E W Scripps Co (SSP) 2006 Q1 法說會逐字稿

Welcome to the first quarter earnings report conference call. [OPERATOR INSTRUCTIONS] As a reminder, this conference is being recorded today Tuesday April 25, 2006. I would like to turn the conference over to our host, Mr. Tim Stautberg, Vice President, Investor Relations. Please go ahead sir.

Good morning all and 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 Executive Vice President and Chief Financial Officer. Our prepared remarks should take about 15 minutes and then we'll open it up for questions. Given your busy schedules, we'll make sure we're done within the hour.

Before we begin, let me introduce the other members of our senior management team who are here with us on the call. Joining us are Rich Boehne, Chief Operating Officer; John Lansing,President of Scripps Networks; Mark Contreras, Senior Vice President of Newspapers; Bill Peterson, Senior Vice President for our TV Station Group; Tim Peterman, Senior Vice President of Interactive Media, and Lori Hickok, who is our Vice President and Controller.

Let me remind you, if you prefer to listen in on the Web, you can go to Scripps.com, click on the shareholder link and find the link at the top of the page to the call. 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's Ken.

Thank you, Tim. Good morning, everyone. Thank you for joining us. We truly appreciate your interest in the E.W. Scripps Company. The quarter just completed and the weeks since it ended have been highly productive for Scripps and its shareholders. In addition to exceptionally strong consolidated financial performance during the first three months of the year, the Company has broadened its presence in the rapidly growing online search and comparison shopping market with the acquisition of uSwitch.

At the same time, we created an interactive media division to provide strategic and operating direction for uSwitch and Shopzilla. We appointed Tim Peterman as Senior Vice President of Interactive Media to guide these valuable business that he's helped bring into the fold. Shopzilla recorded the largest gain in traffic among the internet's top ten shopping sites in March. The number of unique visits to the site soared 87% to about 19 million year-over-year and that's according to Nielsen Net Ratings. Congratulations Tim and the entire Shopzilla team out in Santa Monica. With the Interactive Media Division in place, we decided to streamline our senior management team here in Cincinnati further by elevating Rich Boehne to serve as the Chief Operating Officer and promoting Joe NeCastro to Executive Vice President in addition to his responsibilities as Chief Financial Officer. Now, these appointments acknowledge the key roles that these two talented executives have played in the growth of the Company. We also named Mark Contreras Senior Vice President of Newspapers, a well-deserved promotion in recognition of the success he's had injecting a new level of energy into our newspaper division. Mark and his team are having a lot of success building online businesses in our newspapers and finding new sources of revenue.

Out in Denver, the Rocky Mountain News was honored with not one but two Pulitzer prizes. One was for reporting and the other for photography for an outstanding series the newspaper published last year entitled "Final Salute." Some of you may have seen the moving video we've shared during some of our recent investor conferences. I'd like to encourage you to go to Rocky's Web site to experience this powerful work for yourself. By the way, that's at rockymountainnews.com if you care to.

Just a week before the Pulitzers were announced, we appointed the Rocky's editor, John Templeton, to guide editorial content for all of our newspapers. Who better to inspire journalistic excellence than John who can count four prizes his staff has earned on his watch. That's an incredible accomplishment. We want to congratulate him and his staff at the Rocky Mountain News for a job well done. In southwest Florida at the Naples Daily News, we launched our video on demand newscast combining the news gathering power of our newspaper with our growing ability to produce high-quality video specifically for use on the internet, iPods, and other types of personal video players.

At Scripps Networks, we continue to extend the HGTV brand to new media platforms with the launch of our first high definition television channel. HGTV HD launched April 10th with 350 hours of original programming. The new network will be airing 450 hours of original programming by the end of this year. We'll also be launching our second high def channel, Food Network HD, during the second quarter. We've added to our growing portfolio of video channels with the launch just last week of HGTV Bath Design. Now as of today, we have three dedicated Scripps Networks-branded broadband channels.

And finally, at Shop at Home, our Board of Directors authorized us during the first quarter to find a buyer for the business. You'll remember that in the fourth quarter, we recorded a writedown of Shop at Home's intangible assets, then we announced we'd begun exploring strategic alternatives for that business. That process is nearing an end and will soon be sharing with you a resolution to the Shop at Home question. As we've said, our goal now at Shop at Home is to maximize the value of the business for the benefit of our shareholders.

Like I said, that's a lot of change in just three or four months, so before we go on, let me take just a moment to fit those pieces together and to provide some very important context to these recent moves of people, of brands and of capital. Our goal when launching a new brand, buying a new business, or promoting an executive to a new job is always the same: To create real, tangible value for our shareholders. We believe our culture, which stresses real return on investment has served us well, and we intend to maintain that disciplined focus going forward as we journey through yet another period of change and opportunity for the media industry. A good example of our approach is the stellar performance at Scripps Networks, which offers proof we're connecting with engaged audiences and providing efficient media marketplaces in the process. Think of it, a full 11 years since we launched HGTV.

Revenue and segment profit growth at Scripps Networks is continuing at a substantial pace. HGTV and Food Network are resounding successes. Viewership of our flagship networks trended up nicely in March, both prime time and total day, and we're seeing very solid gains in the number of younger viewers who are tuning in. At our newer networks, DIY, Fine Living, and GAC distribution is growing and each contributor to the total segment profit during the first quarter.

With the acquisitions of Shopzilla and uSwitch, we've begun a new growth track that we firmly believe has demonstrated the potential for the same kind of transforming success that we've achieved at Scripps Networks. Shopzilla and uSwitch are already outperforming our expectations as their appeal grows with millions of engaged customers and the thousands of online merchants who are trying to reach them.

Shopzilla and uSwitch, each in their unique way, are successfully capitalizing on the flood of marketing dollars for the specialized online search and price comparison market for both products and essential home services. Even better, we have the good fortune of owning Shopzilla, the leading product and price comparison site in the United States and uSwitch, the leading site for essential home services in the U.K. As our first quarter numbers would suggest, we think we're in an enviable position in these increasingly lucrative marketplaces.

I'd like to add a word or two more about Shopzilla and uSwitch before I turn it over to Joe. I think it's important to know that one more time we seize these businesses as a new generation of media. We've long made it a point here at Scripps to resist being narrowly defined. Shopzilla and uSwitch share many common features with our newspapers, our lifestyle cable networks and our TV stations. For example, they aggregate an audience. They deliver highly useful and impartial information that's very valuable to consumers. They create an exceptionally efficient and highly accountable marketplace for merchants and service providers. And perhaps most importantly, they're competing for and winning marketing dollars that we're just not willing to see.

Just take a look at what each of these services does. Shopzilla ranks merchants, rates products, publishes professional product reviews, and provides a platform for consumers to comment themselves. USwitch is known in the U.K. as a leading consumer advocate, regularly quoted and referred to in the press as an expert on a range of essential home services. Its editorial department regularly publishes reports on home service costs that rivals the best consumer reporting at any of our newspapers or television stations. We understand these new media platforms and we are completely intrigued by the compelling business models that sustain them. They're leaders in a new media market that we want to participate in. Importantly, we think both of these businesses hold the potential for out-sized returns for our shareholders.

With that, let me turn it over to Joe. He's going to provide some color on the first quarter results and the outlook for the next period. Joe?

Thanks, Ken, and good morning, everyone. Without getting very deep into the numbers, I'm going to touch on some of the highlights for the quarter. Of course, Scripps Networks continues to be the the Company's biggest financial story. Revenue and segment profit grew by solid double-digits during the first quarter, driving consolidated growth thanks to the strengths of our brands in the advertising marketplaces and and the overall success Scripps had aggregating audiences. All five of our networks contributed to isolate segment profit, demonstrating the success we're having building our lifestyle brands. Distribution of our emerging networks is growing at a very healthy pace. At DIY, we've stepped up consumer marketing as we prepare to switch on the Nielsen meter in the fourth quarter of the year.

Looking ahead, we're expecting second quarter revenue growth at Scripps Networks to be consistent with the first three months of the year. At Shopzilla and uSwitch, our other fast-growing businesses, first quarter segment profit reached about $14 million on $59 million in revenue, outperforming our earlier expectations. Revenue at Shopzilla was up 107% on a pro forma basis. In the second quarter and for the balance of the year, we're going to be focusing on opportunities for organic growth at both Shopzilla and uSwitch. Specifically at Shopzilla, we'll be reinvesting a fair amount of the revenue growth to enhance the customer experience and to develop and expand our international sites. Shopzilla is currently operating in the U.K., in Germany and in France. Based on the anticipated growth of both services and in our reinvestment plans, we're expecting second quarter segment profit of the about $12 million from the interactive media businesses.

At our newspapers and television stations, we're expecting modest second quarter revenue growth, although depending on the timing of political advertising, the revenue at our station group could be stronger. Our TV stations, by the way, did an excellent job in their local markets of fully exploiting the Super Bowl broadcast on ABC and on NBC's coverage of the winter Olympics. At our newspapers, those properties managed solely by us continued to enjoy industry leading ad revenue growth, but higher newsprint costs and the expensing of stock options contributed to a decline in segment profit for the division. We're expecting those same forces to exert forces on our newspapers during the second quarter as well.

In our JOA markets, lower advertising sales and higher depreciation expenses related to the capital project in Denver have also had a negative affect on total segment profit. As for Denver, we want you to know we're not at all happy with what we're seeing and will be spending a fair amount of time and effort to address our performance issue there. We're in a period where we're putting in place a production system that will be more efficient for the long-term, however, the increased depreciation costs related to this project do not account for all the weakness we saw during the quarter. We want to assure you we will be working very hard to get this fixed.

Ken mentioned earlier that we've been authorized by our Board to find a buyer for Shop at Home. We're not going to comment further on that process until we have something more definitive to report, but based on the Board's direction, we've moved the Shop at Home results to discontinued operations as required under GAAP. Remember though, after we wrote down intangibles last quarter, we still have about $260 million in assets on the books, related to Shop at Home. Most of that value is ascribed to the five Shop at Home affiliated tv stations in San Francisco, Boston, Cleveland, Raleigh/Durham, and Bridgeport, Connecticut. We have expect to have something further to report on Shop at Home in the very near future.

Finally, a couple of balance sheet and nonoperating items. The acquisitions of uSwitch and Shopzilla will increase depreciation and amortization expenses by about $16 million in the second quarter. Dilution related to these two acquisitions will be $0.06 per share in the second quarter. Shopzilla, by the way, will be accretive to earnings in the fourth quarter as we projected at the time of the deal. Debt at the end of the quarter stood right about a $1 billion, primarily due to the uSwitch acquisition, and we continue to buy back shares during the first three months of the year. We bought 420,000 shares for a total cost of around $20 million. Capital spending for the period was about $11 million. With that, I'm going to turn it back to Ken to wrap up.

Thanks, Joe. Before we take your questions, let me quickly share with you how we're going to be spending the next 12 months or so at Scripps. At the top of our list is finding a resolution to Shop at Home. Let me assure you that the interest of our shareholders has been top of mind as we've explored strategic alternatives for this business. We're also going to be working hard to deliver on the promise of our new interactive media businesses, by helping them realize their full potential as stand alone businesses and integrating them when and where it makes sense with our other media enterprises. At Scripps Networks, we'll be maximizing the power of our lifestyle brands, not just on television, but also extending them to the growing array of electronic media platforms. We'll be focusing the attention of our broadcast television stations to fully capitalize on the return of political advertising and we'll be concentrating on the efficient management of all of our local and national media enterprises. With that, we're ready to take your questions. Operator?

Thank you, sir. [OPERATOR INSTRUCTIONS] Our first question comes from the line of Debra Schwartz with Credit Suisse. Please go ahead.

Hi, thanks. Good morning. I was wondering, could you give us a little more color on what you're seeing for the cable networks, how's Scatter trending by network and what's your early feel on the up run?

Sure, Debra, good morning. Scatter was somewhat weak in the first quarter due in large part to the effect of the Olympics adding a significant amount of inventory to the quarter. Our particular performance in Scatter, I think, was somewhat better than our peers. We were in the upper single digits in Scatter. Overall, we were up 17% total ad revenue. We are seeing an improvement, however, in the second quarter. Particularly with our endemics, as those endemics really begin to kick in with the spring season. So the strength of the marketplace is beginning to come back and we're seeing that in our second quarter sales.

Thanks. And then also, Ken, I was wondering if you could give us an update on what your acquisition strategy is now that Shopzilla and uSwitch are done? Are you still focused on making sizable internet acquisitions?

If you look at the past history, Debora, we've really always been opportunistic and prudent, we think in our pursuit of acquisitions. And I think our track record shows that we seek acquisitions that we think can be integrated into and hopefully enhanced by other properties. Or really businesses that we believe will bring us additional marketing and advertising dollars, and of course, the top of that list would be Shopzilla and uSwitch. And that's also underscored by the dollars we see moving in that direction. That said, really don't see any acquisitions in our immediate future. So we plan on focusing upon really further integrating Shopzilla and uSwitch into the Scripps organization and making those businesses truly living up to the potential that we know they can. So right now I think it's just focusing on our assets, and if there's an opportunity for any kind of enhancements at the networks, something small or -- we never want to rule out a small acquisition going forward, but I think our plate is pretty full at the moment.

Great. Thanks a lot.

Thank you. Our next question comes from the line of Fred Searby with J.P. Morgan. Please go ahead.

Thank you. Ken, I wondered if you could just help on GAC, it looks like an asset with a lot of potential. Still not fully being monetized relative to the growth in what you're doing there and what the issue is. And then secondly, I noticed this -- I was looking through the numbers, the Shopzilla growth, you pointed out and if you could just talk about ongoing efforts to kind of drive traffic through your existing properties and how that's going, the numbers have been really phenomenal. And do you see a second half slowdown, or is the momentum going to continue there? Thank you.

Before I turn it over to John to answer the GAC question and Tim Peterman, Shopzilla, let me once again say how enthusiastic I am about GAC. It was a great acquisition. The timing on it couldn't be better. Middle America, if anything, is just moving in that direction. So John will talk about where we are on the evolution line, but couldn't be more pleased with GAC. John?

Ken, I couldn't agree more. We are really excited about the progress of GAC, Fred, to be honest. You have to remember when we first acquired this network, its average spot unit rate was in the $50 range, and over the last 12 to 14 months, we've been able to double that average rate with the improvement of the average rate coming with each quarter. In fact, when we first acquired the network, 80% of all the inventory went to direct response. Today, that has actually flipped. Today, 80% of the inventory is sold in the national marketplace with much healthier rates.

The reason for that is that the ratings are improving and the ratings are improving because the production qualities have vastly improved. I don't know if you had the opportunity to see the special we taped at Carnegie Hall, the Grand ole Opry at Carnegie Hall that aired in March, but it was really a coming out moment for that network among the country music community, as well as our viewers and our distributors. We just received a lot of terrific feedback about that. So all systems are go at GAC. We're excited about the direction of the network. We think it has plenty of upside potential. In fact, arguably, on a percentage basis, it has the most upside potential for advertising of any of our networks and we're monetizing that as we speak.

Tim, do you want to take the Shopzilla question?

Sure. On the Shopzilla, all the metrics we see all continue to be positive. We've done a lot of work in integrating the Shopzilla branding efforts on all our different sites, whether it's the Web site, on-air on our television stations, newscasts and various different initiatives we're doing. It's actually turning up and improving the free traffic to the site. The revenue, the unique visitors, the branding, everything is moving a positive direction. We expect it to continue.

Can you remind me of one thing? You know how you package in Do It Yourself and Food with Fine Living and DIY, is GAC integrated into any of these, piggy backing your more successful, fully distributed networks at all?

Yes, it is. With both HGTV and Fod, depending on the account and depending on the opportunity, but we do take advantage of that, yes.

Thank you. Another good quarter for Scripps. Appreciate it.

Thank you. Our next question comes from the line of Lisa Monaco of Morgan Stanley. Please go ahead.

Yes. Could you just elaborate on trends at Do It Yourself? It looks like revenues were a little bit below our expectations. And then secondly on Denver, could you quantify what the accelerated depreciation was in the quarter? Thanks.

I'll do the depreciation, quickly, it was $3.2 million in the quarter with respect to about $3 million per quarter for the balance of the year.

DIY is really a victim of its own success. It's had such extraordinary growth over the last two or three years, we're reaching a point now where it will be a rated service beginning in the fourth quarter of this year and our unit rates are at the very ceiling of what we're comfortable with based on our projections of what those ratings will be. And we want to get very careful not to get our pricing ahead of our actual audience delivery.

We're just being prudent in our pricing. The network is doing very well. It's sold out the special selling opportunities within that network that really give our advertisers a unique proposition such as the DIY kits are among the most popular advertising packages among all of our networks. And there's certainly a great deal of demand for those. So really DIY is positioned just where we think it should be as we enter into this fourth quarter when we will become a rated service.

Okay. Great. Just really quickly on HGTV and Food, can you give us some color on ad revenues versus affiliate feed growth in the quarter? Thanks.

Sure. HGTV's growth was in the midteens. Food was a little bit better in terms of advertising growth. And their affiliate revenue growth was just about that level, just in the low to midteens.

Thank you.

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

Thank you. Just a couple quick questions. One, if you're still carrying Shop At Home at 260 million, should we assume that you would hope to realize that at least in proceeds? And then secondly on the newspaper side, a couple of questions. One, if you could give a classified breakdown for both March and the quarter, and if you thought there was much of an impact from the later Easter this year? and then finally, maybe, Mark, if you could comment on the kind of investments you're making and what kind of confidence level you have on the return there. And then I will have a follow up question.

Not a surprise. [laughter]

Sorry.

Lauren, this is Joe, if you hadn't guessed. I'll take the Shop at Home question and we'll let Mark do the work on the newspaper question. It's probably too early to say exactly what we expect from a sale. Obviously, we wrote it down to a level we thought we would realize when we had a chance to write it down at the end of the year last year. So we obviously think we can realize $260 million, but again, it's hard to predict where this process will end up. So stay tuned.

Lauren, real quick on the classified front, in March real estate was up about 43% for the quarter, it was up 38%. Auto was down 8% for March, for the quarter, down 13%. Help wanted in March, up 11%, and up 9% on the quarter. And honestly our expectations were exceeded in the real estate and help wanted, knowing that Easter was going to fall the way it did, we don't anticipate that it had a major effect. And then lastly, the degree of confidence that we've got in the investments that we're making, at this point is very high. I will tell you that if we see evidence that they are not bearing fruit the way we expect them to, we will act accordingly.

Could you be a little more specific about what kind of investments you're making?

A couple of them, particularly in Florida, Lauren, there are initiative that is we've got in both Naples and Treasure Coves. In Naples, specifically, a new daily newspaper as well as some significant internet investments. And in the Treasure Coves, a launch of a new weekly product, Your Hub, which is an extension of what we've done in Denver. Those are -- there's several more beyond that, but that gives you some color. And generally, we're advancing on our sales force expansion, and that at the beginning starts off slowly and tends to pay off two to three quarters in.

Okay.

At this point, the confidence level is high.

Great. And then two quick follow ons. I'm just curious -- we've seen some TV station sales, some pretty healthy multiples and no progress on cross ownership. What is your appetite for contemplating sale of TV stations anytime soon? And then also, could you give us more color on the expected sixth sense solution in the second quarter from Shopzilla and uSwitch?

Yeah I can --

I'll talk about TV station, the question, Lauren, which won't come as a surprise to you, because it's pretty much what we've been saying all along. We continue to be pleased with the performance of our television group as these first quarter results show. We always take a hard look at the business, where it's going. But right now we're okay with our TV stations' results and where we are. I wouldn't totally rule out -- I don't think there's anything on the immediate front on deregulation, but we are starting to see some thawing in certain areas that might be lead us there, so right now we're just status quo, if you will. Joe?

Now, Lauren, on the dilution for the second quarter for [inaudible], I'm not sure exactly what you needed there. Each about $0.03 in the quarter, a total of $0.06 based on the segment profit number we gave and amortization and depreciation of about 16 million incremental.

I guess the real change at Shopzilla is this continued investment in expansion?

Yes.

Okay. Great.

There is some seasonality to that business, where traffic if you look out over the past two or three years, the patterns in the second quarter, traffic tends to be a little bit lighter because you come out of a fairly heavy first quarter, and there's a lot of sales in January, and the holidays that appear in the second quarter are not the best for shopping. Unfortunately, mother's and fathers don't get the same bang that you do at Valentine's Day.

You don't? I do. [laughter] Thank you. [overlapping voices]

Thank you, our next question comes from Alexia Quadrani with Bear, Stearns. Please go ahead.

Thank you. A couple of questions. Is there any color you can give us or anything that stands out in terms of your new programming for your cable networks expected in the fall? Secondly, the nice growth we saw in the distribution at your smaller cable networks in the quarter, should we expect that to continue at that rate? And if you could remind us where you think that would likely cap out? And last question, if you could give us what your expectations are for political ad spending in the second quarter?

For broadcasting?

Yes, broadcasting.

Yeah, go ahead, John.

Well, actually, this is Bill Peterson. In terms of political advertising, it's really started slow for us. We thought we'd see more activity. We only have two markets that will have spring primaries and that's Ohio and Oklahoma. We thought Ohio would be pretty hot, but it turned out that the primary has seen less activity. So we're not expecting that it's going to be superhot, but we are seeing issues start to heat up, and there's a very interest Governor's race in Michigan that is generating a fair a lot of money, but we see it pretty much as a fairly normal second quarter.

And Alexia, I'll touch on your other questions. On the up front, it's a little early in the up front process, in fact, it's very early. But some of the early trends that we see include a shift that we're seeing of advertising spending from broadcast to cable, that shift is continuing. We expect the broadcast up front marketplace to be flat again as it was last year and we expect to see mid- to high single digit growth in the cable overall marketplace. Of course, Scripps Networks tends to outperform the marketplace.

In last year's up front we outperformed it three to one based on the strength of our endemic appeal and our focus brands. For us, going into this up front, the story is our ratings growth at HGTV. We've now had two consecutive quarters of ratings growth. And I'd like to point out too, that not only is that household growth, it's actually growth among the younger demos that's outpacing the household growth. It's helping to lower our median age and help us really capitalize on the marketplace that's there. And then with that shift of dollars, advertising dollars, to online Scripps Networks is continuing to aggressively buildout our online opportunities, both with our branded Web sites and with our new broadband video channel that is we've launched. We mentioned earlier we've now launched three, including one this past week, with plans to launch at least two more this year.

Thank you.

Thank you. Our next question comes from the line of Brian Shipman with UBS. Please go ahead.

Thanks. Good morning. Maybe just a big picture question here for Ken. Could you talk a little bit about your vision of where you see the interactive business going, particularly with Shopzilla and uSwitch. Do you just see this continuing to expand the comparison shopping presence, or do you see more integrated, more varied uses of these Web sites with your other assets? And could you also reflect a little bit on uSwitch? What do you view the longer-term growth outlook for that business and the long-term margin for that business? Thanks.

Okay, Brian. I'll comment on the bigger picture and I'll let Tim talk about specifically uSwitch growth, et cetera. I think it's both. I think we're very optimistic about comparison shopping. As I said in my comments, we feel as we've balanced our portfolio out a little bit and you've been with us long enough to know that when we got into HGTV, when we started acquiring the Food Network, when we got into the whole cable network business, there were a lot of questions about, is this Scripps' abilities at their best use, is this where you guys need to be and quite frankly, we saw where dollars were going to be moving. And the same thing is true with interactive, and fortunately, that's bearing out as you've seen in the first quarter results with Shopzilla and uSwitch which was only a couple of weeks in the first quarter results-wise is trending nicely, too.

The whole comparison shopping and the comparison of essential home services that uSwitch gives us, I think has balanced out the portfolio pretty nicely and as I mentioned earlier, I don't really see any other major acquisitions in the near future. We also like the opportunities that both these businesses provide for some of our core businesses, specifically the cable networks. And you'll be hearing more about that as we get into this year a little bit and get some things further integrated.

But if you go back to why -- let's talk about Shopzilla for a second. As you saw more and more women moving to online comparison shopping and the psychographics and demographics lining up so perfectly with our core cable network viewers with HGTV and Food, it made a lot of sense, that A, it was a great business to get into, and B, we had great cross promotion platforms. And you're seeing that again in the some of the traffic that the Scripps sites are driving to Shopzilla. So, you know, extremely optimistic, it's early in the game, we're just in the first couple of innings here of our interactive media journey. But I'd have to say at this point, as I said in my comments, we think it's just -- just as transforming an opportunity as when we got into the cable network business. I'll let Tim talk specifically about uSwitch and the question you had about performance there, Shopzilla too if he cares to.

We believe uSwitch, which is the home shopping for essential home services is just a big as Shopzilla is for comparison products. In terms of how it is trending, USwitch in the U.K., which is the U.K. only right now, the unique traffic which is at least one metric of measuring, it's up 90% year-over-year. We've caught this business, we believe in the earlier growth states just as fast with that we hooked our wagons with Shopzilla. So everything that the uSwitch business is, which is really aggregating traffic, providing information, and monetizing that information by providing a service to the consumer and a service to the supplier is a fundamental business that we believe works here in the U.S., we believe works across Europe, and in other markets across the world. Right now our focus is to build a business in the U.K. and to better understand the U.S. marketplace for services as it relates to uSwitch.

Okay. Thank you.

Thank you. Our next question comes from the line of Craig Huber with Lehman brothers. Please go ahead.

good morning. A few questions. You mentioned in your guidance, I think 15% expense growth in the second quarter for your cable networks. I was just wondering as you look out to the second half of the year what should investors expect for cost growth on that front and if you could talk about new programs and that sort of stuff as well. And then also is there any major cable system affiliate contract renewals coming up in the next year or so? And a third question is what's your CapEx expectation for the year? Thank you.

John you want to talk about major negotiations going on for '06 on the distribution side?

Sure. The answer is yes. We have two significant negotiations for this year. The first is with Comcast for HGTV, and the second is with Time Warner for HGTV. And we are engaged and expect a fruitful negotiation over the next few months.

Craig. Let me give you the numbers on the expense growth as we go out and maybe John could talk a little bit about why the first quarter seemed light relative to that. We believe the full year will be in that range, somewhere near 15%, maybe a little lighter than that based on the first quarter, but you'll see us bounce around a little bit, much more close to that number, the 15% we're guiding toward for the remaining quarters of the year. But John, maybe you would like to talk about the first quarter a little bit.

The first quarter had an 8% growth, and of that, over half was the investment in programming and marketing, particularly in programming for DIY and HGTV. Keep in mind, DIY had an accelerated amortization accounting treatment kick in this year that creates a programming hump, if you will, in this year that will flatten out. But overall, our expenses were held down because we're being very prudent about where we put our expense dollars against what opportunities. And frankly, we're keeping our eye on the most important pieces of our business, which begin with the ratings and revenue associated with our core brands, HGTV and Food Network.

So we're putting our investment there in there in terms of programming on HGTV and in terms of marketing on Food Network, and we're also putting a significant amount of our investment into our online and interactive development, particularly in the broadband area. But we're just reaching that point that we watch our expenses very closely quarter-to-quarter, as we watch our revenue growth and we'll continue to do that.

I think it was a CapEx question. [overlapping voices]

That's for the networks. Craig, was it networks or all in?

For the whole company, please.

I think we had guided prior to a number that was close to 120 million, $110 million to $120 million, I think, was the guidance range. We came in fairly light in the first quarter. I would expect we will lighten up on the year, we'll probably be closer to $100 million to $105 million, something like that, maybe even a little bit lighter than that.

Great. Thank you.

Thank you. Our next question comes from the line of John Janedis with Banc of America Securities. Please go ahead.

Hi. Good morning. Quick question on the cable network ad revenue forecast. I think earlier in the year, you had guided to something like 18% to 20% for the segment. Looks like you're trending a bit behind that for the first half and I was curious, is there anything specific you're looking at the second half of the year to have some sort of pickup? And then Joe, just quickly, on the corporate line, is that a good run rate for the first quarter? Thanks.

Let me take that. Just a sec.

You want me to touch on the ad revenue? Sure, I'd be happy to. Of course our ad revenue growth in the first quarter was 17%. As we look around the marketplace and at our peers, it appears that the marketplace was a growth of 5% to 6% in the first quarter and our peer comparisons are about in that range, if not a little bit lower, so our 17% feels good in the first quarter. Looking ahead in the second quarter, it still looks to be at about 17%. The demand is picking up and we're halfway through the quarter now in terms of looking at ad revenue and we think that 17% looks solid for the quarter and when we get to the end of the first half and really get through the up front itself, which is the major piece for the fourth quarter, we'll have a lot more information to talk about the rest of the full year, but right now, our forecast feels solid to me.

Hey, John, on the corporate expense, the first quarter is unusually large because if you look at the two pieces of information in the release about options expense, you would concluded that it's much heavier in the first quarter than it will be for the remaining quarters. That's due to some accounting treatment related to options granted to retirement-eligible executives. You have to expense those immediately. They were granted in February, we expensed them immediately. If first quarter is high, you could expect probably $3 million to $4 million improvement in corporate for the remaining quarters, maybe even a little bit more.

All right. Thank you very much.

Thank you. Our next question comes from the line of Steven Barlow with Prudential Equity Group. Please go ahead.

Good morning. Can you give us the total online revenues for your Networks group? Secondly, go into Denver a little bit more, what's wrong there? And lastly, any decisions yet on the Cincinnati Post?

Okay. I'll let John dig into the online revenue. Denver, Mark, what's wrong there? [laughter]

Steve, we are -- there's a fairly new advertising director, Pam Henson, who just joined the agency, and we have great confidence she'll be able to improve the revenue situation there. Frankly the expense management in Denver has been very, very good historically. And we think with Pam and some time under her belt that the revenue situation there should improve. It's frankly a revenue problem, is really where the problem lies.

Is it because of competition from other media there that's taking share, because, obviously the agency has both newspapers?

We're looking at additional -- some additional sales pressure this, Steve. And we think that that will help us demonstrate over a long period of time much better revenue numbers.

John, do you want to answer the online revenue question?

Sure. The first quarter for online, we had just under $10 million of ad revenue, and that represented a growth year-over-year of about 40%.

And one last one, Steve. We haven't made any final conclusions on the disposition of the Cincinnati Post.

Thanks.

Thanks, Steve.

Thank you. Our next question comes from a line of Edward Atorino with Benchmark. Pardon me, Edward, if you have a question, press star one again. Our next question comes from the line of Thomas Russo with Gardner, Russo, and Gardener.

Hi, good day. A couple of questions. Congratulations on a good quarter. For Mark, you mentioned implementing Your Hub in Treasure Coast, and I'm impressed by the display they had at Nexpo, and I'm wondering what your level of enthusiasm is for Your Hub both as a product you sell to others, and how it's rolling out in Denver and Florida.

Tom, Treasure Coast is implemented in about five other Scripps markets and has become enormously successful, very quickly, particularly where there is other newspaper competition. As you know, the model there is to generate content from users. It's been successful in Denver and has really taken off terrifically in the Treasure Coast. We'll give you updates as time goes on, but it does give us -- it allows us to drill the well deeper and connect more in kind of a neighborhood level with readers, which is really the single biggest reason for its success.

And Mark, do you see it providing you mainly with online advertising revenues, or the print revenues associated with their supplement that's printed via editorial selection of best content? Where do you make your money?

It's kind of a -- we get the content online and then we reverse publish it in print. And frankly, the secret sauce in that model is when we get it into print. It's about three quarters -- the profitability comes about three quarters from the print aspect of it and about a quarter from the online. So it really is kind of a unique boat to make it profitable.

Great, great. Let's see the -- I'm I'm curious about the auto as a category. If you could do a quick review of where you've seen it on the broadcast segment and then the newspaper, what's happened with the national auto as well as obvious negative impact at the moment? Where has auto impacted you in television as well as in national newsprint, newspaper?

Tom, it's Bill Peterson. In the first quarter, actually, automotive was strong for us. That was probably driven by Super Bowl and Olympics. We were plus 8.6% in automotive. If you look at March, it started to flatten out, and if you look forward, it looks like it will be flat or down a little bit.

Okay.

And Tom, just kind of an opposite story from the newspaper front. For the quarter, auto was down 14%, but for March it firmed up to down 8%. We have been down in auto for several months and honestly, we're running hard to try to come up with new programs to entice auto dealers, but in many of our local markets, it's a matter of auto dealers having a tough time selling cars.

And then Tim, on the uSwitch, you mentioned the possibility of its application in the U.S. market, I'm particularly curious as to how it will work in light of U.S. privacy laws. As the release of that type of information available in England may not be so freely available in the U.S.

Well, the businesses we're contemplating, Tom, will not run into those issues. You're thinking about -- the categories to think about are essential home services, which is everything from the telephone to the utility bills to cell phones, insurance, car insurance, things like that. And personal finance, also, which has to do with any type of personal finance product you can acquire today. With any type of insurances, any type of loans, any types of mortgages, things like that. So we're looking at a wide range of products that uSwitch currently does in U.K., and with a we're trying to figure out and make sure we're correct on is what are the first products that we should launch here in the U.S.?

Yeah. Thank you. And lastly for Mark, Mark, what's been your impact on the Do Not Call legislation as it recycles from the full year? And what's happened to your churn as a result of that? and what's happened to your readership, the kind of readership numbers you're able to show your advertisers in light of possibly a leaner circulation as a result of Do Not Call, getting rid of some of this chaff?

The last Do Not Calls have been around for the better part of five years, so we've had to live in an environment where we've got to be creative in the absence of telemarketing. I will tell you the encouraging news in March is that our circulation copies daily are about flat and Sundays off 0.3%. So we're seeing a real stabilization and we anticipate slight growth in copies, both daily and Sunday as we finish the year.

And readership as a result, are you showing any improvements there?

We don't it have across the board, but you do tend to see tick up in readership as copies go up, typically.

Thank you.

Thank you. Our next question comes from William Bird with Citigroup. Please go ahead.

John. I was wondering if you could talk about uSwitch earnouts and the difference of the cash to be paid out in the future versus accrual accounting numbers.

Yeah, Bill. One of the issues we had is that this is an acquisition that looked expensive from multiple point of view. And I know I've spent a little time trying to reassure people that we're not crazy the way we did the deal, but we do expense -- there's an earnout related to value created as we've defined it in this business for the management team at uSwitch. The way that that will be earned is based on the cash flow generated by the business and so by definition, it's not significant until years maybe 5 and 6.

It will be paid out very late, but for U.S. GAAP purposes, we have had to take our projection of that number, which ends up being a reasonably significant number, not relative to the value created, but relative to their earnings, certainly in the short run, spread it out and account for it equally over the period, so it has a very disproportionate effect on the first year and probably two years worth of earnings. As I said, it's not cash, it's an accrual charge, it's purely spread out. Just divide by six and spread it out. Not much more science to it than that. It does have an unusual effect. That does explain why we thought the investment has a very acceptable, in fact, very attractive return even though it looks like a very high multiple of the first year's cash flow.

And Joe, what's the approximate annual accrual expense related to that?

Bill, we haven't given that and we're probably not going to do that here.

Okay. Thanks.

All right. Operator, we've got time for one more question.

Thank you. Our last question will be from the line of Peter Appert with Goldman Sachs. Please go ahead.

Ken, the Shopzilla International, how big is the opportunity, how much do you have to spend to get there? Are you willing to sacrifice earnings to grow that business? In other words would you accept flat operating income to drive the international growth?

Yeah -- this is Tim Peterman. Fortunately, for these businesses, we've already developed the technology with the SEM, search engine marketing and search engine optimization, and also the infra structure to launch into Europe. So it's not a huge cost to launch into the U.K., Germany, and France, we're already there. What we're talking about is making sure we have the right sales forces to service the accounts, the local accounts and make sure we have all the local market distinctions and differences appropriately reflected in the consumer interface of the Web site.

If you look at the European marketplace in total, as it related to the U.S., it's actually projected in broadband and electronic commerce to be growing faster than the United States. It is a marketplace that is just as exciting as it is here and quite frankly, if you look at Europe in total, it's just as big as the marketplace here in the U.S. So we see that as a valuable territory and it's not one that costs a lot of money for us to implement, because all of that hard work has been done on the U.S. launch. The perfection of the -- not that we're perfect, but the development of the product and the organization of how we present the information, we think is a compelling offering, and that's what we plan on doing in the U.K. and the rest of Europe.

Great. Thanks. And then, similarly on the broadband channels, how do you scale the size of the opportunity there, how quickly can they be profitable?

Actually, very quickly, because we have the benefit of our media library with over 28,000 hours of content that Scripps Networks owns that we can re-edit, repurpose, and reshape into these narrowly focused channels targeting very, very specific groups of consumers, whether it be consumers passing through a phase of their life, redesigning a kitchen, redesigning a bath or other passionate groups that will be designing these channels for us. So the advertising marketplace is robust and our ability to create these channels is such that we can do it in a very cost effective basis.

Do you have a thought on how big the revenues could be in '06 or '07?

I wouldn't want to speculate, I'll only say that these are growing quickly. Any one of them by themselves is not gigantic, but aggregated together, it could be something that would scale along the size of a digital network.

Great. Thank you.

Thank you.

This is Tim Stautberg. I'll jump in here and thank everyone for joining us. If you have any further questions, I will be in the office the rest of the day. 513-977-3826. Thanks, everyone. Operator, you can give replay instructions now.

Thank you. Ladies and gentlemen, this conference will be available for replay after 1:30 p.m. eastern today through May 2, 2006, at midnight eastern. You may access the AT&T teleconference replay system at any time by dialing 1-800-475-6701 and entering the access code 825054. International participants dial 320-365-3844. Those numbers again are 1-800-475-6701 and 320-365-3844 with the access code 825054. Ladies and gentlemen, that does conclude our conference for today, thank you for your participation and using AT&T executive teleconferencing. You may now disconnect.