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Headline Media narrows losses

Toronto, - Operating results and net loss for the first quarter of fiscal 2003 at Headline Media Group, owners of analog sports channel The Score and digital gay and lesbian service PrideVision TV, showed some improvement.

However, if the company can not negotiate new agreements with lenders, sell all or a part of itself or find strategic partners, it's future appears cloudy.

For the quarter ended November 30, 2002, loss before interest, taxes, depreciation and amortization was $2 million, as compared to a loss of $5.7 million in the same period last year.

Total consolidated revenue for the first quarter increased 2.5% to $8.2 million.

In the broadcasting group, revenue increased by 13.1% to $5.9 million in the quarter. Advertising revenue was up 5.1%, primarily reflecting an increase in advertising revenue for The Score as a result of continued audience growth and improved ratings, says the company's release.

Subscriber revenue increased by 36.5% over the same quarter last year to $1.8 million due to increased subscriber rates for The Score on renewed distribution contracts. As of November 30, 2002, The Score had 5.2 million paying subscribers.

PrideVision TV generated $200,000 in subscriber revenue during the quarter and the channel had approximately 21,000 paying subscribers at the end of November 2002.

Operating expenses in the broadcast group were down 26% to $7.3 million in Q1, thanks to the termination of the rights agreement with Major League Baseball.

Operating expenses for PrideVision were $1.9 million in the quarter, compared to $2.5 million in the prior year due to lower program rights and other operating costs due to the implementation of cost reduction initiatives.

Loss before interest, taxes, depreciation and amortization for the first quarter was $1.4 million versus $4.6 million in the prior year.

Most of the rest of Headline Media's results are comprised of its sports and entertainment marketing group, which posted a modest loss in the quarter.

The company's quarterly report issued a further warning that it is still searching for new funding or partners, saying it must find new money before the end of the fiscal year, August 31, 2003.

"During 2002 and continuing into fiscal 2003, the company has introduced significant cost cutting measures to preserve cash and to strategically realign the company's resources," says HMG's release. "Beyond fiscal 2003, the company will require additional funding in order to continue operations and service the commitments under significant agreements.

"The company's successful execution of its business plan is dependant upon a number of factors that involve risks and uncertainty. In particular, revenues in the specialty television industry, including subscription and advertising revenues, are dependant upon audience acceptance, which cannot be accurately predicted.

"In addition, the distribution of the company's specialty television channel PrideVision TV is limited to digital subscribers. While management expects the digital television market will continue to grow and that the number of subscribers to the service will increase, the rate and extent to which this subscriber base will grow is uncertain. Initial consumer acceptance is encouraging, however, it remains uncertain that the penetration rates required to ensure profitability will be achieved.

The company is actively pursuing alternative financing with potential lenders and investors, which if successful, will, in management's view, enable the company to achieve its business plans in the long-term. No agreements with potential lenders or investors have been reached yet and there can be no assurance that such agreements will be reached.

"In addition, the company continues to review other alternatives, which could involve renegotiating existing cash commitments, further reducing its work force, a further restructuring of the business units which may include the divestiture of certain assets of the company, or attracting a strategic investor that would assist in developing the business of the company.

One of its current partners, 32% owner Alliance Atlantis, recently said it is reviewing the value of its Headline Media Investment. "As a result of recent developments at Headline Media Group Inc. (HMG), Alliance Atlantis Communications today announced that it is reviewing the value at which its 32% interest in HMG is carried on the books of Alliance Atlantis Communications. The current carrying value of this investment is $27.325 million. Alliance Atlantis will announce the results of this review as soon as it is completed which will in any event be no later than the time of the public release of Alliance Atlantis' third quarter financial results," said an Alliance Atlantis release issued last week.

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