Last week Gannett Broadcasting Group (GCI) announced it was centralizing all graphics creation for its 23 affiliate TV stations. It has been reported that as part of this reorganization 30 to 40 positions were eliminated on Thursday. Gannett is not eliminating graphics; Gannett is improving its ability to create a consistent graphics 'look' through a centralized approach to graphics creation for all of its broadcast content.

It is this author's opinion that Gannett has reached an agreement with Chyron (CGS) to provide the creation tools for the majority of its graphics applications both On-Air and Online. Chyron, a leader in the broadcast graphics market, this year introduced the AXIS platform to provide the same level of seamless integration for creating graphics content, whether On-Air (broadcast), Online or OoH (Out of Home). Utilizing AXIS, Gannett has recognized the ability to eliminate graphic artist positions at the company owned stations. News and content producers will now have the ability to generate state-of-the-art branded graphics directly without having to pass the task to a graphic artist.

A comparison would be an accountant working on financial information, and then passing the information to an expert in pie charts. With Excel, the accountant clicks on charts and graphs, and selects. AXIS has essentially become the Excel of graphics creation.

AXIS is a monthly subscription service with fees based on the level of service utilization. Without knowing the cost of AXIS to Gannett, it is logical to derive that the cost is well below the expense of having in house graphic artists. Estimating the cost to Gannett at 10% of previous costs incurred results in a return on investment [ROI] at or exceeding 1,000%. It is this compelling ROI that will likely result in the rapid deployment of AXIS by other media conglomerates.

Chyron CEO Michael Wellesley-Wesley declined to comment at this stage when asked about the association with Gannett. However, when asked about the attributes of AXIS, he responded:

AXIS is the fastest and easiest way to build any graphic especially a breaking news graphic. It is so easy to use that even an untrained production assistant can do it. AXIS builds consistently good looking broadcast quality graphics. Whether it is a map, a stock price graph, a news OTS (Over The Shoulder) or a 5 day weather forecast the final rendered graphic looks terrific. AXIS is the most cost effective inexpensive way to build graphics. Nothing else comes close.

W. Edwards Deming stated that, "Innovation comes from the producer - not from the customer."

Chyron has a 40 plus year history of graphics innovation in supplying graphics creation products predominantly to the broadcast industry. Wellesley-Wesley has recognized the emerging opportunities to message (advertise) through graphical inserts embedded within or overlaying all forms of digital video content. As TV stations and newspapers face declining viewership and circulation numbers due to audience migration to web-based, OoH and digital signage methods of delivery, all are focusing on re-inventing their models to either include or evolve to address these non-traditional market opportunities.

A model where the non-traditional methods are central requires a completely new approach to content creation that allows for content to be easily and inexpensively created once but be publishable to multiple formats with a mouse click. This is what AXIS represents.

Wellesley-Wesley's accomplishments in his five years at the helm of Chyron are impressive. First, he orchestrated the strategies to turnaround a heavily debt-ridden and unprofitable company to one that has doubled pre-tax income in each of the last 3 years. Over the last two years he combined these strong income results with an increase in R & D expenditures of 41% and 23%. Now this focus on improving existing product offerings and developing extensible products, such as AXIS and ChyTV (addressing digital signage opportunities), has positioned Chyron as the dominant provider of graphics solutions for all media.

The broadcast graphics market is approximately $200M annually worldwide. The market for all media graphics adds another $600M annually. 10,000 newspapers are now online and many are deploying digital video to attract viewers and advertisers. Chyron's recent agreement with the Associated Press allows for any AXIS media client to access AP content and build branded graphics for online or On-Air display. This offers AXIS clients the possibility of building the same kind of network quality graphics seen daily on NBC, ABC, FOX, Turner and ESPN.

Another interesting recent development is Chyron's association with Yahoo (YHOO). Specifically, Yahoo Finance is using AXIS to build stock price charts and graphs for the new Tech Ticker video service.

The improvement in Chyron's fundamentals as a result of the excellent leadership and proven financial momentum hasn't gone unnoticed; institutions have begun to make an investment in Chyron. Institutional investment is up over 500% over the last 2 quarters. Oberweis Asset Management has taken a position during this time of over 300,000 shares.

Revenues for Q3 of 2007 were up 36% over the previous year. In Q4, the increase was 46%. Q1 of 2008 continued this trend as revenues were up 28%. This author estimates full year 2008 revenues to increase approximately 40% from 2007 due to the addition of the recurring revenue streams from AXIS combined with the strong worldwide demand for HD broadcast graphics. In 2007 Chyron signed a multiple year deal with NBC Universal, in which the upcoming 2008 Beijing Olympics assuredly will showcase the extraordinary advancements and capabilities of all Chyron graphics applications.

Chyron is currently trading at 21 times TTM earnings. This author derives a forward PEG ratio of .7 based on the above referenced growth prospects – indicating Chyron may be one of the most undervalued stocks in the market.

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Jeff Smith

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