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UNITED STATES

Form 10-K

Commission File Number 333-96619

Block Communications, Inc.

(419) 724-6257

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

      Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for past 90 days.  Yes þ     No o

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  þ

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).  Yes o     No þ

      There is no public market for the registrant’s common equity, all of which is held by members of the Block family.

      As of March 24, 2004, there were outstanding 29,400 shares of the registrant’s Voting Common Stock and 428,613 shares of its Non-voting Common Stock.

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Forward-Looking Statements

      This Annual Report on Form 10-K includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, including statements regarding industry prospects and future results of operations or financial position, made in this Annual Report on Form 10-K are forward looking. We use words such as anticipates, believes, expects, future, intends and similar expressions to identify forward-looking statements. Forward-looking statements reflect management’s current expectations and are inherently uncertain. Our actual results may differ significantly from management’s expectations. Risks and uncertainties that could cause our actual results to differ significantly from management’s expectations are described in greater detail in “Factors That Could Affect Future Results” set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 in this report.

Industry and Market Data

      In this report, we rely on and refer to information regarding the cable television, newspaper publishing and television broadcasting industries and our market share in the sectors in which we compete. We obtained this information from various industry publications, other publicly available information, market research and our own internal surveys and estimates. Industry publications generally state that the information therein has been obtained from sources believed to be reliable, but that the accuracy and completeness of the information has not been independently verified and is not guaranteed. Similarly, other publicly available information, market research and our own internal surveys and estimates, while believed to be reliable, have not been independently verified, and we make no representation as to the accuracy or completeness of such information.

      Throughout this document, circulation data for the Pittsburgh Post-Gazette is based on average paid circulation for the twelve months ended March 31, 2001, 2002 and 2003, and circulation data for The Blade is based on average paid circulation for the twelve months ended September 30, 2001, 2002 and 2003, in each case as set forth in the Audit Bureau of Circulations (“ABC”) Audit Report for such period.

      There are 210 generally recognized television markets, known as Designated Market Areas, or DMAs, in the United States. DMAs are ranked in size according to various factors based upon actual or potential audience. DMA rankings in this report are from the Nielsen Media Research dated November 2003 as estimated by the A.C. Nielsen Company.

PART I

      We are a privately held diversified media company with our primary operations in cable television, newspaper publishing and television broadcasting. We provide cable television service to the greater Toledo, Ohio metropolitan area (Buckeye CableSystem) and the Sandusky, Ohio area (Erie County CableSystem). At December 31, 2003, we had approximately 149,000 subscribers. Our primary cable system located in the greater Toledo metropolitan area serves approximately 131,000 subscribers. This system is 100% rebuilt to 870 MHz and is served by a single headend. Our Toledo system is one of the largest privately owned urban cable systems in the United States. It is also one of the largest urban cable systems not owned or controlled by one of the biggest multiple system operators. We publish two daily metropolitan newspapers, the Pittsburgh Post-Gazette in Pittsburgh, Pennsylvania and The Blade in Toledo, each of which is the dominant publication in its market. The combined daily and Sunday average paid circulation of our two newspapers is approximately 384,600 and 593,850, respectively. We also own and operate four television stations: two in Louisville, Kentucky, and one each in Boise, Idaho and Lima, Ohio, and we are a two-thirds owner of a television station in Decatur, Illinois. For the year ended December 31, 2003, we had revenues, operating income, and a net loss of $420.1 million, $8.1 million, and $40.6 million, respectively.

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      Our shareholders, the Block family, have been in the media business for over 100 years. In 1926, the Block family acquired the first of the Company’s current holdings, The Blade, which was first published in 1835. We expanded our portfolio of newspapers in 1927 when we became the publisher of the Pittsburgh Post-Gazette. In 1965, we were awarded a franchise in Toledo to develop our cable system, which, with over 37 years of operating history, is one of the oldest continuously owned metropolitan cable systems in the United States. In 1972, we acquired the first of our current television broadcasting stations when we purchased WLIO in Lima.

      We have an experienced management team and are focused on improving the competitive position of our media properties as well as maximizing synergies between our cable television and newspaper publishing segments. In particular, we seek to capitalize upon our dominance of the cable and newspaper businesses in Toledo — a unique cross-ownership position for an urban market. We make extensive use of our newspaper and cable system to cross-promote our businesses at very low incremental costs. We can also offer advertisers multiple-media advertising strategies including newspaper, cable and Internet. The knowledge of our customers and markets gained from our various businesses enables us to identify our customers’ needs and tailor solutions to meet their business objectives.

      Our principal offices are located at 541 N. Superior Street, Toledo, Ohio 43660, and our telephone number is (419) 724-6257.

      Copies of this filing may be obtained at no charge by contacting Jodi Miehls at the above address.

Cable Television

      We provide cable television service to the greater Toledo metropolitan area (Buckeye CableSystem or the Toledo system) and the Sandusky, Ohio area (Erie County CableSystem). In addition to traditional cable television service, we also provide high-speed cable modem Internet access and digital cable service in both systems. Our cable television operations generated revenues and operating income of $109.5 million and $9.0 million, respectively, in the year ended December 31, 2003.

      In 1997, we began the rebuild of Buckeye CableSystem from a one-way coaxial cable plant to an 870 MHz hybrid fiber coaxial (HFC) two-way interactive system. We have completed the rebuild of the cable system’s distribution plant and have converted Buckeye’s cable customers to the new system. The rebuild allows Buckeye to provide advanced cable services that we believe will help us maintain our dominant position in the greater Toledo metropolitan area. These services currently include up to 282 analog and digital video and digital music channels, high-speed Internet and high-definition digital television service. In 2004, the systems will offer video-on-demand, subscription video-on-demand, and digital video recording service.

      On March 29, 2002, we completed an asset exchange with Comcast Corp. involving the exchange of our cable system in Monroe, Michigan, a lower growth area approximately 15 miles north of Toledo, for Comcast’s system in Bedford, Michigan, a Toledo suburb, plus a cash payment to us of $12.1 million. The exchange enabled us to expand our subscriber base in a contiguous high-growth suburban area we already partially served and increase the efficiency of our cable cluster by reducing the number of our headends from three to two.

      We are pursuing the following cable television strategies:

      Operate Highly Advanced and Efficient Cable Networks. We invested approximately $89 million to rebuild the Toledo system to 870 MHz. Our rebuilt system allows us to offer higher margin advanced services, such as high-speed two-way cable modem and digital television. The rebuild also increased channel capacity to our current 282 analog and digital video and digital music channels, which can be significantly expanded by recapturing some of our 91 analog channels and converting them to digital channels. While most cable system operators have chosen to upgrade their systems to 750 MHz, we invested in the increased bandwidth, which provides additional capacity for future services.

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      All of our Toledo system subscribers are served by our advanced 870 MHz system from a single headend. In addition, our Toledo headend serves our Erie County system through a fiber interconnection. A rebuild of our Erie County system began in 2003 and approximately 26% of the subscribers were converted as of year end. Completion of the Erie County system rebuild will enable us to serve 100% of our subscribers from a single headend. While these systems were initially designed to support 500 homes per fiber node, our cable systems can easily be divided to an average of 125 homes per fiber node when demand warrants. This allows us to efficiently increase subscribers and provide additional advanced services without sacrificing system performance or reliability.

      Offer Local Cable Exclusive Programming. Since 1989, Buckeye CableSystem has provided its customers with a locally programmed channel, TV5, which is run in the same manner as a broadcast station- obtaining its own programming through syndications. In 1995, TV5 became the exclusive market affiliate for the WB Network, the first cable channel in the country to be so designated.

      In January 2004, Buckeye launched Buckeye Cable Sports Network (BCSN), a 24-hour per day, locally produced channel for local sports. BCSN covers men and women’s high-school, college, professional and amateur sports, mainly from the Northwest Ohio area on a live and tape-delayed basis. Buckeye believes these locally controlled and programmed channels offer a competitive advantage over other multichannel video competitors.

      Utilize Significant Marketing Power. Buckeye CableSystem benefits from our dominant position as a multi-media provider in the greater Toledo metropolitan area. We believe we are the only urban cable operator in the United States with cross-ownership of the primary newspaper in its market. The Blade provides fill-in advertising space to market our cable services and to promote our brand awareness at a very low incremental cost. We advertise our services on BCSN and 38 other cable channels — over 10,000 spots per month in 2003 — providing us an additional low-cost advertising source. We use these marketing resources to promote existing services, enhance the introduction and roll-out of new services, and build a strong competitive barrier.

      Roll-out Advanced Services. Our investment in our cable systems’ state-of-the-art cable network combined with our significant marketing power positions us to successfully roll out advanced services and further increase our revenue per subscriber. Digital cable customers exceeded 38,000 at December 31, 2003, a growth of nearly 12,000 customers during the twelve month period. In addition, Buckeye CableSystem launched high-definition digital television service in 2003 and has launched video-on-demand and subscription video-on-demand service in the first quarter of 2004.

      Maintain Superior Customer Satisfaction. Our Service TV® brand embodies our total commitment to providing superior cable television service, which has resulted in high levels of customer satisfaction and retention. We strive to provide exceptional programming and signal quality, and we continuously monitor our fiber nodes and power supplies to maintain a highly reliable cable system. We also operate a call center with customer relations representatives available around the clock, maintain convenient customer service locations and offer next day, two-hour appointment windows for installation or in-home repairs. We believe our superior customer service, along with our state-of-the art cable system, provide a significant defensive measure against direct broadcast satellite (DBS) operators and have in part contributed to DBS’s relatively low penetration rate in Toledo.

      We offer our customers traditional cable television services and programming as well as new and advanced high bandwidth services currently consisting of high-speed Internet access, digital cable service, and high-definition digital television service. We plan to continue to enhance these services by adding new programming, digital video recording service, and other advanced services as they are developed, as well as expansion of our video-on-demand and subscription video-on-demand products.

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      Our basic channel line-up and additional channel offerings for each system are designed according to demographics, programming preferences, channel capacity, competition and price sensitivity. Our core cable television service offerings include the following:

      Limited Basic Service. Our limited basic service includes, for a monthly fee, local broadcast channels, including network and independent stations, limited satellite-delivered programming, local public, government, and leased access channels. In addition, our Buckeye CableSystem offers BCSN and WB TV5 as part of the limited basic service.

      Expanded Basic Service. Our expanded basic service includes, for an additional monthly fee, various satellite-delivered networks such as CNN, MTV, USA Network, ESPN, Lifetime, Nickelodeon and TNT.

      Premium Service. Our premium services are satellite-delivered channels consisting principally of feature films, original programming, live sports events, concerts and other special entertainment features, usually presented without commercial interruption. HBO, Cinemax, Showtime, The Movie Channel and STARZ are typical examples. Such premium programming services are offered both on a per-channel basis and as part of premium service packages designed to enhance customer value.

      The significant expansion of bandwidth capacity resulting from the rebuild of our systems allows us to expand the use of multichannel packaging strategies for marketing and promoting premium and niche programming services.

      Pay-Per-View Service. Our pay-per-view services allow customers to pay to view a single showing of a feature film, live sporting event, concert or other special event, on an unedited, commercial-free basis.

      Buckeye CableSystem offers advanced analog cable services to customers who do not subscribe to the higher priced digital cable service. This service utilizes a converter box that is substantially less expensive than a digital box. Buckeye’s advanced analog services include:

	•	up to 91 analog video channels including 9 multiplexed premium channels and six pay-per-view channels;
	•	a new product tier consisting of eight basic-type video channels and 32 digital music channels; and
	•	an interactive on-screen program guide to help customers navigate the program choices and receive information about the programming.

      Digital video technology offers significant advantages. Most importantly, this technology allows us to greatly increase our channel offerings through the use of compression, which converts one analog channel into six to 12 digital channels. The implementation of digital technology has significantly enhanced and expanded the video and other service offerings we provide to our customers.

      Buckeye’s customers currently have available digital cable programming services that include:

	•	68 analog video channels;
	•	up to 51 bundled digital basic channels;
	•	up to 47 multiplexed premium channels;
	•	up to 64 pay-per-view movie and sports channels;
	•	up to 45 digital music channels;
	•	up to seven high-definition digital television channels; and

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	•	an interactive on-screen program guide to help customers navigate the new digital choices and receive information about the programming.

      Digital cable services are available on 100% of Buckeye’s system, representing approximately 88% of our total subscribers. When we complete the rebuild of our Erie County system, 100% of our systems will have full-featured digital offerings, creating an opportunity to increase monthly revenue per subscriber. We expect this rebuild to be complete by the end of the second quarter of 2004.

      Our broadband cable networks enable data to be transmitted up to 70 times faster than traditional telephone modem technologies. This high-speed capability allows cable modem customers to receive and transmit large files from the Internet in a fraction of the time required when using the traditional telephone modem. It also allows much quicker response times when surfing the Internet, providing a richer experience for the customer. In addition, the two-way cable modem service offered by Buckeye’s system eliminates the need for a telephone line for Internet service, is always activated and does not require a customer to dial into the Internet service provider and await authorization.

      Two-way cable modem service is available on 100% of Buckeye’s system, representing approximately 88% of our total subscribers. Our Erie County system employs a one-way telco-return cable modem on its non-rebuilt system and two-way cable modem service on its rebuilt plant. As of December 31, 2003, approximately 26% of Erie County’s subscribers have been converted to the rebuilt system.

      We receive revenue from the sale of local advertising on satellite-delivered channels such as CNN, MTV, USA Network, ESPN, Lifetime, Nickelodeon and TNT. We also sell advertising on our local channels, WB TV5 and BCSN. We have an in-house production facility and a sales force covering our markets. Advertising sales accounted for 6.7% of our combined cable revenue for the year ended December 31, 2003.

      Interactive Services. Our rebuilt cable networks (Erie County to be completed by the end of the second quarter of 2004) have the capacity to deliver various interactive television services, such as the following:

	•	Video-on-demand and subscription video-on-demand which provide movies, programs, or special events on demand with the ability to fast forward, pause and rewind a program at will. This service was launched in the first quarter of 2004 on the Toledo system and will be launched in the second quarter of 2004 on the Erie County system.
	•	Interactive viewing services enabled by middleware vendors such as Open TV and ICTV that provide viewers options such as various camera angles on sports broadcasts, access to ancillary programming, access to customer account information on the television, and the ability to play interactive games individually or against other subscribers.
	•	Digital video recording that provides subscribers VCR-like capabilities to one touch record programs, pause and replay live television, and fast forward through commercials on recorded programs. This service also permits a subscriber to search for and record programming that matches the subscriber’s preferences.
	•	Walled garden Internet access that provides restricted Internet access to sites created for television delivery that may feature local weather, news, or community events.
	•	Cable modem Internet protocol telephone service that provides subscribers with local and long-distance calling.
	•	Tailored advertising that could allow cable networks to transmit advertisements tailored to several target audiences simultaneously during a single program transmission.

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	•	Enhanced programming information, interactive advertising and impulse sales enabled by application providers such as Wink Communications and Gemstar that allow subscribers to click on-screen icons for ancillary program information and e-commerce transactions.

      Our cable revenues are derived primarily from the monthly fees our customers pay for cable services. Our rates vary by the market served and by the type of service selected and are usually adjusted annually. As of December 31, 2003, our monthly fees for expanded basic cable service were $36.99 for Toledo (Buckeye) and $36.15 for Erie County. Effective January 1, 2004, we increased our average monthly fees for expanded basic service to $39.99 for Toledo (Buckeye) and $39.15 for Erie County. A one-time installation fee is charged to new customers, but may be waived during certain promotions. We believe our rate practices are in accordance with the FCC guidelines and are consistent with industry practices.

      Our service offerings vary by market because of differences in the bandwidth of our cable networks and franchise requirements. The current monthly price ranges for our cable services on a stand-alone basis are as follows:

      We also offer packages of cable services at discounts from the stand-alone rates for each individual service.

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      The following table sets forth selected financial, operating and technical information regarding our cable systems:

(1)	Represents average monthly revenues for the period divided by the average number of basic subscribers throughout the period.
(2)	Represents the number of living units, such as single residence homes, apartments and condominiums, passed by the cable television distribution network in a given cable system service area to which we offer the named service.
(3)	Represents subscribers to the named service as a percentage of homes passed.
(4)	Represents the number of subscriptions to premium services. A subscriber may purchase more than one premium service, each of which is counted as a separate premium service unit.
(5)	Represents premium service units as a percentage of basic subscribers. This ratio may be greater than 100% if the average basic subscriber subscribes to more than one premium service unit.
(6)	Represents basic subscribers to whom digital service is available.
(7)	Represents digital subscribers as a percentage of digital-ready basic subscribers.

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(8)	Fiber plant serves cable hubs and nodes as well as telecom customers served by Buckeye TeleSystem.
(9)	Density represents homes passed divided by miles of coaxial plant.

(10)	Plant bandwidth represents the percentage of customers within the system served by the indicated plant bandwidth.

      Greater Toledo Metropolitan Area. As of December 31, 2003, Toledo’s system passed approximately 221,000 homes and served approximately 131,000 basic subscribers. The 25 franchises served by Buckeye have a combined population of approximately 554,000. With a population of 618,203, the three-county Toledo Metropolitan Statistical Area is the 69th largest MSA in the country. Toledo’s major non-governmental employers include ProMedica Health Systems, Mercy Health Partners, Daimler-Chrysler, Bowling Green State University, The University of Toledo, General Motors, Sauder Woodworking and the Medical College of Ohio. Other significant Toledo-based companies include Dana Corporation, Owens-Illinois and Pilkington Glass.

      Sandusky, Ohio. As of December 31, 2003, our Erie County system passed approximately 29,000 homes and served approximately 18,000 basic subscribers. The 10 franchises served by our Erie County system have a combined population of approximately 73,000. Sandusky’s major non-governmental employers include Cedar Fair/Cedar Point, Delphi Automotive System, Visteon Automotive Systems and Firelands Community Hospital.

      The architecture of Toledo’s 870 MHz HFC system consists of approximately 2,160 miles of coaxial cable and 2,256 miles of fiber optic cable, passing approximately 221,000 households and serving approximately 131,000 customers. The system includes a single headend. The new headend was completed at the beginning of 1997 to coincide with the beginning of the system rebuild. Thirteen hubs located throughout the greater Toledo metropolitan area are connected by redundant fiber-optic cable rings back to the master headend, thereby reducing the frequency and size of service outages. From each of these thirteen hubs, fiber-optic cable extends to nodes, each serving on average 500 homes. Coaxial cable connects the node to each customer’s home or building.

      The system was also designed to provide a clean migration path to future system needs by allowing additional spectrum to be allocated to interactive services as conditions require. The system provides for 12 strands of fiber to each node with two strands activated and 10 strands reserved for future services. Moreover, the 500-home fiber nodes can easily be divided to an average of 125 homes per fiber node when demand warrants. As more individualized services are offered, this additional bandwidth will reduce the need for future construction and will provide great flexibility in our provision of services to our customers.

      The rebuilt system currently offers 91 analog video channels on our advanced analog service and approximately 282 analog and digital video and digital music channels on our digital cable service. The system offers the ability to significantly increase channel capacity by recapturing some of the analog channels and converting them to digital channels.

      We monitor all of the fiber nodes and power supplies in Toledo’s cable network 24 hours per day, seven days per week, providing reliable service and high customer satisfaction. The cost of this monitoring is shared by our cable and telephone operations. In addition, we have a supporting power system that was built to provide battery backup for four to six hours in the event of a local power outage. For more extended power outages, generators can be used to provide power indefinitely. This is critical as “always on” services such as cable modems and other two-way telecommunications services become more prevalent.

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      Our Erie County system is in the process of being rebuilt. The non-rebuilt portion, which serves approximately 69% of Erie’s subscribers at December 31, 2003, operates on a 430 MHz one-way coaxial cable plant. The rebuilt system is an 870 MHz two-way interactive system. When the rebuild is complete, the Erie County system, which currently operates primarily through its own headend, will receive programming and services through the Toledo headend, thereby reducing operating costs.

  Sales and Marketing

      Buckeye markets its cable services through the use of our dominant advertising resources in the greater Toledo metropolitan area. Because of our advertising strength, most of Buckeye’s cable television service sales result from customer and potential customer inquiries. We invest a significant amount of time, effort and financial resources in the training and evaluation of our marketing professionals and customer relations representatives. Our customer sales representatives use their frequent contact with our customers as opportunities to sell our new services. As a result, we can accelerate the introduction of new services to our customers and achieve high success rates in attracting and retaining customers. Buckeye also has its own telemarketing staff for outbound sales calls and a door-to-door sales team utilizing in-house and outsourced personnel. Erie County markets its cable services through use of its advertising availability rights on its cable channels for spot advertising, as well as through bill inserts, direct mail and radio and print media advertising.

  Programming

      We believe that providing a large selection of conveniently scheduled programming is an important factor influencing a customer’s decision to subscribe to and retain our cable services. To appeal to both existing and potential customers, we devote considerable resources to obtaining access to a wide range of programming. We determine channel offerings in each of our markets by reviewing market research and examining customer demographics and local programming preferences. We contract with suppliers to obtain programming for our systems, payment for which is typically based on a fixed fee per customer per month. These contracts are typically for a fixed period of time and are subject to negotiated renewal. We purchase the majority of our cable programming through the National Cable Television Cooperative (“NCTC”). This organization aggregates more than 10 million cable subscribers for the purpose of obtaining programming at volume-based discounts. We also purchase programming directly from suppliers who do not have agreements with the NCTC or if they can provide better terms than through the NCTC.

      Along with the rest of the cable industry, we have felt the impact of increasing programming costs. Programming is our cable systems’ largest cash operating expense. Our basic cable programming costs increased by 6.2% and 11.0% in 2003 and 2002, respectively. This is primarily due to increasing costs for sports programming and our need for new channels to match satellite competition. Because of our size, we are unable to negotiate the more favorable rates that are granted to large national multiple system operators.

      In 1989, Buckeye launched TV5, a locally programmed channel that is run in the same manner as a broadcast station — obtaining its own programming through syndicators, arranging for coverage of local and regional sports contests and doing its own independent marketing. TV5 was conceived to provide us with a competitive advantage should an overbuilder become active in our service area. In 1995, TV5 became the exclusive market affiliate for the WB network, the first cable channel in the country to be so designated. Its popularity continues to increase. Buckeye has contracted to provide WB TV5 to cable operators in other cities in the Toledo DMA, which adds to its popularity and provides more viewers for advertising. WB TV5 was distributed to approximately 225,000 cable households by mid-2003.

      Buckeye also operates a Community Channel on which locally produced programming is shown free of charge if it is deemed of sufficient interest. In addition to programming provided by outsiders, Buckeye provides live coverage of Toledo City Council meetings and produced about 25 high school football and basketball games in 2003. We have also offered to cablecast a select number of council and trustees meetings from other franchise areas.

      In January 2004, the Toledo system launched BCSN, a 24-hour per day, locally produced channel for local sports. BCSN covers men and women’s high school, college, professional and amateur sports, mainly from the Northwest Ohio area on a live and tape delayed basis. Buckeye believes local programming such as BCSN offers a competitive advantage over direct broadcast satellite competitors.

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  Franchises

      Cable television systems are constructed and operated under fixed-term, non-exclusive franchises or other types of operating permits granted by local governmental authorities. Franchises typically contain many conditions, such as:

	•	time limitations on commencement and completion of system construction;
	•	conditions of service, including mix of programming required to meet the needs and interests of the community;
	•	the provision of free service to schools and certain other public institutions;
	•	the maintenance of insurance and indemnity bonds; and
	•	the payment of fees to communities.

      Certain provisions of these local franchises are subject to limits imposed by federal law.

      We hold a total of 35 franchises. These franchises require the payment of fees to the issuing authorities ranging from 3% to 5% of gross revenues (as defined by each franchise agreement) from the related cable system. The Cable Communications Policy Act of 1984 (“1984 Cable Act”) prohibits franchising authorities from imposing annual franchise fees in excess of 5% of gross annual revenues and permits the cable television system operator to seek renegotiation and modification of franchise requirements if warranted by changed circumstances that render performance commercially impracticable.

      Buckeye has 25 franchises, most of which have 20 year terms, and 99% of Buckeye’s subscribers are covered under agreements that expire after 2016. Erie County has a total of 10 franchises and 98% of Erie County’s subscribers are covered under agreements with expiration dates in 2011 or thereafter.

      The 1984 Cable Act and the Cable Television Consumer Protection and Competition Act of 1992 (“1992 Cable Act”) provide, among other things, for an orderly franchise renewal process, which limits a franchising authority’s ability to deny a franchise renewal if the incumbent operator follows prescribed renewal procedures. In addition, the 1984 and 1992 Cable Acts establish comprehensive renewal procedures, which require, when properly elected by an operator, that an incumbent franchisee’s renewal application be assessed on its own merits and not as part of a comparative process with competing applications. Upon a franchise renewal request, however, a franchise authority may seek to add new and more onerous requirements upon the cable operator, such as significant upgrades in facilities and services or increased franchise fees, as a condition of renewal. We believe that our relationships with local franchise authorities are excellent.

  Competition — Cable Television Services

      Cable television systems face competition from alternative methods of distributing video programming and from other sources of news, information and entertainment. These include off-air television broadcast programming, direct broadcast satellite, newspapers, movie theaters, live sporting events, interactive online computer services and home video products, including VCRs and DVDs. The extent to which a cable television system is competitive depends, in part, upon that system’s ability to provide, at a reasonable price to customers, a greater variety of programming and other communications services than those available off-air or through alternative delivery sources and upon superior technical performance and customer service.

      Off-Air Broadcast Television. Viewers who do not wish to pay for television programming have the option of receiving broadcast signals directly from local television broadcasting stations. The extent to which a cable system competes with over-the-air broadcasting depends upon the quality and quantity of the broadcast signals available by direct antenna reception compared to the quality and quantity of such signals and alternative services offered by the cable system. Viewers in the service area of Buckeye’s system are able to receive over-the-air signals of varying quality from up to 13 broadcast stations, and viewers in the service area of our Erie County system are able to receive such signals from up to 16 broadcast stations.

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      Direct Broadcast Satellites. The fastest growing method of satellite distribution is by high-powered direct broadcast satellites utilizing video compression technology, which provides programming comparable to our digital cable service. Direct broadcast satellite service can be received virtually anywhere in the United States through small rooftop or side-mounted dish antennae that are generally not subject to local restrictions on location and use. Direct broadcast satellite service is presently being heavily marketed on a nationwide basis by DirecTV and EchoStar. Both of these providers offer service in the Toledo and Erie County markets, and have recently entered into national agreements with incumbent local exchange carriers, SBC and Verizon, to begin reselling their services. Direct broadcast satellite systems offer multichannel video programming packages which are similar to our packages of video services. However, they do not currently offer local channels in the Toledo area and offer them in Erie County only at an additional monthly cost.

      Competing Franchises. Cable television systems generally operate pursuant to franchises granted on a non-exclusive basis. Franchising authorities may not unreasonably deny requests for additional franchises and may operate cable television systems themselves. Well-financed businesses from outside the cable television industry (such as the public utilities that own the poles to which cable is attached) may become competitors for franchises or providers of competing services. In the Toledo market, Buckeye faces cable competition from Adelphia in a few outlying areas where the two systems have overbuilt plant passing approximately 15,500 homes, or approximately 7% of the total homes passed by our Toledo cable system. We believe that the capital costs of matching Buckeye’s rebuilt system, together with our advertising dominance, exclusive locally produced sports channel (BCSN), and our customer service reputation, pose a formidable competitive barrier. In its market, Erie County does not currently face competition from competing cable operators.

      Satellite Master Antenna Television Systems (SMATV). Cable television operators also face competition from private satellite master antenna television systems that serve condominiums, apartment and office complexes and private residential developments. As long as they do not use public rights-of-way, satellite master antenna television systems can interconnect non-commonly owned buildings without having to comply with many of the local, state and federal regulations that are imposed on cable television systems. There are a few SMATV systems in the Toledo area serving apartments and mobile home parks. We are not aware of any SMATV operators in our Erie County service area.

      Local Multipoint Distribution Service. Local multipoint distribution service, a new wireless service, can deliver over 100 channels of programming directly to consumers’ homes. It is uncertain whether this spectrum will be used to compete with franchised cable television systems.

      Multichannel Multipoint Distribution Systems. Multichannel multipoint distribution systems use low power microwave frequencies to transmit video programming over the air to customers. Wireless distribution services provide many of the same programming services as cable television systems, and digital compression technology is likely to increase significantly the channel capacity of their systems.

      Local Exchange Carriers. The Telecommunications Act of 1996 (“1996 Telecom Act”) allows local exchange carriers and others to compete with cable television systems and other video services in their telephone service territory, subject to certain regulatory requirements. Unlike cable television systems, local exchange carriers are not required, under certain circumstances, to obtain local franchises to deliver video services and are not subject to certain obligations imposed under such franchises. Local exchange carriers use a variety of distribution methods, including both broadband wire facilities and wireless transmission facilities within and outside of their telephone service areas. Local exchange carriers and other telephone companies have an existing relationship with the households in their service areas and have substantial financial resources.

      Other New Technologies. Other new technologies may compete with cable television systems. Advances in communications technology, as well as changes in the marketplace and the regulatory and legislative environments, are constantly occurring. We are not, therefore, able to predict the effect that current or future developments might have on the cable industry or on our operations. See “Forward-Looking Statements.”

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  Competition — Internet Services

      We first began to offer broadband Internet access in mid-1999. As of December 31, 2003, we had approximately 29,800 broadband Internet subscribers, primarily in the Toledo area. Competition for broadband Internet services in our markets includes digital subscriber line services provided by or through local telephone exchange carriers and wireless broadband Internet services provided by wireless communications companies. Digital subscriber line technology, known as DSL, allows Internet access to subscribers over conventional telephone lines at data transmission speeds comparable to those of cable modems, putting it in direct competition with cable modem service.

      Numerous companies, including telephone companies, have introduced DSL service, and certain telephone companies are seeking to provide high-speed broadband services, including interactive online services, without regard to present service boundaries and other regulatory restrictions. DSL and wireless broadband services are offered in some portions of our service area. We are unable to predict the likelihood of success of these competing broadband Internet services. However, we believe that our technology, local customer service reputation and ability to package bundled video and Internet services will provide us with competitive advantages.

      Our broadband Internet services also compete for customers with traditional slower-speed dial-up Internet service providers, commonly known as ISPs. Traditional dial-up ISP services have the advantages of lower price, earlier market entry, and in some cases nationwide marketing and proprietary content. We believe that over time the rapid development of rich broadband content will persuade more and more customers of the advantages of a broadband connection.

      A rulemaking proceeding is pending at the FCC regarding the appropriate regulatory treatment of Internet access offered by cable companies over cable plant. We are unable to predict the outcome of this proceeding or its effects upon our business.

Newspaper Publishing

      Our two daily metropolitan newspapers, the Pittsburgh Post-Gazette and The Blade, are the dominant newspapers in their respective markets. Our newspapers have a combined daily and Sunday average paid circulation of approximately 384,600 and 593,850, respectively. We believe the leading positions of our newspapers result from our long standing presence, our commitment to high standards of journalistic excellence and integrity, and our emphasis on local news, local impacts of national and international news, and service to our communities. Our newspapers have received many national and regional awards for editorial excellence. Our newspaper publishing operations generated revenues and an operating loss of $251.3 million and $1.5 million, respectively, in the year ended December 31, 2003. We are pursuing the following newspaper publishing strategies:

	Produce the Highest Quality Newspaper in Our Markets. We believe our reputation for producing high-quality publications is the foundation for our publishing success. We are frequently recognized by our industry for the quality of our journalism. Both newspapers have won numerous awards, including Pulitzer Prizes for Photography awarded to the Post-Gazette in 1992 and 1998. We maintain a highly regarded staff of columnists and editors committed to excellence, and we are continuously seeking to improve our publications.
	Implement Cost Rationalization Initiatives. To improve cash flow at our newspapers, we have embarked upon a comprehensive review of our cost structure, including labor expenses and other significant operating costs. We are currently reviewing staffing requirements for opportunities to realize labor efficiencies. With respect to other operating costs, our newspapers coordinate purchasing requirements and have achieved favorable terms on newsprint purchases. In addition, we have reduced the page width at The Blade from 54 to 50 inches during the third quarter of 2002. We also plan to reduce the page width at Post-Gazette from 54 inches to 50 inches by the end of 2004. We anticipate this will reduce our annual newsprint consumption by approximately 7%. If the Post-Gazette initiative had been completed by January 1, 2003, we would have realized savings of approximately $1.5 million in newsprint costs for the year ended December 31, 2003.

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	Strengthen our Brands by Focusing on Local News and Community Service. Each of our newspapers is a leading local news and information source with strong brand recognition in its market. We believe that maintaining our position as a primary source of local news will continue to provide a powerful platform upon which to serve the local communities and local advertisers. We intend to continue to increase brand awareness and market penetration through local marketing partnerships, creative subscriber campaigns, strong customer service and the use of our two interactive online newspaper editions. Our two Web sites, post-gazette.com and toledoblade.com, are the most frequently visited local media sites in their respective markets according to an independent research organization. These two leading sites increase our market presence and provide an additional source of advertising revenue.
	Pursue Circulation and Other Revenue Growth Opportunities. We are continuously evaluating ways to expand circulation and increase revenues. We are using new suburban zone coverage, customer service programs and targeted marketing campaigns to increase our circulation. We believe that through the use of zoning (news and advertising directed to a particular local area), research, and demographic studies, our marketing programs better meet the unique needs of individual advertisers, thus maximizing advertising revenues. Capitalizing on our high penetration, we have also launched in Toledo a broad market coverage program in which we deliver preprinted advertising inserts to all subscriber and non-subscriber households in areas targeted by the advertiser. We also plan to grow our revenue by expanding our delivery services for third-party publishers and increasing advertising on our Web sites.

      Founded in 1786, the Pittsburgh Post-Gazette is the leading newspaper in Pittsburgh and Western Pennsylvania and has a long history of service and journalistic excellence. The Post-Gazette has more than twice the circulation of any other newspaper in the Pittsburgh Metropolitan Statistical Area (MSA). The Post-Gazette has a daily average paid circulation of approximately 245,600 and a Sunday average paid circulation of approximately 408,100, resulting in penetration of approximately 40% daily and 61% Sunday in the Pittsburgh city zone (Pittsburgh and nearby suburbs). Our dominant market position allows us to capture advertising revenue significantly greater than that of any other newspaper in this market.

      The Post-Gazette is a morning daily and Sunday newspaper covering 16 counties in Western Pennsylvania, Northern West Virginia and Western Maryland, including the greater Pittsburgh metropolitan area. With a population of 2.4 million, the six-county Pittsburgh MSA is currently the 22nd largest MSA in the United States. The population of the 16-county area served by the Post-Gazette is approximately 2.9 million. Pittsburgh’s major non-governmental employers include UPMC Health System, US Airways, West Penn Allegheny Health System, the University of Pittsburgh, PNC Financial Services Group and United States Steel Corporation. Other significant Pittsburgh-based companies include H.J. Heinz Company, PPG Industries, Federated Investors, Alcoa and FreeMarkets.

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      The following table sets forth certain circulation, advertising lineage and operating revenue information for the Post-Gazette for the past three years: