E W Scripps Co (SSP) 2005 Q4 法說會逐字稿

Thank you. Ladies and gentlemen, thank you for standing by. Welcome to the Scripps fourth quarter earnings report. [OPERATOR INSTRUCTIONS]. I would now like to turn the conference over to our Vice President of Investor Relations, Tim Stautberg. Please go ahead.

Thank you. 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, our Chief Financial Officer. Our prepared remarks should take about 15 minutes and then we'll open it up for your questions. Given your busy schedules, we'll make sure we're done within 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 our TV station group and Lori 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, click on "shareholders" and find the link under upcoming events.

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 2004 Form 10-K. Now, here is Ken.

Thank you, Tim. Good morning, everyone. As always, we truly appreciate your continued interest in the E.W. Scripps Company. The year we just completed was marked by several notable milestones in the ongoing transformation of this great company, and I would like to share just a few with you. Scripps Networks, which includes our valuable portfolio of national lifestyle networks, ended 2005 with total revenue approaching $1 billion. Just eleven years after we launched HGTV, our Networks division contributed more than 50% of the Company's total segment profits. With our acquisition of Shopzilla six months ago, Scripps has emerged as one of America's leading internet companies. On a unique visitor basis, our combined websites make us the country's 10th largest company doing business on the web.

This year, our combined internet businesses are expected to contribute 13% of the Company's total revenue. Looking just at the fourth quarter, Scripps Networks and Shopzilla delivered outstanding financial performance, with both exceeding our expectations. Together, our networks and Shopzilla are formidable growth drivers that we believe are delivering exceptional valuable to our shareholders. And at our local media businesses, our newspapers and television stations, they continue to prosper, ending the year really at the top of their peer groups in terms of advertising revenue growth. So you put it all together and you have a very innovative, diversified media company that is successfully positioning itself for long-term growth.

The success of our growth strategy was strongly evident, once again, as you saw in our solid, fourth quarter operating results. However, the good news, especially in our fastest growing businesses, was tempered somewhat by our need to write down the value of goodwill and other intangible assets at Shop At Home, our electronic commerce subsidiary. As we told you in December, we brought Jim Held on board to Shop At Home to tap his considerable expertise in the TV retailing business. Jim's charge had been to manage the business, engage in a thorough analysis of Shop At Home, and to provide us with a realistic road map to profitability. Now, based on Jim's analysis and our 2005 operating results, we determined that the writedown was in order.

While internet sales have been growing as a rapid pace at Shop At Home, product sales generated by our television network have lagged, primarily because of the challenges we face gaining affordable access to permanent, high-quality cable distribution for the network. With that knowledge in hand, we're undertaking a deliberate and careful assessment of strategic alternatives for Shop At Home. Now, while we believe there's still opportunity at Shop At Home, we'll being very sober about the capital decisions that may have to be made to maximize the value at Shop At Home for the benefit of our shareholders. As I said before, however, there was plenty of good news in the fourth quarter.

Shopzilla directly benefited from its growing popularity among online shoppers and a record online holiday shopping season. On an industry-wide basis, online shopping during the holidays was up 25- to 30%, and Shopzilla stood directly in the path of that growth. We helped further the cause by leveraging the cross-promotional power of all of our media businesses. We're driving traffic to Shopzilla via links on virtually all of our websites. Our lifestyle networks and our TV stations aggressively promoted Shopzilla throughout the holiday shopping season, and at our newspapers we ran adds and inserts. We created Shopzilla-branded smart shopper content that could be used on all of our different media platforms, and we introduced our smart shopper expert, Helen Malani. Maybe you saw Helen's interview in the New York Times over the holidays.

Shopzilla continues to demonstrate that it's the internet's premier comparison shopping service, aggregating more than 30 million products from more than 65,000 online merchants. Very clear to us that online shoppers are quickly discovering just how easy Shopzilla is to use thanks to its powerful search capabilities and intuitive navigation. It was also clear to us that online merchants truly, truly highly value the motivated shoppers that we direct to their websites with credit cards in hand. This is a sustainable internet business model that is demonstrating its huge growth potential. Shopzilla is definitely in the "sweet spot."

There was also plenty of good news during the quarter as Scripps Networks. Our fall programming networks at HGTV and Food Network resonated with viewers resulting in strong impressions growth in just about everyday part and, really, across all viewer demographics. We're particularly encouraged by the growing number of younger viewers who are turning into our flagship networks. Our networks also contributed to our growing status as one of the country's leading internet companies. The number of people visiting our network websites grew at a fast pace in December, up 34% for the month, withy huge gains at foodnetwork.com really leading the way. Food's website attracted an incredible 9 million unique visitors in December, up 31% from the previous year. Now, that was more than enough for foodnetwork.com to continue it's long reign as the internet's most visited food website. The success of our network websites further demonstrates the ubiquity of our brands and the success we have had targeting consumers in these very valuable shelter categories.

Other highlights at Scripps Networks include the launch of our newest broadband channel, hgtvkitchendesign.com, and meaningful distribution growth at our developing networks. HGTV Kitchen Design is a video-rich website that features original short-form programming and and array of other interactive features. We launched the channel in December, with more than 200 videos taken directly from our extensive programming archives at Scripps Networks and reproduced into a broadband-friendly format. We'll be launching similar broadband channels will be dig deep into such lifestyle topics as gardening, healthy eating, and crafts. And because we virtually own all of our video content, these are very cost efficient startups that are likely to be profitable sooner rather than later.

In our developing networks where distribution continues to be the primary focus, we're making solid progress. Fine Living can now be seen in 32 million households, thanks in large part to a long-term carriage agreement with EchoStar's DISH Network that we just announced last week. At DIY network, where we're getting ready to turn on the Nielsen meters later this year, household distribution is at 35 million homes, and Great American Country has just reached the all important 40-million household threshold. Now, these three networks are among the fastest growing networks in all of cable. By just about every measure, Scripps Networks continues to be our shining star. Our top strategic priority will continue to be the development and expansion of these very, very valuable businesses. With that, let me turn it over to Joe, who is going to provide a little more context for our quarterly results. Joe?

Thanks, Ken, and good morning everyone. Before we take a look at the fourth quarter results, let me add another word or two about the Shop At Home charge. The writedown stems from our annual impairment testing of goodwill and certain other intangible assets. We compare the fair value of each of our businesses with its value has recorded on our balance sheet. We determined that Shop At Home Network's book value exceed its fair value, and as a result we wrote down the value of the assets by $103 million. The remaining book value of the network is roughly $50 million. This writedown does not affect the recorded value of the five TV stations that are affiliated with the network. These stations, valued at $170 million, have a fair value in excess of their carrying value. The stations are located in San Francisco, Boston, Cleveland, Raleigh-Durham, and Bridgeport, Connecticut.

The Shop At Home writedown notwithstanding, we were pleased with the quarter's results and, in fact, performed in-line with the original EPS guidance provided in our third quarter earnings report. Both Shopzilla and the networks had very good quarters to report and our broadcast division also finished stronger than we had expected. Shopzilla has a terrific quarter, exceeding our expectations both on a revenue and segment profit basis. Revenue at Shopzilla was up 150% over it's prior year fourth quarter total, and fourth quarter segment profit rose four-fold from last year's level.

At Scripps Networks, characteristically strong financial performance continued during the fourth quarter. The appeal of our new programming drove strong impressions growth, enabling us to deliver on the commitments we made to advertisers during last summer's upfronts. Prime time viewership during the quarter among adults 25-54 rose 16% at the Food Network, and was up 13% at HGTV. That strength enabled Scripps Networks to also take advantage of a very solid [scatter] market. The 27% advertising growth rate at Scripps' Networks during the fourth quarter slightly exceeded our original guidance. The modest increase in affiliated fee revenue was in-line with our expectations. The 3% growth during the quarter reflects positive, one-time adjustments to fourth quarter 2004 revenue.

At our newspapers we saw solid advertising growth led by classified advertising and strong growth in online revenue. For December and for the fourth quarter, revenue growth was at the top of our peer group. While automotive continued to be a weak spot, real estate advertising was up 20% and help wanted grew by 16%; auto was off 8% in the quarter. Online revenue during the quarter was up some 87% thanks in part to our decision to push rates up to match the audience that we're building. The growth in online revenue accounted for about 40% of the total growth in newspaper ad revenue for the period. Turning to our TV stations, we did a good job of controlling expenses while generating enough growth in local and national advertising to cover more than half of the hole created by the relative absence of political advertising. Local was up 17%, and national came in 10% higher in the quarter. Our TV station results for the quarter also put us at the top of our peer group.

Looking ahead we provided a detailed forecast for the first quarter in our press release this morning, so I won't go over all of the details here on the call. I would like to mention our EPS guidance, though. Employee costs for all of 2006 will include about $22 million related to the commencement of expensing stock options, and about $10 million of this expense will land in the first quarter. Our first quarter range of 0.38- to $0.42 per share includes the effects of stock option expense, as well as the amortization related to our June 2005 acquisition of Shopzilla. These two items will reduce our first quarter earnings by roughly $0.07 per share.

There are a couple of other housekeeping notes I would like to bring to your attention. First, starting this quarter we will be providing total revenue guidance for all of our segments, but we will not be breaking down all of the various components. We will continue to report these details on in monthly and quarterly reports, however. Now, turning to the balance sheet, total debt at year end stood at $826 million, down from 858 million at the end of September. That's well up from the $530 million at the end of 2004, due, of course, to the Shopzilla acquisition. We repurchased roughly 190,000 shares in the market during the quarter, spending about $9 million. For the year, total repurchases were 750,000 shares at a cost of nearly $37 million. Capital spending was $28 million in the quarter, bringing full year CapEx to $71 million. This total is well below earlier estimates due to delays in a couple of major projects; we now expect those projects to fall into 2006 and even into 2007.

So with that housekeeping out of the way, we're ready to take questions, Operator.

Yes, sir. Our first question comes from the line of John Janedis, Banc of America Securities. Please go ahead.

Hi, good morning. Thank you. Just two quickies, on Shopzilla can you talk a bit about the relationship between pricing for collection traffic in the fourth quarter and what kind of seasonality and pricing that you actually see in that business? And then separately, you had been printing up some pretty good growth at Shop At Home even with the channel positioning, which, I think as you mentioned, it really wasn't very favorable, but are you at the point now why you think you have come as far as you could and that's why you've given the head wind? Thanks.

John, let me take your last question, first, regarding Shopzilla at home. You are right, we had been making some solid progress with Shop At Home. I think the hiring of Jim Held gave us a chance to pause, take a look at where we were, where we're going, as I alluded in my remarks, the capital requirements from this point forward. And as I said, we're being very sober about it. We wanted to take a time out, look at our options. You know, the five affiliated television stations really produced very strong revenue results, and as we've said on these calls before, this business is all about households and revenue per household. So there's a lot of strong things to work with. We're looking at all options.

We're already talking to some folks about potential partnerships and various other things. And we've retained [Allen & Company] as an advisor to help us, along with Jim, to really size this business and look at where we go from here. So we're still, as I mentioned in my comments, we're still positive about this business, but we felt the need to just take a time out, take a look at it, and see where we go from here.

And so you are saying Jim is still there, I think is what you are saying --

Absolutely. Absolutely. Jim's on board. And really, his expertise -- Jim spent a number of years at Bloomingdales; he went from there to QVC, where under [Doug Briggs] he really learned the business, and I think Doug and Jim are arguably "the" two gurus, if you will, in the TV retailing business.

And, of course, you know he went on to HSN and completely turned that business from loss to profitability. Jim is just -- he's just an incredible human being who is doing a great job, and we're delighted to have him on the team and really feel much more confident about decisions from this point forward that we make about Shop At Home because of Jim's expertise.

Okay. Do you think this is an '06 event? I'm sorry to interrupt you.

I'm sorry, John?

Do you think this is an '06 event, in terms of deciding what the alternatives are?

Definitely. And regarding the Shopzilla question, as you know we really don't necessarily report a lot of information on Shopzilla, primarily for competitive reasons. But, Joe, you have any color you can add to that?

John, I'll just give you a little color. We do price seasonally and, of course, the fourth quarter is our highest traffic quarter, starting with the Halloween season, which is a big shopping season and then, of course, leading into the Christmas and gift-giving season. We -- I guess a year ago introduced the notion of -- or the concept of seasonal pricing, which merchants are -- have reacted very well to, so that they price -- we price with the value of those referrals. And we haven't had any push back, and it's been very effective for us. So, obviously, after the season is over, we adjust the rate card back to our off-season pricing, and that's where we are now.

Thank you very much.

Thanks, John.

Our next question comes from the line of Lauren Fine, Merrill Lynch. Please go ahead.

Thank you. I recognize that you are trying to change your guidance to just give total revenues, but it might help clarify if you are looking for a change on momentum on Scripps Networks in the ad revenue side from the fourth quarter. I mean, it doesn't look like you are expecting much of a change given the total revenue guidance that you are giving. Secondly, on the newspaper side, that looks like a fairly bullish first quarter outlook, acknowledging that our fourth quarter was really quite good. But I'm wondering where you expect the strength to come from?

And then the third question, could you help us understand, again, the decision in Denver to build a new production facility, I think you had said it was for "the newspaper of the future," which I would have guessed was on line and wouldn't need a production facility, so I'm curious where it's different from the current production facility?

Thank you, Lauren. Good morning. Let me have John Lansing address the Scripps Networks revenue momentum coming out of the fourth quarter and underscore momentum. And then Rich and Mark will take the last two questions regarding the newspaper outlook and the Denver question. John, you want to talk a little bit about Network's momentum here?

Sure. Going into the first quarter, Lauren, the ad revenue is certainly in-line with the total revenue of 18- to 20%. We're seeing strength in the scatter market, particularly at Food Network, some unusual strength there. The pricing is double digits ahead of up-front pricing, and all of that leads us to believe the momentum coming out of Q4 is right there for us in the first quarter.

You are pretty pleased -- not to put words in your mouth, John -- with the ratings, as I mentioned in my comments about these networks, just about our flagship networks, correct?

Yes. We had, as you mentioned, as Joe mentioned, we had double-digit increases on both HGTV and Food, and as we just looked at the January ratings that have come out, we see that momentum continuing into January.

Actually, let me just interrupt, one quick question. DIY looked a little bit light in the fourth quarter, and I'm wondering what is going on there, both on revenues and a decline on operating contribution.

Lauren, I guess I wouldn't see it that way. They were, for the full year, up almost 40%, and certainly up in the high 20s in the fourth quarter. It's just the comps are becoming more difficult quarter to quarter, and they'll continue to become more difficult.

But the momentum for DIY is actually very good, especially now that we've crossed the $35 million threshold. And distribution we're looking forward to it being a rated service in the fourth quarter, and all indications we have are positive. Plus I would also say we were investing a little bit more in anticipation of those ratings in the marketing and programming so that when we get to that point, our ratings will be what we hope they are.

And also, lawyer roan, [Kathleen Finch], who just has done an outstanding job for us at Food Networks, especially under both [Judy and Brooke's] leadership, has moved over to head up DIY. We're extremely excited about her leadership and what she's bringing to that network, and I think that network is just now beginning to kind of come into its own.

A part of it is technology has caught up with where we wanted that network to be because of all of the website richness and the take-aways on the do-it-yourself projects. As a matter of fact, I don't know if you caught it, but in this past Sunday's New York Times there was an outstanding article about DIY and how it's perfectly positioned for the technology that we're currently seeing in the interactive side. So very bullish on that network rolling forward. Rich and Mark?

Yeah, Lauren this is Rich Boehne. Let me talk about Denver for just a minute and then I'll let Mark talk about the first quarter. Some of you on the call might not be familiar with the Denver newspaper market; it is a joint operating agreement 50% owned by us and 50% by Media News. Two daily newspapers, both published in the morning, which makes it a unique joint operating agreement market. We knew when we put the joint operating agreement several years ago that at some point we would combine all production into one facility. That would really be the last big move on expenses -- or one of the biggest moves to create economy that we would have.

So what we have done is put together a plan for a new production facility that will print both of these newspapers; ours, the Rocky Mountain News, which is a tabloid, and the Denver Post, which is a broad sheet, out of one facility, off of one set of presses. That will be ready in about a year and a half from now, we'll launch. When we're done, it will be newspapers like -- physically like you haven't seen in the industry before, or at least in the United States. The Rocky Mountain News will be a very European looking tab: small, lots of color, modular pricing. It will be a great example and one that we think much of the industry will probably emulate over time.

But the real short-term benefit is the cost savings, which exceed $20 million a year cash savings by doing to one plant, which easily justifies the money we're going to put into it. So while we think there's a lot of up-side on the product side from advertising and readership, there's just a very clear cash-on-cash return through savings, and we felt now was the best time to do it. Feeling long term, Denver is going to be a very, very good newspaper market and just a very good media market for us to be in. Let me let Mark talk a little bit about the first quarter and the momentum.

Lauren, hi. There's really two reasons that we feel pretty strongly about our first quarter. One is the momentum coming out of December; we were up in ad revenue by about 7%, and there's really two things driving that. One is online. We were up in the range of 80%-plus, and we see that continuing. That is primarily the result of us really being much more aggressive at rates to charge our advertisers for the audiences that we're building.

And secondly, we have over the last year added about 10% to the number of actual feet on the street. People actually knocking on doors, calling on local retailers in our markets, while keeping over all head count about flat. So we think we'll start realizing the benefit of those operational changes into the first quarter, but then beyond that as well.

Let me add on, just to get ahead of maybe your next question, Lauren or somebody else's. If you look at the expenses in the fourth quarter on the first, in addition to newsprint, which is in there for everybody, and stock options, we're very aggressively shifting resources toward Florida and the growth markets and also on the web. So there's some noise in the expense line that will moderate, and we will start to drop that revenue to the bottom line.

Great. And just one last quick one and I'm going to let somebody else get in. Joe could you break out the stock option expense by operating segment?

You know what, would you mind, could you call Tim on that. We don't have it with us here. I can tell you it's not spread evenly; the heaviest slugs are in newspapers and at corporate, but Tim can give you that color.

All right. Thanks.

Thanks, Lauren.

The next question comes from the line of Peter Appert, Goldman Sachs. Please go ahead.

Hi. Good morning. The GAC revenues seemed somewhat -- the scale of that business seams low relative to the distribution you have. Can you talk about the path to scaling that business and getting it more profitable, that's question one, and I'll throw out the second, which is unrelated. On Shopzilla, can you talk about what portion of the traffic is now organically generated from your own sites and how significant that's been in terms of being a driver of profitability there? Thanks.

All right. Peter, thank you. John, you want to address GAC?

Sure. Peter, GAC has actually, over the last several quarters, has improved dramatically in ad revenue growth. In fact, the fourth quarter was a quarter that broke through well beyond our expectations. The business -- the scale of the business is affected somewhat by the distribution agreements that we're locked into at the time being; until we get a chance to renew those distribution agreements, then the affiliate revenue side of that business will have a chance to grow even more aggressively, not unlike years ago when we acquired Food Network.

So there will be a point in time that we'll have a chance to really work on the affiliate revenue side of that business, but in the meantime we're aggressively pursuing growing the ratings, improving the programming. We recently had a very successful Carnegie Hall event in New York City during the country music week around the CMA Awards, and we taped a two-hour event that will be broadcast in March with an A-list of country music talent. And the buzz around the network is just really significantly higher. All of the feedback we're receiving in the music community is very, very supportive and positive. So it will grow, it will grow more significantly when we get the chance to renegotiate the distribution agreements, but in the meantime, we're focusing on the quality of the network and driving the advertising revenue.

Just to give you an example of that, when we acquired GAC, the average commercial unit rate was hovering around $50; today, our unit rates are now three and four times that amount only one year later. Also, when we acquired the network almost 80% of all of the inventory was direct response; 20% of the inventory was sold in the national marketplace. Today, we've reversed that: today, 80% of the inventory is now being sold in the national marketplace with the leverage of our larger networks. So the work we can do on that network in the short-term on ad revenue is significant, and we're doing that, and nd we'll look forward to growing it even further in distribution.

When you say "distribution agreements," are you talking about getting full-time distribution or just getting higher distribution fees, or getting distribution fees, rather?

Both. This is a hybrid in terms of our networks. It is technically a digital network, but it has a significant amount of analog carriage on Comcast, so it has both analog and digital. So we will work as we do always, to continue to grow the distribution base, but it will be somewhat limited to digital distribution, not unlike Fine Living and DIY. But what I'm really referring to is the chance to renegotiate these distribution agreements when they come up so that we can address the issue of affiliated revenue.

Got it. Okay. Thank you. Peter, this is Joe. Let me address the other question. I think you've probably heard us say before we're not going to give specific stats on where the traffic comes from, but I will tell you that we're pleased with the distribution of traffic coming into the site. We do believe that we were able to have a positive effect over the holiday season with all of the cross promotion and building traffic directly from our sites and original traffic coming from someplace other than the big portals and the big search sites.

So it is trending the way we want it to. We're spending a lot of time trying to learn how we can more effectively and more economically move traffic to the site, because that obviously will help in the margin there.

Right.

But it's going well, we are pleased with everything we have seen, and we're trying to learn as much as we can in a short period of time.

Thank you.

This is Ken. I just want to tag on that one of the things that we feel very strongly about is building the Shopzilla brand. Obviously, we have got some experience in that with HGTV and Food, et cetera. So building the brand, sometimes that may or may not result in direct traffic, but over time it builds awareness.

So we're trying to do both. And we feel pretty good about just completing this holiday season and raising that brand awareness of Shopzilla, not only across our media, but as you heard me talk about the Smart Shopper feature that we're doing. We're pushing that out to allow other media companies to use it, too, in the consumer products and reporting area. So I think we're making good progress as a company on elevating the awareness of the Shopzilla brand, and the traffic improvement kind of speaks for itself.

You've got a 27%, roughly, EBITDA margin there in '05, which is very impressive, obviously. What do you think a sustainable level of margin might be for that business?

Peter, it's Joe again. I'd love to be able to have a specific answer for you. We think there's room in there -- it's probably too early for us to tell exactly how big that can get.

Okay. Thanks.

Next question comes from the line of Alexia Quadrani, Bear Stearns. Please go ahead.

Hi. It's actually Tim Nollen for Alexia. Two questions, please. Could you talk about in the newspaper division, your local division -- your local revenues seems to be doing a lot better than a lot of competitors. Could you talk about things happening there? Also, any comments you might have on national, weak for you as well as for everybody.

Secondly, in the same light about the newspaper division, you have got some very good growth in our online areas and you mentioned some rate raising. Is there something you can tell us more about the economic model there; how you are able to attain these rate increases, how you are thinking about rates, and how it ties in with you print properties?

Tim, this is Mark. I guess I'll take a stab at the local and then hit the online just beyond that. One of the things that helped contribute to the local growth was we take a painstaking, surgical look at the structure of our ad departments to see, in relation to the number of businesses in our markets, how many people we have got selling advertising. It's a pretty simple look. And we have identified opportunities in many of our markets to drill down deeper to attract more local businesses to do business with us. And so since January of '05 until now, we have grown that sales force about 10%, and that's an ongoing strategy that we're going to continue to plow and plow and plow. It's essentially drilling the well deeper in each of our local markets.

Relating to the online question, if you look at online in the fourth quarter as a chunk of our total ad revenue, last year it was about 2.4%, this year it's about 4.3, so it's growing very, very nicely. And one of the reasons for that is rather than taking a traditional newspaper view on ad rates, which is a once a year increase, our publishers really are doing a very good job at taking a much more regular look at this, because our audiences are growing at a much faster clip. And it's that more regularly monthly or quarterly look at rates that help us achieve that growth.

Okay. Tim. Let me just make a quick comment. Just looking at the queue, we've got a lot of people waiting for questions. I'm going to ask our folks to be pretty brief on responses here, so we can try to get to as many people. And I would ask you to maybe, at this point forward, if you would just limit it to one question, if you will, we'll try to get through everybody before the top of the hour because I know you folks have other calls today. So we'll try to limit to one question and we'll try to be brief on this end but truly answer your questions. Operator?

Thank you. The next question comes from the line of William Bird, Citigroup. Please go ahead.

Hey, Ken. Given recent strength at Shopzilla, is there any change in thinking on profit potential for '06, which, I think in December, you pegged at 50 to 55 million for '06? Thanks.

Yes. Hi, Bill. No, not really. I mean, as Joe said, this is still a business that we're getting our arms around. Obviously, Bill, we're very pleased with the growth in '05 and we're very pleased with what we're projecting for '06, but no changes at this time.

Thank you. Uh-huh.

Next question comes from the line of William Drewry, Credit Suisse. Please go ahead.

Thank you. I'm disappointed I don't get to ask eight questions like each of the first three people. Bill, I saw your name on the list and I wanted to get a head of you. That's all right. I'll keep it to one. Just on the Shop At Home losses, Ken, those -- for the first quarter it's a pretty big number, so I'm just wondering if the potential to do something with this, some strategic alternative whether it's sale or joint venture, I'm just wondering how long you are willing to run it at this rate and should we expect a bigger loss on the front end, modeling this thing out for this year, and then if something happens it could move to a discontinued op. Just help us on thinking about it in full year terms, here.

I'm going to let Joe -- since we obviously talk about that quite a bit -- handle that, Bill.

Yes, Bill, we agree; that's part of what got us to where we are as we looked at the next year and the pattern. I would, as I think this through, expect that we're going to some conclusion certainly in the next couple of months, and we would expect, I would guess, a more dramatic improvement in that number, otherwise we wouldn't be doing this look. So I think we don't have much tolerance for continuing losses at that level, so we're looking at everything there. And I think you are probably right in thinking about it as probably the worst case for the quarter.

And just wondering, is the market robust enough to be able to monetize this asset? It sounded like you were alluding to those opportunity in that direction.

Well, we can all comment on that; we all have our point of view on it. I'm not sure exactly how robust it is. We're not necessarily looking at an outright sale, certainly one of the options. But we're going to be -- we are in the market now and we're talking to people about ways we can structure it and make it a better performing asset, but it's probably too early to decide whether or not there's a real good market for it.

Thank you very much.

Thank, Bill.

Again, it has been requested that you limit yourself to one question. The next question comes from the line of Douglas Arthur, Morgan Stanley. Please go ahead.

This is a lot of pressure. Affiliate fee revenue outlook for HGTV and Food for '06; is mid-single digit growth a fair assessment? Thanks.

Yes. Doug, this is Joe. John is looking at some of the details here, let me tell you that's probably low. It will be a little bit better than that.

Okay. Thanks.

Okay. Thanks, Doug.

Next question comes from the line of Steven Barlow, Prudential Equity. Please go ahead.

Can you talk about the revenue per household in the fourth quarter at Shop At Home versus the fourth quarter a year ago, and any trends that you might have been able to pick up in the fourth quarter?

Yes, I think, Steve, the problem, as you know our fourth quarter results were less than stellar. And as I have stated publicly, nobody was more disappointed than me. A lot of that had to do with the product mix, so doing a fourth quarter to fourth quarter comparison, it's very difficult. I mean, we saw in some time periods and some product segments some improvement; because of the product mix, though, we saw some down trends in some areas. So it's a mixed bag, and it's just -- again, that's part of the reason we got Jim Held, and doing the assessment to really figure out where we are and where we go.

So it's a discontinuation of the electronic stuff that pushes the number down then?

Yes, I think that's safe to say.

Okay.

Next question comes from the line of [Fred Searbey, Tiffany Morgan]. Please go ahead.

Yes. Thank you, very quickly, in terms of Shop At Home, is the assumption that you won't be able to get the economies of scale and that merging that with a smaller player out there would get you faster to the path of profitability? And I assume that in the near term you take remedial measures and batten down the hatch to stem the bleeding, cut back on investments, strop trying to grow the business; is that correct?

Fred, this is Joe again. Look, I would say everything is on the table and we're certainly looking at it. The scale that's most important here is distribution and distribution of the right kind. So if we were to look at the right kind of partner in there, it would be something that could give us a significant advantage in distribution, not necessarily in any other scale, because merchandising and even fulfillment of stuff that you could scale on your own. Distribution has become the most difficult part of the formula here. So that's really what we're looking at. And as I said earlier, pretty much everything is on the table here.

Fred, this is Ken. If you peel back the results -- and believe me, that's hard to do, because we are not pleased with where we are -- we still, as I alluded to, we have made some solid progress in this area. Matter of fact, part of the reason for Held coming on board, on his part, was recognizing that progress. He surely didn't sign up because he thought this was not a viable potential business opportunity.

So we're trying to take the positives and the knowledge we have gained from this business in the last couple of years, and then add Jim Held to it. And as Joe said, all of the options are on the table. I don't think we can sit here and accurately predict where we might end up partnership-wise in that comes to fruition.

Great. Thank you.

Next question comes from the line of Paul Ginocchio, Deutsche Bank. Please go ahead.

Thank you. Could we get a break out for that Q1 cost growth in the newspapers, just to know where the investment is going? Thanks.

Thanks, Paul.

Hey, Paul, it's Rich. Mark is digging out that detail.

Yes. The major items for Q1, Paul, is our investments in Florida, stock options, and newsprint, in that order. And then there are some minor investments in new media acquisition and severance.

Severance -- so you are laying off in certain departments and you're --

It's carry over in one market, yes, from an ongoing program that will hit, we believe, in the first quarter.

If I can just have a follow-up on that. That's a high number relative to the full year; correct?

No. For the first quarter it gets on the radar screen; for the full year it's not significant.

So we should see it trend towards your previous guidance?

Yes. Yes.

Thanks.

Next question comes from the line of Craig Huber, Lehman Brothers. Please go ahead.

Similar question; non-newsprint cash costs in the fourth quarter were up how much? And then also for the first quarter, excluding stock options, how much should be expect that up? Thank you.

Non-newsprint cash expenses, ex newsprint, in the fourth quarter were up 5%, and we can dig for the ex -- well, are you asking for the fourth or for the fist?

I was asking for both, the first excluding stock options.

Let us calculate the first, and we'll come back in just a minute with that. Do you want to go to the next question.

Okay.

If we can go to the next question, Craig, and we'll get back as soon as we get that information.

And the next question comes from the line of Edward Atorino, Benchmark. Please go ahead.

I'll pass. I have asked a lot of questions and somebody else probably has an important question.

Okay, Ed.

The next question comes from the line of Brian Shipman, UBS. Please go ahead.

Hi. This is [Mackey Goldman] in for Brian. I'm not sure I'm that person, but my question is given the success of your networks, many of the presenters continue to be very popular. How to do you ensure that these talents remain committed to your networks over the longer term? Thanks.

The talent, was that the talent being committed, John?

Yes, Matthew, we are working very closely with the talent right now to expand our relationship beyond even their appearance on the linear network. And we're working with them now on publishing tunes, merchandise licensing opportunities, et cetera, so that we can, for them, present a larger pie that's enticing for them and for us to grow our relationship into the future.

Thank you very much.

The next question comes from [Steve Serle's line, Conning Asset Management.] Go ahead, please.

Yes, pretty much all of the big cable operators have announced the family-friendly tier. I was curious if you have seen any impact from that so far, or what you expect for the year as that rolls out more fully?

John, do you want to --

Well, the good news is that in almost every case, at least three of our networks have been included on the family tiers and we're pleased about that; in some cases even four of our networks. But as we watch that slowly, we're really along with you; we'll watch to see what the adoption of the family tier is, and at this point, it's really too early to tell.

Thank you.

Our last question in queue comes from the line of Michael Kupinski, A.G. Edwards and Sons. Please go ahead.

Thank you for taking the question. You mentioned that your profit goals for Shopzilla, you don't feel like you want to change that, even though it seems like you are on track to exceed that. I was just wondering if you can just review what your revenue growth expectations are for 2006 for Shopzilla, given your profit goals for that company?

Mike, this is Joe. We have not given specific revenue guidance on what our expectations are. I will mention that part of the reason we are moderate on the profit growth given the strong fourth quarter is that we are considering actively how to reinvest in that business. The management there has a number of initiatives underway, including European expansion, that we think are really attractive expansion opportunities. And we may take some of the profits and plough them back into expansion, rather than have them just fall through. Sort of similar -- a microcosm of what we have done on a corporate level here. So you'll see -- we think we'll have very strong revenue growth, and we may moderate our profit growth to avail ourselves of these investment opportunities.

Let me just jump in here before Rich and Mark come back and answer Craig's question. You guys have done a great job and thank you for being brief, but it looks like we're going to have some more time for some more questions. So we'll keep cranking, Operator, if folks want to come back and ask questions they haven't already or have got some follow-up questions.

Sure. Yes, sir.

Rich, you and Mark want to address Craig?

Let me come back to first quarter. You asked about cash expenses excluding options; correct?

Yes.

Yes.

In the first quarter. That would be a little over 8%. That still includes -- in there is some severance and also the expansion that we're doing in south Florida that soon will very quickly pay for itself but has not yet in the first quarter.

Okay. Operator?

[OPERATOR INSTRUCTIONS]. We have a question from the line of Philip Olesen, UBS. Please go ahead.

Hi, thanks for taking my question. In terms of Food TV, Tribune has indicated recently, I guess, a greater desire to look to monetize some of their non-core assets and has included their stake in Food TV as a potential candidate for monetization.

I just would like to get maybe an update on our current thinking of the prospects for you to be able to buy out that minority interest, and if so, how you think you would structure a deal and potentially finance such a transaction? Thanks.

All right, Philip. Well as I think have said just about every call, we are interested in owning 100% of the Food Network, but at what cost and what type of deal. We have a great relationship with our partners at the Tribune company, not just through our ongoing board meetings, but just a good relationship in general.

Obviously, we don't discuss deals and potential acquisitions and/or taking in other percentages. But we're open and they are open; it probably come down to can we do a deal as a win-win, and at this point there's nothing is imminent.

It is fair to say, though, that the prospects of actually doing a deal are greater today than -- or is there a better alignment today than maybe what has existed in the past?

Yes, I think so. I mean, we're at the point where the network, at 90 million households, is certainly, from a household standpoint, approaching maturity. This has obviously been a growing business for the last few years, and I know Tribune has been pleased with that growth and their partnership in the Food Network. So yes, it probably is a better time than the last few years, but again, it's just going to come down what is good for Tribune and what is good for Scripps and what is good for our shareholders on both sides. And as I side, we're not at that point yet.

And to the extent that you get to that point, do you believe that you would have the capacity in your existing balance sheet to fund that purchase for cash?

Joe, you want to answer that?

Yes, we believe we could do that.

Great. Thanks a lot.

Okay.

And we have three follow-up questions. The first, Douglas Arthur, please go ahead.

We knew you would come back, Doug.

I'm back. John, I'm just wondering, it looks like if I have my numbers correct here, that expenses in home and garden in the fourth quarter were down year over year, and food was essentially flat. I know there's a lot of timing, but it seems a little unusual. Any comment on that?

Yes. Doug, I'll jump in, this is Joe. We did have a settlement on some music royalties that we had been reserving for, and it turned out that the settlement came in more favorable than we expected so it reduced expenses both at HG and at Food. The expense growth was in-line with your guidance.

Thank you.

Okay.

And there's a follow-up from the line of Lauren Fine. Please go ahead.

Thank you, and that's despite being a question hog at the beginning. A couple of quick questions. I'm just curious on any of your networks if you have any may for affiliations renewals coming up in 2006? I didn't know if you could quantify at this point, or could quantify, the revenues coming from some of the broadband networks that you have launched. And then -- well, if there's time, I'll come back with one quick one.

Hey, Lauren. I'm sorry, did you say the affiliations for the TV stations or -- ?

No, the cable networks. I'm sorry, the cable networks.

Okay. All right. John, you want to grab that?

Yes, Lauren, after coming through the last month or so with the successful EchoStar negotiation, we're going into '06 now looking forward to negotiating renewals for HGTV on Comcast and Time Warner. That will be something we'll be working on throughout this year.

And would you anticipate -- again, you probably have a very close relationship with both -- do you anticipate any major obstacles given a rapidly changing landscape?

We're going to approach this as a broader discussion and how we can partner with them on the pieces of our business that can help move their business, whether that be video on-demand, broadband, whatever that is. I think we're in actually a unique position to help them grow the parts of their business that are the fastest growing parts, and I feel like our cable networks are so reasonably priced compared to any number of our competitors, that we offer such a value proposition that, in fact, arguably, it's probably a net positive deal for the MSO's due to the local ad sales that they are able to accomplish. So, certainly, there's always the long and hard-working negotiation, but I feel very confident we'll be where we need to be, based on our rate card.

And you asked about the broadband verticals. We're off to a great start with HGTV kitchendesign.com; we're already up to a million page views in its first month and 300,000 uniques, with the advantage of promoting it, obviously, on HGTV and hgtv.com. And we're already exceeding our expectations on ad unit served on that site, and so we're right on our plan, which is something that we're pleased to see. To size these businesses for you, they're not the size of a digital cable network, certainly.

We think break even is probably something that comes much, much sooner, two to three years; profitability moving in the 1 to 2 to $3 million range within the first three to five years with growth, as the distribution grows, of broadband. Really, as we look at broadband growth, today it's in 50 million households; by 2010 we expect it to be in 70 to 80 million households, so we look forward to riding that wave of penetration.

Let me just -- thank you, John -- let me just say we've got probably time for one more question, Operator, and I truly thank everybody for their questions this morning, all good. And thank you for limiting yourself to one, that gave us a chance to get through more folks. Operator, anybody else?

Yes, sir. The last question or follow-up in queue is from Craig Huber's line. Please go ahead, sir.

Thank you. I was just curious for programming marketing cost for this new year, how much should which expect that up? And then also CapEx for '07, how much should that fall back to? Thank you.

Program marketing costs, I'm assuming, Craig, you mean for the cable networks?

Yes, for the cable networks.

John, you wand to --

Sure. We're looking at programming costs for the full year up about 15%, and marketing costs up in the high-single digits.

Craig, this is John. I'm not sure I understood your question. CapEx that shifted into '07 from '05?

You said with CapEx for 2006, 115, 113 million are [inaudible]. How much of that will fall back to in '07, slip down?

Oh, right. You know, there could be as much as 20 million of that guidance for '06 could actually end up shifting into '07. But, again I have it all now in the '06 number, so my point is that the low end of that range could happen just as easily as the high end, and if so, that shifts into '07.

Okay. Thank you.

Thanks, Craig.

Everyone this is Tim Stautberg. Thanks for joining us today on the call. If you have any further questions, I will be available in the office. And, Operator, you can go ahead and provide closing comments.

Yes, sir. Thank you. Ladies and gentlemen, this conference will be available for replay after 1:30 p.m. Central standard time today through February 9, 2006, 11:59 p.m. You may access the AT&T Teleconference Replay System anytime by dialing 1-800-475-6701 entering the access code 814749. International participants may dial 320-365-3844. Those numbers again are 1-800-475-6701, and 320-365-3844, access code 814749. That does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.