E W Scripps Co (SSP) 2004 Q4 法說會逐字稿

Ladies and gentlemen, thank you very much for standing by and welcome to the Scripps fourth quarter earnings report and conference call. At this time, all participants the are in a listen-only mode. Later we will conduct a question-and-answer session. (OPERATOR INSTRUCTIONS)

I'd now like to turn the conference over to our host, Mr. Tim Stautberg. Please go ahead Sir.

Good morning all and thanks for joining us. We'll start the conference call this morning with a few comments from Ken Lowe, our President and CEO and Joe NeCastro, our Chief Financial Officer. Our prepared remarks should take about 20 minutes, then we'll open it up for your questions. Given the busy schedule we know a lot of you have today, we'll make sure we're done by the top of the hour.

Before we begin, though, let me introduce the other members of the our senior management team who are here with us on the call. Joining us are Rich Boehne, Executive Vice President, John Lansing, in his new capacity as President of Scripps Networks, Mark Contreras, Vice President of Newspaper Operations. This is Mark's first earnings call, welcome, Mark. Also with us are Bill Peterson, Head of our TV Station Group and Laurie Hickok, Vice President and Controller.

Let me remind you that if you prefer to listen in on the web you can go to Scripps.com and click on the investor relations and follow the live webcast link at the top of the page. An audio archive will be available on Scripps.com 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. 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 2003 Form 10-K, and most recent Form 10-Q.

Now, here's Ken.

Thank you, Tim. Welcome everyone. Good morning. I'm pleased to tell you that our growth story continued during the fourth quarter of 2004. Led primarily by strong financial performance at Home & Garden television and the Food Network. HGTV and Food anchor our Scripps Networks division which is now the company's largest business in terms of both revenue and profit. Scripps networks includes our growing portfolio of lifestyle networks which in addition to HGTV and Food includes the Do it Yourself Network, DIY, Fine Living, and now of course Great American Country, GAC.

It was HGTV though that really started it all. Having just celebrated its tenth anniversary, HGTV is really served at a catalyst for change leading the dramatic transformation of Scripps from its historic roots as one of the country's oldest newspaper publishers to it's now contemporary role as the nation's leading supplier of lifestyle television programming.

Today, HGTV and the Food Network are household names, they're powerful television brands that engage passionate viewers under categories that they target. Our advertisers have learned that our passionate viewers are also their motivated consumers. We're leveraging the power of HGTV and food brands by following the successful strategy that really got us here. We're investing to meet viewer expectations and demand for solid schedules of original programming, and we're building awareness through effective consumer marketing campaigns. For example, at HGTV, we're right in the thick of the 9th annual HGTV dream home giveaway promotion. Already, the biggest promotion on cable TV, Dream Home just keeps getting bigger and better. With about four weeks to go, entries are running about 12 percent ahead of last year, when more than 36 million viewers entered for a chance to win in 2004. Dream Home is really the complete package, if you will. It includes a highly rated television series, valuable online content, and innovative consumer product tie-ins with our electronic commerce subsidiary, Shop At Home.

Now, over at the Food Network, we continue to really define the genre with innovative and entertaining new shows like Iron Chef America. Building on the success of the Japanese pop culture hit, Iron Chef America, Iron Chef America debuted earlier this month to rave reviews, solid ratings. As a matter of fact, it was the best prime time rating in the history of the network. During week days and on weekends, we're breaking new ground with a full schedule of innovative technique-based programming. And online, Food Network.com consistently breaks records as the most visited food website on the Internet.

Now, we're building wide motes around HGTV , Food and all of our networks through the development of new products and content services. Two announcements we made earlier this month bear mention. The first is the addition of Eric Thorkilsen to our Scripps Networks team. Eric, as you may know, is best known in the industry for building the Martha Stewart Living and This Old House brands. His mission at Scripps Networks will be to develop new businesses across our growing array of media platforms, we're delighted to have Eric on board. Second announcement was our January 12th launch of HGTV Pro, a business-to-business broadband channel for building trade professionals for home remodelers and for contractors. With customized broadband content and information services, HGTV Pro, we believe, is tapping an under served market with enormous potential. If you get a chance, go online, HGTV Pro.com, check it out. I really think you'll be impressed.

We're developing content for the growing range of media platforms, including short-form video for mobile devices. We're one of a handful of leading television programmers that are partnering with Microsoft to deliver content via MSN's new video download service for portable media centers, for smart phones, for pocket PCs and other mobile-based devices. Very exciting. And at our newer networks, DIY, Fine Living and GAC, we're gaining scale. DIY is inching ever closer to profitability. Our innovative online and on-air resource for Do it Yourselfers has struck a real chord with viewers and with advertisers. Over Fine Living we're focusing on strengthening and already attractive programming schedule and building on the distribution successes we've had to date.

In November we completed the acquisition of Great American Country, and we brought Ed Hardy on board to guide the transition and ongoing operations of the network. Ed has a lot of experience in the music and media industries, and he is another solid addition to the Scripps Networks team. We'll be looking for opportunities to build on GAC's grand strength and the popularity of music videos. That's likely to include, by the way, adding some short form lifestyle programming that builds on the country music theme. We also expect to drive revenue growth by leveraging the ad sales expertise and deeper resources that Scripps Networks can bring to GAC.

At Shop At Home, we're encouraged by strong retail sales that prevailed throughout the fourth quarter, especially in light of the fact that it coincided with the implementation of our new merchandising plan at Shop At Home. We've been improving the mix, the quality and appeal of the products we sell as we continue to migrate towards consumer categories that are served by our lifestyle networks. I assure you, we won't be shy about spending money to make needed improvements in the business at Shop At Home, and to move our electronic commerce strategy along. We firmly believe that there's potential for attractive returns at Shop At Home, especially after all the right pieces are in place.

Now, in addition to the growth at Scripps Networks, we got a boost during the fourth quarter and as a matter of fact for the full year, from strong political advertising revenue at our broadcast television stations. We benefited from having market-leading stations in the key swing states of Florida and Ohio. Of course, it probably goes without saying, but let me say it anyway: The success we had with political in 2004 will make for tough comparisons this year.

At our newspapers, the tepid economy and the soft local advertising environment continue to be a challenge. We view Mark Contreras' arrival at Scripps as a real plus. Mark, along with Rich Boehne are in the [inaudible], I'm confident that together they will develop some exciting new strategies to move our newspaper group forward. Now, let me just emphasize that despite these challenges that we've been facing, we're believers in our local media businesses, and particularly newspapers. Granted, our wait for a recovery has lasted longer than we'd hoped but we're willing to endure some short-term choppiness. Long term, our experience tells us, these are solid businesses. We believe there's a fundamental demand for local news, information and advertising platforms that our newspapers provide, and we're committed to developing business strategies that leverage that demand as creatively and efficiently as possible.

Looking at 2005, we're poised for another good year. The rapid growth of our Lifestyle Networks including GAC is expected to continue. At Shop At Home, strong retail sales have continued into first month this year, providing us with the cushion we need to improve the business and to develop our commerce strategy. Our local media businesses will continue to generate plenty of free cash as we work to position them for success in today's exciting and rapidly changing media environment. Our goal is to create long-term value for our shareholders by delivering highly useful content across the growing spectrum of media platforms, that we've created.

Now, let me turn it over to Joe, he'll take a closer look at the financial picture. Joe?

Thanks, Ken, I'm going to spend some time this morning providing a little more detail on the fourth quarter, specifically by looking at some of the issues that affected net income comparisons during the period. Then we'll look at some cash flow and balance sheet items before reviewing the guidance we provided this morning. First to provide some context, remember that in the fourth quarter of 2003, we made a significant reduction in our income tax liability, which boosted our net income. We reduced our liability when we closed certain tax years for state purposes, and we reached an agreement with the IRS on proposed adjustments to our federal income tax returns for the years 1996 through 2001. The combined effect of the tax adjustments and one other unusual item increased fourth quarter 2003 net income by about $26 million, or $.16 a share. Other than that, our fourth quarter results are pretty straightforward. As has been the case for some time now, our National Lifestyle Networks continue to be the company's growth drivers. HGTV and Food achieved tremendous growth during the three-month period and for the full year. And our newer networks are gaining scale. A late surge in demand for advertising on our networks in December, boosted ad revenue growth to 25% for the quarter.

I also want to provide an explanation for the large increase in affiliate fees at Scripps Networks. As you know, we've been reporting large increases all year due to the renewal of Food Network affiliation agreements. Moving from unpaid to paid contracts has resulted in growth of over 50 percent in affiliate fee revenue through the first nine months of the year. This growth continued through the fourth quarter. In addition, we have another roughly four million dollar increase in the fourth quarter, attributable to a reduction in network launch incentive amortization that we recorded after our year-end review of our distribution agreements.

Turning to our newspapers, we've already talked about some of the trends affecting results so I'll give you a quick break down on each of the classified advertising categories, and then mention our online performance. The recovery in Help Wanted that started early in 2004 continued into the fourth quarter. Help Wanted was up about 19 percent but the increase was more than offset by a 12 percent decline in Automotive. Real Estate advertising was up modestly during the quarter, about three percent. Online revenue for the quarter continued to show very strong growth up 22 percent over the prior year. This shows up in that preprints and other line in our release.

Ken already mentioned the strong performance of our Broadcast Television Group due to the flood of political advertising in October and early November. Unfortunately, demand for advertising on our TV stations did not pick up after the election as we and many in the industry had expected.

Turning to Shop at Home, we're seeing positive results from our efforts to revamp the merchandise offerings and build up the business. The metric we're watching closely is annual revenue per home, which was up to $5.82 last year compared with $5.14 in 2003. Now, let's look at some of the cash flow and balance sheet items. Capital spending for the fourth quarter 2004 was $20 million, so the total for the year came in at $77 million. A significant portion of that was dedicated to the completion of our new printing plant in Port St. Lucie, Florida, and the new Food Networks studio at Chelsea Market, New York. Total debt at the end of the year stood $530 million, up from 490 million at the end of September, reflecting or acquisition of GAC.

Here's some top level guidance for the first quarter 2005, starting with Scripps Networks. Based on the strong growth in advertising commitments made during last year's up-front and currently stable scanner market, we anticipate advertising revenue in our National Television Networks will be up about 25 percent. Affiliate fee revenue is expected to increase about 15 percent, net of distribution fee amortization. Programming and marketing expenses are expected to increase 30 to 35 percent, as the company continues to invest in building viewership across all its brands. At our newspapers, advertising revenues are expected to be up in the low single digits over the prior year. And at the company's broadcast television stations, total revenues are expected to be down two to four percent, reflecting the absence of political advertising the year. The company is continuing investment in Shop At Home network is expected to reduce first quarter segment profits by about $5 million. Due primarily to increased profitability of the Food Network and the company's allocation of net income to Tribune Company, which owns 31 percent of the network, minority interests will be somewhere between nine and eleven million dollars in the first quarter. First quarter earnings per share are expected to be between $.35 and $.39. In the first quarter 2004, we recorded $.43 a share in earnings, but that included a gain on the sale of investments which boosted net income by $.06 a share.

A few other items as you're thinking about the full year 2005, depreciation and amortization expenses are projected to be about $80 million in 2005, up from $72 million in 2004. That's due to the acquisition of summit America and GAC, and the completion of the two major capital projects we talked about earlier. We expect to spend somewhere between 110 or 100 and $110 million on capital projects in 2005, including another expansion of Scripps Networks headquarters in Knoxville, and the first stage of a new printing facility in Naples. We'll recognize between 50 and $55 million in minority interest this year, up from the $43 million we recorded in 2004, and we will begin to expense stock options in the second half of 2005, resulting in a charge of about $13 million or $.05 a share. Our tax rate is expected to be around 36 percent for the year.

That's a look at some of the numbers. With that, moderator, we're ready to take any questions.

Thank you. And once again, ladies and gentlemen, if you'd like to ask a question, please press star 1 at this time. And we will take a question from the line of Steve Barlow with Prudential. Please go ahead.

Thank you. I wonder if you can break out programming and marketing expenses for the networks business, just to try to understand the growth rates in both of those. And secondly, on Shop At Home, we're up to eight million if the fourth quarter, about five are or so coming up in the first quarter. Can you take me through how we get from the five million in the first quarter to 15 to 20 for the whole year of '05? Thanks.

On the second one, it's easier Steve, and this is Joe. Shop At Home has -- is a retail business, and seasonally, they are strongest in the fourth quarter. So we'll lose -- we expect to lose about five in the first, and then that pattern will be consistent probably with the pattern we've had in prior years. But fourth quarter's the strongest. As far as --

Excuse me, if you look five, five, five, then you break even in the fourth after losing eight in the fourth quarter of '04?

No, probably not, but it will be -- the fourth quarter will be the best. But it's not likely to be five, five and five. Your earlier question had to do with which period?

The programming and marketing expenses at the networks, if you could break out the split between those and the growth rates, trying to look at those going forward.

Yes, but which period are you looking for?

Why don't you do the whole 2004.

Okay. You know what, I'm going to dig that out. As soon as I have that answer, I will break in, okay?

Thanks.

William Drewry, CSFB.

Thank you. Three questions. First off on the, Ken, if you can talk about with HGTV, where scatter pricing is at the moment, what you're seeing in the market. Two, on TV stations, can you talk about how the November book was? I'm just sort of curious the numbers, ex-political, still seem, less than robust, given the turn around at the ABC network, if you can just talk about the dynamics there. And then on the newspaper side, just wondering, last call, you had mentioned, Knoxville and Memphis as two of the weaker markets in the non-JOA properties. I was just wondering if that was still the case and if you might define solid for us long term, is that -- you said solid growth long term, is that five percent growth, is that ten percent growth? If you could put some more color on that, that would be great, too.

I'll let John Lansing answer the scatter on HGTV, Food , and Bill Peterson will take the November TV book. And Rich, how about the newspaper question? John.

Bill, the scatter market or HG and Food, is markedly better than the overall marketplace. We're seeing good demand for Food Network and HGTV, with some small increases in CPMs over the up-front pricing. I just think the reason is we're heading into the first quarter, into March, and our endemic category starts to come to life. So the categories that really affect our particular marketplace are somewhat stronger than the broad marketplace.

Bill?

The November book was pretty much an average book for us. The ABC stations were up in Prime, but the ABC performance at 10:00 really has not been all that good. So as a result, our late newscasts are not all that buoyant. Right now, we're seeing regular business trending pretty much about the same as the guidance that was in the press release of being about up -- this is nonpolitical revenue being up about two to four percent.

Just on that point, can I ask, do you think that you're performing in line with your markets, with that kind of number on TV stations?

Right now it appears so, yes.

Okay.

Hey, Bill, it's Rich. When you look at some of the local markets, Knoxville and Memphis are still a little bit on the softer side, although not -- not terribly different than some of the trends. If you look at going forward, if you're looking for a definition of solid, you know, I'd say anywhere five percent or north is getting into the solid range. Five to ten I'd call real solid and we'd be pleased with.

Great, thank you very much, and nice quarter, too.

Thank you Bill.

Let me break back in here just for a minute before we take the next question. This is Joe again, on the question of breaking out programming and marketing costs as we look back at the full year of '04, programming grew at about 20 -- mid 20's, 23, 24 percent. Marketing and promotion grew up north of 50 percent. So that's the breakdown. Marketing and promotion is obviously a smaller number but we did spend aggressively as we got two new networks coming up, the older networks don't take nearly as much, but that's the break down on those two.

Peter Appert, Goldman Sachs.

Joe, just a follow-up on this cost issue. The 30 to 35 percent increase in program marketing costs you're thinking about for the first quarter, I'm wondering what ability you have to vary those percentages as '05 rolls out in the context of the variability in the scatter market. And in particular, I'm also wondering if you could break it further between the cost growth for HGTV and Food versus the other networks? Thanks.

Okay, well, to the first question, Peter, you have a lot more control over marketing than you do over programming because programming is the amortization of program costs that were incurred largely in prior years, especially what you get in the first quarter of any year. So your current spending while you can turn it on and off, will affect later periods. So we're pretty solid on what our programming budget will be for the year. Marketing is, as you would expect is more immediate and something we have in the past and can and plan to in the future, adjust as we see fit depending on the health of the markets we're in. Right now we feel pretty solid with the numbers we've got, but we certainly could turn them if we need to. With respect to HG and Food, as I mentioned, the expenses would generally be a little more moderate --. Let me look here. Looking at -- you're talking about the first quarter increases, right?

The bottom line is, I'm wondering if we've achieved optimal or maximum margins for HGTV and Food at this point, if we should assume they've peaked and may actually decline a little or if you still think there's some upside.

Well, I mean, we've talked about this before. They are both at very, very high margins at the moment. We think that, you know, obviously there is room, if you decide that you don't need to continue to re-invest. But or commitment is to continue to invest in them, in the brands, to provide the kind of marketing or especially the kind of programming that keeps them as high rated as possible and spend marketing money when we need it. But it's a longer term view we take. We probably could run them at a much higher margin. But our view is 10 years from now, we want them to have margins like they have now, rather than to have very high margins now and smaller margins then.

Okay, so the target is basically to sustain current level of margins?

Yeah. You know, I think there's a little upside in there, but generally speaking, we're pretty comfortable where where we are, especially on HG.

Last thing, can you give us any update on the ratings for the cable networks?

Yeah, I'll take that one, Peter. This is John. Food Network ratings actually would be the headline for us. They got through the fourth quarter with strong ratings in the face of strong competition, and then with the launch of the Iron Chef America franchise in January, we saw the highest rating in their history for a program in prime time. So we see a lot of strength with Food, we see mix of the demographics with Food, I think that's important. We have strength in really three categories of audience, men, women and the combined demographic of adults, which allows us to participate in three revenue marketplaces.

HGTV had a modest decline in demographic ratings in the fourth quarter. Some of that may have been due to stiffer competition, ironically, from ABC on Sunday night and Wednesday night. But be that it's a may, we were able to sustain a modest drop and allow our advertisers to retain their investments by use of our inventory in the quarter, and we didn't carry any significant deficit into the first quarter at all. And as we got into the first quarter, we began the year with the second highest New Year's day in the history of the network. The first highest being 2002, which was coming out of 2001, had a special appeal, I think. So we felt very good about viewership, launched by the rose parade, the Dream Home launch, and that evening in prime time, we launched three new series. All three of the HGTV series are off to a very strong start in January, particularly a program called, "Designer -- Design Remix," which is in terms of household ratings is performing in the 1.2, 1.25 range with very strong demographics. So HGTV certainly hit a small speed bump in the fourth quarter, but we feel like we're on our way to recovery.

Great, thank you.

John Janedis, Banc of America.

Hi, good morning. Two brief questions. First just on the turn around in Denver continues to be a work in progress, can you give us an '05 outlook there? And then not to beat a dead horse, but on the program and marketing side, it looks like that growth tend is down during the year for the expenses. Where does that reduction come from? Thank you.

This is Rich, I'll jump in on Denver. It's the same story out there, as it has been the past year, the team out there has done just a terrific job on the cost side and just continued to work the costs down. However, the top line remains weak, the economy in Denver continues to be trailing the national economy. If you remember, Denver went into the recession a good year or so after the national economy went into recession, and it's still plowing through and trying to absorb a lot of job losses on the tech side. So there's some glimmers of improvement out there, but at the same time, like everywhere else, Auto's the been a little weak, Help Wanted's been better, Real Estate has been about stable. But there's not a lot of real strong spark out there on the top line, we hope that's yet to come hopefully in '05.

Rich, do you still expect, then, EBITDA growth there in '05, I would assume?

Yes.

And John, this is John again, on your question about the expenses ramping down during '05, really the focus there, I would point you to, would be our marketing expenses. We've invested in marketing for -- aggressively, in terms of marketing for HGTV for obvious reasons with our ratings and competition. With Food Network, we've invested significantly in the first quarter with marketing dollars as a way to push the launch of our new programming. Then we've also added marketing dollars at a significant level for the first time for DIY. And DIY is the network that is in our minds beginning to grow towards profitability and grow towards a point in time where it will be measured by Neilson. And in order to be prepared for that, we really need to begin marketing that network a year, year and a half out to prepare it for that point in time. So those three effects in the first quarter caused a bump in the first quarter that leads to the declining expense going forward.

Then for the year then, not that I have the numbers in front me, but would you expect the same sort of growth, between program and marketing that kind of magnitude, meaning twice as higher growth in the marketing side versus programming?

No, it's variable, really. The programming costs are amortized where the marketing costs are taken in the quarter. And depending on the quarter, depending on the network, for instance, the fourth quarter in the first quarter would be heavier marketing periods for us than the second and the third.

Thank you.

Alexia Quadrani, Bear Stearns.

Good morning. On the newspapers for a second, any sense of whether or not the classified auto will continue to be this weak, looking into the January numbers and maybe into the first quarter? And then second question, on acquisitions, you know, do you continue to look for acquisitions in the cable side? And if so, what the pipeline looks like there?

I don't think we see any reason to believe that -- this is Rich, I'm sorry, talking about the newspapers' Classified and Auto. We don't see any reason to believe Auto is going to make a quick turn in the positive direction in the first quarter. You know, it's still a little bit early but we don't see any indicators that say it's going to make a strong return.

Alexia, it's Ken. You know, our strategy all along has been organic growth creation from within, and when we have had an opportunity to make what we think is an opportunistic acquisition, Food would be in that category, and obviously GAC, as would Shop At Home, we'll do it. But, those are few and far between, unfortunately. There are not that many acquisitions out there in the capable network business. So I think you'll see us continue, as we said in our opening remarks to widen the mote around our brands, build ancillary businesses, like an HGTV Pro, and line extensions from our very popular brands. But we won't hesitate, if we do come across an acquisition opportunity to step up to the plate. But those are so rare and for us they tend to be along the lines of more fix-up and improve and build on than what I would call, mature, full-stream cable networks.

Thank you.

Craig Huber, Lehman Brothers.

Thank you, you didn't cover the hurricanes for your newspapers, I was curious what the revenue and expense impact was in the fourth quarter. And now that we're sitting here in January, what percentage way back are you to normal revenue level of your Florida newspapers? And then second question, back in this programming and marketing, for the full year '04, what percentage of -- percentage of your total cash costs for your Scripps networks was programming and marketing? And also for '05 your other related costs in your networks, what percent do you think those will be up next year?

It's Rich, let me give you a little bit of color on the hurricanes, and then Joe might want to isolate the -- our handling the costs because some of the insurance settlements. We're a good bit of the way back particularly on the Treasure Coast. Help Wanted has been very strong, Newspaper had a very good December. There's still a number of small businesses that are not opened yet, they're still waiting for their insurance checks to get themselves back in business. So I think we expect business to be strong down there throughout the coming -- coming year as all the repair really flows through the economy, and the tourism returns at the same time. So the early signs are good. Business is bouncing back down there very well. But we still think we have some distance yet to cover. Now, let me hand it over to Joe to talk about how it all nets out including insurance.

Yes, Craig, we're still in the process there, in fact, it takes longer than you might expect. We -- you look in our release, you can see we've identified that we've got something on -- somewhere between 6 1/2 and $7 million of impact in the full-year numbers that we attribute to the hurricane. Both costs and then what we're calling lost business or business interruption. We can probably go ahead and settle up with insurance companies on the physical damage and settle up what's deductible and so what's our responsibility, what's their responsibility, that's the far easier part. We'll probably be working through the first half of the year, the year we're in, before we are able to make and settle a claim on business interruption. The definition's obviously very broad, and subject to interpretation. So we will obviously have a different interpretation than our insurance companies. That will settle out by the end of the first half so we'll know more. But this gives you a sense for what we think the size of the damage is in terms of what's been reflected in our numbers. We are able to -- the policies do cover business interruption for a period of time. So as businesses recover, and take time recovering, and are not advertising just yet, all of is that will count as well. So that the size of the recovery may be larger than what we've indicated in our financials, but there's no way of estimating that. So we've -- we've been fairly conservative on it.

I can start off on the cost question with '04, and then maybe have Joe address '05. For '04, the total increase in expenses for all networks with $89.3 million, 26 percent. Of that total increase; programming, marketing, and research accounted for 60 percent of the total increase. Research being a smaller piece. In the fourth quarter, it was 55 percent represented by programming marketing and research.

And Craig, just a it'll broader context, you -- you sort of were -- I guess you were getting at what percentage of revenue is represented by programming and marketing expenses. For the year '04, about a third, or 33 percent, 34 percent of our revenue was spent on programming and marketing. Other is less, obviously, and we expect that to grow kind of inline with programming and marketing, frankly. That's where research and some of the other items are that John mentioned. So does that help?

That's great, thank you.

Michael Kupinski, A.G. Edwards & Sons.

Thank you for taking the question, I appreciate it. I was wondering if you can talk about Federated in May in terms of total retail newspaper advertising. It doesn't seem like you have a lot of store overlap in your markets but I was wondering if you had any thoughts on the department store retailers in the ad category, and are you seeing some stabilization in that category in the first quarter. And then finally if you could talk about it, how significant a portion might be coming from these two accounts on your broadcast television stations as well?

Mike, it's Rich. Let me -- I'm going to let Mark talk about it a little bit. But that merger would not, we do not think, would affect us substantially. A couple markets, but it probably would not be a real big hit to us.

Mike, how are you?

Well, thank you.

There are only two markets from the research that we've done. Generally, the Department Store category for us in the fourth quarter was fairly robust. Which may buck some national trends, but we don't -- if that were to happen, we have relatively little exposure compared to many of our peers.

And how is the category in the newspaper side holding up in the first quarter? In general?

I claim too early to tell, Mike, at this point.

Okay. All right. Thank you.

Mike, this is Bill Peterson. On retail it's about the same story in Television, it's been trending down. The large department stores are not necessarily giant users of Television, but for the fourth quarter, we saw Retail as a category down, about ten percent, and that appears to be the trend as we go into the new year. But again, it's too early to really look at category performance for the first quarter.

And on -- we're hearing on Television that Automobiles are starting to pick up a little bit in the first quarter. Do you have any thoughts on that category?

It seems to be picking up, because they have so many new models that they're introducing. Again, we don't have specific data on that, and our story is a little clouded by the fact that our four biggest markets, three of them were impacted in early January by heavy storms, so the local automotive advertisers kind of went off. And then in West Palm Beach, we're seeing kind of a slow start with Auto, again, because some of the dealers up in the Treasure Coast are still trying to get inventory, and they're not on the air. So we really don't have a good handle on Automotive, we just feel good about it because of all the new models.

Okay. Terrific, thank you.

Thanks, Mike.

Frederick Searby, JP Morgan.

Thank you. A couple of questions. What are your thoughts, Ken, are you going to revisit? In the past you've been evaluating Hispanic Network, and does GAC mean your plate's full is this still pretty much moth-balled or do you expect to look at that and evaluate it this year again? Secondly, on the Newspaper side, there was some buzz about Wal-Mart and the brief pickup we saw after the falloff in sales. Can you give us your thoughts or any feedback you're hearing in terms of whether there's some kind of real sustainable uptick in spending with Newspapers, or whether it was really just a blip? Thank you.

Fred, I'm going to let John Lansing, because he's been working closely with our development team on a Hispanic question and Rich and Mark will handle Wal-Mart for us.

Good morning. The Hispanic initiative is still on our plates at Scripps Networks. What we've been doing recently is organizing to take a much more aggressive approach to business development in general. And that was really what was behind the hiring of Eric Thorkilsen, so that we can look at Hispanic and all the other initiatives that are on our plate and begin to evaluate them against other potential possibilities. As we sit here today, Hispanic is a discussion that we're having with various potential partners to see if we can find a strategic link with some other partner that might make the business plan work better for us. So it's still alive. But nothing imminent.

I'll just add before Rich jumps in, we're still very bullish on it. As John said, the difficulty is in matching up the markets that have a population with distribution partners. So we've just been very cautious on before we launch this. Like this thing, have it on 24/7 and it's burning through some cash that we can really get to the homes. But our research, everything that we've seen tells us this will continue to be for us, especially in our categories the shelter and food categories, a real opportunity. So as John said, we've not pushed it aside, but we've certainly looked at it from the standpoint of just an overall business plan. It still looks good but it's more of a distribution issue than it is content. Rich?

On the Wal-Mart issue, the biggest chunk of dollars we received from Wal-Mart came in Memphis. We think we did a terrific job for them there. Store sales were very good. At this point, there has not been a follow-through, there has not been any additional buys, but we'd like to think that was a -- maybe that was an early indicator and they'll come back and find some reason to spend some more.

Okay, thank you for your response.

Lauren Fine, Merrill Lynch.

Hi, thank you. A couple of quick ones. Could you just clarify for your first quarter Scripps Network Ad Revenue Guidance, if that includes GAC or if we should treat that separately? Then secondly, if you could help us identify what the late surge in December ad revenues Scripps Networks sort of came from, if there were any particular categories that were strong. Finally on the Newspaper side, could you comment on how Preprints did, given strength in online? It looks like Preprints were a little bit more muted, and we've heard that at least one retailer is considering cutting back on their program?

Okay, Lauren, I think I'll just take both of those. The plus 25 does include GAC, yes. And in terms of the categories driving the late surge in -- in December and in the quarter, for HGTV, the top three categories were Retail, Home Improvement, and Consumer. Both up significantly over the prior year's quarter in the 20 percent range. Food Network has -- I'm not -- not surprisingly, saw it's top category Food, being the top category, Consumer, and also Retail. So Retail was represented in the top three for both of our larger networks. Fine Living also had Food and Automotive in their top two, and DIY Home Improvement and Retail, and Consumer with Automotive being fourth for DIY. So the threat of demand there was really driven largely by our endemics in the quarter, as well as the Retail category.

Lauren, it's Rich, you're correct. The Preprint category was pretty flat in the fourth quarter. And if you give us a little bit of time, we'll dig through some of the detail and try to give you the categories. We don't have all that detail yet.

And market-by-market, it was somewhat of a mixed bag in terms of some were way up, some were off slightly. Preprints, my experience has been it's a very local phenomenon, but we'll try to dig in the categories and get you kind of a category-by-category maybe later in the call.

Maybe any sense of how you expect 2005 to look? Are you hear -- getting any resistance from any major marketers?

At this point, no.

Thank you.

James Marsh, SG Cowen

Hi, gentlemen. Two broad questions, first on the Newspaper side, Circulation is down 3.7, I was wondering if you can flush out what's going on there, is that a trend we should accept right out through 2005. Secondly, I was wondering if you could elaborate a little bit more on what's going on with the start up cable networks, and maybe just discuss the loss trend there and it looks like it's bumping up a little bit in the first quarter, I presume most of that relates to kind of seasonality on the top line. But secondly, if you could talk about revenue growth there, DIY seemed a little low, and how is that meeting your expectations or not? And lastly, just touch on target distribution for the start up networks by year-end or give us some magnitude of change there. Thanks.

It's Rich, let me just give you the bottom line on Circulation. It was weak in 2004, and Circulation revenue was weak as well. And in 2005, we're going to try and drive those numbers back up a little bit. But the biggest emphasis will be on reach and on penetration, not necessarily as much on the revenue.

James, let me give you a little color on the number and John is going to pick up and give you more on the background on the progress of the start-ups. You're probably reacting to the two numbers that were in the release, we talked about losing $7 million in the start-up networks, in the first quarter we're talking about losing 10 in the first. Those are not apples to apples. The 10 to the first quarter includes all of our development initiatives, including some of the other new businesses. So if you look at it apples-to-apples, you're looking at about seven on the networks in the first quarter, so it's roughly flat, except the first quarter includes losses at GAC. So it's actually an improving picture sequentially from fourth to first, and we're, as I said, the numbers are the same, but the first quarter of '05 includes GAC losses. So I guess that's the better picture. John's going to give you the background of where we are on these developing networks.

Sure, happy to do it. I mentioned DIY a little earlier, we are certainly looking forward to DIY pushing towards profitability by the fourth quarter of this year. Based on a much bigger investment in marketing behind some strong programming investment that we put into DIY, I feel very positive about the progress DIY has made. And in recent data research that has come out as of this week measuring the attitudes of cable operators toward DIY and Fine Living, for that matter, ranked both of those networks in the top five as networks that are appealing for new launches for MSOs. So we feel very good about that.

Fine Living, we were able to take some costs out of Fine Living, I believe, and I think it was really an exercise in focusing the network, and allowing us to create a more cross promotional appeal for that network so that it has more of a derivative quality of our other networks. We'll be using some programming from our library to help program Fine Living, not so much of the cost savings as to create a strategic point of view for the network that aligns it with our other networks and allows us to cross promote it. That has positioned Fine Living on a P&L basis to be in a much stronger position in '05 going into '06. And not projecting anything in terms of profitability there, but I can tell you it's a subject that is near and dear to my heart, and we'll be pushing very aggressively on in terms of profitability for Fine Living.

GAC, we really just got our arms around it as the new year began and we like a lot of what we see. The distribution story for GAC is really very positive they're now approaching 37 million households, pushing towards 40 during this year,I believe, we'll get there certainly by midyear is my hope. In terms of programming, we are not going to overspend on programming if the first year, but rather put resources against firming up our existing programming, our relationships with country music industry. We perceive very positive feedback about the potential for GAC competitively, in that industry, and we have received a lot of support and encouragement from the major record labels, and the Country Music Association. So we're going to work to join as partners with those groups and build this network on its foundation, which is country music, and then begin moving the sensibility of the network towards the Americana point of view that Ken has phone spoken of frequently. And our first steps in doing that will be in developing short form programming, which will have a unique ability to play seamlessly in an environment driven often by music videos and life studio hosts. We'll also be using the short form content both as a branding mechanism and as a selling tool. The real upside on GAC is on the advertising sales side. We think the upside on an average unit rate basis is significant and so as we work to fix the quality of the network, work to develop our new relationships with our new partners in the industry, and work with the advertising community, we think we'll have the ability to really have a positive impact in a short amount of time.

Excellent. Thank you very much.

Douglas Arthur, Morgan Stanley.

Let me see if I can get in under the wire. Mark, it's been a long time since the newspaper group at Scripps had any semblance of earnings momentum. What are the two or three things that you are going to really going to focus on in '05?

Well, fairly kind of tried and true principles. One is just taking a look at the staffing, in advertising, and seeing how much -- how many people we have on the street compared to the number of businesses that we have. That's an exercise that we've embarked on already. The second major issue we're going to take a deep look at are rates within each of our local markets. We think there's probably some opportunity there. And then we also think that there are going to be several local acquisition opportunities as the term I guess is tuck in or bolt-on acquisitions which currently exist in many of our markets. So those are three initial things which we -- we hope will all build local market share, we'll hope to get a read on where we are in market share in local advertising sometime in the first quarter, and when we have those, you know, we'd be happy to share that. But that's going to be a real focus going forward, is to try to maximize the market share in each of our local markets. Because we think with we can drive ad revenue at a faster clip than our peers we can drive the bottom line much faster as well.

Are non-news print expenses likely to run as high in '05 as they did in '04?

This is Rich, certainly we hope not. There's been a little bit of noise in that number, not that it matters. It's still nets out to a number that obviously you're not pleased with. We're going to see if we can bring that number down. Or offset it in other places.

Great, thanks.

Paul Ginocchio, Deutsche Banc.

Yes thank you. Two questions. First, did I hear right, your year-end debt was 530? It seems low particularly when you spend 140 in Q4, what am I missing, I guess a cash inflow somewhere. And then two, Mark had just commented about some tuck-in acquisitions on the Newspaper side. Has your view changed at all with the FCC -- or the speculation that there's some Justice Department investigations into pricing in local markets and acquisitions by the main metro papers? Thanks.

I'll handle that question. No, you heard right. We did borrow 140 million but we had been generating a lot cash and it's a seasonally strong part of the year for us so we've been able to pay down a large chunk of the borrowing we made to do the GAC acquisition. So it's just operating cash inflow, there's nothing out of the ordinary there.

So it's a working capital inflow, instead of an outflow like a year ago?

This is Rich again, I think we have issues with those acquisitions are isolated. If you look at the newspaper business, it has for many years been adding and launching adjacent products, you know, above and below the core product, and also in other categories. I think that's strategy that's going to continue for a long time to come.

Great, thanks.

(inaudible), Sandler Capital.

Hi, given that the debt-to-cash flow ratio is under one, you're not in the market for TV stations, you're not looking for any major or even semi major newspaper acquisitions and you've said that the market for significant cable networks is nonexistent right now, that leads to the obvious question of where are you in share repurchase?

John, it's Joe. We are -- we obviously look at it every quarter and we talk -- we are talking the board about it again in our upcoming meeting. I wouldn't be surprised to see us in the market but we have no major plan to announce at this time.

Okay.

We have time for one last question before we wrap up if there's anybody else on the line, Moderator.

Kent Blair, Bank of New York.

Good morning Gentlemen. Could you -- have you seen any sort of definitive change in the MSOs determination in bringing analog subs over to digital and maybe talk about how that might alter your projections for DIY, Fine Living, et cetera?

Kent, this is John. The rein of change has not accelerated significantly, although it's an issue for us as we watch the changes occur. Our projections for our digital networks and their distribution have not changed as a result of that, though.

No change in what you're hearing from the MSOs as far as their determination to get more subs onto the digital tier?

I think the headline there, of course there are many issues on the place of the MSOs that even go beyond video distribution, of course, with -- as they grow their businesses, but the growth there that most relates to us is with the high definition use of their digital spectrum. And as their looking to increase their customer base for that particular product, we'll be actually working to develop a product to meet that demand.

Great. Thank you.

We have no one else queued up for questions.

Great, this is Tim Stautberg back on. If you have any further questions today, I'm in the office. Feel free to call 513-977-3826, I appreciate everybody participating today, and we're out by the top of the hour as promised. Operator?

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