E W Scripps Co (SSP) 2006 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the E.W. Scripps third quarter earnings report.

For the conference today, all the participant lines are in a listen-only mode. However, there will be an opportunity for your questions. [OPERATOR INSTRUCTIONS] As a reminder, today's call is being recorded.

I would now like to turn the conference over to the Vice President of Investor Relations, Mr. Tim Stautberg. Please go ahead, sir.

Good morning, all, 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 your questions. Given your busy schedules this morning, 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 our Newspaper group; Bill Peterson, Senior Vice President of our TV Station group; Tim Peterman, Senior Vice President of Scripps 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 and click on "Shareholders" and find the link at the top of the page. An audio archive will be available on scripps.com later today and we'll leave it there for a few weeks so you can access it at your convenience.

Our discussion this morning will contain certain forward-looking statements. Actual results may differ from those predicted. Some of the factors which may cause results to differ are set forth in our publicly filed documents, including our 2005 Form 10-K.

Now, here's Ken.

Thank you, Tim, and good morning, everyone. As always, thank you for joining us on our call today.

Scripps had an excellent third quarter with very strong growth at our national television networks, healthy political advertising at our local TV stations, and rapid revenue growth at our specialized internet search businesses. The solid financial performance during the three -month period demonstrates once again that Scripps is well-positioned to capture advertising and marketing dollars in growing media marketplaces.

Results for the period were particularly strong at our Scripps Network division, which has done really an exceptional job of developing and promoting a compelling lineup of programs that reinforce the brand promise embedded within each of our lifestyle networks. Breakout hits like this summer's HGTV Design Star boosted the network's overall ratings and really provided an important platform to promote several new and existing shows, including My House Is Worth What?, Buy Me, and Designed To Sell.

Design Star's success also give us a well-timed boost during our up-front negotiations with advertisers. We completed our up-front agreements in early September and secured a 10% increase in the commitment of ad dollars for the coming broadcast season.

Viewership growth at HGTV has been outstanding. Design Star helped the network achieve its first-ever 1.0 prime time rating in the third quarter. Prime time household impressions were up an impressive 25% and total day viewership was up 15%. By the way, we also showed strong growth in attracting women and younger viewers.

Really want to offer congratulations to Judy Girard and her programming team at HGTV for putting together a strong schedule and for setting a whole litany of ratings and viewership records for the network.

Food Network's audience also continues to grow at a healthy pace, thanks in large part to our "In The Kitchen" programming strategy. Total day household viewership was up 17% in the third quarter and during the "In The Kitchen" day parts, up 11% on weekday afternoons and up 20% on weekends. Food's "In the Kitchen" programming is really more technique-based and provides a strong lead-in to popular prime time programming, which, of course, is more lifestyle in nature. Prime time household viewership continues to improve as well, up 10% for the quarter.

Now, the success we're enjoying on screen and online at Food Network will soon be coming to a local Kohl's store near you. We recently announced an exclusive long-term licensing relationship between Food Network and Kohl's Department Stores to develop a Food Network branded line of home goods. Kohl's will begin carrying the line next fall, and we will be working to fully integrate marketing opportunities with Food Network programming, celebrity chefs, and in-store promotions.

Now, turning to our newer networks, we've switched on the Nielson meter at DIY network and we'll start selling with those numbers during the first quarter of next year. We've been steadily investing in original programming at DIY to make sure that we have a quality service to offer the audience that we're aggregating there. DIY is nearing 40 million subs, by the way, which is really an important milestone for any cable network, let alone one that was designed specifically as a digital tier service.

Fine Living and Great American Country; they're also moving right along. Like DIY, Fine Living now reaches 40 million households and Great American Country reaches 44 million.

At our newer networks, they're also quickly gaining scale and becoming solid contributors to the bottom and top lines. Scripps Networks continues to have tremendous success. Our plan is to continue to invest and build these valuable brands for television, for the Internet, and for other emerging media platforms.

Scripps Interactive Media is the Company's other up and coming growth driver. This is the division that of course includes Shopzilla and uSwitch, our two specialized Internet search businesses. Now, both Shopzilla and uSwitch are capitalizing on the rapid growth in broadband penetration and consumer acceptance of online shopping for both products and services. Revenue from both of these online businesses outpaced our expectations for the quarter, continuing a trend that began when we acquired Shopzilla more than a year ago. Prospects for continued rapid growth are particularly good as we enter the busy holiday shopping season.

Shopzilla, you'll remember, is one of America's leading Internet comparison shopping destinations, aggregating valuable information on 34 million retail products from 80,000 online merchants.

We're also investing to expand our presence in the UK, France, and Germany, with sites dedicated to serving the needs of online shoppers and merchants in those countries. In the UK, online shoppers can currently compare prices on more than 3 million products from 6,000 merchants. We're very encouraged by the progress that we're making establishing Shopzilla as an important partner of online commerce players overseas.

Turning to our local television stations, we're benefiting from the return of political advertising, as campaigns for congressional seats and state offices really begin to heat up. September was particularly strong as campaigns got into full swing after Labor Day. We're blessed with market-leading TV franchises in Ohio, Michigan, and Florida, where there are a plethora of spirited races. Our ABC affiliate in Phoenix is also benefiting from some hotly contested Arizona races. Political advertising for the quarter was slightly ahead of our expectations.

And finally, our newspapers fell slightly short of top line growth expectations, but, all things considered, are really holding their own in a very challenging industry environment. Newspaper advertising revenue grew modestly during the quarter, but was held back somewhat by weakness in national advertising and the key Automotive and Help Wanted classified categories. However, to their credit, our Newspaper division has been relentless in its pursuit of new advertising dollars and with considerable success, even though the numbers might not seem to reflect it. Our strategy has been to drive newspaper advertising growth by increasing our ad sales staff, and through some modest acquisitions in growth markets to capture a larger share of the business.

One definite bright note is the rapid growth of online ad revenues at our newspapers. Up 40%, the growth in this sector of the business demonstrates the success we're really having in monetizing the growing number of readers who are finding us on the Internet in our local markets.

Overall, our diverse portfolio of media assets continues to deliver substantial value to our shareholders. The value of our diversification and growth strategy is evident in our consistently strong operating results, of course including those of the quarter just completed.

Now, let me turn it over to Joe, who will provide a little more context for the numbers.

Thanks, Ken. Good morning everyone.

Scripps had another strong quarter, led by a better than expected performance at Scripps Networks and in our TV station group. Double-digit impressions growth, coupled with a firming scatter marked, enabled Scripps Networks to post 18% ad growth in the third quarter, which bested our original guidance and, we suspect, will lead the industry. In-line expense growth of 10% drove a 32% increase in Scripps Networks segment profit. In the third quarter, Scripps Networks accounted fully for 60% of the Company's total segment profit.

While it showed up a little later than we expected, political advertising came on strong toward the end of the quarter and our TV Stations group did a great job of finding a home for all those politicians with something to say.

At the same time, Bill Peterson and his team managed expenses closely. Segment profit for the division rose 54% year-over-year. Segment profit of $9 million for the Scripps Interactive Media division was slightly ahead of plan in the seasonally lower third quarter.

Our deliberate and continuing investment in our international efforts and in the work force at both uSwitch and Shopzilla has held back profit growth in 2006, but we expect that this investment will benefit the business in the long haul. At newspapers solely managed by Scripps, ad revenue growth softened as the quarter progressed.

Ken provided a general overview of our ad revenue performance for the quarter; but let me share a few specifics with you.

Within the classified categories, Real Estate was up 14%; Automotive was down 10; and Help Wanted, down 6%. We should note here that these classified results are against particularly difficult comps in the year-ago quarter.

National advertising dropped 20% in the third quarter, due to significant declines in telecommunications and financial services. While our top line performance for the quarter may well lead the industry, we're not satisfied with those results and we're redoubling our efforts to increase our share of locally available ad dollars in each of our markets.

Turning to the contribution to segment profit coming from our JOA newspapers, the year-over-year improvement we reported in the third quarter was due solely to a $6 million decrease in our share of the depreciation expense being recorded at the Denver newspaper agency. You'll recall that we initiated a project in September last year to consolidate the production facilities in Denver from two locations to one. That decision resulted in accelerating depreciation on certain press equipment during the last four months of 2005 which we're now cycling against.

Before we get into guidance I'd like to mention a couple of nonoperating and balance sheet items. First, we announced in September the sale of our five Shop At Home affiliated TV stations to Multicultural Broadcast Television Corp. for $170 million. We did record a small impairment charge on the value of our FCC licenses, and that affected our discontinued operations line in the income statement for the quarter. We expect to complete the sale of all five of these stations by June of next year.

Second, the Company's total debt at the end of the third quarter stood at $966 million, down from $1 billion at the end of June.

We continued to buy back shares during the quarter, purchasing 413,000 shares for a total cost of about $18 million.

Capital spending for the period was about $19 million. We're now expecting to come in around $85 million in total for the year.

Now, let's turn to the guidance for the fourth quarter. At Scripps Networks we're expecting fourth quarter total revenue to be up 11 to 13% year-over-year. Due to the stronger than average revenue performance in October last year, we expect the growth rate of total revenue in October to be lower than that in November and December of this year.

On the expense side at Scripps Networks we're expecting costs to rise about 8 to 10% during the quarter, as we focus on building consumer awareness for our flagship networks and keep the expansion of our newer lifestyle television brands on track.

We're expecting total revenue at newspapers managed solely by Scripps to grow slightly and total newspaper expenses are expected to be up 5% for the period. The contribution to segment profit coming from our JOA newspapers and other partnerships is expected to be $4 million.

At the Company's TV station group, total revenue, including political, is expected to be up 11 to 13% in the fourth quarter.

At our Interactive Media division, which includes Shopzilla and uSwitch, segment profit is expected to be about $26 million in the fourth quarter, which will put us right on track to hit our previous guidance of about $65 million for the full year.

Corporate expenses are expected to be about 15 million in the quarter. Depreciation and amortization for the period are expected to be $31 million, and interest expense is expected to be around $14 million.

Fourth quarter earnings per share from continuing operations are expected to be between $0.67 and $0.71. Earnings per share from continuing operations during the fourth quarter of last year were $0.60.

That concludes our prepared remarks. Operator, we're ready to take any questions.

Certainly. [OPERATOR INSTRUCTIONS] We'll first go to the line of John Janedis with Wachovia. Please go ahead.

Hi, good morning, guys. With the upfront behind you, can you talk a little more about CPM's meaning, given the premium demographic you're delivering, why does it seem that CPM growth is [inaudible] by the major TV networks? Is that just a matter of reach or is maybe that a source of potential upset?

Yes, I can talk a little bit about CPMs. Our CPM growth tends to lead the industry, year in and year out, both in the up-front and during the scatter marketplaces, and that's true again this year. And that's an indication of our strong brands and our strong appeal in the endemic categories that our brands are targeting. And so that demonstrates the strength of our CPM growth and it shows also an upside for us going into the future year-over-year.

But as it stands, our CPMs tend to lag. Obviously, broadcast network CPMs, because of their reach, and even general interest cable CPMs during the short term, but I think over the long term we will catch and surpass those levels of CPMs, at least on the cable side, as we continue to remain focused on our endemic categories.

Okay. Thanks.

Also, can you give us a sense if you think you're anywhere near any kind of steady state margin at the cable networks? Thank you.

You said -- John, this is Ken. Repeat that again? What --

Hi, Ken, I'm just thinking, in terms -- your cable margins continue to expand pretty rapidly, given the investments that you're making at some of the newer networks, do you think you're anywhere near a steady state margin overall, in terms of the segment?

Oh, okay. John?

Well, the answer is that as we look at it today, we're able to improve our margin and invest in our businesses going forward. And there may be some point down the road that -- where it's at steady state, but today we are not.

Great. Thank you very much.

Thanks, John.

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

Thank you. A couple of questions. I guess, given your revenue expectation on the newspaper side, why would your costs still go up 5%? Are there projects that you're going ahead with that you think just make sense despite the weak revenue environment? And then I'll ask you my follow-ups after that.

Lauren, this is Mark. About 20 to 25% of that increase is related to newsprint increases, and if prices soften there we'll get some favorable wind in our sails. The primary expense initiatives that we're looking at really center in Florida and, generally, on the Internet, within the division. And we think, given the growth rates of both of our markets in Florida and what's happening to our Internet business, it still makes sense to continue to pursue those.

Okay. And then Mark, just sticking with newspapers, could you discuss the variance on ad revenues among your papers? What was the best performing, worst performing in the group?

I can generalize, Lauren. In the smaller markets, we had very, very good ad revenue growth. In the largest of markets, it was very soft. And I think you'll see that throughout the industry.

Generally, in Florida and the West Coast, particularly, we had some strength, but also in the middle part of the country, again, in certain markets. But, again, the size really does matter here and the smaller the market, the better the growth has been. And we see that continuing, by the way.

Thanks. And two quick ones. I guess on political revenues, looking into the fourth quarter, there's been some suggestion in the trades that things could be spotty in Ohio, given how certain races are going, and I'm wondering if you have any concern and if your guidance takes that variability into account.

And then I'm also wondering if you could, on Scripps Networks, give us a sense of what the ad revenue growth will be in the fourth quarter versus total revenues?

Lauren, this is Bill Peterson. When it comes to trying to predict political, it's a very hard thing to do, but Ohio right now seems to remain very strong. The national reporting on the Republican party pulling out of the DeWine campaign ignores the fact that he has a huge treasure chest of money of his own. So that looks like that will remain to be a very, very heated campaign.

And of course we have a real strong governor's race in Ohio as well, so it looks like Ohio will remain very strong.

And the second part of that -- ?

On the Scripps Networks, I was wondering if you could tell us the ad revenue expectation for the fourth quarter versus total revenue?

Yes, Lauren. Good morning. This is John. We've decided to just stick to a total revenue forecast for the fourth quarter and not break out the ad portion of that.

Any sense, though, I guess without putting a number on it, presumably it the decelerates from the stellar performance of the third quarter. Is it safe to assume ad revenue growth will outpace affiliate revenue growth?

I just would rather not break out the details, Lauren, I'm sorry.

Okay, thanks.

Thanks, Lauren.

Next we'll go to William Bird with Citigroup. Please go ahead.

I was wondering what your thoughts are on additional internet acquisitions, and could you talk a little bit about your geographic expansion plans for uSwitch? Thanks.

Well -- this is Tim Peterman from Interactive. We're really focused on growing uSwitch and Shopzilla right now, so in terms of other acquisitions, we of course look at the horizon, but there's nothing imminent that we have our eyes on.

I think, Bill, if you look at our track record, we've -- I think we've done both a good job internally in being aggressive on the Internet side and interactivity in general. As you know, if you go back with us a few years, is something we focused on, which I think is why we're sitting here with the Websites we have with our cable networks, which are still growing. The broadband channels that we continue to launch. Being aggressive with Video On Demand. So interactivity is truly one of our focal points.

You'll see us from time to time taking a look at possible quote-unquote Internet acquisitions, but they'll probably be more along the lines of bulking up on the cable network side or some smaller type acquisitions. As Tim said, we don't see anything on the horizon at the moment that would get our attention.

And -- this is Tim again. To your question about uSwitch, we absolutely think the expertise they have in the services area, both in personal finance, communications, has applications across Western Europe and here in the United States. And although we're not ready to really announce any plans in that regard, we are carefully looking at all of these territories.

Thank you.

Our next question is from the line of Debra Schwartz with Credit Suisse. Please go ahead.

Hi, great. Thanks. John, I heard your answers to the question of not breaking out advertising versus affiliate fees for the fourth quarter, but I was wondering, September affiliate fee growth seemed a little bit light. Was there something in particular going on in September or is that sort of a good steady state run rate we can assume for affiliate fees?

No. Good morning, Deborah.

No, September was -- is an anomaly due to last year's September, which had a one-time only revenue adjustment that inflated affiliate revenue in 2005. Otherwise, notwithstanding that, I think you can assume a relatively stable growth rate in affiliate revenue.

Great. Thanks. And then, Joe, I was wondering, could you just give us a sense of what tax rate to expect going forward?

Yes, I can understand why you'd had a question there. We've had some variability in the tax rate, mostly to the good. We have, since -- probably for the last two years, been pursuing certain tax planning opportunities and they are now starting to come home and show a positive effect on our tax rate. I would say you would expect to see a little bit of moderation in an upward direction probably in the next quarter, and then going into next year will be lower than our historical rate but not quite as low as this quarter, will be my guess.

Great. Thank you.

And next from the line of Peter Appert with Goldman Sachs. Please go ahead.

Hi, good morning. John, can you help us understand the impact of having ratings on DIY and the other networks? Is there potentially upside or downside to revenues as these numbers come in?

Sure, Peter. The short answer is that in the short term there's an adjustment period, if you will, because our ad sales teams have done a fantastic job in selling these brands based on the brand promise and really driving high average unit rates. You may recall, when we acquired GAC, the difference between our average unit rates on DIY and Fine Living and GAC were significant. So that's the good news.

The adjustment period is that now, as we move into a period where actual impressions are measured, we have to adjust for the actual delivery of the network, in some cases, depending on certain day parts, that delivery may be exactly what we gauged in our pricing. In other day parts it may be below, in other day parts it may be above.

So there's a period of adjustment. But after that period of adjustment, then it really becomes all about accountability. And because DIY is even more finely tuned to specific audiences, particularly in this case, for the first time at Scripps Networks, audiences composed of men and women, that it opens up the doors for us to new advertisers that we've never spoken to. For instance, male-targeted advertisers, and really creates opportunities.

So after the short-term period of adjustment, it's absolutely a good thing because we control the outcome and we think we do a very good job of identifying audiences and fulfilling those audiences' needs and matching those audiences with targeted advertisers.

Okay. So possibly a little bit of a cost on a short-term basis, and I assume, also, some cost just associated with paying Nielson for these ratings as well; right?

No question. Absolutely.

Okay. And then, I guess for Tim Peterman, there had been some discussion of incremental spending associated with rolling out Shopzilla internationally. Any possibility to quantify that so we can better understand the year-to-year trend in operating margin within your interactive division?

Yes, this is Tim. It's really difficult. We don't really break out that information, so it would be really difficult for me to try to slice that for you on the call. All I can say is that we're investing both in building the relationships with the marketers, as well as generating the appropriate amount of volume that these marketers want in each of these countries: the UK, Germany, and France.

And it also takes an infrastructure cost to make sure we have the expertise to operate the business like we do here in the U.S. And that whole process, we think, will pay a lot of dividends down the road. So we're taking the game very methodical and taking it the way we built the U.S. business, in fact.

Does that suggest, then, Tim that we should anticipate some continued downward bias in margins within the Interactive segment, presumably in the fourth quarter, obviously, but also in '07 then?

No, that's not the way we're viewing it. We're viewing it -- it's not a -- the creation of a lost leader, it's not that kind of business. It's not a media business where you have a big, huge expense, it's something we've been working on throughout all of 2006. So we're happy exactly where we are and we're very happy with the way '07's looking.

Okay. And then just the last thing, any thoughts in terms of traction on the broadband Internet networks that you've rolled out, in terms of revenue momentum and time towards profitability?

Sure, Peter. This is John.

The good news is that we're sold out on all of our broadband channels that we've rolled out. And of course the bad news is that we need more inventory and so we're working to develop more broadband video inventory.

I think I mentioned in the last call, last quarter, that profitability for these channels comes fairly quickly in our models, two to three years, because on the expense side, it's very low, we're repurposing video already contained within our library. And that still holds true today.

So they are clearly contributing on the top line, they're helping our overall online division, which delivered 75% growth in the third quarter year-over-year, and now the Scripps Networks interactive revenue comprises 7% of our total advertising revenue, up from 5% a year ago. So we're really growing that portion of our ad revenue based on the rolling out of these services and the improvement of our uniques and impressions on our core Internet sites.

Can you give us a rough idea of the scale of that business opportunity you see in the next couple of years?

Yes, as we roll these out, I think it's fair to say a bundle of, say, eight to 10 broadband channels begins to approach the size of a digital cable network.

Thank you.

Thanks, Peter.

Our next question is from the line of Alexia Quadrani with Bear Stearns. Please go ahead.

Good morning. Thank you. Just a question on the Denver market. Any signs of any relief or any, I guess, improvement in that marketplace going forward?

And the second question is: Given the enormous variance in your operations on the newspaper side by property, I guess, is there any reason you wouldn't consider divesting some underperforming newspaper properties?

Mark, you go ahead and take the Denver question and I'll follow up.

Okay.

Alexia, directionally in the third quarter, retail, auto, and real estate got better than the performance had been in the first and second quarters. I'd also mention that Harry Whipple and his folks are very focused on lowering expenses at the Denver newspaper agency, and directionally, both in the third quarter and what we expect in the fourth quarter, will be continued expense decreases to help our situation out there. We've talked in the past that we do see opportunities in Denver. Executing those opportunities is what is right on the front of -- the Number 1 task that Harry's wrestling with as we speak.

And on the second part of the question, Alexia -- this is Ken. You know, no plans on the horizon to exit any of our newspaper markets. But as you've heard us say in the past, whether it's newspapers, television, cable networks, we always look at the individual channel, TV station, newspaper. We expect a strong performance from all of our properties. You know, I can't tell you how good a job Mark is doing in a challenging environment on the newspaper side, and we've made some strides in some of the markets where not too long ago we thought some of our newspapers were underperforming. So we're an operating company. Our goal is to run them at best efficiency and be in these local markets.

So no plans on the horizon, but we expect a strong performance from all of our properties. So, as you have seen in the past history with our company, it's all about the businesses and where they're going and the faith we have in them. So I'll leave it at that. But no plans.

Thank you.

Our next question is from the line of Lisa Monaco with Morgan Stanley. Please go ahead.

Hi, yes. I realize you're not going to give us the specifics on the affiliate fee and ad revenue growth performance for the fourth quarter, but can you just flesh out a little bit why -- what's driving the deceleration from the close to 17% growth in September? And then I have a separate question on newspapers.

Sure. Absolutely happy to do that.

The first driver of the deceleration, to use your term, is the up-front marketplace, which was just completed for the entire cable and broadcast industry, where pricing was virtually flat, if not down slightly across the industry. Our pricing was better than that. In fact, we believe we led the industry in pricing. But be that as it may, it's pricing that put us at the low end of single digits improvements in CPMs, which is significantly below where we are a year ago. So the fourth quarter begins a new revenue cycle because it kicks in with the up-front negotiations leading the way.

The scatter marketplace, while healthier than it was in the first half of the year, continues to come in at pricing in just the high single digits, not double-digit pricing increases in scatter.

And then the third component is we had an unusually robust fourth quarter last year, with exceptional growth late in the quarter.

So the one thing I would suggest is that it's still very early in the quarter and we're being conservative based on what we know today. But typically at Scripps Networks, the fourth quarter revenue, particularly on Food Network, tends to do very well as we move into the holiday season, and we're optimistic that that still is the case.

Okay, great. And then just quickly on newspapers, is there any way to get a sense -- I know it's early, but if you can give us a sense for what you're expecting expenses to grow in '07? Thanks.

Lisa, this is Mark. We are -- we haven't actually gone even on the first budget trip yet, but we think that we'll get some wind at our back on newsprint prices. We will have cycled through the stock option expense issues. So we're at least preliminarily setting our sights to very modest expense increases next year.

Are you, in terms of balancing the investment spending, could we possibly expect margin expansion if top line growth?

That is certainly our aspiration. And we're going to work mightily toward that.

Okay, great. Thank you.

And next we'll go to Steven Barlow with Prudential. Please go ahead.

Thank you. Is there a way to quantify your investment in Europe in Shopzilla, sort of what you've done so far, what you need to do before you sort of turn on all the switches there?

And then secondly, can you just help us out a little bit on seasonality? I presume, obviously Shopzilla's best quarter is the fourth quarter. How do the quarters work for uSwitch? Thanks.

This is Tim Peterman.

The seasonality works along similar lines for both uSwitch and Shopzilla. We've got a lot of great things planned in the fourth quarter. You not only have Christmas for Shopzilla, you also have Halloween. So it's a very big quarter.

And uSwitch is the same way. If tou think about services, in the summertime folks just aren't inside as much, they're not on the Internet as much. And also, uSwitch is energy, activities are obviously much higher in the winter months than they are in the summer months, it just doesn't get hot enough in the UK right now to really drive that kind of switching volatility.

So in terms of your second question, that's how the seasonality breaks down. Obviously, the fourth quarter is very big for us, the first quarter is pretty big for us as well, and then the second and then the third is usually the weakest in terms of shear volume of the year.

When you think about the European investment, it's going to be difficult, again, for me to quantify that for you on the phone. It's just not the kind of detail we break out. But I will tell you it is -- we believe in -- Western Europe holds very big promise for us in both these businesses, uSwitch and Shopzilla. We think outside the U.S. -- obviously Western Europe is a series of individual markets, but when you look at the marketplace in total, the growth rates, the online trends, and the consumer behavior is even more compelling as a marketplace in Western Europe than here in the U.S. So we are actively investing both mind share and dollars in both these markets, for both businesses.

Thank you. And then for Mark, Bonita Springs, you've mentioned previously on the call, that's sort of up and running to more full speed at this point, or what is still the margin opportunity there?

Steve, maybe the best thing I can tell you about that is what has happened with circulation, which is one of the things that we wanted to accomplish when we launched the Bonita Springs initiative. In most home delivery routes and in single-copy, we're up as of September, somewhere in the range of 2 to 4%. And for us to be -- that, in our minds, is one of the key measures of success.

Local revenue there continues to be strong. Real estate did trickle off a little bit in September, but all of the measurements that we put into place there as measures of success are really clicking along very nicely.

I hope that's helpful.

Thanks very much.

Steve, this is Tim Peterman again. I wanted to add in one more thing to clarify or maybe help the question. And that is, we are profitable today in both our businesses in Europe. It's just the margins aren't as high as they are here in the domestics in the U.S. It's not a big investment with no return. It is profitable today.

Okay. And then I'll do a follow-up besides that. Is your $65 million EBITDA low-balling us for the whole year?

Is it what? Could you repeat that?

A low ball number based on how big the fourth quarter can be, is that sort of the bottom end of a potential range?

Steve, let me jump in there. We think it's a pretty reasonable estimate. As Tim mentioned, the fourth quarter's very big. It's difficult at this point to say exactly how big it could be. But we think it's a reasonably conservative estimate for what the full year could be there. We would hope to outperform that number.

Yes, and I think the integration efforts with the other Scripps Media assets is really in line this year. Right now if you just think about some of the things we have in place, we've had the business now a little over 18 months, and today we've got at least eight different online integration activities around Halloween with the networks. We're actively involved with the broadcast stations and the newspapers. In the fourth quarter, we're much more hand-in-hand working with existing media assets that we have here at Scripps to make sure we give the promotional push to Shopzilla in this critical time.

Thanks.

Thanks, Steve.

Our next question's from Brian Shipman with UBS. Please go ahead.

Thanks, good morning. I was wondering if you could just discuss circulation trends in the newspaper division. It was up in the third quarter, particularly strong in September. What's really going on there to allow you to outperform industry averages for circulation? Thanks.

Brian, this is Mark. Are you talking about circulation revenue?

Yes.

Honestly, that is an anomaly. It was based on -- it's really a result of an accounting adjustment in one market for September. If you take that adjustment out for circulation revenue, it's actually down 2.3%, which is more in line with what I think you'd see in the rest of the industry.

What are your expectations there for the fourth quarter?

Let me dig that up for you real quick.

Similar to that 2.3% or will that change in accounting affect fourth quarter results also?

Our expectations are that it will grow slightly. And this is getting a little inside baseball, but in some markets we're changing to a per-piece basis, which helps our carrier turnover and is operationally a little bit better, which adds circulation revenue and adds slightly to expense. And that, again, it's not because we're doing -- it's not because we're organically growing circulation revenue. But you will see an increase in the fourth quarter in circ revenue.

Right. Brian, this is Joe. That adjustment that happened in third quarter won't have any effect on the fourth quarter.

Okay. Thanks guys.

Thanks, Brian.

And next we'll go to Craig Huber with Lehman Brothers. Please go ahead.

Yes, good morning. I was wondering if you could just quantify in the third quarter how much these -- for the interactive division, these incremental costs, your various initiatives, how much it hurt the EBITDA in the quarter? I have a follow-up question. Thanks.

This is Tim Peterman, Craig. We don't really break out that information. I'm not really sure how I could really try to carve that up for you. Maybe you want to ask it a different way?

You guys stated about three months ago on the conference call that starting, I guess in third quarter, that you were going to step up your investment spending for your two interactive acquisitions and so forth. I was just wondering if there's a way you can quantify that for investors, both in the quarters as well as going forward?

Craig, this is Joe. We've addressed this a couple times on the call different ways. Basically, the answer is that the big investments were in things that would reduce the margin and Tim mentioned a minute ago that while we're profitable in Europe with respect to the expansion of Shopzilla, the margins are lower than they are in the states. And, therefore, you have a situation where you're reducing the margins. It would be very hard for us to say exactly to what effect without taking out the slide rule here.

But suffice to say that we think that as we go forward, the margin there will grow and get us back in line with an overall -- with the U.S. margin is, so that overall our margin will be much more attractive.

On the uSwitch side, I think the only thing that we're talking about investing in there is ramping up some headcount ahead of or to catch up with the demand there. And we don't expect that that's going to have a material effect on our margins going forward until we go into a geographic expansion mode with uSwitch.

And then, on the cable network side, could you please just update us again on the scatter market for the first three quarters this year. What was the percent change in the first three quarters and how is the fourth quarter looking, again, if you can quantify that so far? Thanks.

Yes. Happy to do that, Craig.

The scatter marketplace in the first two quarters was below the prior year in volume and in pricing. We estimate the first half scatter to have been 20% below the prior year in total volume.

The third quarter brought some demand back into the marketplace and we saw some healthy increases in scatter volume, although the pricing -- and here I'm comparing scatter to scatter -- was still a bit below the prior year by in the low single digits.

As we move into the fourth quarter, the healthier scatter marketplace gets a little healthier as now we're seeing the pricing actually coming up and being in the mid to high single digits above last year's scatter pricing.

So it's steadily improving and that leads to our optimism about the -- not just the fourth quarter but about the coming year as well.

And then also, on the up-front market for your cable networks, can you just build up for us a little more detail, how doe the final up-front look for you, including what was the actual benefit you got from your online cable operations as well, CPMs, et cetera, volume changes, perhaps, et cetera. Thank you.

Sure. Well, as I mentioned earlier, in terms of pricing growth in the up-front, and here we're talking about the broadcast up-front which was negotiated over the summer and begins business being placed in the fourth quarter that we're in right now. The overall cable marketplace was flat, at best, in terms of pricing, and our pricing was in the low single digits, improving over the prior year.

Our total volume in the up-front grew to just about 10% growth year-over-year, and that was based on really three components: The incremental improvement in pricing, a few additional impressions that we put into the marketplace based on improving ratings, and then the churning out of lower-priced advertisers in favor of higher paying advertisers. The effect of those three components helped us drive volume growth of just about 10%.

In terms of our interactive side, we had a 20% improvement of the business that's coupled between our Websites and our cable networks year-over-year in the up-front, and of course we're continuing to see our interactive revenue outpace our on-air advertising revenue in terms of percentage growth year-over-year.

Great. Thank you.

And our next question is from the line of Paul Ginocchio from Deutsche Bank. Please go ahead.

Yes, hi there. Just a quick question: You used to have -- you talk about your investment into Video On Demand, I'm wondering if it's still costing money to roll out that service, and if so, what's the level of investment? Thank you.

Sure. It's -- this is John. The investment in VOD is very small and it has an offsetting revenue line, so there's a net investment that's actually under $1 million netted out for revenue. But when you think about it, when we instituted our VOD strategy, the currency that we saw with that investment was the distribution of our emerging networks, Fine Living and DIY, and it was very successful in leveraging the early distribution for DIY and Fine Living. And then it's today transitioning into a stand-alone business and it's marketed and sold along with our interactive services.

And so we're watching that closely now as it transitions from being leveraged for distribution to being a stand-alone business. But by any measurement, in terms of the capital involved, it's truly just incremental to the total.

Perfect, thank you.

Our final question is from Edward Atorino with Benchmark Company. Please go ahead.

Hi, good morning. One on interactive revenues. I think you could break 100 million in the fourth quarter, given the pace so far and what you've been saying about the strength.

Second, in the network revenue mix, the other quote-unquote line jumped up, I think it was 7 or 8 million, but double a year ago. Is that repeatable?

And thirdly, if you could just talk about expense outlook for the Scripps Networks on a broad brush basis. I know you're not -- got your plans in place, but just a general expense outlook for Scripps Networks?

Hey, Ed, this is Tim Peterman from Interactive.

We don't really forecast our revenue for the Interactive group, we just give the general guidance that Joe began the call with. That being said, we -- you know, this is -- we're positioning this to be a great fourth quarter for us. We are optimistic on how it will turn out and we're organizing right now to make sure that we take advantage of everything that's available.

Ed, this is John. The biggest contributor to the other revenue was the transfer of the food and merchandise sales from --

Oh -- yes.

I'm sorry?

From the Shop At Home?

Correct.

Yes.

So that store moved from Shop At Home to FoodNetwork.com and the revenue and expenses came over to the Food Network P&L, thus inflating the revenue. But it has a good margin and we expect to expand that business. So to answer your question, it's not a one-time adjustment, it's a transfer that's one time expected to grow.

Got it. Thanks.

And the expense on the nets, John?

Yes, and the expense on the networks, we anticipate expense growth this year in the 10% range overall, and while obviously investing in -- hopefully smartly investing in various growth opportunities and we think that is sustainable going into next year, that level of expense growth.

Okay. Thanks.

Thanks, Ed.

Gentlemen, no further questions. Any closing comments?

Thank you, it's Tim Stautberg. We appreciate your participation on the call today. If you have further questions, I'll be available at (513)977-3826.

Thank you, Operator, and I think you have some replay information.

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