The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements and related notes thereto included elsewhere in this quarterly report on Form 10-Q. Some of the statements in this quarterly report are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include all passages containing verbs such as "aims", "anticipates", "believes", "estimates", "expects", "hopes", "intends", "plans", "predicts", "projects" or "targets" or nouns corresponding to such verbs. Forward-looking statements also include any other passages that are primarily relevant to expected future events or that can only be fully evaluated by events that will occur in the future. There are many risks and uncertainties that could cause actual results to differ materially from those predicted in our forward-looking statements, including, without limitation, those factors discussed under the caption "Risk Factors" in Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2008, which was filed with the Securities and Exchange Commission on March 16, 2009. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. Except as required by law, we undertake no obligation to revise any forward-looking statements in order to reflect events or circumstances that may subsequently arise. Readers are urged to carefully review and consider the various disclosures made in this report and in our other reports filed with the Securities and Exchange Commission that attempt to advise interested parties of the risks and factors that may affect our business, prospects and results of operations. As used herein, unless the context requires otherwise, when we say "we", "us", or "our", we are referring to Fisher Communications, Inc. and its consolidated subsidiaries.

This discussion is intended to provide an analysis of significant trends and material changes in our financial condition and operating results during the three months ended March 31, 2009, compared with the corresponding period in 2008.

Overview

We are an integrated media company. We own and operate 13 full power (including a 50%-owned television station) and seven low power network-affiliated television stations and eight radio stations. Our television and radio stations are located in Washington, Oregon, Idaho, California and Montana. We also own and operate Fisher Plaza, a mixed-use commercial facility located near downtown Seattle that serves as the home for our corporate offices and our Seattle television and radio stations, and also lease space to a variety of unaffiliated companies, including media and communications companies.

Our broadcasting operations receive revenue from the sale of local, regional and national advertising and, to a much lesser extent, from network compensation, satellite and fiber transmission services, tower rental and commercial production activities. Our operating results are therefore sensitive to broad economic trends that affect the broadcasting industry in general, as well as local and regional trends, such as those affecting the West Coast economy. 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.

In addition to our broadcasting operations, we own and operate Fisher Plaza, and we lease space to other companies that are attracted by the property location and the infrastructure provided at this facility. As of March 31, 2009, and December 31, 2008, approximately 97% of Fisher Plaza was occupied or committed for occupancy (43% was occupied by Fisher entities). Revenue and operating income from Fisher Plaza are dependent upon the general economic climate, the Seattle economic climate, the outlook of the telecommunications and technology sectors and real estate conditions, including the availability of space in other competing properties.

Management focuses on key metrics from operational data within our broadcasting and Fisher Plaza operations. Information on significant trends is provided in the section entitled "Consolidated Results of Operations" below.

Significant Developments

The following significant developments affect the comparability of our financial statements for the three-month periods ended March 31, 2009 and 2008.

Repurchase of Senior Notes. In the first quarter of 2009, we repurchased $15.15 million aggregate principal amount of our 8.625% senior notes due 2014, for total consideration of $13.05 million in cash plus accrued interest of $0.5 million. A gain on extinguishment of debt was recorded net of a charge for related unamortized debt issuance costs of $308,000, resulting in a net gain of approximately $1.8 million.

Dividends on Safeco Corporation Common Stock. In the first quarter of 2008, we recorded dividends on our shares of Safeco Corporation common stock in the amount of $921,000. No dividend income was recorded in the first quarter of 2009, as we sold our remaining shares of Safeco Corporation common stock in June and July of 2008 resulting in pre-tax net proceeds of approximately $153.4 million.

Expiration of Seattle Mariners Radio Rights Agreement. In May 2002, we entered into a radio rights agreement (the "Mariners Agreement") to broadcast Seattle Mariners baseball games on KOMO AM for the 2003 through 2008 baseball seasons. The impact of the Mariners Agreement was greater during periods that included the broadcast of Mariners baseball games; therefore the impact on the first and fourth quarters of each calendar year was less than for the second and third quarters of the calendar year. In July 2008, we announced that we would not renew the Mariners Agreement; therefore, the 2008 season was the final year of our commitments under the Mariners Agreement as all commitments under the agreement had been satisfied. The results for the first quarter of 2008 reflect expenses related to the Mariners Agreement. No such expenses are reflected in the results for the first quarter of 2009.

Termination of National Advertising Representation Agreement. In April 2008, we terminated the agreement with our national advertising representation firm. The successor firm will satisfy our contractual termination obligation to the predecessor firm with no cash payment made by us. In the second quarter of 2008, we recognized a non-cash charge of $5.0 million to selling, general and administrative expenses, and we are amortizing the related net liability as a non-cash benefit over the five-year term of the new agreement. We recognized a $365,000 benefit due to this amortization in the first quarter of 2009.

Purchase of Bakersfield, California Television Stations. On January 1, 2008 we completed the purchase of the assets of two television stations in the Bakersfield, California Designated Market Area for $55.3 million in cash.

Reclassifications. The results of operations of Pegasus News, Inc. have been reclassified from continuing operations to discontinued operations in the condensed consolidated statement of operations for the three months ended March 31, 2008. Additionally, the results of operations of five small-market radio stations in Montana, previously classified as discontinued operations in the condensed consolidated statement of operations for the three months ended March 31, 2008, have been presented as continuing operations. See Note 7 to the condensed consolidated financial statements. The reclassifications had no effect on net loss, shareholders' equity or cash flows from operating, investing or financing activities.

Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates including, but not limited to, those affecting revenues, goodwill and intangibles impairment, the useful lives of tangible and intangible assets, valuation allowances for receivables and broadcast rights, stock-based compensation expense, income tax provisions, valuation allowances for deferred income taxes assets, liabilities and contingencies. The brief discussion below is intended to highlight some of the judgments and uncertainties that can impact the application of these policies and the specific dollar amounts reported on our financial statements. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form our basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, or if management made different judgments or utilized different estimates. Many of our estimates or judgments are based on anticipated future events or performance, and as such are forward-looking in nature, and are subject to many risks and uncertainties, including those discussed below and elsewhere in this quarterly report on Form 10-Q. Except as otherwise required by law, we do not undertake any obligation to update or revise this discussion to reflect any future events or circumstances

For a detailed discussion of our critical accounting policies and estimates, please refer to our 2008 Form 10-K for the year ended December 31, 2008.

There have been no material changes in the application of our critical accounting policies and estimates subsequent to that report. We have discussed the development and selection of these critical accounting estimates with the Audit Committee of our board of directors.

Consolidated Results of Operations

We report financial data for three segments: television, radio and Fisher Plaza. The television segment includes the operations of 20 owned and operated network-affiliated television stations (including a 50%-owned television station) and internet business. The radio segment includes the operations of three Seattle radio stations and five Montana radio stations. Corporate expenses of the broadcasting business unit are allocated to the television and radio segments based on actual expenditures incurred or based on a ratio that approximates historical revenue and operating expenses of the segments. The Fisher Plaza segment consists of the operations of Fisher Plaza, a communications center located near downtown Seattle that serves as the home of our Seattle-based television and radio operations, our corporate offices, and third-party tenants. Fisher-owned entities that reside at Fisher Plaza do not pay rent; however, Fisher-owned entities do pay common-area maintenance expenses. The segment data includes additional allocation of depreciation and certain operating expenses from Fisher Plaza to our Seattle-based television and radio operations.

                                                           Three months ended
                                                                March 31,                 Variance
(Dollars in thousands)
(Unaudited)                                                 2009          2008          $           %
Revenue
Television                                               $   20,283     $ 27,909     $ (7,626 )    (27.3 %)
Radio                                                         4,888        6,875       (1,987 )    (28.9 %)
Fisher Plaza                                                  3,342        3,313           29        0.9 %
Corporate and eliminations                                       -           (42 )         42     (100.0 %)

Consolidated                                                 28,513       38,055       (9,542 )    (25.1 %)
Direct Operating Costs
Television                                                   12,058       12,853         (795 )     (6.2 %)
Radio                                                         2,285        3,098         (813 )    (26.2 %)
Fisher Plaza                                                    947          927           20        2.2 %
Corporate and eliminations                                      538          483           55       11.4 %

Consolidated                                                 15,828       17,361       (1,533 )     (8.8 %)
Selling, general and administrative expenses
Television                                                    7,366        8,548       (1,182 )    (13.8 %)
Radio                                                         2,479        3,462         (983 )    (28.4 %)
Fisher Plaza                                                    123          140          (17 )    (12.1 %)
Corporate and eliminations                                    2,472        1,707          765       44.8 %

Consolidated                                                 12,440       13,857       (1,417 )    (10.2 %)
Amortization of program rights
Television                                                    2,296        1,991          305       15.3 %
Radio                                                            -           455         (455 )   (100.0 %)

Consolidated                                                  2,296        2,446         (150 )     (6.1 %)
Depreciation and amortization
Television                                                    2,156        1,969          187        9.5 %
Radio                                                           198          233          (35 )    (15.0 %)
Fisher Plaza                                                    763          832          (69 )     (8.3 %)
Corporate                                                       215           75          140      186.7 %

Consolidated                                                  3,332        3,109          223        7.2 %
Income (loss) from operations
Television                                                   (3,593 )      2,548       (6,141 )
Radio                                                           (74 )       (373 )        299
Fisher Plaza                                                  1,509        1,414           95
Corporate and eliminations                                   (3,225 )     (2,307 )       (918 )

Consolidated                                                 (5,383 )      1,282       (6,665 )
Gain on extinguishment of senior notes                        1,792           -         1,792
Other income, net                                               294        1,030         (736 )
Interest expense, net                                        (3,265 )     (3,358 )         93

Loss from continuing operations before income taxes          (6,562 )     (1,046 )     (5,516 )
Benefit for federal and state income taxes                   (2,297 )       (226 )     (2,071 )

Loss from continuing operations                              (4,265 )       (820 )     (3,445 )
Loss from discontinued operations, net of income taxes           -          (246 )        246

Net loss                                                 $   (4,265 )   $ (1,066 )   $ (3,199 )

Revenue

The current U.S. financial crisis and broader economic slowdown and the resulting sharp declines in advertising spending have negatively impacted our television and radio revenue for the three-month period ended March 31, 2009.

Automotive-related advertising, our largest advertising category, decreased 62% for the three-month period ended March 31, 2009 as compared to the same period in 2008. Other similar major categories such as, retailing (down 34%) and professional services (down 23%) have followed a consistent downward trend over the past year. This trend is primarily due to the current condition of the automotive industry and general economic downturn and resulting decline in the demand for advertising from these and other business categories. A continued pattern of deterioration in advertising revenue from these sources could materially and adversely affect our future results of operations.

Television revenue decreased in the three-month period ended March 31, 2009 compared to the same period in 2008, primarily due to sharp declines in local, national and political advertising spending by customers in this broad economic downturn, offset by an increase in retransmission revenue. The decrease in local advertising revenues was due to general economic pressure now impacting a number of local economies, including those on the West Coast, primarily in the housing, automobile and retail segments. The decrease in national advertising sales was due to the same general economic factors, which has impacted most national advertising categories, particularly automotive spending.

Revenues from our ABC-affiliated stations decreased 31.4% and revenues from our CBS-affiliated stations decreased 22.6% in the three-month period ended March 31, 2009 as compared to the same period in 2008, primarily due to reduced local, national and political advertising revenue. Revenues from our Spanish-language television stations remained constant in the three-month period ended March 31, 2009, respectively, as compared to the same period in 2008.

We completed negotiations for new retransmission consent agreements with over 50 distribution partners in the fourth quarter of 2008 and the first quarter of 2009. Retransmission revenue increased 39% from the first quarter of 2008, not including expected retransmission fees of approximately $950,000 to $1 million not recorded in the first quarter attributable to contracts for which key financial terms have been negotiated but which remained unexecuted at quarter end. For each of these contracts, we expect to record the retransmission fees for the period from January 1, 2009 through the date of execution as revenue in the quarter the agreement is executed. We currently expect that most of these remaining contracts will be executed in the second quarter of 2009, although there can be no assurances as to the actual timing of the execution of these agreements.

Radio revenue decreased 29% in the three-month period ended March 31, 2009 compared to the same period in 2008, primarily due to decreased local, national and non-traditional advertising revenue resulting from the general economic downturn. Radio revenue for the three-month period ended March 31, 2008 also included revenue from our Mariners contract, which was not renewed for 2009.

The revenue increase at Fisher Plaza in the three-month period ended March 31, 2009, as compared to the same period in 2008, was primarily due to increased rental revenues and service fees, as well as increased electrical infrastructure fees and tenant reimbursements. As of March 31, 2009, approximately 97% of Fisher Plaza was occupied or committed for occupancy (43% was occupied by Fisher entities), unchanged from December 31, 2008.

Direct operating costs

Direct operating costs consist primarily of costs to produce and promote broadcast programming for the television and radio segments, and costs to operate Fisher Plaza. Many of these costs are relatively fixed in nature and do not necessarily vary on a proportional basis with revenue.

Direct operating costs decreased for the radio segment in the three-month period ended March 31, 2009 as compared to the same period in 2008. The decrease was primarily due to non-renewal of the Mariners Agreement in 2008, as well as decreased compensation-related costs associated with news and programming.

Direct operating costs increased at Fisher Plaza in the three-month period ended March 31, 2009 as compared to the same period in 2008, primarily due to higher repair and maintenance expenses.

The corporate and eliminations category consists primarily of the reclassification and elimination of certain operating expenses between operating segments. For example, KOMO TV and the Seattle-based radio stations recognize facilities-related expenses as selling, general and administrative expenses, while Fisher Plaza records the reimbursement of these intercompany expenses as a reduction of direct operating costs.

Selling, general and administrative expenses

The decrease in selling, general and administrative expenses in the television segment in the three-month period ended March 31, 2009 compared to the same period in 2008, was primarily due to reduced compensation and marketing costs, due to reduced headcount and administrative costs. The 2009 results also reflect the benefit related to the amortization of the liability recorded upon the termination of our national advertising representation agreement.

The decrease in selling, general and administrative expenses in our radio segment in the three-month period ended March 31, 2009 compared to the same period in 2008 was primarily due to the non-renewal of the Mariners Agreement in 2008, as well as decreased compensation and marketing costs.

Selling, general and administrative expenses decreased at Fisher Plaza in the three-month period ended March 31, 2009 compared to the same period in 2008 primarily due to reduced tenant marketing expenses for Fisher Plaza.

Our corporate selling, general and administrative expenses increased in the three-month period ended March 31, 2009 compared to the same period in 2008 primarily due to increased compensation costs, legal fees related to agreement negotiations and shareholder activity, and professional fees, related to additional tax consulting work completed in the quarter.

Amortization of program rights

Amortization of program rights for the television segment increased in the three-month period ended March 31, 2009 compared to the same period in 2008, primarily due to programming costs incurred for our two Bakersfield, California stations, which was partially offset by the renewal of several syndicated television programming contracts at reduced rates.

Amortization of program rights for the radio segment in the three-month period ended March 31, 2008 was related to the Mariners Agreement.

Depreciation and amortization

Depreciation and amortization for the television segment increased in the three-month period ended March 31, 2009 compared to the same period in 2008 primarily due to investments in upgrading our broadcasting equipment at KOMO and KATU.

Depreciation and amortization for the radio and Fisher Plaza segments decreased in the three-month period ended March 31, 2009 compared to the same period in 2008, as certain assets have become fully depreciated.

Corporate depreciation and amortization increased in the three-month period ended March 31, 2009 compared to the same period in 2008, primarily due to asset additions associated with information technology infrastructure upgrades.

Other income, net, consists primarily of interest income for the three-month period ended March 31, 2009 and of interest and dividend income for the three-month period ended March 31, 2008. During the three-month period ended March 31, 2008 dividends of $921,000 were received on our previously-owned shares of Safeco Corporation.

Gain on extinguishment of senior notes

In the three-month period ended March 31, 2009, we repurchased $15.15 million aggregate principal amount of Senior Notes, at an average price of $861.40 per $1,000 principal amount. The total consideration for the repurchase was $13.05 million in cash plus accrued interest of $498,000. A gain on extinguishment of debt was recorded net of a charge for related unamortized debt issuance costs of $308,000, resulting in a net gain of $1.8 million

Interest expense, net

Interest expense, net, consists primarily of interest on the Senior Notes and amortization of the related loan fees, as well as interest during the three-month period ended March 31, 2008 on outstanding borrowings under our former $20 million revolving credit facility. Interest expense in the three-month period ended March 31, 2009 decreased from the same period in 2008, primarily due to the repayment of $15.15 million aggregate principal amount of Senior Notes in the most recent quarter. Additionally, $8.0 million was outstanding under our revolving credit facility as of March 31, 2008. We terminated the revolving credit facility in December 2008.

Provision for federal and state income taxes

Our effective tax increased to 35.0% in 2009 from 21.6% in 2008 primarily due to a decrease in permanent differences. In 2008, the permanent differences that reduced the effective tax rate were due to the related dividends deduction on the dividends on our previously owned shares of Safeco common stock. Our effective tax rate is calculated on the statutory rate of 35%, increased or decreased for estimated permanent differences, including non-deductible expenses, and changes in discrete or other non recurring items, including federal or state tax audit adjustments. As required by accounting rules for interim financial reporting, we record our income tax provision or benefit based upon our estimated annual effective tax rate.

Due to the uncertainty of our ability to generate sufficient state taxable income to realize our deferred state tax assets, a 100% valuation allowance has been established for these deferred tax assets. As a result, our effective tax rate is not affected by changes in the state tax rates.

Loss from discontinued operations, net of income taxes

The loss from discontinued operations for the three-month period ended March 31, . . .