approval to complete its sale transaction.

Radio Broadcasting Industry

Commercial radio broadcasting began in the United States in the early 1920s. Only a limited number of frequencies are available for broadcasting in any one geographic area. The FCC grants the license to operate a radio station. Currently, two commercial radio broadcast bands provide free, over-the-air radio service, each of which employs different methods of delivering the radio signal to radio receivers. The AM band (amplitude modulation) consists of frequencies from 530 kHz to 1700 kHz. The FM (frequency modulation) band consists of frequencies from 88.1 MHz to 107.9 MHz.

Radio station revenue is generally affected by the same economic trends and factors as television station revenues, as described in the section entitled “Television Broadcasting Industry” above.

Radio Broadcasting Competition

A small number of companies control a large number of radio stations within the United States. Some of these companies syndicate radio programs or own networks whose programming is aired by our stations. Some of these companies also operate radio stations in markets in which we operate, have greater overall financial resources available for their operations and may control large national networks of radio sales representatives.

Competition in the radio industry, including each of the markets in which our radio stations compete, takes place on several levels: competition for audience, competition for advertisers, competition for programming and competition for staff and management. Additional significant factors affecting a radio station’s competitive position include assigned frequency and signal strength. The radio broadcasting industry is continually faced with technological change and innovation and the possible rise in popularity of competing entertainment and communications media, as well as governmental restrictions or actions of federal regulatory bodies, including the FCC and the Federal Trade Commission, any of which could have a material adverse effect on the broadcasting business.

The FCC has authorized Direct Audio Radio from Satellite (“DARS”) to broadcast over a separate frequency spectrum (the S-Band, between 2.31 and 2.36 GHz). Two companies, XM Satellite Radio, Inc. and Sirius Satellite Radio Inc., are currently offering programming via S-Band satellite channels. Each company offers numerous programming channels on a monthly fee basis. Some of their program channels contain commercial announcements, but they do not currently insert local commercials. Radios capable of receiving these digital signals are available as after-market equipment and in selected new vehicles. While DARS stations are not currently expected to significantly compete for local advertising revenue, they will compete for listenership, and may dilute the overall radio audience. XM currently provides traffic and weather reports into select local markets, including Seattle. XM also rebroadcasts the terrestrial radio broadcasts of Major League Baseball teams, including the Seattle

Mariners. We own the terrestrial radio broadcast rights to the Seattle Mariners and XM Satellite Radio transmits the KOMO-AM fully produced broadcast. Such a rebroadcast may cause decreased listenership for our stations, the loss of regional sales growth opportunities and the loss of local advertisers that may not want their advertisements broadcast on a national scale.

Audience.   Our radio stations compete for audience on the basis of programming popularity, which has a direct effect on advertising rates. As a program or station grows in audience, the station is capable of charging a higher rate for advertising. Formats, stations and music are often researched through large-scale perceptual studies, auditorium-style music tests and weekly call-outs. All are designed to evaluate the distinctions and unique tastes of formats and listeners. New formats and audience niches have created targeted advertising vehicles and programming that are focused to appeal to a narrow segment of the population. Tactical and strategic plans are utilized to attract larger audiences through marketing campaigns and promotions. Marketing campaigns using television, Internet, transit, outdoor, telemarketing or direct mail advertising are designed to improve a station’s cumulative audience (total number of people listening) while promotional tactics such as cash giveaways, trips and prizes are utilized by stations to extend the time spent listening, both of which are intended to establish a station’s share of audience. In the effort to increase audience, the format of a station may be changed. Format changes can result in increased costs and create disruptions that can harm the performance of the station, especially in the time period immediately following a format change. We have experienced this effect in the past.

The proliferation of radio stations and other companies streaming their programming over the Internet has created additional competition for local radio stations, as have “podcasts” which contain programming compilations intended to be recorded on personal audio devices and replayed later. These Internet channels provide further choice for listeners, in addition to the existing over-the-air radio stations and the DARS stations.

Advertising.   Radio advertising rates are based on the number and mix of media outlets, the audience size of the market in which a radio station operates, the total number of listeners the station attracts in a particular demographic group that an advertiser may be targeting, the number of advertisers competing for available time, the demographic make-up of the market served by the station, the availability of alternative advertising media in the market area, the presence of aggressive and knowledgeable sales forces and the development of projects, features and programs that tie advertisers’ messages to programming. Our radio stations compete for revenue primarily with other radio stations and, to a lesser degree, with other advertising media such as television, cable, newspapers, yellow page directories, direct mail, Internet and outdoor and transit advertising. Competition for advertising dollars in the radio broadcasting industry occurs primarily within the individual markets on the basis of the above factors, as well as on the basis of advertising rates charged by competitors. Generally, a radio station in one market area does not compete with stations in other market areas.

Internet and Digital Television

Internet

Technology is impacting the distribution and consumption of traditional broadcast mediums. Developments in digital technology, the Internet, and other interactive media have fundamentally changed the competitive landscape and have created an entirely new way for consumers to experience media. In April 2006, Fisher formed the Fisher Interactive Network to bring together the digital media assets of the company. The following table sets forth selected information about our websites:

         
Station
 
Market Area
 
Website URL
 
KOMO TV
  Seattle-Tacoma, WA   www.komotv.com
KOMO AM
  Seattle-Tacoma, WA   www.komoradio.com
KVI AM
  Seattle-Tacoma, WA   www.570kvi.com
KPLZ FM
  Seattle-Tacoma, WA   www.star1015.com
KATU
  Portland, OR   www.katu.com
KVAL
  Eugene, OR   www.kval.com
KCBY
  Coos Bay, OR   www.kcby.com
KPIC
  Roseburg, OR   www.kpic.com
KIMA
  Yakima, WA   www.kimatv.com
KEPR
  Pasco/Richland/Kennewick, WA   www.keprtv.com
KLEW
  Lewiston, ID   www.klewtv.com
KBCI
  Boise, ID   www.2news.tv
KIDK
  Idaho Falls-Pocatello, ID   www.kidk.com


Competition.   There is no limit to the number of websites that can be created. Individuals as well as multi-national companies can easily enter the Internet business with a limited amount of investment. Some organizations or individuals may have greater financial resources available affording them better access to content, talent, revenue and audience. Competition in the Internet industry, takes place on several levels: competition for audience, competition for advertisers, competition for content and competition for staff and management. Websites are in a state of constant technological advancement and innovation and there is no limit to the number of websites one company or individual can operate. While there are few governmental restrictions on websites, changes from regulatory bodies could have a material adverse effect on the business.

Audience.   Our websites compete for audience on the basis of content, which has a direct effect on advertising rates. As a website grows in Page Impressions, the company is capable of charging a higher rate for advertising. New content and audience features are regularly created to target advertising vehicles and programming that are focused to appeal to a narrow segment of the population. Tactical and strategic plans are utilized to attract larger audiences through marketing campaigns, designed to improve the site’s Page Impressions (total number of people viewing, duplicated).

Advertising.   Internet advertising rates are based on the mix of media outlets in the geo-targeting area, the Page Impressions and Unique Visitors of the website, the ability of the website to target various demographic and psychographic groups, the number of advertisers competing for available inventory, the availability of alternative advertising media in the geo-target area, the presence of aggressive and knowledgeable sales forces and the development of projects and features that tie advertisers’ messages to the content. Our websites compete for revenue with other websites and, to a lesser degree, with other advertising media such as television, radio, cable, newspapers, yellow page directories, direct mail, outdoor and transit advertising. Competition for advertising dollars occurs at the national and local level and is subject to changes in rates generally. While there are no geographic barriers to accessing websites, most news and information based websites serving a local market compete for audience and revenue on a geo-targeted basis.

Digital Television

In the United States, legislation setting the mandatory switch-off of all analog terrestrial TV broadcasts was signed into law in early 2006 and set the final deadline as February 17, 2009. Currently, most U.S. broadcasters are beaming their signals in both analog and digital formats; a few are digital-only.

Competition.   With digital television, broadcasters are not restricted to sending one high-definition picture, but rather a standard-definition picture and multi-cast multiple channels of standard-definition television. Some broadcasters are planning to multi-cast many choices of programming during the day and reduce the number of channels in the evening in order to feed a high-definition signal for prime-time. Digital TV is going to offer more choices, and it is going to make our viewing experience more interactive. Like traditional television channels, competition in digital television will likely take place on several levels: competition for audience, competition for programming (including news), competition for advertisers and competition for local staff and management. Additional factors material to a television station’s competitive position include signal coverage and assigned frequency. Our stations compete for television viewership share against traditional television stations, as well as against cable programming and alternate methods of television program distribution, such as direct broadcast satellite program services. These other transmission methods can increase competition for a station by bringing into its market distant broadcasting signals not otherwise available to the station’s audience, and also by serving as a distribution system for nonbroadcast programming originated on the cable system. To the extent cable operators and broadcasters increase the amount of local news programming, the heightened competition for local news audiences could have a material adverse effect on our advertising revenue. Other sources of competition for Fisher’s digital television stations include home entertainment systems (including video cassette recorder and playback systems, DVD players, digital video recorders and television game devices), Internet websites, wireless cable, satellite master antenna television systems, and program downloads to handheld or other playback devices. Our multicast stations also face competition from direct broadcast satellite services, which transmit programming directly to homes equipped with special receiving antennas or to cable television systems for transmission to their subscribers. We compete with these sources of competition both on the basis of product performance (quality, variety, information and entertainment value of content) and price (the cost to utilize these systems).

Audience.   Digital multicast stations compete for audience on the basis of program popularity, which has a direct effect on advertising rates. Many new multicast networks are forming and during periods of network programming, the stations are totally dependent on the performance of the network programs in attracting viewers.

Programming.   Competition for programming has yet to materialize for multicast stations. Many broadcasters are still looking to quantify the value these multicast signal offer. However, these stations will compete against other multicast stations and traditional broadcast stations, as well as station groups, for exclusive access to programming. Cable system operators generally do not compete with local stations for programming; however, various national cable networks acquire programs that might have otherwise been offered to local television stations.

Advertising.   Most multicast stations have elected to operate like traditional television stations and compete for advertising revenue. Television advertising rates are based on the size of the market in which a station operates, a program’s popularity among the viewers an advertiser wishes to attract in that market, the number of advertisers competing for the available time, the demographic make-up of the market served by the station, the availability of alternative advertising media in the market area, the presence of aggressive and knowledgeable sales forces and the development of projects, features and programs that tie advertiser messages to programming. Our stations compete for advertising revenue with other television stations in their respective markets, as well as with other advertising media, such as newspapers, direct broadcast satellite services, radio, magazines, Internet websites, outdoor advertising, transit advertising, yellow page directories, direct mail and local cable systems. In addition, another source of revenue is paid political and advocacy advertising, the amount of which fluctuates significantly, particularly being higher in national election years and very low in years in which there is little election or other ballot activity. Competition for advertising dollars in the television broadcasting industry occurs primarily within individual markets on the basis of the above factors as well as on the basis of advertising rates charged by competitors. Generally, a television broadcasting station in one market area does not compete with stations in other market areas. Our television stations are located in highly competitive markets.

Federal Regulation

The ownership, operation and sale of broadcast stations are subject to the jurisdiction of the FCC under the Communications Act of 1934, as amended (the “Communications Act”). FCC rules cover many areas of station ownership and operation, including but not limited to allotment of TV and FM channels to particular communities, approval of station operating parameters, issuance, renewal, revocation or modification of licenses, changes in the ownership or control of licensees, regulation of equipment, and the ownership, operation, and employment practices of stations. The FCC has the power to impose penalties, including fines or license revocations, for violations of its rules.

Programming and Operation.   The Communications Act requires broadcasters to serve the “public interest.” Stations must periodically document their presentation of programming responsive to local community problems, needs and interests. Complaints concerning programming may be considered by the FCC at any time. Stations also must follow various laws and rules that regulate, among other things, political advertising, sponsorship identification, the advertisement of contests and lotteries, the quantity of educational and informational programming directed to children, the amount of content of commercials in and adjacent to children’s programming, the advertising of cigarettes or smokeless tobacco, obscene and indecent broadcasts and technical operations.

New Licenses.   TV and FM channels are allotted to particular communities. The FCC may change such allotments from time to time. The FCC periodically accepts applications for authority to construct new TV and FM stations on unused allotted channels. New AM stations are approved based upon a sophisticated engineering demonstrating compliance with the complex technical rules designed to limit interference with existing stations. Auctions are held by the FCC if more than one party files an application for the same unused FM or TV allotment and for any new AM facility. A petition to deny a winning application must be resolved through FCC consideration of the applicant’s qualifications and the application’s compliance with FCC rules.

Assignments and Transfers.   Assignment of a license or transfer of control of a broadcast licensee requires prior FCC consent. An application seeking such consent must be filed with the FCC. Public notice of such filings is provided, and interested parties may petition to deny such applications. The FCC considers the qualifications of the purchaser, the compliance of the transaction with rules, and other factors in order to determine whether the public interest would be served by such change in ownership. An evidentiary hearing may be conducted if there are unresolved substantial and material questions of fact.

License Renewal.   Broadcast licenses initially are issued for a period specified in the license. Broadcast licenses are normally renewed for an eight-year term (subject to short-term renewals in certain circumstances). Licensees seeking renewal must file an application containing certain required information. During the consideration of that application, interested parties may petition to deny the renewal application. The FCC will grant the renewal application and dismiss any petitions to deny if it determines that the licensee meets statutory renewal standards based on a review of the preceding license term. Competing applications for the frequency licensed to the renewal applicant may not be filed unless and until the FCC has determined that the incumbent is not qualified to hold the license.

Failure to observe FCC rules and policies, including, but not limited to, those discussed in this document, can result in the imposition of various sanctions, including monetary forfeitures, the grant of short-term (i.e., less than the full eight years) license renewals or, for particularly egregious violations, the denial of a license renewal application or revocation of a license.

While the vast majority of such licenses are renewed by the FCC, there can be no assurance that our licenses will be renewed at their expiration dates, or, if renewed, that the renewal terms will be for eight years. If a station license is not renewed by the expiration date, the licensee may continue to operate such station until final action is taken on the station’s renewal application.

The expiration date for the licenses of our television stations are as follows:

         
Station
 
Market Area
 
Expiration Date
 
KOMO
  Seattle-Tacoma, WA   February 1, 2007(1)
KUNS
  Seattle-Tacoma, WA   February 1, 2015
KATU
  Portland, OR   February 1, 2007(2)
KUNP
  Portland, OR   February 1, 2015
KUNP LP
  Portland, OR   February 1, 2015
KVAL
  Eugene, OR   February 1, 2007(1)
KCBY
  Eugene, OR   February 1, 2015
KPIC
  Roseburg, OR   February 1, 2015
KIMA
  Yakima, WA   February 1, 2015
KEPR
  Pasco/Richland/Kennewick, WA   February 1, 2015
KLEW
  Lewiston, ID   October 1, 2014
KBCI
  Boise, ID   October 1, 2006(1)
KUNB LP
  Boise, ID   October 1, 2014
KIDK
  Idaho Falls-Pocatello, ID   October 1, 2006(1)
KPPP LP
  Idaho Falls-Pocatello, ID   October 1, 2014


(1) Action on many television license renewal applications, including those of KOMO-TV, KVAL, KIDK-TV and KBCI, has been delayed because of the pendency of complaints that network programming aired by the stations’ networks contained indecent material. Pursuant to FCC rules, we continue to operate these stations pending final action on their license renewal applications. We cannot predict when or how the FCC will address these complaints or act on the renewal applications.   (2) On December 22, 2006, a petition to deny was filed by Oregon Alliance to Reform Media (“OARM”) against KATU and seven other television stations licensed to serve the Portland, Oregon market. OARM argues that the stations each failed to present adequate programming relating to state and local elections during the 2004 election campaign in their news and public affairs programming. Pursuant to FCC rules, we continue to operate KATU pending final action on the KATU license renewal application. We cannot predict when or how the FCC will address this petition or act on the KATU renewal application.

The license terms for all of our Montana radio stations expire on April 1, 2013. The license terms of our radio stations in Washington expire February 1, 2014. The non-renewal or revocation of one or more of our FCC licenses could harm our radio broadcasting operations.

Ownership Restrictions.   Complex FCC regulations limit the “cognizable interest” (also called “attributable interest”) that may be held by a single party. In general, officers, directors, general partners and parties with the power to vote or control the vote of 5% or more of the outstanding voting power of a corporate licensee are considered to hold an “attributable interest” in that entity, although certain passive investors must have a 20% or greater voting interest to be considered to have an “attributable interest.” Also, any party that holds a financial interest (whether equity or debt) in excess of 33% of a licensee’s total capital is “attributable” if such party is either a significant program supplier to the licensee or has another media interest in the same market. In addition, a licensee that provides more than 15% of the programming of another station in the local market is considered to have an attributable interest in that station.

National Television Ownership Limits

FCC rules prohibit a single entity from holding an attributable interest in TV stations that have an aggregate national audience reach exceeding 39% of television households (the “National Television Ownership Limits”). The FCC counts the television households in each Nielsen DMA in which a party has an attributable interest in a television station as a percentage of the total television households in the DMAs. Only 50% of the television households in a DMA are counted toward the 39% national restriction if the owned station is a UHF station.

Local Television Ownership Limits

Detailed FCC rules regulate the extent to which a party may have an attributable interest in more than one full-power TV station in the same area (the “Local Television Ownership Limits”). Common ownership of multiple TV stations is permitted where the stations are in different Nielsen DMAs. Common ownership of two TV stations in the same DMA is permitted where there is no Grade B contour overlap among the stations, where a specified number of separately-owned full-power TV stations will remain after the combination is created, or where certain waiver criteria are met. A party may have attributable interests in both TV and radio stations in the same local market. The specific number of such stations is governed by FCC rules, depending primarily on the number of independent media voices in the market. Low Power Television Stations (LPTVs) are not subject to such limits.

Local Radio Ownership Limits

Similarly, FCC rules regulate the extent to which a party may have an attributable interest in more than one radio station in the same market, as defined by Arbitron, or, in the case of communities outside of Arbitron-rated markets, certain overlapping or intersecting signal contours (the “Local Radio Ownership Limits”). Depending on the size of market, a single entity may have an attributable interest in from two to eight commercial radio stations.

Cross-Ownership Restrictions

A party may have attributable interests in both TV and radio stations in the same local market. The specific number of such stations is governed by FCC rules, depending on the number of independent media voices in the market (the Television-Radio Cross-Ownership Rule”). Depending on the number of independent competitive media outlets in the market, a single entity may own attributable interests from as few as one TV and one radio station in the market to as many as two TV and six radio stations (or one TV and seven radio stations). LPTVs are not considered in determining compliance with such restrictions.

The FCC’s current rules effectively prohibit a radio or television broadcast station to be licensed to an entity that, directly or indirectly, owns, operates or controls a daily English-language newspaper that is published in a community within certain defined signal strength contours of the broadcast station (the “Broadcast-Newspaper Cross-Ownership Rule”). FCC rules limit the ability of an entity to own an attributable interest in broadcast and daily English-language newspapers in the same market.

If an attributable stockholder of the Company has or acquires an attributable interest in other television or radio stations, or in daily newspapers, depending on the size and location of such stations or newspapers, or if a proposed acquisition by us would cause a violation of the FCC’s multiple ownership rules or cross-ownership restrictions, we may be unable to obtain from the FCC one or more authorizations needed to conduct our business and may be unable to obtain FCC consents for certain future acquisitions.

Local Marketing Agreements.   A number of television and radio stations have entered into local marketing agreements (“LMAs”). Such agreements typically permit a third party to provide the programming and sell the advertising time during a substantial portion of the broadcast day of a station, subject to the requirement that the station’s programming content and operations remain at all times under the independent control of the station licensee. At present, FCC rules permit LMAs, but the licensee of a broadcast station brokering more than 15% of the time on another station in the same market is generally considered to have an attributable interest in the brokered station. When the FCC decided to attribute LMAs for ownership purposes, it grandfathered LMAs that were executed prior to November 5, 1996, permitting the applicable stations to continue operations pursuant to the LMAs until the conclusion of the FCC’s 2004 biennial review. The FCC stated that at the conclusion of the 2004 biennial review it would conduct a case-by-case review of grandfathered LMAs and assess the appropriateness of extending the grandfathering period. To date, the FCC has not commenced that review. We cannot predict when or whether the FCC will begin its review of those LMAs.

Joint Sales Agreements.   Some television and radio stations have entered into cooperative arrangements commonly known as joint sales agreements (“JSAs”). Typically these involve the assignment, for a fee, of the right to sell substantially all the commercial advertising on a station. The typical JSA is distinct from an LMA in that a JSA (unlike an LMA) normally does not involve programming. Currently, radio station JSAs involving more than

15% of the advertising of a radio station in the same market are deemed by the FCC to give the broker an attributable interest in the brokered station. We currently broker the sale for advertising time on an FM station in Seattle pursuant to a JSA. While that will result in Fisher being considered to have an attributable interest in that station, such attribution will not cause us to exceed the FCC’s local radio ownership or cross-ownership limitations. In contrast, television stations for which a licensee sells time under a JSA are not deemed by the FCC to be attributable interests of that licensee at this time. An FCC proceeding to extend attribution to television JSAs was initiated in 2004 but remains unresolved.

Biennial Regulatory Reviews.   The FCC concluded its Biennial Regulatory Review of Broadcast Ownership Rules in June, 2003, by adoption of a decision which modified a number of its media ownership limits. Those rules set forth a new radio market definition for the markets measured by Arbitron, based upon geographic areas, rather than signal contours. That decision significantly modified the multiple ownership rules related to television. It modified the National Television Ownership Limits to permit an entity to have a 45% national aggregate audience reach. The new rules modified the Local Television Ownership Rules to permit a single party to have an attributable interest in up to three television stations in certain very large DMAs; and reduced the number of separately-owned full-power TV stations that must exist in a DMA to justify a party holding an attributable interest in two TV stations in the same DMA. The FCC also eased the Television-Radio Cross-Ownership Rules relating to the ownership of interests in both radio and TV stations in the same market, and modified the Broadcast-Newspaper Cross-Ownership Rule to permit common ownership of television stations and newspapers in many markets. The FCC decision adopted rules relating to radio JSAs under which stations for which a licensee sells time would be deemed to be attributable interests of that licensee, and the FCC has undertaken a proceeding whether to establish a similar standard for television JSAs. Legislation adopted in January 2004 lowered the National Television Ownership Limits to 39% national aggregate audience reach. In June 2004, the U.S. Court of Appeals issued a decision upholding portions of the FCC decision, but concluded that the decision failed to adequately support numerous aspects of those rules, including the specific numeric ownership limits adopted by the FCC. The court remanded the matter to the FCC for revision or further justification of the rules, retained jurisdiction over the matter, and maintained its existing stay of the effectiveness of those rules. It subsequently allowed those portions of the new rules relating to radio ownership to go into effect. The U.S. Supreme Court has declined to review the matter. The matter is currently awaiting action at the FCC. This has resulted in a request for and the filing of further comments, and may result in the issuance of a revised order, which will then be subject to further review on appeal. We cannot predict, whether, how or when the new rules will be modified, ultimately implemented as modified or repealed in their entirety.

Omnibus Appropriations Act.   In January 2004, the Fiscal Year 2004 Omnibus Appropriations Act became effective. That law overrides the existing FCC rules and the FCC’s June 2003 decision to modify the National Television Ownership Limits by creating a statutory 39% cap on the national aggregate audience reach by any television licensee.

Alien Ownership.   The Communications Act generally prohibits foreign parties from having a 20% or greater interest in a broadcast licensee entity, or more than a 25% interest in the parent entity of a licensee. We believe that, as presently organized, we comply with the FCC’s foreign ownership restrictions.

Network Affiliate Issues.   FCC rules affect the network-affiliate relationship. Among other things, these rules require network affiliation agreements to (i) prohibit networks from requiring affiliates to clear time previously scheduled for other use, (ii) permit an affiliate to preempt network programs it believes are unsuitable for its audience, and (iii) permit affiliates to substitute programs believed to be of greater local or national importance than network programming. An FCC proceeding to review certain of these rules remains outstanding.

Other Matters.   The FCC has numerous other regulations and policies that affect its licensees, including rules requiring close-captioning to assist television viewing by the physically handicapped, requirements for visual display of emergency information, minimum amounts of television intended for viewing by children, limitations on the amount of advertising within children’s television programming, and equal employment opportunities (“EEO”) rules requiring broadcast licensees to provide equal opportunity in employment to all qualified job applicants and prohibiting discrimination against any person by broadcast stations based on race, color, religion, national origin or gender. The EEO rules also require each station to (i) widely disseminate information concerning its full-time job

vacancies, with limited exceptions, (ii) provide notice of each full-time vacancy to certain recruitment organizations and (iii) periodically complete a certain number of recruitment initiatives. Licensees are also required to collect, submit to the FCC and/or maintain for public inspection extensive documentation regarding a number of aspects of its station operations, including its EEO performance. Other FCC rules prohibit the broadcast of indecent or profane material from 6 a.m. through 10 p.m., local time, and the willful or repeated violation of these rules could result in fines of up to $325,000 per violation, renewal of a station license for less than the normal term, loss of a station’s license to operate, or even criminal penalties.

Cable and satellite carriage of broadcast television signals is also affected by FCC rules. An election is made by TV stations every third year specifying, on a system-by-system basis, whether cable systems “must-carry” their signal on a specific channel, subject to certain limitations set forth in the rules, or whether the system must contract for “retransmission consent” in order to carry their signal. Under the Satellite Home Improvement Act, as amended by the Satellite Home Viewer Extension and Reauthorization Act, satellite carriers are permitted to retransmit a local television station’s signal into its local market with the consent of the local television station. If a satellite carrier elects to carry one local station in a market, the satellite carrier must carry the signals of all local television stations that also request carriage. “Unserved households” which cannot receive the over-the-air signal of a network station with a specified signal strength may be eligible to receive by satellite a “distant signal” of that network which originates outside the local television market.

Proposed Legislation and Regulation.   Congress and the FCC may in the future adopt new laws, regulations and policies regarding a wide variety of matters that could affect, directly or indirectly, the operation and ownership of our broadcast properties. Such matters include, for example, equal employment opportunities regulations, spectrum use fees, political advertising rates, standardized and enhanced public interest disclosure requirements and potential restrictions on the advertising of certain products. Other matters that could affect our broadcast properties include assignment by the FCC of channels for additional broadcast stations or wireless cable systems, as well as technological innovations and developments generally affecting competition in the mass communications industry.

Digital/High Definition Television (“HDTV”)

The Digital Television, or DTV standard, developed after years of research, and approved by the FCC in December 1996, was the breakthrough that made possible the transmission of vast amounts of information in the same size channel (6 MHz) as the current analog standard television system.

DTV brings with it four major changes to the way viewers experience television. First, DTV sets display pictures using a rectangular, wide-screen format, as opposed to the nearly square screens used by current analog TV sets. Because of this screen shape, watching programs on digital TV sets can be similar to watching a movie at the theater, giving more lifelike images and allowing the viewer to feel more involved in the action on screen. Second, DTV can deliver six channels of CD-quality, digital surround sound using the same Dolby Digital technology heard in many movie theaters. Third, DTV can deliver high definition pictures with crisp, photographic quality, and greatly enhanced detail. Fourth, DTV can provide multiple channels that can transmit data and/or “standard definition” pictures equivalent or better than the quality delivered by existing analog transmissions.

The FCC required all commercial television broadcasters to begin transmitting in DTV format by May 1, 2002. The following table sets forth the DTV capabilities for each of our television stations.

                 
        Digital
 		    Currently
        Channel
 		    Broadcasting in
Station
 
Market Area
 
Allocation
   
Digital Format(1)
 
KOMO
  Seattle-Tacoma, WA     38     Yes (HDTV)
KUNS
  Seattle-Tacoma, WA     50     Yes
KATU
  Portland, OR     43     Yes (HDTV)
KUNP
  Portland, OR           No
KUNP LP
  Portland, OR           No
KVAL
  Eugene, OR     25     Yes (HDTV)
KCBY
  Coos Bay, OR     21     Yes
KPIC
  Roseburg, OR     19     Yes
KIMA
  Yakima, WA     33     Yes (HDTV)
KEPR
  Pasco/Richland/Kennewick     18     Yes (HDTV)
KLEW
  Lewiston, ID     32     Yes (HDTV)
KBCI
  Boise, ID     28     Yes (HDTV)
KUNB LP
  Boise, ID           No
KIDK
  Idaho Falls-Pocatello, ID     36     Yes
KPPP LP
  Idaho Falls-Pocatello, ID           No


(1) The FCC set May 1, 2002 as the deadline for initial DTV operations by all full power commercial TV stations. We met that date with respect to each of our stations. We have constructed and commenced operation of stations KOMO-DT, Seattle, KUNS-DT, Bellevue, KATU-DT, Portland, KVAL-DT, Eugene, KCBY-DT, Coos Bay, KPIC-DT, Roseburg, KEPR-DT, Pasco, KBCI-DT, Boise and KIDK-DT, Idaho Falls with digital facilities in compliance with the FCC’s rules pursuant to authorizations issued by the FCC. KIMA-DT, Yakima and KLEW-DT, Lewiston have commenced DTV operations with reduced facilities pursuant to special temporary authority (“STA”) granted by the FCC. KUNP, La Grande was not originally granted a paired DTV channel. None of our low power television stations have been granted a digital companion channel. Pursuant to the FCC’s rules, we were required to have filed either a license application for digital facilities or a request for waiver of the deadline for each of our full power stations by July 7, 2006, or the station would lose interference protection in areas beyond that served on that date. We timely filed waiver requests for KIMA-DT and KLEW-DT, which requests remain pending. Congress recently passed legislation setting a “hard” analog to digital transition date of February 17, 2009. On that date, all analog television stations must cease analog transmissions and operate only using digital technology, and all stations that were given a “paired” channel must cease operation on one channel so that the spectrum may be made available for other use.

The FCC has acknowledged that DTV channel allotment may involve displacement of existing low-power TV stations and translators, particularly in major television markets. Accordingly, translators that rebroadcast our television station signals may be materially adversely affected. Applications were received during the period from June 19-30, 2006, seeking authority to construct paired digital facilities for such low-power television and translator stations; stations which do not receive a paired channel will be permitted to convert directly from analog to digital transmissions in the future

In addition, it is not yet clear when and to what extent DTV will become available through the various media; whether and how TV broadcast stations will be able to avail themselves of or profit by the transition to DTV, the extent of any potential interference, whether viewing audiences will make choices among services upon the basis of such differences, whether and how quickly the viewing public will embrace the new digital TV sets, and to what extent the DTV standard will be compatible with the digital standards adopted by cable and other multi-channel video programming services. On February 10, 2005, the FCC adopted an Order in which it ruled that cable operators are not required to simultaneously carry a television station’s analog and digital signals and that cable operators are

not required to carry more than one digital programming stream from any particular station. We cannot predict whether that Order will be appealed or reconsidered, or whether Congress will adopt legislation on the subject.

The foregoing does not purport to be a complete summary of all of the provisions of the Communications Act, or of the regulations and policies of the FCC thereunder. Proposals for additional or revised regulations and requirements are pending before, and are considered by, Congress and federal regulatory agencies from time to time. We are unable at this time to predict the outcome of any of the pending FCC rulemaking proceedings, the outcome of any reconsideration or appellate proceedings concerning any changes in FCC rules or policies, the possible outcome of any proposed or pending Congressional legislation, or the impact of any of those changes on our broadcast operations.

Excluding revenue derived from seasonal sports rights, the advertising revenue of our stations is generally highest in the second and fourth quarters of each year, due in part to increases in consumer advertising in the spring, and retail advertising in the period leading up to and including the holiday season. In addition, advertising revenue is generally higher during national election years due to spending by political candidates and advocacy groups. This political spending typically is heaviest during the fourth quarter.

Fisher Plaza

Through Fisher Media Services Company, we own and manage Fisher Plaza, a full-block, mixed-use facility located in downtown Seattle that serves as the home of our corporate offices and our Seattle television and radio stations. Fisher Plaza also houses a variety of technology and other media and communications companies as well as office and retail tenants. Fisher Plaza is designed to support the production and distribution of media content through numerous channels, including broadcast, satellite, cable, internet and broadband, as well as other wired and wireless communication systems. Fisher Plaza also houses many companies with complementary needs for the mission critical infrastructure provided at the facility. Major non-Fisher occupants include data center facilities for Internap Network Services, Verizon, Swedish Health Services, Princess Cruise Lines, and Adhost. Fisher provides colocation facilities for InfoSpace, Pacific Software Publishing, Intelius, three banks, a medical technology company and a large Seattle law firm. Office tenants include BioNueronics, Guestware and Rustic Canyon Partners. A total of ten telecommunications providers are resident within the facility. Fisher Plaza’s retail occupants provide a diverse mix of services and include Sport Restaurant, Ironstone Bank, Elaine’s Bridal, Jura Physicians and a variety of food establishments. Fisher Plaza was completed in the summer of 2003 and had a net book value of $118 million at December 31, 2006. We seek to produce a return on our total investment in Fisher Plaza by offering and leasing technology space to companies that complement the vision and capabilities of the facility, as well as using the facility for our Seattle-based operations.

Available Information

Our website address is www.fsci.com. We make available on this website under “Investor Relations — SEC Filings,” free of charge, our code of ethics, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports as soon as reasonably practicable after we electronically file or furnish such materials to the U.S. Securities and Exchange Commission (the “SEC”).

ITEM 1A.    RISK FACTORS

The following risk factors and other information included in this annual report should be carefully considered. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations. If any of the following risks occur, our business, financial condition and future results could be harmed.

We depend on advertising revenues, which fluctuate as a result of a number of factors.

Our main source of revenue is sales of advertising. Our ability to sell advertising depends on many factors, including the following:

  •  the health of the national economy, and particularly the economy of the Northwest region and Seattle, Washington and Portland, Oregon;
 
  •  the popularity of our programming;
 
  •  changes in the makeup of the population in the areas where our stations are located;
 
  •  pricing fluctuations in local and national advertising;
 
  •  the activities of our competitors, including increased competition from other forms of advertising-based mediums, particularly network, cable television, direct satellite television and radio, and the Internet;
 
  •  the use of new services and devices which allow viewers to minimize commercial advertisements, such as satellite radio and personal digital video recorders; and
 
  •  other factors that may be beyond our control.


A decrease in advertising revenue from an adverse change in any of the above factors could negatively affect our operating results and financial condition.

In addition, our results are subject to seasonal fluctuations. Excluding revenue from our Seattle Radio agreement to broadcast Seattle Mariners baseball games during the regular baseball season, seasonal fluctuations typically result in second and fourth quarter broadcasting revenue being greater than first and third quarter broadcasting revenue. This seasonality is primarily attributable to increased consumer advertising in the spring and then increased retail advertising in anticipation of holiday season spending. Furthermore, revenue from political advertising is typically higher in election years. Revenue from broadcasting Seattle Mariners baseball games is greatest in the second and third quarters of each calendar year.

We have incurred losses in the past. We cannot assure you that we will be able to maintain profitability.

We had income from continuing operations before income taxes of $8.9 million in 2006. In 2005, we had a loss from continuing operations before income taxes of $15.7 million, and in 2004 we had a loss from continuing operations before income taxes of $21.3 million. We cannot assure you that our recent improvement in performance or our plans to improve operating performance will be successful or that we will be able to achieve profitability in the future.

Our operating results are dependent on the success of programming aired by our television and radio stations.

Our television advertising revenues are dependent on the success of our news, network and syndicated programming. We make significant commitments to acquire rights to television and radio programs under multi-year agreements. The success of such programs is dependent partly upon unpredictable factors such as audience preferences, competing programming, and the availability of other entertainment activities. If a particular program is not popular in relation to its costs, we may not be able to sell enough advertising to cover the costs of the program. In some instances, we may have to replace or cancel programs before their costs have been fully amortized, resulting in write-offs that increase operating costs. Our Seattle and Portland television stations, which account for approximately three-fourths of our television broadcasting revenue, are affiliated with the ABC Television Network, eight of our television stations are affiliated with the CBS Television Network (including a 50%-owned television station), and the remainder of our television stations are affiliated with Univision or Telefutura, a division of Univision. Weak performance by ABC, a decline in performance by CBS, or a change in performance by other networks or network program suppliers, could harm our business and results of operations.

In May 2002, we acquired the radio broadcast rights for the Seattle Mariners baseball team for a term of six years, beginning with the 2003 baseball season. The success of this programming is dependent on some factors

beyond our control, such as the competitiveness of the Seattle Mariners and the successful marketing of the team by the team’s owners. If the Seattle Mariners fail to maintain a significant fan base, the number of listeners to our radio broadcasts may decrease, which would harm our ability to generate anticipated advertising dollars.

Competition in the broadcasting industry and the rise of alternative entertainment and communications media may result in loss of audience share and advertising revenue by our stations.

Our television and radio stations face intense competition, including competition from the following sources:

  •  local network affiliates and independent stations;
 
  •  cable, direct broadcast satellite and alternative methods of broadcasting brought about by technological advances and innovations, such as pay-per-view and home video and entertainment systems; and
 
  •  other sources of news, information and entertainment, such as streaming video broadcasts over the Internet, podcasting, newspapers, movie theaters and live sporting events.


In addition to competing with other media outlets for audience share, we also compete for advertising revenue that comprises our primary source of revenue. Our stations compete for such advertising revenue with other television and radio stations in their respective markets, as well as with other advertising media such as newspapers, the Internet, magazines, outdoor advertising, transit advertising, yellow page directory, direct mail and local cable systems.

The results of our operations will be dependent upon the ability of each station to compete successfully in its market, and there can be no assurance that any one of our stations will be able to maintain or increase its current audience share or revenue share. To the extent that certain of our competitors have, or may in the future obtain, greater resources, our ability to compete successfully in our broadcasting markets may be impeded.

Because significant portions of our cost of services are relatively fixed, downturns in the economy harm our operations, revenue, cash flow and earnings.

Our operations are concentrated in the Northwest. The Seattle, Washington and Portland, Oregon markets are particularly important for our financial well-being. Operating results over the past several years were adversely impacted by a soft regional economy, and any weak economic conditions in these markets would harm our operations and financial condition. Because significant portions of our costs of services are relatively fixed, we may be unable to materially reduce costs if our revenues decline. If our revenues do not increase or if they decline, we could continue to suffer net losses, or such net losses could increase. In addition, downturns in the national economy or downturns in significant categories of national advertising segments have historically resulted (and may in the future result) in decreased national advertising sales. This could harm our results of operations because national advertising sales represent a significant portion of our television advertising net revenue.

We may experience disruptions in our business if we sell or acquire and integrate new television or radio stations.

As part of our business strategy, we plan to continue to evaluate opportunities to sell or acquire television and radio stations. During 2006, we completed the acquisitions of a full power television station serving the Seattle-Tacoma, Washington television market, a full power television and a low power television station serving the Portland, Oregon market and two Idaho low power television stations. The combined purchase price of $36.3 million was paid through the use of existing cash, borrowing on our $20.0 million revolving line of credit, and proceeds from the sale of 18 small-market radio stations for $26.1 million. If we make acquisitions in the future, we may need to incur more debt or issue more equity securities, and we may incur contingent liabilities and amortization and/or impairment expenses related to intangible assets. Further, we cannot provide assurance that we will find other attractive acquisition candidates or effectively manage the integration of acquired stations into our existing business. If the expected operating efficiencies from acquisitions do not materialize, if we fail to integrate new stations or recently acquired stations into our existing business, if the costs of such integration exceed expectations or if undertaking such sales or acquisitions diverts management’s attention from normal daily

operations of the business, our operating results and financial condition could be harmed. Any of these occurrences could harm our operating results and financial condition.

Radio and television programming revenue may be negatively affected by the cancellation of syndication agreements.

Syndication agreements are licenses to broadcast programs that are produced by production companies. Such programming can form a significant component of a station’s programming schedule. Syndication agreements are subject to cancellation, and such cancellations may affect a station’s programming schedule. We cannot assure you that we will continue to be able to acquire rights to syndicated programs once our current contracts for these programs expire. We may enter into syndication agreements for programs that prove unsuccessful, and our payment commitment may extend until or if the syndicator cancels the program.

Our indebtedness could materially and adversely affect our business and prevent us from fulfilling our obligations under our 8.625% senior notes due 2014

We currently have a substantial amount of debt. Our indebtedness could have a material adverse effect on our business. For example, it could:

  •  increase our vulnerability to general adverse economic and industry conditions or a downturn in our business;
 
  •  reduce the availability of our cash flow to fund working capital, capital expenditures and other general business purposes;
 
  •  reduce the funds available to purchase the rights to television and radio programs;
 
  •  limit our flexibility in planning for, or reacting to, changes in our industries, making us more vulnerable to economic downturns;
 
  •  place us at a competitive disadvantage compared to our competitors that have less debt; and
 
  •  limit our ability to make certain asset dispositions.


If our indebtedness affects our operations in these ways, our business, financial condition, cash flow and results of operations could suffer, making it more difficult for us to satisfy our obligations under the notes. Furthermore, the indenture governing our 8.625% senior notes due 2014 and our senior credit facility may permit us to incur additional debt only if we meet certain financial and other covenants.

The non-renewal or modification of affiliation agreements with major television networks could harm our operating results.

Each of our television stations’ affiliation with one of the major television networks has a significant impact on the composition of the station’s programming, revenue, expenses and operations. Our two largest television stations, KOMO, which broadcasts in Seattle, Washington, and KATU, which broadcasts in Portland, Oregon, have affiliation agreements with ABC into August 2009. In 2006, approximately three-fourths of our television broadcasting revenues (and nearly half of our total revenues) were derived from our ABC affiliated stations. During May 2005, we renewed our affiliation agreements with ABC Television Network, the terms of which included reduced network compensation from ABC. In January 2006, we renewed our affiliation agreements with CBS into February 2016. The terms of our agreements with CBS likewise include reduced network compensation. During November of 2006, we entered into affiliation agreements with Univision for five of our Spanish-language television stations for terms extending into 2011.

If a network acquires a television station in a market in which we own a station affiliated with that network, the network will likely decline to renew the affiliation agreement for our station in that market. The non-renewal or modification of any of the network affiliation agreements could harm our operating results.

Changes in FCC regulations regarding ownership have increased the uncertainty surrounding the competitive position of our stations in the markets we serve.

In June 2003, the FCC amended its multiple ownership rules, including, among other things, its local television ownership limitations, its prohibition on common ownership of newspapers and broadcast stations in the same market, as well as its local radio ownership limitations. Under the amended rules, a single entity would be permitted to own up to three television stations in a single market, to own more than one television station in markets with fewer independently owned stations, and the rules would allow consolidated newspaper and broadcast ownership and operation in several of our markets. The new radio multiple ownership rules could limit our ability to acquire additional radio stations in existing markets that we serve. The effectiveness of these new rules was stayed pending appeal. In June 2004, a federal court of appeals issued a decision which upheld portions of the FCC decision adopting the rules, but concluded that the order failed to adequately support numerous aspects of those rules, including the specific numeric ownership limits adopted by the FCC. The court remanded the matter to the FCC for revision or further justification of the rules, retaining jurisdiction over the matter. The court has partially maintained its stay of the effectiveness of those rules, particularly as they relate to television. The rules are now largely in effect as they relate to radio. The Supreme Court has declined to review the matter at this time, and the FCC must review the matter and issue a revised order. We cannot predict whether, how or when the new rules will be modified, ultimately implemented as modified, or repealed in their entirety.

Legislation went into effect in January 2004 that permits a single entity to own television stations serving up to 39% of U.S. television households, an increase over the previous 35% cap. Large broadcast groups may take advantage of this law to expand further their ownership interests on a national basis.

We expect that the consolidation of ownership of broadcasting and newspapers in the hands of a smaller number of competitors would intensify the competition in our markets.

The FCC’s extensive regulation of the broadcasting industry limits our ability to own and operate television and radio stations and other media outlets.

The broadcasting industry is subject to extensive regulation by the FCC under the Communications Act of 1934, as amended. Compliance with and the effects of existing and future regulations could have a material adverse impact on us. Issuance, renewal or transfer of broadcast station operating licenses requires FCC approval, and we cannot operate our stations without FCC licenses. Some of our television FCC licenses expired in 2006 and 2007, and we continue to operate those stations while license renewal applications for these stations remain pending; others will expire in 2014 and 2015. Our radio station FCC licenses expire in 2013 and 2014. Failure to observe FCC rules and policies can result in the imposition of various sanctions, including monetary forfeitures, the grant of short-term (i.e., less than the full eight years) license renewals or, for particularly egregious violations, the denial of a license renewal application or revocation of a license. While the majority of such licenses are renewed by the FCC, we cannot assure you that our licenses will be renewed at their expiration dates, or, if renewed, that the renewal terms will be for eight years. If the FCC decides to include conditions or qualifications in any of our licenses, we may be limited in the manner in which we may operate the affected stations.

On December 22, 2006, a petition to deny was filed by Oregon Alliance to Reform Media (“OARM”) against KATU and seven other television stations licensed to serve the Portland, Oregon market. OARM argues that the stations each failed to present adequate programming relating to state and local elections during the 2004 election campaign in their news and public affairs programming. In conformity with FCC rules, we continue to operate KATU pending final action on the KATU license renewal application. We cannot predict when or how the FCC will address this petition or act on the KATU renewal application.

Action on many television license renewal applications, including those of KOMO-TV, KVAL, KIDK-TV and KBCI, has been delayed because of the pendency of complaints that network programming aired by the stations’ networks contained indecent material. In conformity with FCC rules, we continue to operate these stations pending final action on their license renewal applications. We cannot predict when or how the FCC will address these complaints or act on the renewal applications.

The Communications Act and FCC rules impose specific limits on the number of stations and other media outlets an entity can own in a single market. The FCC attributes interests held by, among others, such entity’s officers, directors, certain stockholders, and in some circumstances, lenders, to that entity for purposes of applying these ownership limitations. The ownership rules may prevent us from acquiring additional stations in a particular market. We may also be prevented from engaging in a swap transaction if the swap would cause the other company to violate these rules. We may also be prevented from implementing certain joint operations with competitors which might make the operation of our stations more efficient. Federal legislation and FCC rules have changed significantly in recent years and can be expected to continue to change. These changes may limit our ability to conduct our business in ways that we believe would be advantageous and may thereby affect our operating results.

We will be required to make additional investments in HDTV technology, which could harm our ability to fund other operations or repay debt.

Although most of our full power television stations currently comply with FCC rules requiring such stations to broadcast in high definition television (“HDTV”), our Yakima and Lewiston stations do not, because they are operating pursuant to special temporary authorizations issued by the FCC to utilize low power digital facilities. In addition, KUNP is not broadcasting in digital because it was not granted a digital channel by the FCC. The FCC’s rules require that full power television licensees that have been granted digital channels have constructed and filed license applications for their digital facilities or have requested a waiver of the deadline by July 7, 2006, or they will lose interference protection for their digital channel. Moreover, it is possible that some of our stations will be required or will elect to operate with increased power at the end of the digital transition. These additional digital broadcasting investments by some of our stations could result in less cash being available to fund other aspects of our business. The FCC has adopted a multi-step channel election and repacking process through which broadcast licenses and permittees will select their ultimate DTV channel. The process is currently underway, and we have been granted permanent digital channels for each of our stations except KUNP, for which our channel request remains pending. We are unable to predict at this time whether our channel request for KUNP will be granted or which DTV channel we will be able to obtain through this process.

We may lose audience share and advertising revenue if we are unable to reach agreement with cable and satellite companies regarding the retransmission of signals of our television stations.

By October 1, 2005, each of our television stations sent notices to cable systems in their market electing must-carry or retransmission consent status for the period from January 1, 2006 through December 31, 2008. Stations electing must-carry may require carriage of their signal on certain channels on cable systems within their market, whereas cable companies are prohibited from carrying the signals of stations electing retransmission consent unless an agreement between the station and the cable provider has been negotiated. We have elected must-carry for some stations in certain markets for the election period ending December 31, 2008. We have elected retransmission consent status with respect to a number of key cable systems.

Some of our television stations are located in markets in which direct-to-home satellite operators are distributing local television signals to their subscribers (“local into local”). Television stations in such markets had the opportunity to elect must-carry status by sending written elections to such satellite operators by October 1, 2005. Stations not sending such elections automatically elect retransmission consent status, in which case the satellite operator may not retransmit that station’s signal without the permission of the station after January 1, 2006. Our stations in “local into local” markets are presently being carried by both major direct-to-home satellite operators pursuant to existing retransmission consent agreements, one of which will expire December 17, 2008, and the other on May 31, 2009. Failure to reach agreement with the relevant satellite operators prior to the expiration of the existing contracts may harm our business. There is no assurance that we will be able to agree on terms acceptable to us prior to contract expiration dates.

Dependence on key personnel may expose us to additional risks.

Our business is dependent on the performance of certain key employees, including executive officers and senior operational personnel. We do not enter into employment agreements with all of our key executive officers and senior operational personnel. We also employ several on-air personalities who have significant loyal audiences

in their respective markets, with whom we have entered into employment agreements. We cannot assure you that all such key personnel or on-air personalities will remain with us or that our on-air personalities will renew their contracts. The loss of any key personnel could harm our operations and financial results.

A reduction on the periodic dividend on the common stock of Safeco Corporation may adversely affect our other income, cash flow and earnings. A reduction in the share price of Safeco Corporation may adversely affect our total assets and stockholders’ equity.

We own approximately 3.0 million shares of the common stock of Safeco Corporation, which, at December 31, 2006, represented 38% of our assets and approximately 51% of our stockholders’ equity (the appreciation in Safeco stock is presented, after estimated taxes, as “unrealized gain on marketable securities” within stockholders’ equity). Our investment in Safeco Corporation provided $3.3 million in dividend income in 2006, $2.8 million in 2005, and $2.3 million in 2004. If Safeco Corporation reduces its periodic dividends, it will negatively affect our cash flow and earnings.

Failure of our information technology systems would disrupt our operations, which could reduce our customer base and result in lost revenue. Our computer systems are vulnerable to viruses, unauthorized tampering, system failures and potential obsolescence.

Our operations depend on the continued and uninterrupted performance of our information technology systems. Despite our implementation of network security measures, our servers and computer systems are vulnerable to computer viruses, break-ins, and similar disruptions from unauthorized tampering with our computer systems. Our computer systems are also subject to potential system failures and obsolescence. Any of these events could cause system interruption, delays and loss of critical data that would adversely affect our reputation and result in a loss of customers. Our recovery planning may not be sufficient for all eventualities.

Our ownership and operation of Fisher Plaza is subject to risks, including those relating to the economic climate, local real estate conditions, potential inability to provide adequate management, maintenance and insurance, potential collection problems, reliance on significant tenants, and regulatory risks.

Revenue and operating income from, and the value of, Fisher Plaza may be adversely affected by the general economic climate, the Seattle economic climate and real estate conditions, including prospective tenants’ perceptions of attractiveness of the property and the availability of space in other competing properties. In addition, the economic conditions in the telecommunications and high-tech sectors may significantly affect our ability to attract tenants to Fisher Plaza, since space at Fisher Plaza is marketed in significant part to organizations from these sectors. Other risks relating to the operation of Fisher Plaza include the potential inability to provide adequate management, maintenance and insurance, and the potential inability to collect rent, due to bankruptcy or insolvency of tenants or otherwise. Real estate income and values may also be adversely affected by such factors as applicable laws and regulations, including tax and environmental laws, interest rate levels and the availability of financing. We carry comprehensive liability, fire, extended coverage and rent loss insurance with respect to Fisher Plaza. There are, however, certain losses that may be either uninsurable, not economically insurable, or in excess of our current insurance coverage limits. If an uninsured loss occurs with respect to Fisher Plaza, it could harm our operating results.

We are subject to the ongoing internal control provisions of Section 404 of the Sarbanes-Oxley Act of 2002. Material weaknesses in internal control over financial reporting, if identified in future periods, could indicate a lack of proper controls to generate accurate financial statements.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 and related SEC rules, we are required to furnish a report of management’s assessment of the effectiveness of our internal control over financial reporting as part of our Annual Report on Form 10-K. Our independent registered public accountants are required to audit and report on management’s assessment, as well as provide a separate opinion on their evaluation of our internal controls over financial reporting. To issue our report, we document our internal control design and the testing processes that support our evaluation and conclusion, and then we test and evaluate the results. There can be no assurance, however, that we will be able to remediate material weaknesses, if any, that may be identified in future periods, or

maintain all of the controls necessary for continued compliance. We have in the past discovered, and may in the future discover, areas of our internal control over financial reporting that need improvement. If we or our independent registered public accountants discover a material weakness, the disclosure of that fact, even if quickly remedied, could reduce the market’s confidence in our financial statements and harm our stock price. We may not be able to effectively and timely implement necessary control changes and employee training to ensure continued compliance with Section 404 of the Sarbanes-Oxley Act and other regulatory and reporting requirements. There likewise can be no assurance that we will be able to retain sufficient skilled finance and accounting personnel, especially in light of the increased demand for such personnel among publicly traded companies.

Our operations may be adversely affected by earthquakes and other natural catastrophes in the Northwest.

Our corporate headquarters and all of our operations are located in the Northwest. The Northwest has from time to time experienced earthquakes and experienced a significant earthquake on February 28, 2001. We do not know the ultimate impact on our operations of being located near major earthquake faults, but an earthquake could harm our operating results. Our broadcasting towers may also be affected by other natural catastrophes, such as forest fires. Our insurance coverage may not be adequate to cover the losses and interruptions caused by earthquakes or other natural catastrophes.

A write-down of goodwill or intangible assets would harm our operating results.

Approximately $74 million, or 15% of our total assets as of December 31, 2006, consists of goodwill and intangible assets. Goodwill and intangible assets are tested at the reporting unit level annually or whenever events or circumstances occur indicating that goodwill or intangible assets might be impaired. If impairment is indicated as a result of future evaluations, we would record an impairment charge in accordance with accounting rules.

Foreign hostilities and terrorist attacks may affect our revenue and results of operations.

Terrorist attacks and foreign hostilities cause regularly scheduled programming to be pre-empted by commercial-free network news coverage of these events, which would result in lost advertising revenue. In the future, we may experience a loss of advertising revenue and incur additional broadcasting expenses in the event that there is a terrorist attack against the United States or if the United States engages in foreign hostilities. As a result, advertising may not be aired, and the revenue for the advertising on such days would be lost, adversely affecting our results of operations for the period in which this occurs. In addition, there can be no assurance that advertisers will agree to run such advertising in future time periods or that space will be available for such advertising. We cannot predict the duration of such pre-emption of local programming if it occurs. In addition, our broadcasting stations may incur additional expenses as a result of expanded local news coverage of the local impact of a war or terrorist attack. The loss of revenue and increased expenses could harm our results of operations.

ITEM 1B.    UNRESOLVED STAFF COMMENTS

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