President's Letter
Annual Report 2007

“It was the best of times, it was the worst of times; it was the age of wisdom, it was the age of foolishness; it was the epoch of belief, it was the epoch of incredulity; it was the season of Light, it was the season of Darkness; it was the spring of hope, it was the winter of despair; we had everything before us, we had nothing before us; we were all going directly to Heaven, we were all going the other way.”

Somehow, starting out with a classic quote from Charles Dickens seems appropriate for this year’s letter to our shareholders. Much has been written in broadcast trade publications about the differences in operating and selling in major markets versus smaller markets. In today’s economic climate, it is far more challenging to operate in larger markets, while our smaller markets continue to perform very well.

Quality has traditionally been the hallmark of good broadcasting. In major markets, however, the broadcast industry has become very transactional with little regard for quality. Selling in these markets has been reduced to sales rates, packaging stations, and value added promotions. In our smaller markets, we continue to do well because our sales are based on the relationships we have with our clients. We operate with the adage that, “If we don’t deliver results, then we are not doing our job.” We work hard to deliver and enjoy repeat business from clients who know that advertising on Saga stations delivers clients and sales results.

With this said, we are not wringing our hands and joining a Greek chorus shouting “woe, woe.” We are working diligently to deliver the message to our fellow broadcasters that we must restore the pride in major markets and restore the professionalism in selling.

Walt Kelly, the creator of the comic strip “Pogo,” had another quote that I want to share: “We have met the enemy and he is us.”

We can’t blame advertising agencies for taking advantage of us. Their job is to negotiate the best rates for their clients.

In fact, more national commercials were sold in 2007 than in 2006 (this from a report by Katz Media) but the dollar amount was less. Eventually our industry will realize that it cannot feast upon itself and, when that happens, we will return to a more rational sense of operations. Currently we are in the epic of incredulity.

Coupled with the above is the fact that we have an economy that is giving consumers pause. Historically our industry is more recession resistant than other media. Good businesses realize that, in soft times, choosing not to advertise is a self fulfilling prophecy of declining sales.

I have worked through difficult times before in my forty plus years in broadcasting. Every time, despite paradigm shifts and new technologies, radio and television have survived and continued to serve the public.

It is all about attitude. Trey Stafford, the President of our Triple FM radio group in Jonesboro, Arkansas, had a soft 2007. So far in 2008, he is setting a new record. I asked him why and his response was simple, “We tried a recession in Jonesboro in 2007 and didn’t like it.” At our five radio station group in Ithaca, New York, our market manager Susan Johnston was asked if she was seeing any signs of a recession there. She replied, “We never mention the word. We never discuss it. We only focus on ways of improving the businesses of our advertisers.”

This attitude is prevalent throughout Saga and why our 2007 performance still gives us much to be proud of.

What we have going for us is first and foremost our localism. We touch lives. People depend on their local radio and TV stations. We have a public trust that we embrace. It is a simple formula -- do creative things to serve the local public and people will watch and listen. If they do, you can sell advertising with confidence and the assurance that it can and will work.

Last year we continued our commitment to all of the communities that we serve. In Des Moines, IA our station LITE 104.1 sponsored the Festival of Trees and Lights. Over 20,000 people attended raising over $400,000 in donations for the Blank Children’s Hospital. Also in Des Moines, KIOA continued their work with the Shoes that Fit program. The program provides shoes and clothing to children in need. Over the years, KIOA’s involvement in this program has helped 28,800 children attend school with comfort and dignity.

Bob Washel, Executive Director of the Buncombe County Schools Foundation in Asheville, NC, writes, “I am writing this letter in support of the tremendous job Asheville Radio Group has done in support of our organization. I have made numerous requests of the station to donate airtime, prizes and employee time for our fundraising events. Each time that I asked I was met with a hardy ’No problem.’ The best part is that the members of the stations are true to their word – a value that isn’t necessarily the norm in today’s society.”

The Greater Keene Chamber of Commerce awarded our Monadnock Radio Group in Keene, NH their Business of the Year Award, “in recognition of the group’s outstanding contributions to the economic strength, community health and social well-being of the Greater Keene Area.”

In Milwaukee, Dave and Carol’s Miracle Marathon raised $1.4 million for the second straight year for the Children’s Hospital of Wisconsin. Additionally, our stations in Columbus, OH and Springfield, IL continued their efforts on behalf of their local children’s hospitals raising $320,000 and $94,000, respectively.

Finally, Saga as a whole, in various efforts, collected over 650,000 pounds of food for their local food banks and feed the hungry programs.

Here now is a brief review of our financial performance for 2007. Net operating revenue increased 0.8% to $144.0 million and free cash flow increased 0.2% to $16.1 million. Excluding political revenue, net operating revenue increased 2.3% for the period. During the year we used $4 million of our free cash flow to pay down debt. Additionally, we bought back a little of our stock. Since inception of our buy back plan, we have repurchased a total of 2,041,540 shares of stock (as of February 14, 2008).

During 2007 we added several complementary stations. We closed on the addition of WIII FM serving Ithaca, NY and WCLZ FM, which is now our fourth FM in Portland, ME. We began broadcasting on WTMT FM in Asheville, NC adding it to our cluster of 2 AM and 1 FM stations. We continue to look for opportunities that are both rationally priced and additive to our strategic plan.

All of us at Saga continue to embrace quality radio and television. Although we are watching our expenses, gaining efficiencies, and continuing to reduce expenses where possible, we do not believe that we can markedly reduce our expenses without affecting performance. We have challenged our managers to be operationally efficient with their stations.

We take very seriously the challenges we face in our major markets. We are intensely focused on the Norfolk and Columbus markets and have developed strategies to advance their sales.

Yes, there are challenges. There are also opportunities. As a very conservatively financed company, we are poised to take advantage of those opportunities.

There are a lot of dynamics at work in both radio and television today. Local radio and television are the fiber of American towns. This will not change.

I am confident in the future of Saga. John Adams said it best, “Patience and perseverance have a magical effect before which difficulties disappear and obstacles vanish.” This malaise too shall pass.

I have concluded my annual letter each year with the open invitation to any shareholder to visit and experience Saga first hand at any of our radio stations, TV stations, or radio networks. This year is no different. At the front of our annual report is a list of our local managers. Call them, learn from them, and see for yourself why Saga stands above the fray.

Edward K. Christian
Chairman, President/CEO