E W Scripps Co (SSP) 2003 Q2 法說會逐字稿

Ladies and gentlemen, thanks for standing by. And welcome to the second quarter earnings report conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session. If you wish to ask a question during today's question and answer session please press the star then one on your touch-tone phone. You may remove yourself from queue at any time by pressing the pound key. If you are using a speakerphone, please pick up your handset before pressing the number. If you should require assistance during today's call, please press the star then zero. As a reminder this conference is being recorded.

I would now like to turn the conference over to your host VP Investor Relations, Mr. Tim Stautberg. Please go ahead.

Good morning all. Thanks for joining us and thanks for waiting a few moments to get started. We have a lot of folks on the call this morning, which we're very pleased with. We'll start the conference call this morning with a few comments from Kenneth Lowe our President and CEO and also Joe NeCastro our CFO. Our prepared remarks should take about fifteen minutes and then we'll open it up for your questions. Other members of our senior management team are also here with us and will be available to take your questions. Joining us on the call are Rich Boehne, EVP, Alan Horton SVP of newspapers, Steve Sullivan VP for newspaper operations, Frank Gardner, SVP and chairman of Scripps network, John Lansing who runs our TV group and Lori Hickok who's VP and Controller.

Let me remind you if you haven't received our second quarter earnings press release please call Heather at 513-977-3735 and we'll fax you a copy during the call. Also we offer a live audio Web cast if you prefer to listen in on the Web, go to www.scripps.com click on Investor Relations and follow the live Web cast link at the top of the page. An audio archive of the call will be available on scripps.com later today and we'll leave there for a few weeks so you can access at your convenience. A replay also will be available by telephone from 2:30 this afternoon until midnight Thursday by calling 800-475-6701 The international number is 320-365-3844 and the access code for the replay is 689984.

Our discussion this morning will contain certain forward-looking statements actual results may differ from those predicted. Some of the factors, which may cause results to differ are set forth in our publicly filed documents including our 2002 form 10K and most recent 10Q. Now with that housekeeping out of the way, here's Ken.

Thanks, Tim and good morning everyone. Thanks as always for your interest in the E. W. Scripps Company. Scripps continued to grow during the second quarter led by outstanding financial performance in our Scripps Networks division and particularly at Home & Garden Television and the Food Network. The popularity of our flagship networks combined with a strong scatter advertising market enabled Scripp's Networks to increase second quarter ad sales by 30%. The division's segment profits were up a very robust 70% for the period. HGTV and Food are leading the charge and our developing networks the DIY, Do It Yourself Network and Fine Living are also gaining momentum. More people are watching HGTV and Food than ever before ranking them among the most popular and widely distributed networks on cable or satellite television today. Prime time viewer ship at both networks grew during second quarter up 24% at HGTV and up 15% at the Food Network. The growing viewer ship and targeted nature of our lifestyle programming played well in this year the upfront, which as you know was very strong.

Now, we're still tying up some lose ends here and there but it looks like CPMs will be up double digits when it's all said and done we will have committed about the same amount of inventory as we did last year which was in the 60 to 65% range. We're emerging from the upfront with a very, very strong foundation for the fourth quarter this year and the first three quarters of '04. We're going to continue investing and programming and marketing to drive viewer ship, now that the advertising demand has returned look for programming costs to be up about 25% at HGTV and Food for the balance of this year. History has shown us that we can expect a good return on these expenditures.

At DIY and Fine Living, where the focus has been on distribution, we're really gaining traction. DIY now reaches about 19 million homes and Fine Living is in 17 million homes. That puts both networks on target to be in 20 million homes by the end of the year. Of course, as household distribution and viewer ship at DIY and Fine Living grows will be stepping up our investment and programming and marketing for those two networks. Supplying cable operators with video on demand concept developed from our Rich programming archives, will also continue to be a top priority.

Scripps Network content is now available on-demand in 65 Time Warner and Comcast cable markets across the United States. As you know, we've been an early mover in this area and we intend to build on the expertise that we've developed so far. We feel very fortunate at Scripps to be able to invest in the internal development of these growing and dynamic businesses. Expanding Scripps Networks remains our top priority and we believe a very wise use of our company's free cash flow.

Turning to our newspapers and our broadcast television stations both groups reported modest top line growth in the second quarter but a number of issues, including increased employee benefit costs held back segment profits. At our newspapers, local retail advertising was lower largely because department stores in some of our key markets trimmed their advertising budgets. Help wanted classified also continues to be a problem as employers wait to see what the economy is going to do before they start hiring again.

On a couple of positive notes revenue from auto and real estate classified continued to grow during the quarter and we saw healthy gains in the national and preprint categories. As for newsprint, we're now paying about $30 to $35 of the $50 increase that was supposed to take effect March 1st. As a result, newsprint costs for us were up about 10% during the second quarter. Out in the Denver market, where the local economy is still in recession, results continued to improve. The Denver newspaper agency is doing a good job controlling costs and making up for the 20% decline in help wanted by raising ad rates and building business elsewhere. The fact that the Denver newspapers are showing this kind of improvement in a down economy, gives us a very good idea that we're well positioned for that coming recovery in Denver.

Now, looking at the Scripps television station group, we're doing a really great job mining all of our local markets for new business. That's especially important as we work to replace a mountain of political advertising that's not going to be there obviously in the second half of this year. We booked about $22 million in political advertising in the second half of last year, so that's quite a ways to go to catch up. Looking at the just completed, broadcast television revenues grew 4% a growth rate that will likely look very good when other broadcast television groups report in the coming weeks. However, segment profits were held back by higher employee benefit and syndicated programming costs. Now before I turn it over to Joe, let me bring you up-to-date on what's going on at the Shop At Home network.

First we've asked DIY president, Jim Sarchin [ph] to move to Shop At Home to handle its integration with the other Scripp's operations. We're tapping Jim's creativity as programming expertise and most importantly his experience at Scripps Networks to help us realize the Shop At Home strategy. Guiding DIY's development from this point forward is Bob Baskerville [ph] one of the top Programming Executive who has actually been with HGTV and Scripps Networks from just about day one. We are very high on Bob's abilities.

One of the efforts we will be concentrating on in the coming weeks at Shop At Home is distribution. We have actively been pruning some unproductive part-time carriage and moving to replace it with full-time slots. That will make cross promotion particularly from the cable networks far more productive as we begin to carefully integrate the brands. As a result, you will see total household distribution at Shop At Home key possibly decline in the short term, as we weed out unproductive distribution and begin replacing it with better quality carriage.

On the Programming and Merchandising side, customers are beginning to see tangible tie-ins to the Strips brands. One of the early pioneers for us, the Queen of Clean, Linda Cobb now has shows on both DIY and Shop At Home. And one of the popular Food Network shows, Food Fines has spawned a companion product show at Shop At Home. Now both of these are early experiments baby steps if you will but the results have been very encouraging. Now that is a quick look at the businesses. Here is Joe with a look with some of the financial highlights.

Thanks Ken. Good morning, everyone. Rather than go over the press release, line by line, I'm just going to highlight some of the non-cash, non-operating items. And then I will touch very briefly on our guidance for the third quarter.

First depreciation and amortization, they were high on the second quarter because of the Shop At Home acquisition. We acquired Shop At Home in the fourth quarter of 2002, so the D & A Comparisons will be effective until we report the fourth quarter of 2003. To help with this we are now including D & A bi-segment in the release.

Capital spending was about $18 million in the quarter with the majority dedicated to our newspaper plant projects in the Treasure Coast of Florida and in Knoxville and we have a new building for our TV station here in Cincinnati. We spend about $40 million on capital projects so far this year, and we still expect to spend close to $100 million for the full year. Next interest expense was up $1.2 million in the quarter, which is the result of our decision last year to replace some of our commercial paper borrowings with more long-term debt. Total debt at the end of the second quarter stood at about $ 625 million down from $700 million at the end of March. Our weighted average cost of that debt is right around 4%.

Miscellaneous income while it is a small number is much higher again this quarter. This is where we record the interest income on the note receivable from Summit America, which is the former parent of Shop At Home. The only operating item I wanted to address is the company's share of earnings from joint operating agreements and other joint ventures Our share from the Denver JLA and Sports South were up nicely during the second quarter but were offset by lower results from our other newspaper JLA in Albuquerque, Birmingham and Cincinnati.

Now looking ahead we are going to offer the following guidance for the third quarter. Based on the advance advertising sales the company currently anticipates third quarter 2003 ad revenue for Scripps Networks will be up 25 to 30% for the year-over-year. Affiliate feel revenue for Scripps Networks is expected to increase about 10% during the third quarter Net of Distribution Fee Amortization. Investments in the development of DIY and Fine Living are expected too reduce segment profits by about $11 million and earning per share by about 8 cents. Newspaper advertising revenues are expected to be up 2 to 4% over the prior year. Now the company's broadcast television stations advertising revenues are expected to be up 5 to 7% in the third quarter excluding political advertising. Political advertising was $ 5.5 million in the third quarter of 2002 so all in third quarter revenues from broadcasting will be close to flat with the prior year.

The company's continuing investment in the Shop At Home network is expected to reduce third quarter segment profits by about $5 million and earnings per share by about 5 cents. You should know that we are, of course, looking at a number of new projects for the network. Some of which may increase our investment on the back half of the year. We will keep you up-to-date as our plans take shape at the network.

Third quarter earnings per share are expected to be between 55 and 65 cents compared with 57 cents per share in the third quarter of 2002. Remember that result from the third quarter of '02 included investment write-downs and other non-recurring adjustments without these items 3rd quarter '02 earnings per share would have been 65 cents. A moderator with that, we are ready to open up for questions.

Thank you. Once again ladies and gentlemen, if you do have a question, press the star then one on your touch-tone phone. And our first question comes from Brian Shipman with UBS please go ahead.

Thanks good morning a couple of questions. First within the broadcast TV division, could you talk about what you are expecting to see in terms of costs in the second half? Costs were a little bit higher in the first half than we had seen in the last couple of years. And I know that programming costs, syndicated programming costs pinched a bit in Q2, is that a trend we should expect to see going forward and then within the cable networks division affiliate fee growth of 10% in Q3 is a bit slower than what we've seen. Can you expand on why that might be? Thanks.

Sure, Brian. I will start. This is John. The cost side in the first half of the year is higher than what we normally would expect although I should tell you it is within our planned expectations. Some things that were unplanned, of course, were the cost of covering the war in Iraq which was approximately half a million dollars unplanned and then we also during the period changed the way we account for barter programming which put an additional unplanned expense in terms of programming but brought along an equal amount of revenue as well of about $800,000. All that said I will tell you that the impact of pension expense on the total expense line in the second quarter just pension taking by itself out would reduce the overall expenses by 1.5 percentage points and then if you also reduce it by that programming expense, it actually comes out at 3.8% in the second quarter.

Now to your question looking ahead to the third quarter we have taken some steps to reduce our expenses in the third quarter because we weren't pleased with the results having done so well on the top line obviously and to be so close to turning the segment profit number in a positive direction, we want to keep moving aggressively to do that so we reduce our expenses in the third quarter and we expect to keep our total expenses right around 3% compared to prior year in the third quarter. And we expect the full year expenses to be in the 4% range over prior year. And to do that, we will have to make up all of the unexpected overages that came along this year, plus some. But we expect we will be able to do that.

Brian, this is Joe, I will take the question on affiliate fees. We agree that the third quarter number looks a little lighter than what we have experienced in the first half of the year. You should know that affiliate fees are a combination of items, one of which is adjustments as contracts hit volume targets and there are price adjustments that happen, all in one lump at a time. So there's a little lumpiness to that number more than you expect. If you look at last year's third quarter there was actually very little in terms of retroactive adjustsso the third quarter was a little stronger making the comp a little more difficult in this third quarter. We'll tell you as we look ahead you should expect to see a better number in the fourth quarter and that we are well on target to meet our exceed our guidance in the year on affiliate fee revenues.

Thank you.

And next we'll go to Kevin Solomon with Lehman Brothers, please go ahead.

Hi. Quick question. Can you just break down the classifieds category and give us some growth rates for help wanted, auto and real estate in the quarter, and that's it. Thanks.

OK. This is Alan Horton. Let me try to do that for you. The total classified, as we said, was up just about 4/10 of one percent and auto was up 3.9%, employment was down 14.6%. Real estate was up 10.2%. And all other was up .3.

Great if you could follow on with one other question. On the Shop At Home initiative that could come on-line in the third and fourth quarter you say there could be increased investment spending there. Could you elaborate a little bit.

Sure, Kevin. This is Rich Boehne. Things are progressing really very well at Shop At Home. The only thing that probably unanticipated the top line is a little softer than we thought it would be, but it's the same thing that's affecting all the TV retailers in all of retail. The good news is it's still up nice year-over-year it's a growing marketplace that's why we made the investment it's a growing market place for a long time so we continue to push ahead. The only thing I anticipate is a little bit of softness in the top line. We're moving a little more aggressively on the subscriber side as Ken mentioned in his opening remarks, we're actively pruning, what we think is unproductive part-time carriage and replacing it with carriage where we can cross promote directly from the cable networks or from some of our local operations to get the revenue per subscriber up.

Just to give you an example, just beginning in late May, we put Shop At Home on overnight on KMCI out in Kansas City and the revenue for subscriber is as high as any we're seeing anywhere across the Shop At Home distribution, which just shows what you can do when you get a good channel position where you can cross promote and send the eyeballs there so that the pruning of the distribution that takes the revenue down a little bit as we take out some carriage and it'll come back and come back we will think at higher rates when we take the full time carriage back in. And we're going to keep pushing hard on the distribution side that could affect that second half. The other thing is just the migration of merchandise and the introduction of new categories and new talent. Anywhere we take out what we're doing and relays with something new, we take a little bit of a short-term revenue hit. But say the only thing we didn't anticipate that nobody could have is a little bit of the softness in the top line general economy that's touching everybody. Everything else is pretty good.

Thank you.

Next we'll go to the line of William Drewry with CCFB.

Thank you I thank you. Two cable network related questions. One is given the programming costs if I heard you correctly it'll be up 25% in the second half . Is that at the core cable networks home and food and if so, will the margins decline in the second half at those two networks on a year-over-year basis for Q3 and Q4 given the revenue guidance. And then number 2, maybe this is for you Rich. On the Shop At Home. Could you elaborate a little bit more on the change out in the distribution as far as maybe what you guys are willing to pay for distribution. Just remind us what you're paying right now for Shop At Home and will you be paying up a greater amount for that increased carriage. Thanks.

OK. Bill Rich again I'll talk about the Shop At Home distribution and Joe has a calculator there and he's working on the Scripps Networks numbers for you. Yeah. [--] The big difference in the Shop At Home distribution is you have some homes that have been in place that, you know, what you were trying to do is really just snag viewers as they come along. And what we're doing is taking those out. And for the most part, those are subs that you were paying somewhere around $1.25 for, something like that. We have found that we have not had to pay a whole lot more for better distribution, although we would be willing to pay more for better distribution, all based on getting a good return on investment. But no, we have not had to pump up the cost dramatically. It's just a matter of renegotiating and focusing contracts and carriage on what we want according to our plan, which is good steady channel position where we can cross promote to. It's not a big challenge it’s a matter of taking it out and putting it back in and the costs are not dramatically different.

Bill, on the question of the margins, I don't have it by network here. But you will see a margin compression in the third quarter for all of Scripps Networks and then a rebound as we exit the year in the fourth quarter. So there will be a one quarter decline as far as I can tell. My guess is it will affect the mature networks as well because they are the ones, the drivers of the overall margin obviously. And we are spending across all networks.

And is that 25% specifically for food and for HG or can you great out what the programming cost increase in the second half will be for those 2.

That's across the both of them is 25%.

And that's in line with the original plan?

Yes. It is.

OK. Thanks very much.

Sure.

Next go to the line of Douglas Arthur with Morgan Stanley. Please go ahead.

Just looking at your newspaper ad revenue guidance for Q3 of 2% to 4% you've decelerated sharply since April and June looks like zero you do have a fairly easy comp in July. Can you sort of flesh out how you get to 2 to 4% and what the risk is there. Thanks.

Hi, Doug. This is Alan again. A couple of thoughts. I think we're [--] there's very little risk in the 2 to 4%. Just talking philosophically for a second, I will think clearly the department stores are going to have to come back in the fourth quarter for sure, and so are a lot of the other folks who have been sitting on the sidelines. I personally thanks the fourth quarter on a retail side will be stronger that be a lot of people feel right now.

But employment revenue on the other hand, is another story. We obviously thought that by now we would have hit bottom. We may have hit bottom. But we've gotten a little skittish on that one and employment revenue by the way and newspapers is a indicator anyway. People have to feel very confident in the economy before they start hiring new people. And it usually takes a few months of a pretty robust recovery before people start hiring in a robust way. And that's when the employment revenue will come back. And we are extremely well positioned with a variety of products both on-line and prep to capture that when it does come back. It may not happen much before the end of this year, but it should be very strong next year. That's kind of way I see it in a nutshell

And you were talking about the fourth quarter but you also feel confident in 2-4% in the third quarter I assume. And then just as a follow-up, the non-newsprint expense has been running fourish or fiveish the last couple of quarters. Is that going to continue? Thanks.

Well, there are two aspects of that. The first one is the confidence level and the answer of the confidence question is yes indeed I do feel that confidence in the third as well as the fourth quarter. The non-newsprint expenses I have to include in because that's the way we figured it we're up about 4.7% but that included a number of items that aren't likely to repeat. And without detailing all those things, a lot of them have to do with some outside printing and some special products and phasing in of our plant in Knoxville and the planning of the plant and starting of construction for the new plant on the Treasure Coast and so on, there are a whole series of those kinds of things. So that the real number is more down in the 2-3% range.

Great. Thanks.

Next we'll go to the line of Lauren Fine with Merrill Lynch. Please go ahead.

Thank you. A couple of quick questions. I'm wondering if you could provide the classified breakdown for June specifically. Secondly on newsprint, I was maybe a little bit misinformed or surprised that you were up 10% in pricing in the second quarter. And I'm wondering if you could give us any sense of what you think you'll be up in the third quarter. And then third, on the investment write-down, will we continue to see more of that or is that mostly done at this point or is there a schedule when you review the investments where we can predict when we might see these write-downs?

The easier one is probably the investment write down. Lauren, this is Joe I'll take that. We look at them every quarter. And we only write down when we have good reason to. In this case, these were two smallish investments that had [--] their market values were clearly below what we were carrying them for. We do look at it every quarter. Of course, I will tell you at this moment I don't anticipate anything further because, you know, again they're on the books for what they are but we do look at it every quarter and then, of course, at the end of the year as well.

Lauren, this is Alan. Let me try to answer both of your questions. The June [inaudible] breakdown and remember now we go by the month. And the exact [inaudible] and not a period. So we lost a Saturday in June and that dramatically affects a couple of classified categories. So it's very difficult to look at June by itself. You have to look at May and June together. But I'll give you June since you asked for it. Total classified was down 3.4%. All over it was essentially flat. Employment was down 12.8%, real estate was up 3.7%. And other was down 5.9%. And again, remember, that's minus a Saturday. And that's a big day for auto and real estate and other. The newsprint question is a little trickier. As you will know, we never discuss specific newsprint pricing. But we certainly don't anticipate that the August increase that's been announced by the manufacturers will stick based on the current state of demand.

So presuming that it doesn't stick, would we expect your pricing to be up at a higher rate than the second quarter or about the same rate?

To be honest with you, I'd rather not answer that question because we're still working on a lot of things to try to control it and I don't want to signal what our expectations are to the suppliers.

OK. Fair enough. Thank you.

Thanks, Lauren.

Next we go to Steven Barlow with Prudential. Please go ahead.

Thank you. Rich, you talk about Shop At Home a little bit on the guidance. It looks like you've already done a 15 cents loss for the year when you gave the third quarter guidance that you've done for us should we be looking at more of a 20 cents loss for the year? Secondly, Joe, can you just remind me what the D&A run rate for '03 should be? And then lastly, I guess Joe again, on pension, can you remind us what the total increase in pension expense would be in 2003 and if it's possible to break down by division what percent of that increase goes to TVs and newspapers and my guess is you don't have any on the Scripps Networks that would be helpful. Thanks.

All right. Let's see. Pension, the total increase on the year was about $12 million, $12 or $13 million effectively doubling our pension expense. I do not have a breakdown as to where it goes I can get that to you later how much of that expense hits which division. I think it's fair to say a big chunk of it goes to the newspaper division because of the population there. With respect to Depreciation and Amortization the run rate on the year, we should be in the mid to highs, you know, between $65 and $70 million on the year, all in. And then Shop At Home, let me just before Rich answers that, on Shop At Home, we calculate the effect all in including the interest income on the note and the minority interest involved, et cetera. Through the first two quarters of the year we're at about an 8 cents loss the additional nickel will give us about 13 leaving, as we spoke 2 cents within the initial 15 and I'll turn it over to Rich for that.

OK a couple of things to remember, Steve. This is Rich. The fourth quarter is the best or we anticipate the best quarter for Shop At Home. At the same time, when we take out some of this distribution, that lowers the revenue a little bit and also lowers the cost at the same time. So we would anticipate underlying to have better results from here moving toward the end of the year. So to the degree that we creep up over 15 cents and as Joe just said you've got about 2 cents to spare and to the degree that we would move beyond the 15 cents, it would be because we have made very deliberate decisions to push harder on the distribution side or to ship the merchandise faster or to increase the cross promotion. So as we make those very deliberate decisions we'll let you know how it looks heading from here to the end of the year. But we do have some control over it.

Thanks.

Next we'll go to James Marsh [ph] with SG Cowen please go ahead.

Hi. Joe. Two quick questions there was barter number thrown out of $800,000. I just want to clarify that was for the second quarter or was it for the first half in total? And then secondly on the network operating costs looks like they're going to be up in that 25% to compressed margins in the third quarter. I'm just trying to get a sense for what other costs are moving up obviously you mentioned programming costs up 25% at HGTV and Food. But are there any other specific costs driving the overall costup to that 25% range.

This is John thanks for giving me a chance to clarify that that number is for the total first half in the quarter it would be 550,000. That's the barter programming.

Alright, excellent.

And as for the programming costs, we talked earlier about programming costs going up somewhat related to some new programming initiatives at Home and Garden and Food particularly that had to do with broadening of the overall Home and Garden and Food lifestyle concept, these are part of an ongoing effort to boost the ratings quite simply and there is a very hard-line between the changes that we're making in programming as it relates to cost also here. And the actual ratings going up and the actual costs for points going up. And maintaining that hard line connection between those costs and those program changes and the CPM increases is what we're all about and we're very, very very confident about the ability to maintain that hard-line connection

So I think the program costs issue is something that should be regarded as an overall confident part of our growth strategy. It is getting results. The ratings are improving on those networks. I want to say by leaps and bounds I'm trying to control myself. But on any giving night, we're getting a number of shows averaging a full rating point up to a 1.5 and sometimes a 1.7 overall average was 1.8 for the fourth or fifth month in a row so these programming costs and programming changes are truly going to be reflected by continued strong growth on the bottom line.

James, one thing I would just add as you know our programming costs overall are among the most economically efficient in cable and the cable network business. So on a percentage increase, sounds like a step-up, although this was planned and then our plan. We still to Frank's point have excellent ratings to programming cost ratios. Nothing really new here. We've always been investing in programming and to a certain degree marketing to continue to bring these ratings along.

It's all part of the long-term plan absolutely I should say and I'm glad you mentioned marketing along with these programming changes you have to make changes in the marketing and the message you're putting out about those changes so it's all part of a concerted plan there's not a whoops here.

This is something I want to still in [inaudible] When you start spending this in the third and fourth quarter should we assume that continues for the next 3 to 4 quarters.

Well, I think the larger issue is the results and the benefits from these changes is what you're going to see hitting the bottom-line in terms of these cost for overall volume increases we won't be getting the advertising [for selling these showa] but I don't think you'll see some sort of continued increase in our programming. This is sort of that fourth in a row where we're making this change and those increases will not be strong going forward.

OK. Great. Thanks.

Next we'll go to Mandana Hormozi from Lazard .

Good morning, I had two questions. One on the distribution of DIY and Fine Living. You're sort of expectation of 20 million by year end of high sort of a slow down in that distribution. I was wondering what was behind that or is there just a very conservative number. And also on the programming side, sorry about this, was wondering how many hours of programming you have for Fine Living and DIY that are original. Are they 24/7 or do you expect to be sort of increasing the hours of programming there as well?

Well, to your last point, virtually all of our programming is original on both Fine Living and Home and Garden. There's a high repetition rate as in the case with all cable networks particularly [inaudible] cable network in the first two years. But the programming is all original and we own all of it.

That's what I meant. How many hours are non-repeat?

You're asking for what's our [--] how many hours our rotating calendar, I mean and rotating schedule, 4 hours or 5 hours at a time original before the rerun is [that what you referring to.])

Yeah.

Depending on the time of the day, it's different, depending on the day part. But on any given network, usually be assured of at least three to four to five hours of fresh material, before there's any part of a rerun cycle. But it's not absolute and it's not rigid. It's a very complex process of a little bit of this returning a few hours later and some of that not returning for even more hours later. So it's a hard pattern to describe. In terms of the total number of hours, I think about 350 hours for Fine Living and actually about 900 hours of new programming for DIY. So there's a lot of new programming there that we're getting a lot of mileage out of.

And on the distribution?

Well, you alluded to some disappoint about distribution. We're right on target in terms of our hope for andour projections of and growth for DIY and Fine Living. They are right on target. And we're very confident that we will get there. Right now, DIY is at about 21% of the total cable universe. And Fine Living is at about 19.4% of that universe. DIY is 19 million, Fine Living at 17. We think the 20 million is an easy target to reach and we're confident that we'll get there and it has been part of our long-term plan all along. There's no change and no disappointment here we're right on target.

It comes in lumps and if anything, we do tend to be conservative because we can't control exact timing of systems coming on.

OK. Thanks.

Next we'll go to the line of Peter Appert of Goldman Sachs.

You've covered all my issues thanks.

We'll go to Thomas Russo.

Hi. Good day. A couple of questions can you hear me.

Yes.

Good. Rich, first for you, on the Shop At Home, will you gain any benefit from the QVC sale to liberty with the possibility of working more closely with come cast if that relates at all to your distribution, one question. Ken, for you, we're reading about the people meter possibly allowing for ratings for cable networks to over index what the standard diaries suggest. And that's particularly true in sports. Have you any sense as to what your lift may be for your major networks, if you are able to move towards individualized people meter and then for you Ken as well. What lessons have you learned so for from your experience with those initial video on demand households in terms of their pricing model and in terms of your opportunities for advertising around those VOD segments. Those are the first two questions.

OK. Rich, you want to go ahead and handle the Shop At Home?

Sure. The honest answer is Tom that deal was just done and we don't know. I guess we would tend to see it as a positive that the folks at Comcast might see opportunities, you know, for them to make some money as we make money building out Shop At Home from here as they're going to be more disassociated with QVC. You have to remember for a cable operator, Shop At Home, any TV retailing is an opportunity for them to make real cash to the bottom line each and every month. And I think that will be a strong incentive to Comcast. We have not have a concrete discussion following that announcement.

I think Tom just to add to Rich's point it also under scores obviously with the eventual price and valuation of that network just how powerful these TV retailing networks are comparatively in the media universe and we've got a long way to go to get anywhere near close to QVC's bottom line I grant you.

However, I think with our strategy and over time our investment in Shop At Home is going to be a nice return to our shareholders and if anything, I think this just under scores how valuable these TV retailing networks are once they get mature up and running. On the people meter research issue, I can tell you that it is a very, very positive affect for our cable networks. We've had some confidential information given to us in these early trials. Frank may have a little bit more on some of that, some of which most of which we can't share. But I can tell you that the early line that you're reading that indeed people meter research over indexes on the cable side is especially true with non-fiction information based networks. And as you mentioned the sports networks. The timing of that and when it all really begins to impact is hard to tell, but it's a very [--] it would be a very positive result for our networks if indeed people meter research became the dominant research method. And John, you too, may have [--] if you and Frank have anything to add to that. In some of our markets, we've had some testing going on anything to add.

As Ken alluded, Tom, the confidential glimmers that we've had go quite well for us in boldness and our optimism and you can deduce from what is publicly known from the tests in Boston and Philadelphia it's nothing but good news from us. John you put 15 to 20% increases in viewing.

Yeah, general across all cable and at the high end of that it was increases of 15 to 20% for cable networks and also to let you know Tom the Nielsen expects to roll this out fairly briskly in the top 10 markets and expect to have the top 10 markets within 3 years and that would include obviously our broadcast in Detroit. And one other note just in the broadcast, broadcast rating were up as well in the testing, but not as much as cable.

Viewing over all is up and the last question, Tom, the lesson from VOD so far many as you know and as we've stated publicly, we've been out-front in VOD, we have worked with all the distribution partners very aggressively. You know about our trial test in Time Warner, we were one of the few cable network groups that jumped into that test in Cincinnati and other markets as you heard in our remarks this morning, we're now in 65 Time Warner and Comcast markets in some type of on demand product. And it varies from actual on demand channels to just Video On Demand shows that are cherry picked. I think the jury is out. It's early, Tom on pricing, and as to what the customers are going to want to pay for this at the end of the day.

On the other hand, totally opportunistic from the advertising side we're already incorporating advertisers in practically all of our VOD and targeting instances for the example I use from time to time is remodeling a kitchen, remodeling the bath, a color sink spot and the CPMs that can eventually begin from that kind cost efficiency on download is very high and the good news is the research that we got coming back says that the viewers that are taking the VOD do not view the commercials as a negative [-] just the opposite they view them as a positive because they are information based about the programming that they're watching. And what the advertisers are experimenting with us on is doing longer phone commercials getting into more product detail and as broadband begins to really take shape, we'll be able to quick link them right back to a [Kohler] Sinks or Henry Don furniture or whatever so. I like where we are in VOD, we had a better handle on what it's going to mean to the bottom line.

But again and you've heard me say this, I think our ultimate hope is SVOD subscription video on-demand where we truly can deliver targeted video magazines, if you will to gardening folks, to interior design and decorating and building and remodeling. And I think that model could easily take on the same characteristics as a print magazine and the numbers there.

So at this stage, we're very pleased to be in partnership with these cable distributors and DBS distributors with VOD and I think we're going to learn a lot over the coming months.

I thank you Kenneth. It's very encouraging. Two last questions for Joe. What are your capital spending plans for '04 and '05 and what are the amounts of the distribution fees that are being amortized say in the third and fourth quarter in your assumptions and then maybe the same number for next year, if you have it.

Capital spending for the next couple of years is actually going to moderate. We expect be back down to I would say below $80 million next year and maybe even lower in '05. So we're looking at something like $70 to $80 million just for ongoing maintenance. It could be lower, but I don't have any specifics on say the larger projects that might be out there. So I'm expecting little moderate. With respect to the amount of amortization that's going to hit, you know, Tom I don't have that in front of me and it's going to be difficult to dig that out in timely fashion.

OK.

Thanks, Tim.

Thank you.

Next we'll go to the line of George Smith with Davenport. Please go ahead.

Good morning. I was wondering if you had given any thought to changing your dividend policy. It seems to be the time to do so. And I understand that you are prioritizing investing for growth in the cable business but it seems as though you could comfortably do both that increase the dividend and continue to invest for growth. Any thoughts there or potential change?

George have you been sitting in our board meetings lately? This is Joe. We are actually looking at that and the board has asked me to give them some information on that and update them at this upcoming meeting. I wouldn't anticipate a change, you know, before the end of the year frankly. But we are looking at it and we are doing it in the context of looking at the next three to five years worth of cash planning for ourselves for the longer term strategic view. We view this as one element of it. Certainly, it would be an opportune time given the change for shareholders so we are looking at it and I don't have any preliminary conclusions to give you on it.

OK. Thank you.

Thanks very much.

Next we'll go to the line of Frederick Searby [ph] with JP Morgan please go ahead.

Good afternoon, gentlemen. Just one quick question. If you could in your broadcast TV guidance, where do you see automotive shaking out and where do you see strength from sort of a category perspective?

OK first of all, just to update you on the category for the second quarter automotive was up 12.4% and that means for the first half of '03 automotive was very healthy for the broadcast division that was up 9.2%. Going forward we have seen some softening in this category particularly out of [Ford.]) Nothing. No alarm bells. But certainly the growth rate of 9-10% in the first half would be, I think it's a challenge in the second half. There are some interesting industry changes coming ahead in the next couple of quarters with automotive including the negotiation of a labor contract with general motors that could affect largely how their operational spending is going into the fourth quarter. But when I look ahead to the third quarter and I talk about areas of strength really one of the key areas of strength for us is our development of non-traditional revenue in new business through the first half of this year through May. We have these figures through May. We are up 70% in that revenue category, which is one that we created a year ago and that represents $1.2 million in the first half of the year and we expect that sort of an aggressive growth pattern in the second half as well.

So I look at the breakdown in the third quarter we anticipate local advertising to increase from 5-7% and national advertising to do better than it did in the first half, perhaps as much as 4-5% national improving somewhat because of the inventory that will be freed up that was holding a lot of the political revenue a year ago. So we expect to replace the $5.4 million in the third quarter political number from last year through growth and much of that growth driven by our ability to develop new business and also I should just mention that we have had some key ratings improvements at some key location s that are also driving our projections and that includes three of our core fore stations Detroit West Palm Beach and Cincinnati are all up on a trend line and had a good May ratings period that looks very good going into the third and fourth quarter and we've also seen some growth in Kansas City and Phoenix. And so that ratings growth coupled with our new business investment coupled with what we think is a moderately healthy automotive market although not as healthy in the first half reports our forecast.

OK. Great. One just quick follow-on on the newspaper this question was kind of asked but just to clarify. The newspaper retail advertising you see the department stores picking up in the third quarter and that's what's driving this somewhat sequential improvement in growth? Was that a correct assessment to a previous question?

I think there will be a slight pick up in department stores in the third quarter but I was speaking particularly about the fourth quarter with regard to department stores. I think one of the things you asked about automotive of John on TV, you have to remember on the newspaper side, automotive comes in two sizes, national automotive and classified. And national automotive was up very, very big and I don't have the number in front of me, but it was a big gain in the second quarter and we see that continuing into the third quarter.

Do you see some people have talked about a shift of some of the automotive money into other media, you know, direct and even talked about eventually news paper on the national side, are you hearing that and thinking that's for real?

There's no question over the last couple of years more and more automobile manufacturers have looked at newspapers as both a branding and a mechanism as well as the traditional go down and get the special incentive that just lasts for the next week or two. And that started a couple of years ago principally with the foreign manufacturers and is now back with the domestic. So the answer is yes.

Thank you.

Next we'll go to the line of Kevin Gruneich with Bear Stearns. Please go ahead.

Thanks. Two part of it, Rich, understanding you're taking very deliberate actions at Shop At Home and understanding that revenues are key to any short falls if indeed there is, now that you're eight to nine months into it. Do you see '04 and '05 for Shop At Home playing out like the networks and the developing cable networks where you will see flattish dilution or losses or perhaps a little bit higher or do you see a different trend line? And then secondly, regarding the cable upfront, you talked about CPMs. I was wondering given there's probably more avails at HGTV and Food this year than last and you have DIY and Fine Living in there, if you could talk to the volume. And also, I saw in a trade in the last couple of weeks where Steve mentioned that Scripps Networks hit 80% of their upfront goals or of its up front goals and I was wondering if you could clarify that quote.

Let me [--] I'll start with Shop At Home Kevin. This is Rich and then we can bounce around. We haven't forecasted next year and the following, which we will do very shortly. We'll actually do that in the next week or two and then as it will work into our guidance going forward. I think the only thing that's different [--] well the big difference between, Shop At Home and DIY and Fine Living, you know, both are new businesses and both are businesses we're building. But DIY and Fine Living we built from the bottom up, you know, at the end of the year in 20 million homes, Shop At Home is already in 45 million homes let's say. It already has revenue well north of $200 million.

So unlike the cable networks, DIY and Fine Living were where you're building from the bottom up Shop At Home we're remodeling while we're driving 70 miles an hour. So the changeover in the movement in revenues is going to be quicker and move dramatic than you would see at the cable networks where we sort of let it out as we go and we build slowly. When we bought the Food Network, we have a destination we want to reach and we want to get there quickly and we're not afraid to make some sharp and hard moves to get us remodeled and in position to take advantage of the opportunities we have primarily through the cross promotion with the cable networks and, you know, the properties.

So I'm not [--] you know, we'll let you know just as soon as we forecast next year. But we're trying to get as much of the hard work out of the way as quickly as possible. And against where we really get when we bought the business. We feel like we're doing pretty good.

Kevin this is Frank to your question about CPMs and volume and their relationship to avail, the story is exactly the opposite and it's a good story. We're consciously actually reducing our avails, not increasing avails particularly with regard to the Food Network. So no [--] there's not some huge new pool of avails that somehow is appearing and boosting our CPM and volume numbers it's the exact opposite. We are seeing fewer avails but higher ratings because we're trying to consciously improve the color situation.

This is Tim, Kevin. With respect to Jim Lotty's [ph] comments in the trade press, I think that was a continuing dialogue with one of the trades about where we were in the negotiation process and he was at 70% of the way to, you know, wrapping up the business and then 80% the way to their goals with the full expectation. I think that was more of a how far along are you with writing the business as opposed to, you know, where are you with dollars relative to your expectations.

It was just a calendar situation.

Are you saying that volume in the upfront for Scripps Networks was flat to down?

No, not at all. Our CPMs are going up and our overall pricing is going up because our ratings are going up and our pricings are going up and our demos are going up but we're also decreasing somewhat and by the way this has been going on for about 18 months now it's a long-term process of trying to reduce some of the clutter on the Food Network when we originally inherited it we felt it was too over commercialized so we're ratcheting down that avail situation but it's way more than being compensated for by huge growth in the CPM front and the volume front.

if I may just add to Frank. If you were talking about across all networks and volume most definitely across all Scripps Networks is up, as you know, one of the benefits of having multiple networks is having multiple avails. And I think the most recent update from Jim Lotty was that the start up networks were also experiencing above average growth based on the really strong up-front market. So Fine Living and DIY and if I may add our Web site, our Web sites participated in and had a really strong upfront. And now we're selling those individually in packaging with all four networks. So if you look at volume year to year, it's up.

It's up how much?

I didn't say how much. I just said it's up.

OK, I'll follow up, thanks.

Next we'll go to Mark Hughes with Sun Trust please go ahead.

Joe, you had mentioned cable margins declining was that sequentially or year-over-year you were referring to.

Sequentially.

OK. And then I think you had talked about the outlook for retail being strong in the fourth quarter. Any particular reasons for that? Is it the overall economy? Is it newspaper specific that gives you confidence? And I guess this is 4Q newspaper and retail?

I think it's based on a feeling about the general economy and what we're hearing from our specific markets, you know, each market is different. And our particular markets are feeling pretty good about the fourth quarter and what they're hearing from the local retailers. Secondly it's discussions we've had with the major national retailers particularly the department stores and what their plans are and what we're able to provide them that meets their needs, other than just ROP, end paper advertising. And thirdly, it's the Christmas season and the fourth quarter is when retailers have to make their stand. And they are having a rough year so far, and if they have any feeling at all that the economy is going to pick up a little bit, they're going to go after it in a big way.

Right. And then just a final question. I guess the different alternatives, you're presenting to the department stores, what is more attractive to them about what you're talking about?

We have a whole series it's a long list of things that we're offering them in the way of added value opportunities. It includes everything from the Web sites, which probably doesn't interest department stores as much as other advertisers. It includes a lot of targeted distribution to non-subscribers. It includes database comparisons of their frequent shoppers and credit card holders with our subscribers. And a variety of other things that [would] take the rest of the afternoon to list. We're being very creative. We're using everything we can think of to try to convince them that we can provide the results that they need.

Thank you very much.

Next we'll go to the line of Hail Hawk [ph] with Inward Capital, please go ahead.

Good morning. And most of my questions have been answered but I just want to follow up little bit on the Shop At Home network. You mentioned some carriage pruning. I wasn't sure if that was 100% your choice or if some of the stations that you are currently on or are being sold, but I have read they are in the process potentially being sold both some in America and others and if any of those key stations were to be sold, would you be interested in buying a buyer to avoid losing any carriage and finally as it relates to carriage. You're in roughly 45 million homes now how well could we see that number go before it kind of ramp back up?

Any of the pruning is 100% our decision. And the only stations we're on of any significance are the summit America the former Shop At Home stations and those are long-term carriage agreements and if they were to find buyers for those stations, there's a notice period that we've got time to replace that carriage if we would need to be [-] if we would need to. We haven't really focused on or spent a lot of time trying to decide whether we would buy those stations to handle the carriage. They've been for sale and you've probably read they have a broker and they are looking around. But we think we're pretty solid in this market for some period of time. And we just have to decide if the challenge or opportunity came up if that would be the best way to handle carriage in those markets. Any of this carriage we don't handle, look at it so much as cable and broadcast we just look at the best way to get into these markets and some what's the return on investment for us. And that's the way we would look at the stations at the same time. So any of the pruning is 100% our decision. We're trying to improve the profile. We'll look at those markets as they come up.

But at this point, we're pretty secure in the former summit America markets. How far could the [--] well it could move down toward 40, which would not be an alarming number at all especially since as we will say we're pruning unproductive carriage. So, if you take the number down you're taking the revenue down but you're also taking the expense down and you're using those dollars and put the pack into a required long-term to 24/7 carriage. So, I wouldn't be surprised to see it close to 40 and then saw it creeping and working it’s way back up.

I appreciate the update and like to make a lot of progress.

Thanks, Hail.

Next we'll go to the line of Patrick Walker [ph] with Walker Smith Capital. Please go ahead.

I think you all have got just about all of my questions. I guess to follow up on the previous question, the listing I'm sorry regarding the Shop At Home network, the requirement for notification. I assume [- ]do you all have a right of first refusal to maintain that? Is that part of that agreement? Or would it just give you a window of opportunity to replace the carriage elsewhere?

It just gives us a period of time where we would replace the carriage. It's multi-year carriage agreement should they have an agreement to sell the stations, they would notify us and we have some period of time before they could take Shop At Home off the station. We can dig that out and give you the specifics, if you want to call back after the call.

That's fine. I think I just was remembering that. And as far as the other transactions going in, I guess the implications referred to earlier with carriage agreements it sounds like you're not satisfied 100% with the partial carriage you've got at the Shop At Home network. When you're thinking about increasing the carriage then I take it that perhaps one of the cable operators or satellite carriers would be your chosen path I guess as it were to increase coverage on a 24/7 basis?

Yeah. Most of the good carriage now is cable, 24/7 cable and that's what we're working on going forward. But it doesn't have so much to do with where it's carried as do you have a good channel position where you can cross promote to. We fully anticipate we would do this pruning going in. So much of our strategy has to do with cross promotion and tie-in to the brand that we want to make sure we have good consistent channel [positions] to promote to. It's pretty much as anticipated we knew we were going to take out some of the part-time and replace with full-time.

I guess as that relates to the summit America stations, are you [--] could you characterize your satisfaction or the importance of those I guess five stations that are potentially for sale as less important or more important than you thought when you I guess did the transaction about 12 months ago?

Right about where we thought. It sort of put it into perspective. Those are about 5 million homes [--] 5.2, 5.3 million homes on a total base today closer to 50 million homes. So it's not a substantial piece of the distribution base.

Right. And would you be interested in renegotiating that? I mean it's pretty good terms for I guess the network to be on that carriage for I guess the first three years but after that time you'd have to re-negotiate is that correct.

Certainly might [--] it's all in the math. Depends on what works for both sides, if it works well for us long-term there, if it'll work well for them I assume we would do it. But they're actively looking for some other alternatives for those stations so we have to see how it plays out.

So, I am [--] when you say there's significant changes in the back half it implies there may be changes in those stations as well I guess.

Thinking that would happen there would not happen quick enough to affect us in the second half of this year.

OK.

It would be well out into the next year.

Because of the FCC and the amount of time you've got guaranteed carriage I guess.

Because of our agreements with them. We do not have any affect in the second half. That's all carriage that we have been pruning and thought we would prune and plan to and we'll well on our way.

OK. Thanks for the clarification.

Next we'll go to the line of John Janedis [ph] with Banc of America Securities. Please, go-ahead.

Can you give us an update on the timing of the potential launch of the Hispanic network thank you.

We don't have a specific target date for that. We're still in the testing stage, John, of the number of the programming concepts that we have already produced. We're approaching this very, very cautiously. On he surface it seems like a sort of no brainer with the titlewaveof increase with the potential audience it seems like it should be a no-brainer. But the more that we learn about it, the more cautious we are. Because we want to make sure when we do this it's the right product aimed in the right way. And there are a number of different ways one might aim a network like this. It's not as simple as even we thought originally. So our caution is based on a lot of testing that we're doing in the real world with real programming and real audience. And that has caused us to be more cautious with the result. And we don't have a deadline or date on the calendar nailed to the wall yet.

Great. Thank you.

Next we'll go to Douglas Arthur with Morgan Stanley. Please go ahead.

Yeah, just a point of clarification on cable margins which there's been a lot of discussion here on this call. I assume you're expecting cable margins to be down slightly from a year ago as well as sequentially. Can you just clarify that? Thanks.

Talking about the third quarter, right, Doug?

Yeah. There was a question asked about are you talking year-over-year or sequentially. You said sequential. But I am certainly in taking your remarks to assume [--] to guess at you are going to be down slightly from a year ago as well.

Yeah. The clarifying question was what I intended when I answered the question which was I was talking sequential. But it will be down slightly also year on year.

Thanks.

And next we will go to the line [--] gentlemen, there are no further questions in queue. Please continue.

Great. This is Tim Stautberg. Thank you all for joining us today. If you have any follow-up questions you may call me at 513-977-3826 and I think the operator has some replay information. Operator.

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