E W Scripps Co (SSP) 2006 Q2 法說會逐字稿

Welcome to the Scripps second-quarter earnings report. (OPERATOR INSTRUCTIONS). As a reminder, today's call is being recorded. (OPERATOR INSTRUCTIONS). At this time I would like to turn the call over to our host, Tim Stautberg, Vice President, Investor Relations.

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 20 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, Chief Operating Officer, John Lansing, President of Scripps Networks, Mark Contreras, Senior Vice President of Newspapers, Bill Peterson, Senior Vice President of our TV station group, Tim Peterman, Senior Vice President of Interactive Media, and Lori Hickok, who is Vice President and Controller.

Let me remind you, if you prefer to listen in on the Web, you can go to Scripps.com and click on the shareholders link and find the link at the top of the page for the Webcast. 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 -- 2005 Form 10-K. Now here's Ken.

Thank you, Tim, and good morning, everyone. We value your interest in Scripps and we look forward each quarter to this opportunity to bring you up to date on the Company's ongoing growth and development.

Now, in the quarter just completed, we saw solid double-digit increases in revenue and segment profit, thanks primarily to the enduring popularity of HGTV and Food Network, and outstanding financial performance at our new Interactive Media businesses, Shopzilla and uSwitch, and of course, our local media businesses, our newspapers and television stations, continue to outperform their peer groups.

At Scripps Networks we're achieving industry-leading growth by staying true to the business model that sets us apart. For us, it's all about targeting clearly defined lifestyle categories, owning our content, and creating dynamic marketplaces that officially match advertisers with engaged media consumers. We deliver creative original content across a growing range of media platforms, from television to the Internet, for mobile devices and more.

We've successfully positioned our networks as the leading television and new media destinations for informative and entertaining video content related to the home and all things food, as well as building newer brands that target do-it-yourselfers, country music enthusiasts, and those viewers who have a passion for quality life experiences. Put it all together, and you have a growing media enterprise that's expected to exceed $1 billion in revenue this year.

By just about every measure during the second quarter, Scripps Networks continued to shine. Total revenue was up 17% and segment profit rose a very strong 22%, demonstrating the success we've had monetizing the valuable TV and online audiences that we are aggregating.

The audience for both of our flagship networks grew decisively during the second quarter, providing us with considerable lift as we head into this year's upfront negotiations with advertisers.

The ratings and viewership story at HGTV, a full 12 years into its development, is really outstanding. Prime time viewership grew 12% during the second quarter. The network achieved an overall 1.0 in June, which is pretty heady territory for any cable television network.

On Thursday, July 13, House Hunters scored a 2.2, which by the way is a record for a regularly-scheduled HGTV series. House Hunters, by the way, has been setting records on Thursday night really for the last three weeks. Looking at total day viewership, HGTV grew a solid 9% during the second quarter compared to the same period last year.

Now, over at the Food Network, the story is every bit as good. Total viewership is up 12%. Viewership of the network's informative and entertaining In The Kitchen block programming is up 20% on weekends and 15% on weekday afternoons. In fact, Food Network's weekend daytime programming averaged a very strong 0.93 rating during the second quarter. Prime time viewership at Food also continued to grow during the quarter, up an average 5% from where we were a year ago.

It's very clear that we are creating plenty of momentum and viewer excitement at both HGTV and Food, which we think is quite a [feat] at this stage of our development, and especially in the current media climate.

Scripps Networks brands are also growing online, I'm happy to say. Traffic to HGTV.com and FoodNetwork.com grew another 10% year-over-year during June. Food Network consistently is the top food-related Website in the United States, with about 7 million unique visitors a month. And among media companies, Scripps is the leader in its category, with an average 5 million unique visitors per month.

We also redesigned and relaunched GAC'S Website during the second quarter, earning acolytes from the music industry and attracting new country music fans. Traffic to the Website approach 1 million unique visitors in June, which is about double where we were during the same month in 2005.

Collectively, Scripps Networks Websites generated about 15 million in revenue during the second quarter, up 57% from last year.

Our new media development efforts at Scripps Networks also gained momentum with the launch of high-definition versions of both HGTV and Food Network, and the addition of two more broadband channels, HGTV's Bath Design and DIY Network's Woodworking. By the way, we moved up Woodworking's launch at the urging of some major advertisers who were eager for us to activate the Website as soon as possible. And we were glad to accommodate them.

All of the numbers at Scripps Networks tell us that we're definitely on the right track, and that our brand of targeted lifestyle content is resonating with both media consumers and advertisers who are increasingly looking to us for creative marketing solutions. The Scripps Networks growth story, we're happy to report, is still unfolding.

Now, the same is true at our new Interactive Media division, where a growing number of media consumers are discovering the time-saving value and utility of our online search and comparison shopping services.

Together, Shopzilla and uSwitch generated 65 million in revenue and 16.5 million in segment profit, outperforming our expectations for the quarter, and really reaffirming our conviction that these two media businesses have the potential to provide an outsized return for our shareholders.

The rapid growth at Shopzilla and uSwitch can be attributed to growing consumer acceptance of Internet search and price comparison services, both here in the United States and in the United Kingdom. Just a reminder, Shopzilla is a leading destination in the United States for consumer searching for just about any product offered for sale by nearly 80,000 online merchants. And in the UK, uSwitch is a leading Website for consumers looking for a better deal on essential home services. Both businesses put Scripps in an excellent position to capitalize on the rapid growth in broadband penetration both domestically and abroad.

And with the addition of Shopzilla and uSwitch, 14% of our company's consolidated revenue came from our online enterprises, demonstrating just how serious we are about establishing Scripps as one of the world's leading Internet companies. On a unique visitor basis in June, when you count all of our Internet businesses, Scripps was the 13th largest U.S. company doing business on the Web.

Turning to our newspapers, the 6% growth in advertising revenue that we recorded during the second quarter put us at the top of our peer group once again. We've had considerable success driving up the topline in our publishing enterprises by concentrating resources on growth markets, by beefing up sales staffs, looking closely at advertising rates, and thoughtfully adding new online and print products. Our publishers really deserve a lot of credit for making this happen.

By design, we operate local newspapers and broadcast television stations in some of the country's fastest-growing markets, especially along both coasts of Florida. The value of geography, especially at our television stations, will become increasingly apparent as election campaigns get into full swing during the third quarter. Our stations in Florida, Ohio and Michigan are in excellent positions to fully capitalize on the return of political advertising in the weeks ahead.

Now before I turn it over to Joe, let me just say that we're very enthusiastic about The E.W. Scripps Company's opportunity to excel in the current environment. Our lifestyle networks are having tremendous success, our new Interactive Media division is well positioned to capitalize on the Internet migration, and we have local media businesses in some of the country's most attractive growth markets.

As we have in the past, we are deliberately guiding a transformation of this company's profile to capture the changing habits of media consumers and advertisers. Our objective, as always, is the creation of long-term value for all of the Company's stakeholders.

With that, here's Joe. He's going to provide a little more texture on the quarter and review the guidance that we issued this morning.

Thanks, Ken. Good morning, everyone. Scripps had a very solid second quarter, with all of our operations either meeting or exceeding our expectations.

As we've noted, Scripps Networks continued to be the Company's primary growth driver during the period, thanks in large part to solid ratings, and viewership at HGTV and Food. Coupled with the highly targeted nature of the brands, our ability to deliver a growing and engaged audience put us in an excellent position to leverage our uncommitted inventory in a [scattered] advertising market, especially during the final month of the quarter.

Strong growth in affiliate fee revenue also helped Scripps Networks finish the period at the higher end of our forecast. Strong financial performance at Scripps Networks encourages us to stay the course, which means our focus will be on attracting larger audiences with full schedules of quality television programming and video content for the growing universe of electronic media platforms.

Our newest media enterprises, Shopzilla and uSwitch, also contributed significantly to the growth in the Company's total segment profit. Including our search businesses, 66% of the Company's total segment profit came from our Interactive Media and Scripps Networks divisions during the second quarter. Consolidated online revenue from all of our divisions, including Interactive Media, Scripps Networks and our local media businesses, reached $89 million during the period. As Ken said, that's 14% of our total reported revenue. Also as Ken mentioned earlier, online revenue from Scripps Networks Websites was up 57% during the quarter.

At newspapers operated solely by Scripps, Internet revenue was up 59%, evidence that we're making progress monetizing the rapidly growing local online audiences that we are aggregating. The growth in newspaper Internet advertising was one of several bright spots for our newspaper division, which overall saw industry-leading topline growth.

The increase in non-newsprint expenses at our newspapers, some 6.2%, is due in part to investments we're making in new online and print products in our Treasure Coast and Naples markets in Florida. Newspaper segment profit was negatively influenced during the second quarter by lagging performance at our JOA newspapers in Denver, Albuquerque, and Cincinnati. Slow advertising sales in all three markets resulted in a decline in equity income from the JOAs.

In Denver, our biggest JOA market, we're actively addressing the problem along with our partner, MediaNews Group. Together we're evaluating how our newspapers are competing for advertising share in the market, examining our advertising staffing, and we're taking the necessary steps to improve the topline there.

One of the steps we've taken is appointment of Harry Whipple as President and CEO of the Denver Newspaper Agency. We're confident that Harry's experience managing JOAs in Salt Lake City, Cincinnati and Tucson provides us with the leadership we need to move Denver in the right direction.

One more note on Denver. Keep in mind that about $3 million of the decline in equity income was due to increased depreciation costs that are related to the capital project we initiated there in the third quarter of 2005. In the back half of the current year, the accelerated depreciation will be some $14 million lower than it was in the back half of 2005.

Turning now briefly to our broadcast television stations, second-quarter segment profit was up about 4% if you strip out the hurricane recovery settlement we received to cover storm damage at our West Palm and Tampa stations during the second quarter of last year.

Broadcast TV segment profit benefited from growth in political advertising during the quarter. Our stations generated about $3 million in political during the three months, compared with about $400,000 during the same period last year.

Now let me bring you up to date on where we are in the process of divesting the Company's Shop At Home operations. After our March announcement that we intended to close the business, Jewelry Television stepped forward and expressed an interest in acquiring certain of Shop At Home's assets, so we sold these assets to Jewelry TV in June for about $17 million in cash. As a result, we incurred a significantly lower charge during the quarter than we had earlier anticipated.

The majority of the $34 million in losses from discontinued operations for the period was related to two items -- first, operating results at Shop At Home as we liquidated our inventory; and secondly, expenses related to the closing of the sale, including severance for employees. The remainder was a loss on the sale of the assets.

The transaction with Jewelry TV did not include the five Shop At Home-affiliated television stations that we own in San Francisco, Boston, Cleveland, Raleigh-Durham and Bridgeport, Connecticut. We're actively seeking a buyer or buyers for those stations and we are in the process of evaluating all the expressions of interest that we've received. Going forward there will be some costs related to keeping these five stations on the air while we're waiting for the sale, but those expenses will be balanced by the revenue we'll be earning from airing Jewelry TV programming. With that in mind, you should expect any losses from discontinued operations to be minimal at best in the third quarter. That's the status of Shop At Home.

Before we get into the guidance, I'd like to mention a couple of balance sheet items.

First, the Company's total debt at the end of the second quarter stood at about $1 billion, up from $826 million at the end of 2005. Of course most of the increase represents borrowings to complete the uSwitch acquisition earlier this year.

We continued to buy back some shares during the second quarter, purchasing 280,000 shares for a total cost of about $33 million. Capital spending for the period was about $17 million.

Now let's review our guidance, which includes third-quarter forecasts and a partial look at the rest of the year. Keep in mind that employee costs for the balance of 2006 will include approximately $8 million, or $0.03 per share, related to the expensing of stock options which we commenced earlier this year. The additional cost is reflected in the guidance we are providing.

At Scripps Networks, we're expecting third-quarter advertising revenue to be up 13 to 15% year-over-year. Affiliate fee revenue for the period is expected to be about $48 million. The modest increase in affiliate fee revenue is due to onetime favorable adjustments in affiliate contracts that we made during the third quarter of 2005.

On the expense side of Scripps Networks, we're expecting costs to rise about 13% during the third quarter as we focus on building consumer awareness for our flagship networks and keep expansion of our newer lifestyle network brands on track.

Looking ahead to the fourth quarter for a moment, we're expecting ad revenue from our networks to be up in the range of 10 to 14% in the last quarter of the year, with the caveat, of course, that we're still very early in the process of negotiating commitments. We're basing our fourth-quarter forecast on early indications and on the momentum in ratings and viewership at HGTV and Food Network.

Back to the third quarter, we're expecting total revenue at newspapers managed solely by Scripps to grow between 2 and 4%. Total newspaper expenses are expected to be up 5% for the period. Those forecasts, of course, exclude Boulder, which we recently [contributed] to the new Colorado partnership. Equity income from the Company's JOA newspapers is expected to improve by $5 million in the third quarter, due to the lower depreciation expenses in Denver that I mentioned earlier.

At the Company's broadcast television stations, total revenue, including political, is expected to be up 10 to 14% in the third quarter. We'll be benefiting from political advertising as election campaigns begin heating up, especially in our Florida, Ohio and Michigan TV markets.

At our Interactive Media division, which includes Shopzilla and uSwitch, segment profit is expected to be about $8 million in the third quarter. The modest year-over-year increase in segment profit for the quarter is due to a couple of important factors -- first, expenses related to the international rollout of Shopzilla Europe; and second, investments we're making in human capital and technology to maintain our competitive edge in these businesses. For the full year, the Interactive Media division is still expected to generate segment profit of about $65 million.

Looking at some consolidated numbers, corporate expenses are expected to be about $15 million in the third quarter, depreciation and amortization for the period are expected to be about $30 million, and interest expense is expected to be about $17 million.

Third-quarter earnings per share from continuing operations are expected to be between $0.38 and $0.42, including dilution of approximately $0.07 per share related to the Shopzilla and uSwitch acquisitions. Earnings per share from continuing operations during the third quarter of 2005 were $0.39.

And with that, we conclude our prepared remarks. Operator, we're ready for any questions.

(OPERATOR INSTRUCTIONS). Lisa Monaco, Morgan Stanley.

Joe, could you elaborate a little bit more on the profit for 3Q for the Interactive Media business? And obviously, the implied 65 million implies a nice recovery in 4Q, partially seasonally skewed. Also, can you break out the pro forma revenue growth for Shopzilla and uSwitch? Then I have a follow-up question.

Okay. A little color on Shopzilla and uSwitch for the third quarter. Obviously, you might have expected a little higher number in the third quarter because of uSwitch's inclusion. But, as I mentioned, there are a couple of significant investment items which we talked about at the beginning of the year.

One was, of course, European. We are building staff over there. We are very encouraged by what we see in the early stages of our European expansion that we are in in the UK, France and Germany now, and we are continuing to roll out there. So, very optimistic there. We think as a use of capital it's one of the best things we can do. So we're going to file some money back in there. Again, not unexpected.

With respect to uSwitch, the third quarter is a very low seasonal quarter for uSwitch. So any lift you might have expected from including them in the mix is -- will be very modest in all in that quarter. So, not a concern there, absolutely on target in terms of the pattern we expected and have seen in the past with uSwitch, so we're not concerned at all about that.

And then lastly, when we put together the plan for Shopzilla -- and in fact, I think, when we released our initial guidance for Shopzilla on the year, we talked about the need to continue to investment both internationally and domestically -- domestically in the product itself, technical investments. And we're making those. We're continuing to make those. And we were willing to give up some margin this year for the improvements that we think those investments will bring us. So we're going to continue on that as well.

Lisa, you had (multiple speakers) question?

Just on the cable networks. As we see some moderation and growth with the fourth quarter, how should we think about expenses, and particularly marketing and promotion, for the networks for 4Q?

First of all, just looking quickly at the third quarter, we have a significant amount of marketing expenditures going against the two high-profile events -- one on HGTV, Design Star, which launched last night; and then Food Network also has an event this quarter with Feasting on Asphalt. So you'll see in the third quarter a rise in expenses tied to the investment in marketing around those two events.

As we look to the fourth quarter, we see that -- the marketing investment moderating somewhat. We will have several launches of series, both on Food Network and HGTV. But as our ratings have improved on HGTV, it's allowed us to recover and use more of our on-air inventory for promoting the networks on our own air. So, relying on that will allow us to have less of a reliance on outside media expenses.

Peter Appert, Goldman Sachs.

I was hoping you might just give us a little bit more color on what you've seen in the cable upfront so far, just things like thoughts about what the sellout might look like, and initial impressions on how pricing is going to go.

I have to tell you, we are very, very early on in the process ourselves. In fact, we're much later this year than we were at this point last year, just due to the activity around the negotiating of other larger cable networks. It's very early for me to put a figure, to pinpoint where I think we'll be on growth, other than to tell you that I'm very confident that wherever the marketplace ends up, that we will be near or at the top of the marketplace, as we were last year.

Looking at your fourth-quarter assumption specifically of 10 to 14% growth, based on the ratings numbers you're posting -- because it seems like that might imply that you're assuming basically no CPM increases. Is that a fair assumption?

No, it's really not a fair assumption. I can't say the CPM increases will be much stronger than what the high end on either broadcast or cable may be negotiating. We're still early on in negotiating our CPM increases, but I'm confident that we will have CPM increases to go along with an improving scatter marketplace; we're already seeing the scatter marketplace improving in the third quarter. And with our strong ratings and impressions, any kind of a scatter marketplace, particularly a robust scatter marketplace in the fourth quarter, will really strengthen and put a foundation under our growth for the fourth quarter. You may recall from prior years that typically Scripps Networks in the fourth quarter of any calendar year tends to outperform based on the nature of our networks and the nature of our programming around the holiday period.

Which is why the 10 to 14 doesn't quite connect in the context of the ratings numbers.

The recent ratings success -- and I say recent; it's really been growth steadily over the last nine months. We've had year-over-year monthly ratings growth in HGTV steadily for the last nine months. But as we look to the first quarter, second quarter and third quarter of next year, we'll really start to see that -- those numbers begin to work harder for us in the ad marketplace. We're really just beginning to push our ratings beyond that level that we were originally forecasting a year ago.

Lauren Fine, Merrill Lynch.

A couple of questions. One, if you could comment on the growth you're looking for for TV in the third quarter. That's a pretty big pickup from the second quarter, and I'm wondering how much of the pickup is really from political, if it's exclusively political that you're looking for. And I guess going back to the cable networks, is there any way to isolate, of the outlook that you're providing, how much is coming in terms of incremental growth of the smaller networks being included in the upfront for the first time, and how much of the revenue that you're looking for is coming from some of the broadband networks? And I have a follow-up question.

In terms of the growth for third quarter, probably out of -- three quarters of that will be driven by political. Political this year, by the way, is starting very slowly. So it's been a little hard for us to get our arms around it.

On the cable networks, we're seeing significant growth for our three emerging brands -- Fine Living, DIY and GAC. With GAC, in terms of year-over-year growth being the most robust, as you know, it was a rated service when we acquired it, but its rates -- its advertising rates were unusually low. Of course, it's the only one of our five networks with a direct competitor in the marketplace, and in this case a larger competitor. So we've been moving those rates up aggressively and continue to do so, and that is having a material effect, a material positive effect to our overall growth story for the third quarter.

DIY and Fine Living have had some remarkable growth in distribution. As of June of this year, for instance, Fine Living is up over 10 million subscribers over last year, over last June; DIY up over 3.5 million, and both services are now available in over 37 million households, approaching 40 million. So that's also helping to draw the distinction around our five networks and their revenue growth potential.

In terms of online, you heard Ken mention that our growth in the second quarter year-over-year was 57%, and that story is continuing. I'm happy to say in the third quarter we're seeing significant interest in our online, particularly the video that we've put into the marketplace through our broadband channels. Our average monthly video usage on our Scripps sites, Scripps Networks sites, is now upwards of 7.5, approaching 8 million video views per month, which is up more than 100% year-over-year. So our ability to put an online interactive product into the marketplace that brings a video component that's tied -- tightly tied to our brand and the core brand promise, is another significant aspect of our growth potential and the growth that we see for the third quarter.

That's great. I guess on the newspaper side, if you could just comment on how July is trending, and specifically how you're doing -- you mentioned how well you're doing in online, but are print ad revenues actually up? It sounds like they are for your properties.

It's a little early to comment on July, but yes, there is a disparity between online and print. Print -- online was up close to 60%, and -- but print honestly is very strong. When you look at local, local is up about a couple of points. When you look at the mix between lineage and rate, for one part of lineage growth we got two parts of rate growth. So we're pretty bullish that there is still both lineage and rate growth left in the core business.

Alexia Quadrani, Bear Stearns.

A couple of questions. First on the cable nets, if you look at both in the scatter market and your early negotiations for the upfront, could you give us a sense if there's any particular category that stands out as particularly strong or particularly weak, and maybe comment on the retail category specifically? My second question is just on the newspapers, if you can break up the classified revenue for the quarter, please.

Sure. Happy to do it. For us, of course, the categories that are really helping us and propelling our growth are the endemic advertisers that are unique to our particular narrowly focused cable networks.

Aside from the upfront and the scatter, there's a third marketplace that we participate in, the calendar upfront business negotiated for the calendar year, usually negotiated during the fourth quarter for the full calendar year. In our calendar upfront, we experienced growth in the 25% to 30% range across both HGTV and Food Network, with the majority of that in HGTV. And that laid in a very strong base for us. And that was important, because that was on top of last year's upfront, where we had industry-leading growth of 18% on top of 5% CPM growth.

And so when the first and second quarter came this year, we actually saw the marketplace for scatter decline. We believe the second quarter scatter marketplace was down year over year, overall for cable down in the single digits, and certainly it was down for us for HGTV and for Food Network. But the good news for us is that the third-quarter scatter marketplace appears to be much stronger. We believe it will be an improvement of 10 to 15% year over year. And with our strong ratings growth in HGTV and Food Network meeting a strong marketplace, that bolsters our sense of the growth that we'll have in the third quarter.

Just to fill you in on the classified breakdown for the quarter, help wanted was up 3% for the quarter, with about 77% of our markets up, real estate was up 30%, with about 85% of our markets up, and auto was down 10%, with about 85% of our markets down. Auto sequentially is getting better, but we're still wrestling with it. And it's a very market-specific phenomenon.

One follow-up. On the Shop At Home sale of the stations, you discussed that you're currently looking at your different, I guess, options in terms of different offers. Do you have any idea of when you might have an announcement or might make a decision on whether or not you're going to actually move forward with any of those sales? Should we know by the end of the third quarter?

You should probably know by the end of the third quarter, but it's probably too early to predict the exact timing of it.

William Bird, Citigroup.

I was wondering if you could just talk about where you are in the process of integrating Shopzilla and uSwitch with your other media assets. And I guess specifically on Shopzilla Europe, was wondering if you could just elaborate on where you are in the rollout process. Thank you.

With respect to Shopzilla in Europe, we're in London, Germany and France now. So it's been there for about a year, and it's going well. We're building traffic and -- excuse me -- [hiring a lot of folks], so we'd say it's a developing prospect. We're all encouraged by the results. What was your (multiple speakers) the other media. We're working with all the different divisions on the cross-promotion effort. So it's a -- excuse me

Let me just jump in for a second. We're working very closely with Tim and the Interactive division with our Scripps Networks online division to integrate Shopzilla contextually across our Websites, and the results have been good for us and good for Shopzilla because we've been able to attract traffic. Our 12 million, 12.5 million uniques are able to come across links to Shopzilla when those links can be tied directly to the content that they're searching for or using on our sites. And it's been a very, very successful partnership.

Let me just add that that's the case also in our newspapers, our television stations; we've been running cross-promotion, continue to build that brand. As you know, we've had pretty good success at building brands, both with HGTV and Food, the newer networks, broadband networks. So it's something we're concentrating on very, very heavily, and we'll continue to put great emphasis there.

Just to circle back to questions on the upfront market, I was just curious -- as you continue to negotiate, are you finding this year that your online assets are getting much more focused as you continue those negotiations?

They certainly are. It's gone from a year ago, when it was certainly an important and distinctive aspect to our marketing efforts, to this year, where we really view our online inventory as a second, third, fourth video channel, if you will, either -- literally through our broadband video channels such as HGTV kitchendesign.com, or through our ability to increasingly offer searchable video on our sites. We introduced just this month what we call a universal video player that allows consumers, users of our five Websites to use the same video player across all five sites. And it allows them to search video, and to just use our sites much more freely. And as a result, when we go into the marketplace, we really are out there with an interactive video product that is in our categories and allows our marketing partners, our top endemic advertisers, to view us as a partner with them as they try to create their interactive strategies for their particular products.

So in the end, what you really want to be when you're in front of an advertiser or an agency is a marketing partner that can help them improve their business, and we've found our Internet properties are really that. And they continue to grow and becoming more relevant in that regard.

Brian Shipman, UBS.

I just want to circle back to a Shopzilla question. At our conference in December, you'd stated that Shopzilla would earn 50 to 55 million in EBITDA in '06. Then you acquired uSwitch in March, and now you're saying interactive EBITDA will be 65 million for the full year. Of that 65 million you put out today, how much is Shopzilla contributing? And how have your expectations for Shopzilla changed in light of today's guidance?

The Shopzilla expectation has -- remains unchanged in that component. So you're looking at 65. We're still in the original range we gave then, which was 50 to 55.

William Drewry, Credit Suisse.

Just a question for John, and maybe it's more general in terms of the cable upfront. Just wondering -- given that the media buyers have really put their foot down in terms of paying price increases over the last couple of years, and they went at the broadcast networks first, and now it seems this year for the first time they're really drawing a line in the sand with the cable networks -- for cable, it's no secret that pretty much nobody in the market is ever sold out. Can you make those dollars up on the volume side if the pricing is not there? I guess another way to look at it is, do you think that dollars will leave the cable market in any way for other forms, either back to broadcast or going to dish? Or is this just a shift in the mix and the way that the market is priced?

Those are all very good questions. Our point of view is really based on recent history. If you look at a year ago, our pricing increases were really only in the 4 to 5% range -- of course, this year that would look pretty good -- but our volume was in the 15 to 18% range, and that was due to the ability that we have to churn out lower rated advertisers for higher rated advertisers over time. And it also speaks to our impressions growth. As we've seen our growth going forward, and as we project that growth, we will have more impressions to put into the marketplace. So that can help us drive more volume on top of what may be modest CPM increases.

But really the point you made is a good one, and we were just discussing it from the earlier question, and that is the revenue that's really being shifted towards the interactive side of the business, and how we are really working hard to position ourselves to be a full-service media marketing partner. So when an advertiser or an advertising agency is looking to shift dollars into some interactive or new platform strategy, that we're there with a solution for them to capture those dollars on the interactive side. I think the best example of that is the most recent experience, where we look at our second-quarter growth of 16%, 15%, but our online growth of 57%, helping to drive our overall ad growth. And I anticipate that will be the case going forward.

One follow-up if I could, for Ken. So many of the bigger media companies are divesting assets and sort of shifting their structures around. I'm just wondering if, for Scripps, do you all think of the long-term three to five-year, maybe longer, growth rates in terms of all the major assets that you have at this point, and see any of those potentially newspapers that are increasingly a long-term impediment to that growth rate? And would it ever make sense to spin those out, or sort of recapitalize them in some way?

As you know, because you've followed us for quite a while, our plan has been, in the last 10 years especially, to transform the Company and to bring in newer businesses, while using our traditional businesses to cross-promote very heavily, to continue to pull that cash from those properties and invest it, if you will, in our newer properties. We're always taking a look at our asset mix and structure, but at this time nothing really on the horizon as far as changing the asset mix.

Congrats on a nice quarter.

Craig Huber, Lehman Brothers.

I was actually going to ask a similar question about potentially divesting your TV stations. You've talked before in the past, Ken, roughly as much as four or five years ago, about maybe selling your TV stations if the media ownership rules change. What's your latest thoughts there?

I think you hit the nail on ahead. We talked about our television stations in relationship to changes at the FCC along regulatory lines. At this point, it still looks like there's probably going to be some changes there. Who knows when and to what degree. But as always, as we've said in the past, we'll evaluate those at the time, see where we stand.

In the meantime, retransmission consent that we've used so well from our television stations for our cable networks, and the heavy cross-promotion -- you've heard me mention in the past that on average in our 10 television station markets, the ratings for our cable networks are 23% higher than any other markets on average in the country. So we continue to utilize these assets to the very best of our ability. Bill Peterson does a great job, all the general managers, of taking advantage of what ABC has given us over the past couple of years with some improvements in prime time ratings. So again, as I said earlier to Bill, we're constantly evaluating all of our businesses, but right now, nothing on the horizon that would indicate any changes there.

You mentioned -- had some comments early about the scatter market; thought it would be up 10 to 15% in the third quarter, it was down single digits in the second. Can you elaborate a little bit further, please?

In the third quarter I was speaking about our scatter business. We won't really be able to gauge the quarter until the quarter is over, looking back at the quarter. But the good news for us is that having seen double-digit declines in the scatter business for HGTV and Food in the second quarter, we're now seeing quite the opposite occurring in the third, which gives us a lot of good sense about what the fourth quarter may bring. And as I said earlier, the fourth quarter for HGTV and Food tends to be -- in fact, consistently is the strongest of the four quarters in terms of scatter business.

But what specifically are you seeing different in the third quarter versus your experience in the second, [categories], or whatever you want to talk about?

For us, again, it's the major endemic categories are stronger for us in the third quarter. Automotive came back for us; it's our largest non-endemic category. And it's probably the driver -- if I had to put my finger on one particular driver, I would say it was automotive.

Steven Barlow, Prudential.

On the second-half expenses, can you give us an indication of a range of increases in non-newsprint expenses, and then for the networks, increases in programming costs? Thanks.

I'm just digging that up. With newsprint -- I can break this out for you -- but with newsprint we expect between the third and the fourth together to be about 5% up. And we're going to -- we can calculate that for you. I don't have it right at my fingertips, but I can get that for you in about two minutes.

Our programming for the second half -- I'm looking at the two quarters and blending them here as we speak -- but it would be in the mid to high teens, in terms of a percentage growth, year-over-year. And that's reflective of our investment in series and specials, including Design Star, which was launched last night, and several new series that will be launching on HGTV and Food Network in the fourth quarter. And it's also reflective of a slightly higher cost per hour that we are investing in our programming as we seek to continue the momentum of the ratings growth that is helping us monetize these investments.

Then lastly -- Ken, in your remarks about the ratings on -- in the prime time area for Food and HGTV, you talked about the growth rates you had. Were those growth rates similar in the first quarter, or what is the relationship between how well they did in the second quarter versus the first quarter year-over-year?

Actually, I'm going to let John take that. I think -- a lot of questions about upfront. Certainly this is an unusual upfront for cable. But over the long-term, I'm very optimistic about how our networks are going to fare, and actually, at the end of the day, come out.

The target, the efficiency, especially in the categories we are in, are going to bode very well going forward, I think, as we're moving more and more to targeted media. And it's part of the reason that we've developed a lot of the online and broadband products that we do. It falls really from the advertisers that we've done business with and continue to do business with, even when we have some ratings downturn. So these recent ratings increases -- and John can comment on first and second quarter -- really bode well going forward. I think once the upfront -- there's a shakeout, we get into the scatter -- we're pretty optimistic about where we're going to be. John, you want to just talk about that first and second quarter?

The reality is the ratings increases have been fairly steady over the last nine months, month-to-month, year-over-year growth, culminating in June of this year with the highest rated month in the history of the network -- speaking of HGTV at this point. But interesting, if you look behind the numbers somewhat, is that our growth in the younger demographic cells, the 18 to 34, 25 to 49 -- the growth among the younger viewers is actually accelerating beyond the overall growth. And the effect of that is our median age has come down over the last six months on HGTV, which is, in my mind, indicative of a network that's not only improving the number of people watching it, but it's inviting new viewers into the network who are watching it either for the first time, or watching it more often when they are experiencing HGTV and Food Network.

Scheduling changes that were put in place in the first quarter of HGTV have had a significant positive effect; the move of House Hunters, our most popular program, to 10:00 Monday through Friday. And then in the second quarter, it was launched as the first half-hour of an hour-long themed block called Property Buzz, a block that is focused entirely on the real estate category of HGTV. Those two changes by Judy Girard, President of HGTV, have really proved to be very wise, and have put an underpinning under the growth that is continuing and will continue. And then, when we reach the end of the third quarter at the end of Design Star, we'll be launching our second most popular program, Designed to Sell, as a Monday through Friday strip at 8:00, leading off prime time at 8:00.

So, it's really about taking the strength, the focus of the network, and creating a strategy of scheduling the most successful programs so that they can have the greatest impact, and then using those to launch new programs to sustain this kind of growth. And I give all the credit to Judy and her team at HGTV. It's just been a terrific job.

Steve, I've got the number for you. For the third and fourth quarters combined, 4 to 4.5%, I think, would be safe for you to use.

Paul Ginocchio, Deutsche Bank.

Could you talk about ratings guarantees at all, if you're going to offer those for Food and HGTV? And also, it looks like preprint was pretty strong in June. Could you make a comment on that?

Briefly, when we're negotiating upfront business, we always estimate ratings delivery. And then we are obliged, obviously, to meet those estimates.

Are you offering any guarantees this year?

We always do.

Will it be at or above last year?

I don't want to be specific because we're in the process of negotiating right now. I will tell you that we will have in total more impressions in the marketplace in the upcoming season than we did this year.

If you look at the way that we report preprints, it's got preprints and other. In that other is online. So, let me just give you a little breakout on that. The preprint business itself was up about 4.4% for the second quarter. Online was up about 59%. So those are the two major moving pieces in that bucket.

Michael Kupinski, A.G. Edwards.

Can you talk about Fine Living and DIY ratings and revenue performance in the quarter? In addition, what are the coverage universe estimates that you expect year end? Are you expecting coverage universe estimates to increase for Food and HG? I know that those are fully -- pretty much fully penetrated, but was wondering if you're anticipating that you're going to see increases there. And then, what you are anticipating for Fine Living and DIY.

And I was also wondering -- typically, networks do materially better on advertising as you cross over that 40 million subscriber mark. Are your developing networks seeing emerging advertising categories or companies that you're starting to see an increased interest for those at this point?

Let me try to tackle that briefly. First of all, DIY and Fine Living are not rated by Nielsen yet. And we anticipate that DIY will become a Nielsen-rated service commencing in the fourth quarter of this year. I shouldn't say we anticipate; we know they will be in the fourth quarter of this year. So all of our efforts around DIY over the last 18 to 24 months have been in preparing the network for that time. And we have our own research internally that gives us a general sense of the direction that we can expect when DIY becomes rated by Nielsen. And I can tell you that the research that we have supports the estimates that are underlying our ad unit rates that are in the marketplace. So I feel very good about DIY's positioning going in for the first time as a rated service.

Fine Living will not be a Nielsen rated service in the upcoming season, and we'll look at it as it grows. We'll look at perhaps the following year, or thereabouts, to begin its assumption of becoming a rated service. In terms of distribution, Fine Living we anticipate will cross the 40 million subscriber mark by year's end. DIY will trail ever so slightly. And both will be at or near or over the 40 million mark going into the first quarter of 2007.

And you're right; as they become -- it's sort of hand-in-hand. As they become rated services and as they cross over the 40 million subscriber mark, then it opens up new advertisers who just are outside of the arena prior to that point. And one of the interesting things about DIY, I'll just tell you, is that our early research and the plan we have in developing DIY is that during its weekends and morning blocks, in a similar move that In The Kitchen creates for Food Network, DIY has a concentration of a different type of viewing audience that tends to be more male -- not more male, but has more male composition than a typical Scripps network has. And that's opening up advertisers for DIY that are in the male category that are new to Scripps Networks. So that's another piece of the growth story for DIY.

Just as a quick follow-up, on the political advertising front, you mentioned that it was little lighter than you expected. It seems like it was a little lighter than I expected as well. Do you have any thoughts on political for the full year? Are you still looking for it to be above 25 million?

We think we'll be in that range. The reason it was light is that two important primaries, one in Ohio, one in Florida, just kind of fizzled out. In Ohio one candidate withdrew, and the primary was a moot point. And in Florida, the Harris race, Harris/Nelson has turned out to be a lot weaker. So we think that's what's driving it, but we remain optimistic that there will be the full amount of activity that we first predicted.

Thank you, Mike. Since we are approaching the top of the hour, operator, we'll have time for one last question please.

Thomas Russo, Gardner Russo Gardner.

For Mark, a couple of quick ones. You mentioned preprint was part of the other category and was still performing well. What are your thoughts about the Advo/Valassis combination, what it might mean for you? And within preprint, are you seeing any improving results for newspapers from Wal-Mart?

We're going to have an internal discussion here shortly -- we're going to have an internal discussion here shortly regarding the implication of the Valassis/Advo package. You know Valassis has made a good business partnering with newspapers. So I'm not looking at this immediately as necessarily a bad thing, but we just need to dig in more with our -- particularly in our biggest markets to see what the effect is. If you look at the announcements that were made during that merger, one of the things Valassis touted was its strong relationship with newspapers.

And in terms of Wal-Mart, we have -- Wal-Mart still is a very market-by-market phenomenon. We've had one or two anecdotes that lead us to believe that there may be more preprint business out of Wal-Mart, but we're not taking any of that to the bank.

How about the efforts underway by you to grow your sales force to increase your share of local market advertising?

We're advancing along that line pretty nicely. We're up about 25% in our local sales territories. And in markets where we've executed that strategy, the mark on the wall for us is to have local territory revenue grow in the double-digit range. And in most of the places that we've tried to execute that, that has happened so far. So we're very optimistic about that. I think we've got more room to run there.

Thank you very much. John, what are your efforts underway to probe the promise of the mobile platforms, the handheld devices, and across your five different networks? How is that working out?

We're taking a slow but steady approach, and working in partnership with a variety of providers with our content. We're actually being careful not to over-invest as we watch that marketplace develop, because today we think it's much more of a music download and sports, news and weather delivery system. But we do think that our brands bring a unique utility to mobile.

For instance, Food Network, in one of our partnerships with Sprint, put a recipe tool onto a Sprint phone that allowed a user to send recipes from their laptop or their desktop to a spouse or friend's cellphone that they could then use when going to the store and shopping and using the recipe. So, we're being experimental and entrepreneurial, but being careful not to over-invest at the same time.

That wraps up our questions and the conference call. This is Tim Stautberg. If any of you have further questions, I'll be in the office this afternoon; you can call me at 513-977-3826. Now, operator, you can provide the replay information.

Certainly. Thank you. Ladies and gentlemen, today's call will be available for replay beginning at 1:30 PM Eastern Time this afternoon and running through the 31st of July at midnight. You may access AT&T's playback system by dialing 1-800-475-6701, or international participants dial 320-365-3844, and for either number enter the access code 836113. That does conclude our conference for today. Thank you for your participation. You may now disconnect.