E W Scripps Co (SSP) 2003 Q4 法說會逐字稿

Welcome to the fourth quarter earnings record conference call. As a reminder, this conference is being recorded.

I would now like to turn the call over to Mr. Tim Stautberg, the host of our call.

Good morning. We'll start the conference with a few comments from Ken Lowe, and Mr. NeCastro. Other members of our senior management team are also here with us, and will be available during the Q&A portion of the call, Rich Boehne, Executive Vice-President, Alan Horton, Senior Vice President of Newspapers, Frank Gardner, Senior Vice President and chairman of Scripps Networks, Lori Hickok, Vice President and Controller, and Bill Peterson who recently was named head of our TV group. He is succeeding Mr. Lansing who earlier joined the Scripps' management team.

Let me remind you, if you prefer to listen on the web, go to www.scripps.com, an audio archive will be available on our website later today and we'll leave it there for a few weeks so you can access it at your convenience.

Our discussion this morning will contain certain forward-looking statements and 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 or 2002 form 10-K and most recent form 10 HQ.

Now, here's Ken.

Thank you, Tim. Good morning, everyone. As always, we truly appreciate your interest in E.W. Scripps company. I consider this to be a tremendously rewarding time for me personally to be CEO of this growing company. The growth strategy we set in motion ten years ago when we launched Home and Garden Television is truly bearing fruit today in the form of increases profits and superior returns on the capital we have successfully invested over the years.

We've had the privilege of watching HGTV and the Food Network become popular and distinctive mainstays of quality television programming that clearly stand out in a crowded feel. Record numbers of new HGTV and Food Network fans are tuning in every day, which tells you that we're striking the right chord at our networks.

We'd say based on the solid quarterly and full-year financial results that we reported this morning, we're striking the right chord with advertisers, too. By just about every measure, Home & Garden Television and Food Network continue to grow at an exceptional pace. Both are enjoying the direct result of our achieves investment quality programming, increased viewer awareness and ratings.

The growing popularity of HGTV and Food Network in an improving ad environment really gave us a one-two punch that made 30% op-line growth possible in 2003 and sets the stage for another strong year in 2004. Leveraging the valuable brand equity that we have created at HGTV and Food will continue to be one of the company's top priorities.

We're also committed to developing our newer networks, DIY, and of course Fine Living, which are both showing great promise. Start-up losses at DIY narrowed during the fourth quarter as distribution gains translated into increased advertising sales.

At DIY, which by the way is now available in 26 million television households, operating revenues more than doubled during the fourth quarter, and start-up losses were half of what they were in the same period a year ago.

Recent beta research, by the way, showed that 75% of about 150 cable system operators who were surveyed say they'd like to add DIY to their channel offerings in this coming year. DIY is definitely gaining traction.

The Fine Living distribution has grown to 20 million households, approaching $3 million in ads a mere 18 months after the launch of Fine Living. In our opinion, investing to develop these increasingly valuable brands is a worthy use of the company's free cash flow.

Our growth strategy at Scripps also includes building an innovative commerce business at on you newest enterprise the Shop At Home network. During the past few weeks, we truly accelerated the transition and demonstrated our firm belief in our evolving television commerce strategy.

We've been doing this by strengthening the management team and by investing by bringing the rest of this valuable business into the Scripps fold. Just before Christmas, we announced plans to acquire Summit America television, which owns a 30% minority share of the Shop At Home network and other related assets. We expect to complete the acquisition during the first half of this year. The deal currently is working its way through the regulatory approval process. It also has to be approved by the summit America shareholders.

Earlier this month, we strengthened the management team by bringing Judy Girard on board from the Food Network. Judy, a Food Network's President has played a key role in that successful turnaround and we call on her to those same skills as the new President of Shop At Home.

Our new merchandising chief is guiding our shift to product lines that SYNC up more closely with our networks. Mike comes to us from Neiman Marcus direct in Dallas where he was running the professional chef catalog direct retailing business. Judy and Mike will be working together to bring the Scripps television commerce strategy into focus and we're excited to have them both on board at Shop At Home. We firmly believe you're investment at shop at home combined with our expert will continue to create long-term value for Scripps shareholders. Now, you'll be see a lot of positive changes at Shop At Home in the months ahead, so stay tuned.

Now, turning to our newspaper division, we saw improvement in advertising sales during the fourth quarter, but weakness in local retail and help-wanted advertising persisted. Our newspapers have done an admirable job for making up for lost department store revenue and positioning themselves to capitalize on the economic recovery, which appears to be gaining in traction.

We also saw improved results from our newspaper in Denver, as we reap the benefits of the joint operating agreement that we helped create there. Improved Denver results, however continue to be more a function of reduced expenses rather than improved sales. The economy in Denver seems to be lagging national trends.

Let me add something about JOA here in Cincinnati. Gannett has told us they don't intend to renew the JOA when it expires in September 2007. That gives us four full years to explore options for the future of our Cincinnati newspaper past the JOA's expiration date.

For now, our intention is to continue publishing the Cincinnati Post and Kentucky Post as directed by the joint operating agreement.

Finally, at our broadcast television stations, we're anticipating a strong performance in 2004 as the national political campaigns begin picking the steam. We're blessed with top-rated television stations in Florida, Ohio and Michigan, which, as you know, are three of the country's most hotly contested states for the upcoming election.

It should be noted that our stations did a great job in 2003 compensating for the lack of political advertising in an-election year.

Our TV group's full-year revenues were just about even with 2002 when we booked about $24 million in political ad revenue. We really think that was an exceptional accomplishment, of course, a lot of the credit goes to John Lansing and the exceptional leadership that he's provided the past couple years as head of our station group. Let me take this opportunity to compliment John for a job well done, and wish him all the best in his new role at Scripps Networks.

I also want to officially welcome Bill Peterson to our corporate office here as the new head of our broadcast TV group. Bill, as you know, has been doing an exceptional job as vice president and general manager of WPTV in west palm beach, Florida.

Here's Joe to go over some of the numbers and provide a forward look.

I'm going to provide a bit more detail in the fourth quarter, specifically looking at some of the issues that affected our net income during the period and we'll look at cash flow and balance sheet items before reviewing the guidance we provided this morning. The good news is our networks continue to perform extremely well. Tremendous growth at HGTV and Food, and DIY and Fine Living, are a direct result of our meetings last year. I won't go over the numbers, other than the flagship are the primary driver for the overall growth.

We were affected by a couple unusual items. First, we made a significant positive adjustment to the income tax liability during the period. This is a result of closing certain state tax years and reaching an great with the IRS on proposed adjustments to our 1996-2001 consolidated federal income tax returns. As a result, we adjusted our tax liability estimates for prior year's state and federal income taxes and carry forwards. The adjustment reduced our income tax provision by $227.1 million.

We also took a $1.2 million after-tax charge in the fourth quarter as a result of Gannett's decision to end the joint operating agreement in Cincinnati when it expires at the end of 2007. Because Gannett has told us in and out it won't be renewing the JOA in four years, we recorded a reserve to cover potential employee severance costs, the amount of the reserve is based on the collective bargaining agreement we have with editorial employees at the Cincinnati Post and at the Kentucky Post.

Let me mention that Gannett's decision announced just last week will have no immediate affect on the post employment. We continue to publishing Kentucky and Cincinnati posts through the expiration date of September 31st, 2007. Another issue that affected fourth quarter net income was our decision to step up the pace of our transition at Shop At Home.

We've made key management changes to help move the transition along, and in the closing weeks we accelerated our product offers offerings to take advantage of the holiday rush. We pushed through a lot of existing inventory to help us move quickly through the product mix. As a result, pro forma revenues were up 16% but we had lower gross margin and transition costs came in a little higher than we estimated.

So the implementation of our TV commerce strategy at Shop At Home reduced it by about six cents, which is about two cents more than we planned. Simply stated, we decided to move ahead on opportunities that we identified to help us advance our plan to TV commerce.

Let's take a look at some of the cash flow, capital spending was $30 million, so the total for 2003 came in at more than $89 million with the majority dedicated to our newspaper plant projects in Florida and in Knoxville and a new building for our TV station here this Cincinnati. We expected to spend about $0 million on capital projects in 2004, which is about 10% less than we spent in 203.

Depreciation and amortization expenses are projected to be at about $68 million in 2004, which is about even with 2003.

On the other side of the balance sheet, the company's total debt stood at just under $510 million which is down from $551 million at the end of September. Interest expense was 7 million the quarter, bringing the full year to 31.6 million, an increase of 3.3 million over 2002. Higher rates on a debt portfolio more than offset the lower level for the year, so for 2004, we expect interest expense to be around 30 million, do you slightly from 2003.

Let's review some top-level guidance for the first quarter, based on the strong market, we expect advertising revenue will be up about 30%. Affiliate revenue is expected to increase about 40% net of distribution fee amortization. Programming and marketing expenses are expected to increase 30% to 35% as the company continues to invest in building viewership across all four brands.

At our newspapers, advertising revenues are expected to be up 3% to 5% over the prior year and the company's broadcast television stations, advertising revenues, including political are expected to be up about 5 to 7%. The company's continuing invest in the Shop At Home network is expect to do reduce first quarter segment profits by about $6 million, and earnings per share by about six cents. Due primarily to increased profitability at the Food Network, and the contribution to tribune company, the estimate will be between 5 and $6 million.

Earnings are expected to be between 65 cents and 75 cents, compared with 65 cents in the first quarter of 2003. Two other items as you're thinking about 2004, we'll recognize between 2 and 25 million dollars in minority interest this year, up from the $9.4 million recorded in 2003, and lastly our tax rate is expected to be around 39% for the full year. That's a look at some of the numbers.

With that, moderator, we're ready to take any questions.

We do have a question from Fred Searby.

Good afternoon, gentlemen. Can you give us more color where there was a period issue and what the issue -- and you had exceptional results on the networks, but on the newspaper side it did look weak relative to peer comparisons. I'm wondering from both beyond the retail sector being weak, and where you see the up tick coming and how you are out of the box in January.

Fred, this is Alan Horton. Let me try to take that question. It's a pretty all-encompassing question and I'll try to boil it down as fast as we can. We had tough comparisons in the fourth quarter. I'm sure you know that. We had a strong relatively speaking strong fourth quarter, so that's point one.

Point two, we did have, as you suggested, a real tough time with department stores and some other main retailers, but at the same time, we made an awful lot of progress in some areas that that progress will pay big dividends in 2004.

Let me just give you an example. We started a variety of programs last year to broaden our reach so that we could overcome some of the department store losses and big box losses and consolidations, and the employment issue.

So, for example, our total advertiser count is now up about 8% over where it was at the beginning of last year. Our total new advertisers are up about 44% and our total new revenues up about 68% in the last year.

That is partially due to the program we've talked about before, where we identify potential of all the advertisers who are not already advertising in the newspaper and go after them in the order of most likelihood. It's been a very successful program.

Employment was another big piece luckily in the fourth quarter, we think we have turned the corner. We were down only a couple percentage points from the fourth quarter of the year before, and we believe in the first quarter that employment will actually be positive, so that's a big help.

We've maintained very strong cost controls which should benefit us going forward and we have a number of initiatives in place that should also pay off in 2004.

Just one follow-on question. Circulation was down substantially, and what's your strategy there, and what is the issue? I would have thought your circulation would have been a little bit more stable that this it was.

Well, you're not correct if you're implying that page circulation was down. Circulation revenue was down a little over 2%, but net paid circulation was actually up for the year and for the quarter, and the strongest month of the year was December. So we were up both daily and --

In the press release December it had it down 9%. Was that a typo?

We lost a Sunday. In the circulation, revenue for the quarter was down 2.4% I think was the number, but net paid circulation was up both daily and Sunday for the quarter and for the year, and the strongest month we had was in December. So this is the non-JOA newspapers.

Obviously, we don't fully control what happens at the JO A's. We think we're making an awful lot of progress in circulation and again helping set the stage for better advertising results.

Thank you very much. I appreciate it.

We now go to the line of William Drewry.

Thank you. Three quick questions, two on newspapers and one on the cable net side. I'm just wondering, do you think you'll take any more reserves over the near term for the Post?

It seems like you have a long period between any potential tough decisions, but I just assume that it couldn't stand alone profitably at this point, so I'm just wondering if the amount you've taken is enough, at least for this year, as you look out further, and two, any more detail, Alan, that you could give on what's going on in Denver as far as advertising trends? Any of the major categories, is help wanted anywhere close to a turn in Denver specifically?

On the cable network side, Ken, maybe you could take about where the scatter market is now. It was a little weaker for the industry broadly. I'm just wondering how you finished the fourth quarter performing in scatter, and how it's playing out verse up front in Q1. Thanks.

Bill, this is Joe, I'll take the first question on reserves. We booked what we needed to book with respect to the union employees. We don't anticipate another charge, certainly not in the next even couple years.

As we get closer, at the very end, we may find we have some severance we want to pay for non-employees, but we have booked everything we're obligated to pay. So we feel pretty good about what we booked.

The revenue was up only 2% in the fourth quarter, but expenses were down 4%, so as Ken said in his opening remarks, the strong improvement in Denver was expense-driven improvement. Classified and retail are down, all categories of classified. On-line is up big. National's up big; circulation's up double digits. Preprints are way up, so that gives you a feel for what's going on in Denver.

As far as the specific questions about employment, in November and December together, you have to take them together because of the mix of Sundays. Employment in Denver was down only 2%. I think the operators in Denver believe we have turned the corner and will be showing positive numbers in employment going forward.

Bill, this is Frank, to what is your question about scatter. Our pacing is strong and forecasts are quite bullish as you saw in our 30% guidance figure for revenue in the first quarter. There's a lot of optimism now in the sales ranks. It's because we're simply outpacing almost all of our peers.

To your question, you've seen and your question reflects a lot of coverage industry wide about the softness of scatter pricing versus the up-front pricing, but for quite some time happily we have not fit that mold. The real story, the real headline on pricing strength or lack thereof is we do not fit the mold of the headlines you're reading about.

We're still 8% or 9% above up-front pricing, while the industry-wide cable net scatter pricing is, at best, up 3% to 4%. So at 8% or 9% above up-front, for us -- and the rest of the industry is up 3 or 4%, you can see where we are.

Keep in mind that the up-front itself, industry wide was up in robust numbers, but the Scripps network up-front pricing was 13% or 14% up, even though the industry was up, it was not up anywhere near those newspaper numbers.

So with our up-front pricing up 13% or 14% and then the scatter pricing even in a weak scattered market up% or 9% and being ahead of the pack I think it tells you about the uniqueness of the product we're selling and the receptivity of the advertisers.

One last question, if I could on the 40% affiliate fee increase, how much of that is coming from food, and do you have all the major MSOs on the rate card for foods? Thanks.

We have had -- 70% of our entire food universe, in terms of subscribers is now under contract, and we'll be making an announcement in the near future about the specifics, but we're very sanguine and serene about this process.

We're over the hump in terms of the overall percentage of our universe being under contract. We feel good about what's been achieved. There's nothing hanging out there in the future that's cause for great concern.

Bill, let me jump in for a second on the overall increase. About two thirds of the fourth quarter increase is almost due to a lot of the Food coming on to a rate plus the increases. So a big chunk is the Food.

Thanks very much.

We now go to the line of Peter Appert from Goldman Sachs.

Good morning. Two questions. One on the TV revenue forecast, I think you mentioned 5% to 7%, and I think that's a fairly significant reduction from what you said in December, so I was hoping you could address that.

Number two, unrelated, Ken could you give us an upgrade on where things stand on the Hispanic network in terms of timing and cost estimates? Thanks.

Peter, with respect to that estimate, we never gave a quarter estimate on broadcasting. We gave a full-year estimate back in December.

So for the full year, you then the 10 to 15 is still operative?

Yes.

Okay. Thanks.

Peter, to the Hispanic thing, we still have a significant amount of investigation and examination and sort of R&D into this project. That R&D effort, is still front burner, but in terms of any cost impact, it's very back burner. We're being very cautious, as you have heard us say for the last four or five of these calls about this idea.

On the surface, it seems like a slam dunk obvious thing to do, but the more we learn about it, the more complex it is and the less obvious it becomes. So we're being very cautious about it. There's no big huge cost impact that you need to worry about in terms of Hispanic on our near term or even intermediate term horizon.

Can you go beyond that, Frank and give us a probability of whether it proceeds or not, whether it's likely to be an '04 event if it does?

I can't give you a probability, but I would just say we've got a lot of very significant things on our platter right now that are getting much higher priorities.

Can you review what those are?

Growing out our digital peer of networks, the DIY and Fine Living, working out the relationship with Shop At Home. We have a lot of very ambitious projects on our plate that give us great confidence about our ability to bring in good numbers going forward, and there's not a crying need for some hole to be filled in our portfolio by the addition of a Hispanic network anytime soon.

Peter, this is Ken, if I may. One of the other tag-ons is just the robust growth on VOD and broadband that beer seeing, and some of the forces to bear that we're putting there.

It sounds like it's reason to anticipate we shouldn't be anticipating a new network from Scripps in '04?

Well, nothing on the drawing board at this point, but we would always give you advance notice if Frank has another brainstorm, which is possible, Peter, at any minute, but there's not on the drawing board now.

Okay. Thanks.

We now go to the line of Steve Barlow. Please go ahead.

Can you give us a best guess of what the profit in Denver would be in 2004, since things seem to be looking up there.

I'm not one to make guesses, but let me say we're projecting a high single-digit gain.

Okay. Shop At Home, you had a six-cent loss in the fourth quarter, six cents in the first is the projection, which leads to 24 cents on, but you only own 70% of if. How will it look when you own 100% of it?

Steven, that's the all had in number. We don't recognize a minority interest because of the fact that their basis has already been eaten up by losses. So we have since I think midway through 2003 been reporting 100% of the losses anyway.

So still then it's 100%, let's say your six cents for the first quarter, is that a run rate for the year, or how do you think it will play out?

There's seasonality to the business, as you know, so it's not just four times that. The back end with the holiday shopping is much better than the first half.

Then the last one, on the networks' programming, do you have an estimate for the programming expenses for '04 that you're going to --

It's still up in the plus 30 to 35 percent range.

Okay.

We have a question from the line of Lauren Fine from Merrill Lynch.

Great. Just circling back on the comments on Hispanic. I thought at one point you made a comment that you would spend $7 to $8 millions, and I want to know if that's still in the plans.

Maybe not for December, but November-December combined for the newspaper division, could you give us a break downs on classifieds, and on interest expense, I'm trying to understand why, given your free cash flow likelihood, the ability of paying down debt, even taking into account interest rates could edge up, would you I think it could be flat year over year.

In terms of the Hispanic portion of that number, Lauren, I don't think we're anywhere close to the Hispanic portion of what we've done anywhere near a significant part of that $7 million number.

VoD is not a huge part of that number, so I'm not sure what the components of that number were, but Hispanic is by no mean significant, and VoD I think we have said in the past maybe a couple million so far, but Hispanic is nowhere near a significant piece of that.

Okay. That's good. And then classified?

Lauren, this is Alan. Let my give you the components, November and December combined. Automotive was up 5.3%, real estate was down barely, 1.4%, and that had to do with a cutback by some advertisers in Naples, and one or two other places that have now come back. Employment was down just 1.8% in that two-month combined period and other categories were up a robust 10.6%.

Great. Thank you.

Lauren, let me go back to Steven's question. I misspoke on programming. There's so many 25s to 30s and the programic increase is expected 25 to 30, not 30 to 35 percent growth. With respect to interest expense I know exactly where you're coming from.

The one thing that enters in here is the acquisition of the balance of summit that we'll be spending $185 million in cash there, probably through the CP program. I do think there's up side to that number. If you look at what we did this year with debt reduction.

The only other new piece of news we're down to about under $50 million in our CP program at the moment. So our ability to continue to pay down debt could involve us buy willing notes and I haven't seen an attractive point to do that yet.

If we had the excess cash and I thought that transaction made sense, we would obviously do that if we had no other use for the cash. But in the upcoming year, we're planning on closing the summit deal and we continue to look at other opportunities. So I may be a little conservative on the interest number, there could be some upside to it, but we're planning on it being down slightly.

On the broadcasting side, I was a little surprised by the guidance in the first quarter as you're cycling through the benefit from the Super Bowl a year ago, and I'm just wondering your confidence level, and then on the newspaper division, the 3% to 5% ad revenue growth you've given, it's not so much it seems optimistic, but coming off around 2%, I'm wondering where your comfort comes from on that kind of growth guidance.

Lauren, this is Bill Peterson. The Super Bowl does have an impact on the first quarter, but it's solely in January. What we see right now for the first quarter in February and March, we're relatively comfortable about the guidance that we gave on 5 to 7.

The real wildcard is political, and we really -- Iowa and New Hampshire really don't have any impact on us. So we're looking now to see what sort of activity we're going to get for the primaries that are held in early February in Arizona, Oklahoma, Kansas, and Michigan.

We've seen a valid request from all the advertisers, and actually the Iowa results bode well for us with Kerry coming out on top, because now the campaign is a bit more competitive, but we don't have any actual orders placed yet. So that's the only thing we're looking at right now.

Thank you.

Lauren, this is Alan, I'll try to give you more confidence in our numbers and maybe show some myself. As I mentioned earlier, we had fairly easy comps. We launched seven new zone twice weekly editions in Memphis, and they're starting off strong.

We think employment has turned the corner, and we have Kohl's department store chain, a full year of revenue from them in Memphis and Corpus, which should help.

Okay. Thank you.

We now down to the line of Doug Arthur from Morgan Stanley.

Joe, I was wondering if you could throw out a guess on what impact option expense might have on your '04 results. Secondly, any comments on non-news print? It looks fairly flat in the quarter. Then the licensing and other -- I know it's a fairly small area, but it had a good quarter. Is that something that may continue or is that sort of a one-shot deal? Thanks.

Doug, on option expense, if you look back the last couple years, it's been building slightly the last year the full-year effect would have been 17 cents, so it will be under 20 cents. Obviously that depends on what happens at the comp committee level, and they look at that every year and make an independent judgment on that annually, but that's sort of the ballpark for you.

Repeat the question on newsprint? I didn't hear the full question.

Just trying to get a handle on the trends in non-newsprint expenses. It looks in the quarter it was fairly flat. Is that accurate?

That's true. All expenses including newsprint and ink were up 1.8%. Including the JOA, it's up 1.2%.

And quick comment on licensing and other?

Sure, Doug. It's Rich. Licensing did have a good fourth quarter, primary because of the a real surge in the past year for peanuts product and apparel and a new category called retro, and peanuts continues to be strong, not just in the United States, but also in Asia.

Also, they had some timing on some deals that swung in their favor, but even without that, they had a pretty good quarter.

Great. Thank you.

We have a question from the line of Michael Kupinski.

The expenses in the cable networks were a bit lower than I expected and the guidance for programming expenses was 30 to 35%. Is the guidance still 25 to 30 percent?

Secondly, Shop At Home, December was particularly strong in revenue and I believe you mentioned you were clearing through old product. Was that just due to price promotions and things like that, or was there some other particular reasons that revenues were a bit better.

And if you had can just talk about what your expectations for run rate growth going forward for 2004 might be?

All right. Mike, I'll take the first question. This is Joe. On the cable networks, we are looking about sort of the low end of that, well, we were at 25 to 30, for both programming and other, and in the first quarter we'll be closer to the low end of that. I corrected my earlier statement about 30 to 35. It should be in the range of 25 to 30.

Okay. And that's for the first quarter and for the full year?

Yes.

Okay.

Mike, it's Ken. On fourth quarter just completed. The expenses were a tad lower, but we were able to take advantage of promotions and save a few marketing dollars in a few markets. Correct, Frank?

Right.

It was an opportunistic pullback on some dollars that probably will still be included in the '04 marketing budget.

Hey, Mike, it's Rich. The top line at Shop At Home is pretty strong coming through the end of the year, and there's a lot of reasons for that. Just in general, we think the marketplace has improved, but also all the cross-promotion we're doing and some of the marketing we're doing and the improved distribution, all seems to be taking hold, and as Joe mentioned, we did clear out some inventory as we're moving pretty aggressively.

If you take a look, to give you an idea of what Shop At Home looks like today, if you go to their website today, Shop At Home TV.com, Visa, MasterCard, we're not picky, just have it ready when you get there, it's a tie-in with the HGTV's dream home giveaway that includes the catalog with products from the dream home giveaway on HGTV that are available through Shop At Home.

And you'll see a window there called "accents for the home" which takes you to all new related products, and you'll see in general what Shop At Home looks like looking ahead. We did blow through some inventory, because we're eager to get where we're trying to get even faster and have accelerated on a number of fronts, probably obvious not just by what we're spending, but also our commitment to buy into Summit and the other 30% that we don't own today.

If you have any other questions, I'll try to have you out.

Plans for the cash flow loss then for 2004?

No, we're going to be right around flat with the current year.

Okay. Great. Thank you very much.

Thank you. We now go to the line of Paul Ginocchio from Deutsche Bank.

There seems to be divergence about the distribution growth. It seemed like with the manager changes at DIY and programming a bit, it wasn't doing as well as Fine Living. Can you talk a bit about why it's stalled relative to that?

I don't recall us ever indicating, Paul, there was ever any softness in the growth of DIY, in fact it's ahead of Fine Living just because it got into the pipeline ahead by a year or so.

We think it will have some robust distribution growth this year, we think that growth will put us in striking distance of the level of distribution that then enables us to kick in the Nielsen metering system, and that usually happens in the 30 to 35 million subscriber range, that opens up the whole half of the other advertising universe that you can't go to and solicit before you have meters.

So we're very robust in our optimism about DIY, as well as we are with Fine Living. I think it's important, to the spirit of your question, both of these networks are absolutely on pace with the historical growth of building a network. They're on budget and on pace in terms of the amount of growth they're getting and the speed witch they're getting that growth.

We're by no means negative in any respect about the growth of these two networks, and I think Ken mentioned in his opening remarks, one of the major surveys released just this past week of an independent source, the beta survey, which is an annual survey system, in which it indicated that I believe it was 76% of cable operators indicated that DIY was at the top of their list for digital networks to be added by year's end.

I think the exact number was 76% of the 151 cable operators interviewed indicated this was number one on their list to add before the end of the year, so we're very optimistic about the growth of both DIY and Fine Living and they're both on pace.

Where was Fine Living on that same research?

I don't have it in front of me, but Fine Living and DIY both consistently show up in the top five of almost all the indices with which various people are queried in the industry. I won't bore you with all the details, but just in the last three or four weeks, there's been a spate of different surveys all done by different organizations that including sales force effectively, desirability for adding before the end of the year, creativity in terms of packaging and integrating -- doing new integrated sales opportunities for the advertisers, and a whole swath of other indices.

In every one of those, those two networks showed up in the top five, so they're at the forefront and at the top of the mind of operators still yet to add networks, and we're very optimistic.

Thank you. If I could have a follow-up question for Alan, hearing there was softness in the final quarter, what are you thinking about for 2004?

We're seeing a lot of strength in automobile and also in national auto. So we feel pretty good about it.

Great. Thank you.

We now have a question from Brian Shipman from UBS Warburg. Please go ahead.

Just a bit of a follow-up on the last question there. You made comments at our conference last month about do it yourself potential turning profitable, tracking with the growth and distribution. Is that still something you're looking forward to in the first half of this year?

Then a second question with respect to Denver, it sounds like you had a very good performance from a cost standpoint in Denver in the fourth quarter. I was under the impression a lot of the cost-cutting opportunities were really over with. Is that something we were looking forward to in 2004, or will the earnings be driving by a top-line acceleration in 2004? Thanks.

Brian, on the subject of DIY profitability, nobody in their right mind makes an absolute prediction when a network is going to turn into the black, particularly with a digital network where there's not a lot of history or information to point to from past experiences.

However, embedded in the answer that I gave you earlier is the real spirit of the answer to your question about profitability. It depends on getting to that sort of magic number in the 30 to 35 million subrange at which point the Nielsen meters kick in and when they kick in, you literally add 50% of your advertiser universe who you can go to to sell spots, and inside that addition of that 50% is where profitability lies.

Whether that would be midyear, end of year or first quarter or second quarter of the following year, I don't know, but let me say we're optimistic about our ability to arrive at that point sooner rather than later, but no it will not be in the first half.

Brian, let me try to address the Denver question. We do expect fairly robust ad growth in 2004 in Denver. By that, I mean mid to slightly above mid single-digit growth in ad revenue, and costs will still be very much under control, but we won't see the significant reductions in cost going forward in 2004 that we've seen recently.

Frank, just to follow up, with the distribution agreements you've already set in place with do it yourself, and also with Fine Living, are you fully distributed now within their geographic footprint, or are there still locations where you with expand coverage even within those MSOs you've already signed up?

Oh, yeah, anytime you're in the 20 to 30 million range of subgrowth, there are a lot of holes yet to be filled in. Sure, there are a number of those, and they roll out on a very irregular basis. Even though you have the contract, there's not absolute specificity by which you can point to particular markets filling in thundershower gaps at any particular time, because they have their own availability issues.

There's a lot of room to grow, but based on the contracts we have and the receptivity of the operators to these concepts, we're very optimistic that those holes will be filled in sooner rather than later, and one of the things that's driving that is the creativity going on at both thoughts networks in terms of adding new kinds of services around the core network service itself, means things like what we have going on with the web sites, on-line newsletters, broadband activities, we should say -- I don't know if we mentioned it earlier, but we just recently signed a major new deals with Comcast and MSN for new broadband relationships that would put our branded content within 14 to 15 million unique users of Comcast and MSN's Broadband users.

That means their customers can access an incredible variety of two to six-minute video clips over a huge swath of content.

Now, the reason I'm bringing that up is because these services add all sorts of new opportunities to our salespeople to offer advertisers things they cannot now offer them. That's going to drive a lot of the sales growth going forward with those networks, all these ancillary things like the broadband contracts we just announced.

Thank you.

Thank you. We now go to the line of Kevin Gruneich.

Thank you. I just was wondering, Alan, if you could talk about January ad tone, if it looks similar to November-December.

You faded out. Is that your only question?

Are you kidding? No, I have a couple more.

The tone so far for January so far is pretty good. It's not knocking our socks off, but by and large, it's going about what we expected.

About three to five up?

Yeah. Again, it varies by market, as you know, the recovery is occurring faster in some places than others. We have good news, and of course we still hear occasional bad news.

Got it. And with Memphis, I think the weakness from the department stores it seems started late in 2002. Now that you've talked budgets for the year ahead with Dillard's and GoldSmith's, what's your view? Have you stabilized in the department stores in Memphis?

Well, it's hard to tell. We're still in a month-to-month conversation with them. Obviously we cycled a lot of the down that we had, as you pointed out with your question. We've been Kohl's in the market for the full year. That will create competitive pressure.

We have a major mall that won't be finished in 2004, but will add opportunity going forward. We have the new zone sections which allow department stores and other advertisers to localize their message, and obviously we're pushing on-line and our niche products strongly.

We have a bunch of new ones we'll be launching in Memphis for the full year, including three HDTV magazines and a Food Network magazine. So we're not resting on the contracts we have signed. We're out there pushing for more business.

The last question, Alan. Back to the December conferences I think the other operating expenses in the newspaper group, you're assuming plus 5% to 6% in '04.

I was wondering, if looking back at '03, if you could give the key components of that line, you know, what their contribution was to that line and what's really driving that is single digit plus growth.

The other cash expenses in the fourth quarter, just so you'll know, were actually down compared to the fourth quarter of the previous year, and we have a whole series of initiatives planned, almost all of the increase in other cash expenses next year are related to the many initiatives that we have, Kevin.

Again, this is part of our efforts to diversify and broaden our base, so that we don't depend so much on the big-box retailers. For example, we have post-it note programs, where we paste post-it notes on the front page of our newspapers for advertisers. You probably heard about that program.

We're launching that in most of our key markets. There was expense related to introducing that new program. I mentioned the HDTV and Food magazines. There's a printing expense to that.

We have, as I mentioned the zones in Memphis. We've got twice weekly newspapers now in seven different suburban areas of Memphis. There are all kinds of expenses, including renting space and extra newsprint costs and so on, related to those zones.

I could keep going, but I'm going to take too much time. All the other cash expenses are related to initiatives.

But would most of that stuff kick off fairly early in the year?

Most of it's already kicked off, and will be by the end of the year, we expect all those initiatives to break even and in the years ahead to be very strong contributors.

Thanks much.

Thank you. We now go to the lines of James Marsh from S.G. Cowen.

Frank, on the ratings at Home and Garden and Food, they look spectacular. Anything in particular driving that? And could you give us an update on the day parts and what they look like? Two quick ones for Alan, as far as circulation gotten, it was down 2%-plus in the fourth quarter, should we expect those types of rates to change as we move into 2004?

Could you clarify your comment you made about Denver? I think you said it was in the sing of-digit gain area. Were you talking about a percentage change or an absolute dollar change? Thanks.

James, as far as the ratings on the networks, the overall answer is no, there are no particular spikes. We don't have an "American Idol" like Fox by which we rise and fall, which is good news. We have a lot of strength across the prime times. But we have two of those. Saturday and Sunday mornings are just as strong and valuable as traditional evening primetime, both on Food and on Home & Garden, so there are no particular shows.

Obviously, we have two or three shows stronger than the others, but the good aspect of our whole system is, there's a sort of consistency, an across-the-board appeal to our programming as opposed to these do-or-die hits that you experience on the broadcast networks.

Last week HGTV set a record for the highest prime time, a .93, and that made last week, in primetime, HGTV the 15th highest-rated network. There are 67 Nielsen measured networks to give you perspective.

The previous week, HGTV set a record for that as well. It had a error-setting viewership literally in every month in 2003.

Over on the Food side, Food had the highest-rated quarter in its existence in the fourth quarter with a prime time rating of .7, and that was up 17% year other year.

Our weekend in the kitchen block had its highest quarter ever, a .7 for the two combined days of Saturday and Sunday, and the Saturday overall block had a .8 in the fourth quarter.

So our ratings are strong happily across the board and there are not a lot of spikes, that is we live and die by individually.

Great. Thanks, Frank.

James, let me talk about the two things you asked me. One, the circulation revenue decline last year. No, we don't expect the circulation revenue to continue to decline in that same rate. In fact, we think it will be flat to up slightly in 2004.

I can't tell you for sure how the first quarter will turn out, but we feel confident about that over the course of the full year.

The do not call list went away, we're doing other things, the other things don't churn as fast although they cost more initially over the long haul, they cost less.

And the Denver question, I hope what I said was there would be mid to slightly better than mid to single-signature profit growth in Denver in 2004.

That's helpful. Thanks.

We now go to the line of Mark Hughes of SunTrust Robinson. Please go ahead.

It's [Toby Summer] for Mark. Two questions. On the broadcast side, political revenue, I think it was in the 34 to 35 million range in 2000. Is that sort of a fair benchmark for this year in a presidential election year? Then on the newspaper side, could you speak to newspaper price increases and what your outlook is for those being matched by increased demand and your expectation if for margins in the newspaper business in '04?

This is Bill Peterson. We know political advertising this year will be very strong, and we're pretty comfortable get to that $30 million range. As a caveat, trying to predict what's going to happen with political requires that you be a clairvoyant, because it's very hard to figure out the strategies of the various campaigns.

We're optimistic because of our strong stations in Florida, strong stations in Ohio and Michigan, and we know those will be heavily contested. Where we probably have more uncertainty in the early part is what the primaries will bring, but we're relatively comfortable with those numbers.

Would you mind asking the newspaper part of the question again? I'm trying to figure out whether you're asking about newsprint prices or ad rates, or where we're going with this?

I am asking about newsprint prices and your expectation for margins in the newspaper business in '04.

Toby, newsprint prices are going to continue to rise in '04 and we expect by the end of the year, the average price will somewhere between 10% and 15% higher per ton. And the margins will still be very strong for Scripps, so probably down slightly from this last year.

Thank you.

We'll now go to the line of William Berg from Smith Barney.

Could you talk a bit about some of the in addition tips at Shop At Home over the next six to 12 months and general thoughts about being becoming as off-network supply of programming.

I'll talk a bit about Shop At Home. We talked about the first quarter in the strong top line and what was happening then. But one of the pieces I left out and probably should emphasize, if you want to take a look at how we see Shop At Home going forward, for example, this Saturday night at 9.00, you can see the Shop At Home version of the dream home giveaway on HGTV.

Remember, HGTV does a dream home special where they talk about how the house is built, how it's decorated and all the components but on that show you would never see any product placement inside that show.

Now you can go to the Shop At Home version of it, and see it again this Saturday night at 9.00, it runs many times in January and February, and there you see how we plan to access those dollars that we would not get, product placement dollars and other sorts of advertising and marketing kind of dollars and use them and access them on Shop At Home.

It opens us up to a whole new category of revenue that we were not able to access, because we don't do any of the product placement on HGTV or Food Network.

If you get a chance for anybody to watch that show, it will run this Saturday night at 9:00, and run pretty much through January and February. I think you're going to see a whole lot more of that as we consolidate the management of Scripps Networks and shop at loam, as Ken talked about and frank talked about, Judy Girard will be overseeing Shop At Home and is in there and getting to know the operation today, and starting to push that along.

So if you look at the next 12 months, look at the website, watch the dream home giveaway special, and I think you'll get a clear look at how Shop At Home will evolve over the next 12 months.

We don't see anything that in any way discourages us. Obviously we're pushing ahead on all fronts, and pushing ahead maybe even faster than we thought we would, because we like the prospects that we see heading out.

That's helpful. The second part was just thoughts of becoming a network supplier. Would you consider providing programming to other networks across your different brands, including maybe some that are in the development lice Hispanic.

We don't want to be in the production business just for the sake of production business for hire. We do want to be in the kind of business in isolated cases presenting specific programs that creates a circular effect to and from our various businesses, and we've got a pretty good track record of having executed that landlord.

The DIY local concepts, about which you have probably heard in previous sessions, has been very successful. That show, a show that essentially created out of bits and pieces from existing or prior broadcasts of DIY, and fronted by individual local talents at individual local stations, is now airing in, I don't no, 40 or 50 or maybe 60 markets, and I mean big stations in big markets, and it's created an opportunity, but the local station buys the show from us and obviously creates ass-promotional opportunity for us as well.

The DIY local idea has really caught on, so much so that it emboldened us to try it in a modified way with the Food Network and we have in production or on plan, a number of shows, four our five, maybe six, at least four, big major specials centered around various holiday seasons, food content, food talent, by airing on local stations, and I mean, here again big stations, in many cases O&Os in the top five markets.

The reason is not to be in the production business to sell shows, but the cross-promotional opportunity that gives to our networks and the ability of our salespeople to have a whole new level of flexibility for packaging deals for advertisers that they don't have just by selling spots on our own networks.

Great, thank you.

We have a question from the line of Thomas [Russo] from [Gardner, Russo, Gardner].

Frank, it's Tom. I have a couple questions, one extending off your last point. Who will actually receive the ad revenues around those clips that you're now going to provide under your new broadband agreement? Is it something you keep or you split with the MSOs?

It's different. We don't like to get into the specifics of each, but let me just say it's mutually beneficial for us both, and each of those organizations have different approaches and different theories on the whole thing, but there is definitely a significant ad revenue stream for us that we think will grow significantly in the near future rather than the intermediate future.

Wonderful. Let's see, for Ken, could you just touch on some of the specific skills? John Lansing that encouraged you to make some of the moves that you're making internally?

Think of what John brings to his new role in light of what that new role commands of him and how you thought through that transfer across divisions.

Well, we've watched John grow in this company from station manager to vice president, general manager, to this role and the track record for John as head of the broadcast group speaks for itself. Bill Peterson -- I'm looking at Bill across the table, has big shoes to fill, but the thing that always appealed to me about John from day one was his knowledge and passion for local programming, and as you know, if you really look at HGTV and Food DIY and Fine Living, so much of that programming grew out of television background of many of us who came from the TV side, including Ed Sprague, who's overseeing the networks now, Judy who oversees Food, Burton.

So John is continuing on in the mold for people that have successfully put these pieces together, highly respected within the group, and as you know, Tom, we have a great opportunity in this company to draw from bench strength and grow people.

We have a good track record as opposed to going outside. So quite a few positives, including the fact that John is still a young man, and it doesn't hurt to get a little bit younger eyes and ears into the game, and he works very well with the heads of the cable network, so very optimistic about John's continuing future in the company and what he's going to add to the cable networks.

That's terrific. Are there anything specifically facing the cable networks today, which John will have a special service or insight to, or is it just the development of additional talent based on prior successful record?

Is there anything specific at the moment he will tackle that's particularly suited to his background?

Well, I think it's a great question, because we have obviously very pleased with the folks that are running the networks, but there's going to have to be a transition at the network. That's one of the things John will be helping about. But the thing, Tom, that John brings is the understanding of the cross-proportion, a lot of the initiatives we have on the TV station side, DIY local, a lot of the short form pieces from Food, HGTV, a lot of the think that went into our association at Shop At Home came from John and his fine team, including Bill Peterson.

So, yeah, I think what John brings is the overall understanding of the company, the cross-promotion, the localization, John is savvy about sales, as good a business guy as programming guy.

So having that internal knowledge sitting around the table with this senior management group week after week that's something that we really don't have currently in the networks, and I don't want to say when I came back up to Cincinnati we lost it, but I think we're regaining a bit of the overall Scripps feel. So that unique perspective I think will be very valuable.

Those points were just sort of exactly what I would have thought and I'm delighted to hear that. For Alan, just a quick question on the comments about circulation. I understood you to say that net-paid was up fairly sharply even though the revenues were down.

What does that suggest about your practices about pricing and what are you doing to drive that disparity to keep your circulation numbers up while revenue is going down? Talk about that for a second.

I hope we're smarter about it than it used to be, but the second reasons is we're putting out wonderful newspapers today, and we're reaching out in ways to our communities that we never used to.

So I think the combination of our smarter marketing and promotion, our much smarter use of the various techniques we have to gain subscribers, the ability to retain them and the higher quality products we produce all combine to give us the record we just talked about.

Thank you. Good job, guys. Thanks.

There are no other questions. Please continue.

Great. If there are any further questions, please call 513-977-3826. Thanks, everybody.

Operator?

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