E W Scripps Co (SSP) 2005 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the first quarter earnings report teleconference. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. [OPERATOR INSTRUCTIONS] If you should require operator assistance at any time, please press star, then zero. As as reminder, this teleconference is being recorded. I would now like to turn the conference over to the Vice President of Investor Relations, Mr. Tim Stautberg. Please go ahead, sir.

Good morning, all. Thanks for joining us. We'll start the conference call today with a few comments from Ken Lowe, our President and CEO, and Joe NeCastro, Chief Financial Officer. Our prepared remarks should take about 15 minutes and 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 our senior management team who are here with us on the call. Joining us are Rich Boehne, Executive Vice President, John Lansing, President of Scripps Networks, Mark Contreras, Vice President of Newspaper Operations, Bill Peterson, who heads up or TV Station Group and Lori Hickok, Vice President and Controller.

Let me remind you, if you prefer to listen in on the web, go to Scripps.com and click on 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 our convenience.

Our discussion this morning will contain forward-looking statements and actual results may differ from those predicted. Some factors which may cause results to differ are set forth in our publicly filed documents, including our 2004 form 10-K.

Now here's Ken.

Thank you, Tim, and good morning, everyone. As always, we appreciate your continued interest in E.W. Scripps Company. The Company just completed another solid quarter, posting healthy double-digit increases in both revenue and operating income. As has been the case for sometime now, the cozy consolidated growth was driven by outstanding financial performance at Scripps Networks, specifically our two flagship lifestyle networks, Home and Garden Television, HGTV, and the Food Network.

We also received a very nice boost from our daily and community newspapers, which, by the way, did an excellent job of controlling expenses during the quarter and capitalizing on a modest improvement in advertising sales. At our broadcast television station, revenue and profits were lower, as expected, because of the total absence of political advertising. A generally soft broadcast television advertising market exacerbated really the already difficult year-over-year comparison for us.

Scripps Networks, though, continues to be our big headliner. The rapid financial growth of Scripps Networks clearly points to the success we're having developing popular life-style television networks, along with engaging websites and innovative content services for emerging media technologies.

Now, all of our networks and related content services, we believe, are uniquely positioned to capitalize on growing advertiser demand for targeting and accountability. We have proven quite adept at identifying underserved shelter categories, and then building very powerful media brands around those categories. The revenue and profit growth at HGTV and Food Network, our flagships, continues unabated, the direct result we believe of our commitment to quality original programming. Shows such as Food Network's Iron Chef America and HGTV's Design Remix, for example, resonate with viewers and continue to raise the profile of both of these quality networks.

The launch of Iron Chef America in January, for example, contributed greatly to the 17% increase in prime time household viewership at the Food Network during the first quarter. Over at HGTV, the rating softness that we experienced in the fourth quarter continued into the first few months of this year. In March, however, we launched several new series on HGTV that we anticipate will strengthen household viewership in the coming months and we're already seeing some early signs of that. While we do expect fluctuations in the rate of viewership growth at HGTV, there is no question in our minds that this is the television network that is efficiently reaching large numbers of passionate viewers and motivated consumers.

For example, all you have to do is take a look at the record 39 million entries for this year's HGTV Dream Home Giveaway to realize that this is a targeted television network that truly matters and that 39 million entry level was up from 35 million in '04, a very healthy increase.

The popularity and success of Food Network and HGTV have firmly established Scripps as the nation's leader in life-style television programming. Now, we're also building momentum at our developing networks, which now include, of course, Great American Country, along with Fine Living and DIY, the Do-It-Yourself Network. Advertising revenue at all of our newer networks grew at a very healthy pace during the first quarter.

Other development efforts at Scripps networks include new content services for emerging media platforms. For example, in January, we launched HGTVpro.com, a video-rich business to business content service that's designed exclusively as a broadband internet channel. HGTV Pro targets professionals in the home building and remodeling industry by delivering useful information and high quality video content that focuses on best practices in the home construction industry. With the launch of HGTV Pro, we have really created another efficient marketplace, this time linking the interest of folks in the home building and remodeling business with the advertisers who want to efficiently reach them. In March, just three months after its launch, HGTVpro.com attracted more than 300,000 unique visitors, making it one of the most popular websites of its type. We are very encouraged by HGTV Pro's early successes.

Turning now to Shop At Home, retail sales continue to grow dramatically during the first quarter, the direct result, we believe, of our deliberate investment to build a business and to implement our electronic commerce strategy. The double-digit growth in sales coincides with marked improvements we've made both in the quality and variety of products that we're offering home shoppers online and on air. We also made progress during the first quarter building meaningful commerce relationships between Shop At Home and our life-style programming networks.

Pardon me.

In February, we opened the DIY Store, an online commerce site managed entirely by Shop At Home, but accessible via both the DIY and Shop At Home websites. The DIY Store creates a direct product link with consumers who are interested in popular do-it-yourself programming categories, such as scrapbooking, radio controlled hobbies, and digital photography. Today, we have more than 400 items available on the DIY store and we'll be developing similar commerce links between Shop At Home and our other life-style networks in the months ahead.

The expansion of Scripps networks including implementation of our electronic commerce strategy at Shop At Home continues to be the company's top strategic priority. We believe really developing these valuable businesses and creating new content services for emerging media platforms is a wise use of the company's capital and a proven path to increase shareholder value.

With that, let me turn it over to Joe, who is going to touch on some financial highlights for the first quarter and he'll also review second quarter guidance. Joe?

Thanks, Ken. Good morning, everyone. I'll provide a little more detail on the first quarter, try to look at some of the issues that effected net income during the period. Then we'll look at some cash flow and balance sheet items before we turn to the guidance that we provided this morning.

Of course the good news that Ken mentioned is that the networks continue to perform extremely well for the company. The tremendous growth at HGTV and Food at the traction we're getting at DIY and Fine Living are the direct result of the strong up-front deals we struck last year and a solid scatter market that's made our uncommitted inventory even more valuable. Affiliated fee revenue came in a little better than anticipated because of better than expected subscriber growth and the completion of a distribution agreement with a key cable system operator.

At our newspapers, we reported an 8% increase in segment profit. Keep in mind when analyzing our newspaper results that we accrued about $2 million in bad debts related to the K-Mart bankruptcy during the first quarter of 2004. Adjusting for last year's accrual, newspaper segment profit was up about 3 to 4%. This remaining increase was largely a function of very prudent cost controls and modest improvement in newspaper advertising. Classified advertising was up 3.3% in the quarter, fueled by a 20% increase in help wanted and a 4% increase in real estate advertising. Automotive advertising in our newspapers was off 5% in the quarter.

At our broadcast television stations, the lack of political advertising this year is having the obvious effect. The softness in the broadcasting, broadcast advertising market that Ken referred to isn't helping. Automotive and telecom were particularly soft for us during the quarter. We did begin to see a return to some normalcy in automotive in March as domestic carmakers put money back on the table to try and jumpstart sales. The management of the broadcast group did an excellent job at cost control, reducing expenses by 4% in the quarter.

As Ken mentioned, implementation of our electronic commerce strategy is moving forward at Shop At Home. Annual revenue per full-time equivalent home on a trailing 12-month basis was $6.20, up from $5.44 in the same year-ago period. Even with the nice bump in revenues in the first quarter, we're still expecting Shop At Home to reduce our segment profits by about $15 million in 2005.

Corporate expenses were up in the quarter due to some non-recurring separation-related charges that we accrued during the quarter. Aside from these charges, though, corporate costs were actually flat with the prior year. The rest of the numbers pretty much speak for themselves, so I won't go over them in detail here other than to say our flagship networks continue to drive the Company's overall growth.

Looking at first quarter net income, it's important to remember that last year during the same period we had a $9.5 million after-tax gain on investment that increased our earnings per share by $0.06. We reported the gain in 2004 following the sale of an investment we held as a result of early round venture capital financing.

Now, let's look at some of the cash flow and balance sheet items. Capital spending for the first quarter was only $8 million, a very modest start for the year. We still expect that full year total to come in around $100 million as the larger projects in the budget are scheduled for the back half of the year. On the other side of the balance sheet, the Company's total debt at the end of the quarter stood at about $453 million. Now, total debt at the end of the prior year was $533 million, so we're down in the quarter. Interest expense was $7.4 million in the quarter, about even with last year.

Now, let's turn to the guidance. Here's some top level numbers for the second quarter of 2005 starting with Scripps Networks. Based on the strength of last year's up-front business and the current scatter market, we anticipate a 25 to 30% in ad revenue from our national television networks. Affiliate fee revenue is expected to increase about 20%. programming and marketing expenses are expected to increase 15 to 20% as the company continues to invest in building viewership across all of our brands. At our newspapers, advertising revenues are expected to be up 3 to 5% over the prior year. At the company's broadcast television stations, ad revenues reflecting the absence of political are expected to be down 4 to 6%. Political advertising during the second quarter of 2004 for reference was about $6.2 million.

The company's continuing investment in Shop At Home is expected to reduce second quarter segment profit by about $5 million. Due primarily to increased profitability of the Food Network and the company's allocation of operating income to Tribune Company, which owns 31% of that network, minority interest will be somewhere between $15 and 16 million in the second quarter.

Earnings per share during the second quarter 2005 are expected to be between $0.51 and $0.55. Earnings per share during the second quarter of 2004 were $0.52, including an unusual item that increased net income by $0.04 a share.

Lastly, you have probably notice add change in the way we're providing supplemental information on each of our cable networks. With the addition of GAC, we designed to discontinue or practice of allocating the cost of shared services and facilities to the individual networks. Instead, we're providing revenue, direct costs and what we're calling direct contribution to segment profit for each of the five networks. The shared costs are disclosed in total no longer allocated to the networks. We believe that this change provides even more information and hopefully better insight into our results for our investors. We do realize this change may effect the way you model the company and we intend to file an 8-K next week with the 2004 quarterly detail for each network consistent with the way we are currently presenting it.

That's a look at the numbers. Moderator, we're now ready to take any questions.

Thank you. [OPERATOR INSTRUCTIONS] First line we'll open is the line of William Drewry with Credit Suisse. Please go ahead.

Thanks very much. Three quick questions. One, Ken, can you just talk broadly, I know it's early, but can you talk broadly about expectations for the up-front for cable networks in general and, you know, how you're going to perform against that? Then two, with HG, you mentioned the ratings volatility there. I'm just wondering if any of that recent volatility in some decline, I guess, is either effecting your up-front expectation for HG or effecting the scatter performance that you've seen over the last quarter. And then finally, just on the newspapers, seemed like that number was actually better than our expectation for March, even with the negative Easter effects. Do you think that there's any kind of a sustained upturn forming at the newspaper division? What's it going take auto around and is specifically Memphis and Denver performing better? Lot of questions, but I apologize.

All right. Good morning, Bill. We'll click them off one at a time. Actually, John Lansing has been out on the road with our up-front presentations, so I'm going to let him talk about what he's seen out there and also the HGTV ratings and then Rich and Mark can jump in on the newspaper question. John?

Thanks, Ken. Good morning, Bill.

On the up-front, generally and certainly it's early at this point, but we anticipate the cable marketplace would be seeing single, lower single-digit growth, 4 to 6% for the potentially for the cable marketplace in the up-front. In terms of Scripps Network, I would anticipate that we will modestly outperform the marketplace just as we have been doing in the scatter marketplace, and the reason for that specifically is the strength of our endemics with the broader market, our endemic strength, packaged goods with the Food Network and certainly the home and design category for HGTV have given us reason to believe that that strength will continue into the up-front.

In terms of HGTV's ratings, first, a quick note. We are seeing some very positive results on our most recent programming that we've launched in March and April. So directionally, we see improvement with HGTV and that's important because that allows us to communicate effectively with the agencies and all of our advertisers that the cyclical nature that any network goes through from time to time, that we're seeing the end that have cycle for HGTV and beginning to see the improvement that they be looking for. We've been able to keep up with any shortfall liability that we've had on a month to month basis, so we carry no liabilities into the up-front negotiations. Therefore, I see no impact, or very little impact on the up-front negotiations based on the HGTV ratings. Rich?

Bill, it's Rich Boehne. We talked a little bit about newspaper advertising. I would say that we agree with you, that the top line numbers came in a little bit stronger than we expected. Some of that's market driven. Florida is very strong, bouncing back from the hurricanes last fall. You asked about Denver. Denver also had a good quarter, particularly on the help wanted side. Things are bouncing back there a little bit. And Memphis had a decent quarter on the top line. Across the board, as you're seeing everywhere, help wanted's good, auto is kind of mixed. Online is very strong. Any detail, Mark?

The only thing I would add to that, Bill, is auto was a real mixed bag geographically. There was no real story there in terms of that. It tends to be a hyper-local set of conditions. Help wanted on the other hand, really across the board, with the exception of two or three markets, was up in many cases double-digit, so we're encourage bid that continuing the rest of the year.

Great. Thanks very much. And excellent quarter.

Thanks, Bill.

Thanks, Bill.

Next line we'll open is the line of Brian Shipman with UBS. Please go ahead.

Thanks, good morning. If you guys could please expand a little bit with some more detail or color on Shop At Home performance. It looks like some very strong momentum in March, up 57%. Is that an anomaly or do you expect the same kind of momentum going forward through the rest of the year? Thanks.

Okay, Brian. Yeah, we continue to be encouraged overall with Shop At Home. I'll let John Lansing get into the specifics, because, again, John oversees all of the cable networks, including Shop At Home. But Judy Girard, as you recall, moved over to Shop At Home from Food last year and I think we're beginning to see some of Judy's fingerprints and some of the changes she's made in personnel and some of the hiring she's done there, but John you might want to get into more specifics.

Sure. Thank you, Ken. Excuse me. Brian, we are very pleased with the top line growth at Shop At Home. In fact, I think it represents two things. First we've had a significant improvement in our web sales, internet traffic. In fact, within those numbers that you've seen, the web improvement for the quarter is up 129% in terms of small numbers. It's up $10 million year-over-year on the quarter and that represents the flow of traffic from cross promotion from our existing Scripps sites. It shows the beginning impact of putting our Scripps merchandise on the Shop At Home store and we invested in improving the Shop At Home website, so that's one of the drivers.

But the key driver really is the improvement of the management team, the improvement of the fulfillment center, the call center, the merchandise, the buying, the marketing the merchandise on air. All of the systems that make Shop At Home really a store more than it is a cable network and have caused us frankly to stretch some of our muscles in learning how to manage a retail enterprise. I'm really proud of the work the management team there has done.

Now, as we look at the top line growth, we realize that we'll have to pay attention to the merchandise mix so that when the future we can carry more of that to the bottom line and that's on our minds right now as we plan looking forward into the second, third and fourth quarter, but the most important thing for us first was to have all these systems in place so that we're operating more efficiently as a store.

And, Brian, if I could just taking onto John's good summary, Joe had mentioned in his remarks revenue per household. That's kind of the gold standard that we look at in this category, TV Retailing. You saw that number move up to a little over $6 per household, I think 6.22. But another really, a good story here is the affiliate distribution team's work on improving that household base. You haven't necessarily seen household growth, I think it's around 53 million now, John, go up significantly. However, what's not easy to see is a lot of cleanup, lot of inefficient households being traded out for more efficient households. So that's another encouraging mark, so we're, you know, we're kind of clicking off some positive areas here that just makes us feel better every month about not only the Shop At Home acquisition, but how it is going to fit in our overall commerce plans with Scripps Networks.

Where do you expect you can see revenue per household going as the year wears on, and do you also still feel comfortable with the $15 to 20 million in losses you've talked about for Shop At Home?

Yeah, I think your last question first, we do feel comfortable with the 15 to 20 million loss. We really haven't, Brian, made any projections. These things fluctuate. We're still changing, tweaking. So we wouldn't want to go get into forecasting household revenue as we move forward, but we'll keep you updated, but hopefully it's on a positive increase.

Okay. Thank you.

Thanks, Brian.

Next line we'll open, William Bird with Smith Barney, please go ahead.

Yeah, I was wondering given the strength you are seeing at Shop At Home, what your time horizon is for turning profitable, and also, on programming and marketing expense, the 15 to 20% rise in Q2, is that a good run rate to use for the second half? Thanks.

You know, Bill, I ducked Brian's question on the, on the revenue per household as far as projecting, but one thing we do look at is, if we can get this network to a little over $8 per household somewhere in that number, as I said, we're at 6.22 now, this could become, you know break even, starting to get into the black a little bit. You know the numbers better than me. Most everybody does on the call. GVC does basically $40 a household. HSN is in the mid-20s. ShopNBC somewhere in the low to mid teens. For us, $8 makes it a good business. 9, 10 make it is a real good business. But right now we're not really anything beyond '05 and the $20 million loss is all we want to project at this point.

Bill, I'm taking a look at the back half. Let me get back to you. I'll cut in after I finish the calculation here, but I think it's safe to say it will be a higher growth rate in the back half of the year than the second quarter numbers we're giving, but I'll jump back in with the more specifics.

Thanks. Just to follow on Home and Garden TV ratings, you mentioned improvement in new program ratings. Just wondered if you had any updated data points to kind of quantify that. Thanks.

Without getting into specific programs and specific ratings, I can tell you that we have launched four new series this quarter, two most recently. The names of those series are Get Color and Redesign with Kenneth Brown. Both of those series are outperforming the quarter to date average in the key demographics of adults 25-54. But what's most important to us and the metric that we really pay a lot of attention to is the concentration of demographic ratings within the household rating itself, and what we're really pleased to see is we've had a 4 to 6% improvement in that concentration, so even though we went through with HGTV 22 straight months of household ratings growth, during the during that period, our average median age rose from 51 to 52. Now as we're having this adjustment in our ratings, we're actually seeing our average median age dropping as we're growing our household ratings back up to their previous level. That's a very healthy metric and one that we'll hope to continue as we launch new programs this year.

Thanks a lot.

Bill, it's Joe again. You can use something around 25% for the back half of the year, I would say.

Great. Thank you.

Okay.

Thank you. The next line we'll open is Lauren Fine with Merrill Lynch. Please go ahead.

Thank you. Just a few questions. One, just could you comment on the trends to date in April at the newspaper division. And then I'm wondering on Shop At Home if you just commented on this, just tell me you did and that I missed it, but where are you in changing the mix of the revenues right now as you try to migrate up to be more akin with your other cable networks. Third, Joe, I know you've said you'll give us an 8-K next week with the restatement for the shared expenses, but what was the total for the year in 2004 and could you give us maybe the combined total for the emerging networks so that we can compare how you're now recasting last year's, just for the full year?

Go ahead, Rich.

Lauren, it's Rich Rich Boehne. It's kind of early for us to know anything more about April other than to say that we don't see any reason to believe the trends would change in any way, which would generally be positive.

Lauren, I'm going have to dig that stuff up. We'll provide it as part of the 8-K. I could tell you that in total, I think the shared service cost last year were in the mid-70s, 70 million, and providing -- we can give you I think what we allocated to the emerging networks last year.

Right. That's what I'm looking for.

But I don't have it with me now. We'll have to dig that out.

Okay, and then I'm just wondering, you know, as you look at maybe if you have a sense of where you expect year end subscribers to be at DIY and Fine Living based on the contract you have now.

All right. Lauren, I'll let John jump back up to the changing merchandise mix at Shop At Home. And then we'll take a look at-- I don't know that we publicly stated any year-end numbers on DIY and Fine Living. Let us dig on that a second. John, do you want to take the merchandise?

Sure. Good morning, Lauren. The mix of merchandise is absolutely a key lever as we fix and grow this business at Shop At Home. In the quarter, electronics represented 41% of all of our merchandise sales and that combined with coins, electronics and coins, represented over 60% of our sales. And that's pretty much in line with where we've been over the past two quarters, and during that period, we have been adding home combo category items as well as cooking category items that have increased, combined to almost 13% of our merchandise. So we're beginning to grow that category, but what's important in our Shop At Home business, it's literally like changing four tires on a car while it's rolling. We have to continue the top line moving as best as we can while we slowly grow the merchandise mix and that's part of the reason that we've concentrated our strategy with online being key to our migration of our categories that we can cross promote on our existing Scripps sites and then as we do that and as we drive the top line, we create a buffer for ourselves, if you will, to experiment with new merchandise within our categories that we can then cross promote via yeah the Scripps Networks. That's how we've grown from zero to 13% in the home and in the cooking categories. Now as we-- as I mentioned earlier, as we are getting our fulfillment systems fixed, our call center, all the rest of it, we're in a position and as we have a bit of a buffer, we're in a position now to take stronger steps in reducing electronics and adding to the home categories slowly over the next several quarters and ultimately making that transition effectively and smartly is the key to fixing this business.

Great. Thanks.

It's Ken, Lauren. Back to the household growth. You know, DIY right now is about 32 million, up from 28 million last year at this time. That's DIY. Fine Living is currently at about 26 million, up from 21. Part of the challenge with these two networks in projecting growth ties a lot to digital box rollout and digital tier penetration and sometimes, even though while we have contracts, there ought not always as predictable as to when some of the MSOs will, will expand some of the digital boxes, the digital tiers and some of these rollouts are tied to the VOD distribution in individual markets. Having said all of that, I think it's safe to say that, you know, we feel like between now and the end of the year we can add 2 or 3 million to either network and hopefully a little bit better than that, but I, I think at this point with all those factors, it's just a little hard to call a much harder number.

Great. Then one last question, if I could. Do you have a sense of what you'll be reporting in the March [FAS tax] numbers for your newspaper group as a whole?

No, we don't yet at this point, Lauren.

Okay, thanks.

Thanks, Lauren.

The next line we'll open is Peter Appert with Goldman. Please go ahead.

The guidance suggestions, I think if I'm read thing right, 12 to $15 million a year improvement from the developing networks, which I recognize that's before the overhead expense, but that sounds I think more optimistic than what you've talked about in the past. Am I reading that correctly and if so, any particulars in terms of what's driving that?

Bill, why don't you grab that.

Peter, it's actually pretty consistent with where we were before. You wouldn't see an incremental benefit. The one you would see is you wouldn't get the growth in overheads in that number hurting the number, so if there -- to the extent there is an improvement, it would just be that there is at the direct line, not picking up any inflation in the overheads.

So the overhead expense is equal to the improvement in operating income.

Right. You saw a difference in those two deltas, it would be because there is overhead growth now missing.

Okay. That said, still anticipating that DIY gets to break even by the end of the year under I guess the old methodology?

Yes.

Okay.

No change there.

Okay. And thoughts about Fine Living and GAC in terms of when they can get to profitability?

I'll hand that one off to Ken.

Well, as we've said in the past, you know, Fine Living is a couple, almost three years behind DIY just from a launch date, although we've been pleased with the household growth there and that deal we did with DirectTV, which was for Total Choice, which put it in every direct TV household bodes well for the future growth there because we've seen DBS grow at a quicker pace and the cable side.

GAC, you know, we've been, we have been saying publicly that this is a network that we plan to fix up pretty quickly and don't see it driving a lot of programming expenses, but having said that, we really haven't locked down some dates as to when we think it will turn profitable. As you know, we're very sensitive to bringing money to the bottom line, but if you go back to our experience with Food and with Home and Garden, we want to make sure we establish these brands, we put enough money in, you know, just passing over into the black for a quarter or two is not our goal. Our goal is to build long-term profitable brands that can withstand competition and really stand alone inside the Scripps Networks Group. So, you know it, will be down the road before I think Fine Living turns a corner. GAC probably will sooner, but we'll give you updates when we have a better idea of what, when that might be.

Right. Okay. Thank you. And one last thing, the, on the JOA's, very substantial year to year improvement. You cite Cincinnati and Denver specifically. Can you give us any further detail on what's driving the improvement there?

No, not a whole lot more, Peter. It's Rich. Just that business has improved a little bit in Denver. Denver's an awfully big driver in the change there is, and they have had excellent expense management out there. That's what is having a lot to do with that number.

Okay. Thank you.

Yeah, we've got a few folks online with questions, so I'm just going ask as we move forward if everyone could just limit themselves to maybe one question and we would like to try to get to everybody we've got lined up here, so we'd appreciate that if it's possible. Thank you.

All right. The next line we'll open is Fred Searby with J.P. Morgan. Go ahead.

Okay. Thanks. Congratulations on your results. Question would be on automotive. If you could just drill down on your broadcast TV networks what percent is automotive, and if specifically you could break out the big three and dealer versus kind of holding company and what your thoughts are, you know, the GM has said they are going to increase advertising, but there's a lot of concern and I know it's a volatile category, but I wondered if you could give us more color.

We don't break it down as finely as-- this is Bill Peterson, by the way. We don't break it down as finely as you specifically ask. Probably the interesting phenomenon in the first quarter was that most of the general press and trade press was focusing on domestic auto being soft and our experience was the opposite. Domestic was holding pretty well. It was foreign auto that kind of dropped off and our sense of that is that they felt that they were moving enough product and didn't feel the need step up too much in terms of their advertising. So as we went through the quarter, actually what we saw, the quarter started off with domestic a little soft and it started getting stronger and in fact, in March, automotive was positive for us for the full quarter. In fact, it was down about 3%, but most of that was driven by the foreign.

Is that mostly dealer qualitatively and if you, just a qualitative sense of big three versus foreign guys, should we think of it as 40%, 50%? I'm just trying to--

You know what, I'm sorry. I don't have that breakdown for you. And just like Mark pointed out earlier with newspapers, it was very market specific. In fact, two of our markets were down enough to essentially comprise the total down for us for the quarter. So we were up significantly in some quarters, that driven primarily by dealer groups and we were, you know, just the opposite in some others.

All right. Thank you. Appreciate it.

Thanks, Fred.

Next line we'll open is Alexia Quadrani with Bear Stearns. Please go ahead.

Good morning. Just one question. If you could maybe comment on your international expansion plans, if any, on the cable network side, possibly some plans to acquire European production companies.

Alexia, this, is Ken. As you know, we have strategically, from day one moved aggressively into Canada. We have channels there, HGTV Canada, Food Canada, Fine Living has launched there, we anticipate DIY will soon and that's in partnership with Alliance Atlantis. We have moved into approximately 25 countries, depending on whether you're talking about HGTV or Food with branded programming that resides on other networks. We have not made investments per se in any quote, unquote, foreign channels.

We just completed a European swing month and a half ago where we went out and met with both folks on the content side, distribution side, throughout Europe. We're taking another look at our whole strategy from an international standpoint, and we'll probably be sharing that in a public way in the next couple of months. We are planning some strategic moves there, but at this time, we are just not ready to talk about it.

Okay. Thank you.

Next line we'll open is Douglas Arthur with Morgan Stanley. Please go ahead.

Yeah, TV segment cost performance, very strong. Is it sustainable and why?

It is sustainable in that it's being driven in part by a decision we made to abandon a project we had in Detroit where we were producing news for a UPN affiliate. So those savings will continue through the year. The other is -- a contributor is, some pension adjustments and it looks like they will continue for the year, so it looks pretty sustainable. Maybe not at the same level, but somewhat.

Great, thanks.

Thanks, Doug.

The next line we'll open is Craig Huber with Lehman. Please go ahead. Okay. We'll move on. Oh, Mr. Huber?

Yes.

Your line is open. Did you have a question?

Yes, hello.

Can you hear me? About cable networks, talking about the up front marketing, didn't catch what you were saying. Did you say you were anticipating the overall market to be up 1to 3 -- 4 to 6% some, where in there, but you thought your networks would be up slightly more than that? Am I characterizing that correctly?

Yes that, is fair to say. I think the broader cable marketplace will be 4 to 6%. Believe that the Scripps Networks will modestly outperform that still. I'm talking on a CPM basis, not a volume basis. I believe we'll modestly outperform that based on our experience in the scatter market and based on our experience in the calendar up-front N both cases we outperformed the broader market.

And you saw roughly 60% inventory, right, during the up-front market?

Roughly, that's right, although specifically we really don't get into exactly what we'll be selling in the up-front year to year.

Very good. Thank you.

Okay, Greg.

Thank you. The next line we'll open is the line of John Kim with CFSB. We'll open Paul Ginocchio with Deutsche Banc.

Hi there. You said earnings were good in the first quarter. Can you tell me what you think about the dividend going forward. Thanks.

That's a surprising question. Paul, this is Joe. We look at it pretty much twice a year, and we have a board meeting coming up. We'll be looking at it again. I would say you have actually obviously hit on the right point. We'll be proposing an increase, won't get into exactly what it is at this point. So we plan to, as the earnings move up, continue to track. Probably the current payout to a little bit stronger payout over time.

Thank you.

Next line we'll open is Philip Gleason with UBS.

Yeah, just question on the cable networks. We've seen several companies within the media sector look at moves to maybe unlock some value within their organizations. Is there a scenario where you would look at a potential spinoff, or sale of those cable networks? And if so, what would have to happen before that type of reality could occur?

Well, Philip, you know, some of the reasons we take a look at for something like that to possibly happen and right now, you know, that's not anticipated, would be maybe using the gained equity to grow the cable network division, possibly maybe securing a lower cost to capital, could even be retaining some of the talent on the cable network side just because of unlocking value there. Right now, none of those are on our radar screen and quite frankly, we like the efficiency. We've always taken a holistic approach to the Company. We like the efficiency of the cross promotion. I think we have a very good management team. I don't necessarily see any advantages from Scripps' standpoint right now at this point to spinning them out. Never say never. We always keep our options open, but right now, it's certainly, it's certainly not on our short list.

All right. Thank you.

Next line we'll open is Edward Atorino with Fulcrum Global Partners, please go ahead.

What were the losses from the developing networks in the first quarter this year versus first quarter last year? Excluding Shop At Home and GAC?

Right.

Hang on one second.

Why don't we-- I'll dig it out.

Yeah, let us dig that out. We'll go to the next question.

Okay. Thank you.

We'll get back to you as soon as we can dig that out.

Next line we'll open is Steven Barlow with Prudential. Please go ahead.

Thanks. I missed all your hoping remarks. I hope this hasn't been covered. You talked about a dividend increase potentially. What about shares? What are your thoughts these dice share buybacks as your leverage is coming down rapidly, you know, plus you went up with GAC stuff, but look at '05 and 06 you're not going to have a lot of debt out there.

Yeah, Steven, it's Ken. I'll let Joe-- I think Joe's digging out the other question, answer to the other question. Just-- this is something I think we publicly said that we're always taking a look at, always discussing with the Board. We have the right at the moment, as given to us by the board, to repurchase up to -- help me Joe. 5 million shares, and you shouldn't read anything into that one way or the other, whether or not it could be increased and we could possibly buy back more. At this point, we felt that we had some better things to do with some of the cash flow, including to build out some of these brands and reinvest in the network side. But, again, it's certainly an option that's on the table. Joe, do you want to add anything to that?

No, I think you pretty much covered it. Again, we discuss this routinely with the board as we project our cash flow and as Ken mentioned, we had, we have current authorization. There is not what I would describe as a huge appetite for committing large amounts of capital there and/or recapitalize the company at this point, trying to stay as flexible as we can. We still think there's plenty of opportunities for us and we're not likely to commit to a big repurchase program to use up the cash.

Have you been able to dig out the --

Yeah, and the losses are about flat year on year under the new basis from all emerging services excluding for, excluding the addition of GAC. You saw the GAC number was about a $900,000 loss in the quarter. Exclusive of that, we're about 2 to 2 $2.5 in losses on the new basis from all the emerging services, the networks plus broadband, Hispanic, some of the other initiatives. Does that help?

I think that was Phil, so he's probably not on the line.

Oh, sorry.

Next line we'll open is Thomas Russo with Gardner Russo. Please go ahead.

Hi, Ken. Congratulations on a great quarter. I would love to ask a whole host of questions, but I'll stick to just one to you, Ken. On HGTV Pro, to what extent does that serve as migrate you back towards more endemic and national brand advertising and then a related question, to what extent does the HGTV Pro, which is a broadband network, that I gather you supervise through your own web pages, conflict with the drive of the cable MSO's to offer increasing opportunities to search through the MS, their VOD services to targeted contents such as that which might come through HGTV Pro?

Good questions, as always, Tom. Let m take the first one. As far as Pro, being heavily dependent on endemic versus natural, that's really not the case. This-- let's take General Motors trucks, for example. They will spend a certain amount of their budget right now that we never see with HGTV because it's targeted towards this category on a national basis. It's targeted towards contractors, plumbers, landscapers, folks that buy service trucks, people that do fleet purchases. So that's actually a different budget. In some cases, that budget can be up to 30% of the entire budget. I'm not saying this is just General Motors. I'm using them as an example.

So Pro is still very much tapping into national advertising beyond just the endemic and what you would think as far as the products themselves. As a matter of fact, because the sheer nature being obviously broadband, ubiquitous everywhere, it actually opens up some categories that we are not tapping into with the general networks.

Then there's this whole category that we call pro-sumers. They're consumers who actually want to be more knowledgeable and more involved in the professional side and that's a category we think has got some opportunities to tap into.

We're pretty excited about Pro. It's early. You know, you heard me say it was 30,000 unique visitors that came to the site which we launched it at the International Home Builders Show in Orlando back at the first of the year, you probably just recently saw that MTV had announced they're launching a broadband network.

And to your second question about conflicts with MSO's, you know this, is separate content than you see on the networks, so we really don't, we don't necessarily have any conflicts and this has all been blessed, of course with, our MSO partners. We don't want to get sideways with them and so right now, there's not a problem. Does that answer your question?

Very helpful. Thanks. I'll stick with that one.

Okay. Thanks, Tom.

We have no additional questions in queue at this time. Please continue with your presentation.

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