E W Scripps Co (SSP) 2007 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to your E.W. Scripps Company first quarter earnings report conference call. At this time, all participants are in a listen only mode. Later we will conduct a question-and-answer session. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded. I would like to turn the conference over to your host, Tim Stautberg, Vice-President of Investor Relations.

Good morning, all, and thanks for joining us. We will 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. We know you have busy schedules, so we will make sure we are done by the top of the hour. Before we begin, let me introduce the other members of our senior management team who are here with us on the call. Joining us are Rich Boehne, Chief Operating Officer; John Lansing, President of Scripps Networks; Mark Contreras, Senior Vice President of Newspapers; Bill Peterson, Senior Vice President of our TV Station Group and Lori Hickok, Vice-President and Controller.

Let me remind you, if you prefer to listen in on the web you can go to Scripps.com, click on Shareholders, and find the link at the top of the page. An audio archive will be available on Scripps.com later today, and we will 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 2006 Form 10-K. Now here is Ken.

Thank you, Tim, and good morning everyone. As always we really do appreciate your interest in The E.W. Scripps Company. Let me say at the outset the first quarter clearly was not as strong as we would have liked. Business at Scripps Networks, however, was great, but issues dealing with all of our local media and internet search businesses led to lower earnings for the period.

Just about all the news at Scripps Networks is good. Revenue and segment profit were up solidly for the quarter. And thanks to our success in last year's Upfront, coupled with the strength of the current scatter market, our first quarter results likely led the industry. And we're on track to deliver another year of double digit growth in 2007. HGTV and Food Network, our flagships, are leading the charge. In the face of some pretty strong competition from the broadcast networks, ratings of both brands held up pretty well during the first three months of the year. Over at HGTV, we scored with the first live ambush, if you will, of our HGTV Dream Home Winner who incidentally was featured on Oprah about a week later. And that Oprah appearance gave us a jump on promoting next year's Dream Home. We followed the Dream Home show with a premiere of Color Splash, which was hosted by the winner of HGTV's Next Design Star, which if you will remember was last summer's real big hit. Season 2 of Design Star premieres in June.

Over at Food Network, the premiere of Chefography's second season helped us record the network's second highest primetime numbers for the month of March. Now despite those programming successes, we did see some softening in viewership at both networks in March. But that trend appears to be reversing in April, thanks to some on air promotions and our steps the programming folks are taking to address the issue. Our newest networks are also contributing, posting solid revenue growth during the quarter. DIY Network, Fine Living, and GAC are building loyal audiences as distribution growth paces at the top of the industry. In fact, DIY's ratings are consistently exceeding expectation and advertising guarantees, thanks in large part to the addition of This Old House and The New Yankee Workshop to the programming schedule. We are also seeing strong growth at our network websites which, as an added bonus, are receiving industry acclaim. Foodnetwork.com and DIYNetwork.com have been nominated by the Webby Awards for the best lifestyle website. And at HGTV.com, our new social community network, Rate My Space, surpassed the ten million page view mark just six weeks after its launch earlier this year.

Our interactive efforts at Scripps Networks are getting the attention they deserve including the recent addition of former Yahoo! executive Deanna Brown to lead our online enterprises. Deanna, as some of you know, was the force behind Yahoo! Food and we consider ourselves very fortunate to have Deanna on our team. Suffice it to say that we are hitting on all cylinders at Scripps Networks, which it's important to note accounts for a full 45% of our consolidated revenue. As good as business is at our Lifestyle branch though, it wasn't enough during the first quarter offset the challenges we are contending with in our other businesses. At Scripps Interactive Media, which includes Shopzilla and uSwitch, changing market conditions affected first quarter results and prompted us to revise the division's full year forecast. Joe will provide a little more detail on those factors that led to this decision in a couple of minutes. And he will talk about some of the steps that we are taking to address the issues at hand. Ahead of that, let me say that we are in no way deterred from our belief that these businesses represent a significant opportunity for our shareholders. Both are in excellent competitive positions to capitalize on the rapidly expanding internet marketplaces which they operate. We intend to remain on the offensive, adjust to the evolutionary changes we're encountering, and in the process build sustainable internet businesses at Shopzilla and uSwitch for the long term.

At our newspapers, you know the story. The industry is experiencing the most difficult economic environment it's seen in decades. Up until fairly recently, we've escaped the worst of it. But it appears that we are no longer immune. Given the current conditions, our focus is on operating these businesses as efficiently as possible, while protecting the valuable local franchises that we built. We're reducing overall head count and we're reallocating resources to revenue producing positions. Our decision to put more salespeople on the street has resulted in increased share of local advertising dollars in several of our markets. We intend to keep the pressure on. On the content side, we are broadening our pool of contributors by relying more on quality freelance writers and reporters and encouraging more citizen-based journalism. Some the blogs we host, incidentally, are among the best-read features on our newspaper websites. Challenges aside, the shifting of resources toward newspaper internet initiatives are really showing signs of paying off. Online newspaper revenue for the first quarter was up 20% and accounted for about 7% of the division's total advertising revenue. Also key to our newspaper internet strategy is the expanded content in advertising partnership we have with Yahoo! as a member of a consortium of top newspaper publishers. We think this is a revolutionary step for the newspaper industry that will create value on both sides of the equation.

And finally, at our TV station group we are working through some tough comparisons in the first quarter. If you will remember, we benefited last year from the Super Bowl broadcast on our ABC affiliates and NBC's coverage of the Winter Olympics. Those two events generated about $9 million of advertising revenue during last year's first quarter. Also, being off-year elections, we'll be working doubly hard to make up the difference created by a record $44 million in political advertising revenue that we generated in 2006. Needless to say, it's a pretty tall order, but we do have a glimmer of hope that some political could fall into our fourth quarter, thanks to the shift in several primaries including Florida's to early next year. No doubt about it, at all of our media businesses we've got our work cut out for us. But keep in mind our strategy has consistently been to create value for our shareholders over the long term by building sustainable fundamentally strong businesses. I assure you we will be staying that course. Here is Joe to provide a little more color on the quarter and review our outlook. Joe?

Thanks, Ken. Good morning, everyone. You already have all of the numbers for the quarter from the release so I won't go over them with you again on the call this morning. Instead I'm going to focus on some nonoperating items and then provide some additional perspective on the business trends that are driving our forecast for the second quarter and the full year.

Starting with nonoperating items, the company continues to generate substantial free cash flow. Debt at March 31 was down to $745 million compared to $765 million at the end of the year. We also spent about $18 million to buy back our own stock. We repurchased about 377,000 shares during the first three months of the year at an average price of around $47.90. Interest expense for the first quarter was $10.2 million, down 16% from the same period a year ago. Interest expense for the full year is still expected to be around $37 million. As we noted in the press release, we've now closed on the sale of all of the former Shop At Home affiliated television stations and have that cash at hand. This proceeds will be used to reduce our short-term borrowings. Including the sale of the Shop At Home TV stations and the TV Network last June, we recouped around $190 million of our original investment in that business. Just reminder that Shop At Home results have been reclassified as discontinued operations for all the periods presented in the company's financial statements.

Now turning to our guidance, Ken mentioned just about all the key metrics at Scripps Networks appear to be moving in the right direction, based on the trends we are seeing in the scatter market for our uncommitted advertising inventory. We're currently projecting total revenue at our networks up about 8 to 10% in the second quarter. That's a little off the pace we set in the first quarter, but we expect to make up the difference in the back of the year. For the full year 2007, we're still expecting total revenue at Scripps Networks to be up 10 to 13%. Second quarter expenses of the network should be up around 6%. At our newspapers, we expect lower classified and local advertising sales to continue driving operating results. We are expecting total newspaper revenue to be down 4 to 6% in the second quarter and expenses to be up only slightly in the 1 or 2% range. As we pointed out in the press release, the expense forecast does not include the effects of voluntary separation plans that a majority of our newspapers have offered to eligible employees. Depending on the number of people who accept the offer, the company could incur a charge of up to $10 million or $0.04 per share. At our TV stations, the year-over-year comparisons in the second quarter will be a little more apples to apples than in the first quarter when we were running up against the Olympics and the Super Bowl. We are expecting total revenue to increase in the low single digits during the second three months of the year. Obviously comparisons in the second half of the year will get more difficult again as we work to overcome last year's record political advertising.

Finally, changing market conditions that are affecting both our internet search businesses compelled us to lower full year segment profit guidance. Based on a couple of persistent trends in the businesses, we are now anticipating $30 million to $40 million in segment profit in 2007 for the Scripps Interactive Media Division. We expect about $5 million of that to fall into the second quarter. To provide just a little perspective, we had forecast full year segment profit of $60 million to $70 million for the division back in February. Now about two-thirds of the difference is attributable to lower energy prices in the U.K. which have a direct impact on uSwitch. The balance represents a strategic decision we made to step up marketing in Shopzilla, where we are adapting to increased competition for internet traffic in the SEM marketplace.

As Ken said we are addressing head on the fluctuating market conditions at both of our internet search businesses. At Shopzilla we are spending a fair amount of time and resources to improve the user experience. Building the brand and establishing it in the minds of consumers and merchants as the premier online shopping service -- we believe is the best way to create a sustainable business at Shopzilla. We're also making progress at Shopzilla, capitalizing on the opportunity in Europe. During the first quarter, combined revenue from the U.K., France and Germany was up nearly 60%. Plus, Shopzilla already is the number two comparison shopping site in the U.K. less than two years after its launch. There are plenty of reasons to be optimistic about Shopzilla's future. At uSwitch, common sense and historical trends in energy prices tell us that the energy switching business will remain strong for the long-term and will return substantially. Energy switching was strong in 2006 and we were confident it will be strong again.

In the meantime, we were working as quickly as we can to build brand recognition and to diversify our product offerings into other service areas, most notably auto insurance and personal finance. We were also working on our plans to launch uSwitch in the U.S. based on our strong conviction that we can tap a significant market potential that exists domestically for this type of online service. As we said, our initial focus for uSwitch in the U.S. will likely be in the personal finance category. We think it's important to keep in mind that online commerce in the U.S. is expected to double in the next five years. Also, the amount of marketing dollars spent on customer acquisition by energy and other service providers in the U.K. is large and growing. Our energies are focused on positioning our interactive companies to derive the maximum benefit from these larger trends. The path may be a bit lumpy along the way, but we believe the potential for outsize returns justifies our tolerance for unevenness in quarter to quarter.

Now -- so based on all of the trends we've discussed and excluding the cost of the voluntary separation plans in the Newspaper Division, we are expecting earnings per share from continuing operations to be between $0.58 and $0.62 in the second quarter. Earnings per share from continuing ops during the second quarter of 2006 were $0.64. With that, we will conclude our prepared remarks, and we are ready to take any questions.

(OPERATOR INSTRUCTIONS) Our first comes from John Janedis from Wachovia.

Thank you. Can you give us your thoughts on Shopzilla's competitive positioning in the U.S.? I think Shopping.com put up solid numbers and I'm wondering what you need to do regain some of that share back that you took in '05?

Hey, John, this is Rich Boehne. Let me take that. Shopping.com did put up some good numbers. We saw those as well. But short-term share shifts are inevitable in this business as the companies employ different strategies both around revenue and traffic. So you are correct. We did have very strong share shifts the prior year and it appears we gave back a little bit in the first part of this year. Again, I don't think that speaks a lot to how it will play out over the future. We are still very focused on building free traffic over the long term. SEO traffic is up about 25% as we work our way past what has been pressure in the SCM markets. Long-term, our strategy remains capitalizing on free traffic, improving conversion rates on free traffic, and over time producing more revenue. But those short term share shifts like that -- again, as the companies employ different kind of strategies, are going to be inevitable.

Okay. Rich, I don't know if you disclose this, but as a percentage of total, what is the SEO traffic? And are you considering outsourcing that potentially? I think currently you do it in-house, is that correct?

SEO?

Yes.

Yes, we do it in-house. We're not at this point considering outsourcing it. We don't disclose the actual complete breakdown in traffic sources at this point.

Quickly, I'm sorry -- when you bought it, you said you expected it to be accreted to free cash flow this year and to earnings in '08. Wondering if you can give us an update there.

I will let Joe give you an update on the cash and if it's accretive or not. USwitch -- really the only issue we have is volatility in retail energy prices. That's it. On all other fronts they are doing extremely well. Their are other categories are building quickly. But those energy prices on the retail level are going to continue to be volatile and probably not so much on cycles that are predictable or that coincide with the cycles that you are accustomed to in our other immediate businesses. As Joe said in his comments, there is no question long-term energy switching is going to be a significant source of revenue and profit for us. It's going to be a little bit volatile and we'll decrease and improve that volatility overtime as the other categories grow. USwitch is doing extremely well except for the short-term effects of volatility and retail energy pricing. Everything else is good.

John, this is Joe. On the accretion analysis, it will likely not be accretive cash this year and probably for an EPS basis it won't be accretive until '09.

Okay. Thank you very much. Guys.

Sure.

Our next question comes from Steven Barlow from Prudential.

Three quick ones for Mark. Newsprint -- your usage was down a lot more than we've seen in other companies. My guess is that's because you have a high dependence of real estate ads particularly in Florida and they use a lot of newsprint. Can you comment on newsprint and prices -- where you think they are going? In terms of ad people, you've added feet on the street. Are those commission-only salespeople? And lastly, what is the savings we could see in the second half of the year on your expenses because of the buyouts you are taking in the second quarter?

Steve, on the newsprint issue, you are right. The newsprint decline in usage is primarily attributable to the real estate lineage declines as well as circulation declines in one of our larger markets. The newsprint price is really a moving target. But for the last couple of updates we have gotten, all we have seen is declining prices going forward. And we think that will give us a nice pickup in the second, third and fourth quarters. On added feet on the street, almost all of them are traditional full time folks. And we try to establish that their is compensation is about half salary and about half commission. We are not going toward the commission only route because our experience has been that the turnover there is much higher and turnover is the death knell of retail territories. So we are trying to keep a stable local retail force growing. Lastly on the buyouts, we anticipate that the payback on that plan will be about a year and a half. As you know, we won't know the final number until May 29. We offered it to a number of our eligible employees at a number of our papers. It was a paper by paper plan. Our guess at this point would be that it would represent 2 to 2.5% of the FTE's at our newspapers. And we do see substantial savings from that. Hope that's helpful.

Thanks for the color.

Our next question comes from William Bird from Citigroup.

I was wondering if you could drill down a little bit more on Interactive -- the swing and profit expectations is obviously pretty dramatic. Trying to understand how much of that is revenue driven as opposed to maybe investing more in an attempt to turn around the business. Thank you.

Bill, this is Rich. Let me give you a little color and then Joe may want to talk about how we built the projection. To start with, I really wouldn't characterize it as investing to try to turn around the business. We still feel that the business long-term is heading in the right direction. And just again to emphasize if you look at Shopzilla, the short-term SCM pressures that we've been under -- we think we're reacting to pretty well. And Shopzilla is an awfully good SEM shop. Their conversion based on what we are told by Google and Yahoo! we are an excellent user of SEM. The point is over the long term you want to build the SEO and the free and direct traffic side in order to boost those revenues. Also, Shopzilla is getting ready -- next week we will launch an affiliate program making available to all kinds of other web publishers and content sites the opportunity to make money off the large database that we have at Shopzilla. You will see that roll out as well. And again -- I will hand it over to Joe, but an awful lot of difference in the projection has to do with the volatility in retail energy prices.

It's Joe. If you think about it mechanically -- again, very broadly, broad strokes here. The use which we said in the comments represented about two-thirds of the decline is largely revenue related. On the Shopzilla side, which is the other third, it is largely expense related as we continue to build out and work against the objectives that Rich mentioned.

Just as an add-on, does recent experience do anything in terms of changing your relative appetite for interactive acquisitions?

This is Ken. Let me address that. I think what we are looking at now -- the broad answer is, no. We all know that the shift in dollars, the shift in usage, et cetera, is moving more to the internet. But I think, Bill, what you will see us focusing more on going forward is interactive businesses for the near term that are built primarily around both organically and acquisition-wise our cable networks and those brands. The categories that were in Home/Garden, Shelter, Food, et cetera -- it's the reality of the businesses we're in that we are in a changing environment. And there will be lumpiness and there is going to be some uneven quarters. And as you recall, because we have been around long enough, we experienced that in the early days of our cable networks. We have fits and starts as we try to even out those businesses. These are still fairly young businesses and we are still in the early innings of the whole interactive ballgame. These are growing pains. But it doesn't deter us at all from understanding that the environment and the advertising and marketing areas are changing and we have to change with it. But going forward -- probably more acquisitions in line with our cable networks.

Thank you.

Our next question comes from Karl Choi with Merrill Lynch.

Couple questions. I wonder if you can comment more in detail what kind of scattered pricing increase you are seeing for your cable network. Second, on the interactive side, I wonder whether the need to spend more on SEM changes your view on your long term profit potential or margin potential for Shopzilla. Thank you.

Sure, Carl. This is John Lansing. Quickly -- the scatter pricing has been strong. First quarter scatter was mid 28%, 24 to 26% above the pricing in the upfront marketplace in the first quarter. In the second quarter, we are seeing some improvement on that, particularly on HGTV. So we feel that the strength that began the year is continuing into the second quarter. If you look at scatter to scatter, year-over-year, we were in the plus 7 to 9% range. You may recall last year the second quarter was actually a down quarter. So we have a reasonably good comp there. But we are experiencing positive growth.

Carl, it's Rich again. At this point, no, as I said our folks are awfully good at acquiring and converting SEM traffic, and that will be a good source of revenue and profit for a long time to come. The point is just that environment changes very quickly. And what we want to do is build the free side of the traffic just as quick as we can. I think we are investing there. We were investing in marketing. We were investing in consumer experience. I just mentioned the affiliate program that rolls out next week. At this point, as Ken said we are undeterred, and it has not changed our view of the long term opportunity there.

Back to the cable network for a second, it looks like if the scattered comps are pretty little bit easier, just wondering why the change in momentum from the second quarter to the first quarter? Trying to drill down a little bit to what's changed there.

Sure. As you may recall across many networks -- cable and broadcast -- March was a fairly challenging month in terms of ratings. We weren't immune to that. We had softening in our daytime ratings both on Food Network and HGTV, although our prime ratings held up fairly well. But as we forecast the quarter, we took into account the relative rating situation, and took a fairly conservative view. As we look at April -- we are through the first full week of April in terms of data in the second week and we do see strength returning -- particularly in the daytime on Food Network and HGTV and primetime showing even some further growth, both on Food Network and HGTV. I feel like our projection is a solid projection. It might even call it conservative at this point if the ratings continue to hold up.

Last question. On uSwitch, any concern that when you bring uSwitch to the U.S., you will have to incur quite a bit of SEM cost or just online advertising cost in general given the competitors out there like LowerMyBills.com. They seem to be spending quite heavily already.

It's Rich again. We aren't far enough along in our plan to know exactly how much marketing money we will have to spend. When we come to the U.S., it will be very focused on a nice, easy slow ramp-up. We generate an awful lot of traffic from other sources that we believe can convert over to uSwitch in the U.S. I wouldn't look for some sort of enormous very costly launch of uSwitch. We will build it up over time using the traffic and the marketing power that we already have in our other brands.

Great. Thank you.

Our next question comes from Frederick Searby with J.P. Morgan.

Thanks. One or two quick questions. One is -- given the strength and scatter clearly going into the Upfront with what looks like a somewhat positive outlook -- what would be your expectation in terms of CPM increase or outperformance maybe vis-a-vis your cable peers? Then secondly, just to make it clear, does what's happening now with uSwitch and Shopzilla, does that hasten your launching in the U.S.? Or do you see that maybe delaying it as you figure out what's going on in the U.K.? Thank you.

I'll start on the scatter. It's early to predict CPM growth. I will say that over the last three Upfronts, our ads sales group is successful at being near or at the top of the cable network group of networks in terms of CPM growth in the marketplace. And I expect we will be in that same position this year. I think it's fair to say that the strong scattered Upfront growth we have seen in the first and second will perhaps shift some leverage back in favor of cable networks. We expect that it will and we expect we would ride at the high end of that shift.

Fred, it's Rich again. On uSwitch and the United Kingdom, we feel like we know exactly what's going on over there. It's volatility and retail energy prices. That's the only thing that has changed. Which doesn't say anything about the rest of the business and our plans for the long term. So I mean, in the U.S., we are on a path to try to figure out when the right time is to jump into this market and that decision is -- while influenced by -- not directly connected to the volatility in energy in the United Kingdom.

Thank you.

Our next question comes from Lisa Monaco of Morgan Stanley.

Two quick questions. One -- following up again on the cable net. Can you explain to us how you feel or why you feel comfortable that revenues should accelerate in the second half? Then secondly, can you give us what the Interactive revenue performance was for the cable network group? Thanks.

Sure, Lisa, happy to do that. The second half is really relates to the question Fred asked earlier, and that is I do believe there will be a stronger Upfront versus last year. If you recall, last year's Upfront pricing was basically flat to below flat for all of the cable networks. We were in the plus 1 to 2% range -- really, at the top of all of the cable networks. I think we have a favorable comp. And the strong scattered Upfront marketplace we are seeing in the first and second leads us to believe that there is reason to think that pricing could be somewhat better than it was last year, certainly better than flat. In terms of our interactive revenue in the first quarter, we were up 40% year-over-year with really strong growth in pricing particularly around our online broadband video. Which had CPMs that in some cases were two to three times greater than our linear network CPMs.

Can you give us the dollar amount of those revenues?

About $15 million. This is Joe.

Thank you.

Our next question comes from Alexia Quadrani with Bear Stearns.

Thank you. Just a couple of questions. First on uSwitch, are you assuming any pickup from revenue from new verticals you have been investing in such as the auto and personal finance in your guidance for the back half of 2007? And second question is, some third party data suggests a sequential pickup in terms of traffic in Shopzilla in March. Is that consistent with what you are seeing and do you think those trends are sustainable? Thanks.

Let me take the first part. Yes, the Shopzilla traffic outlook has been improving as you suggest. But I think overall our projection for the year we would like to believe we are being conservative, knowing that there has been volatility and energy prices are hard to call in the United Kingdom. I guess I would like to think we were being somewhat conservative. Let me let Joe comment.

I think, Alexia, the first question was -- is there any impact of the back half on or from the new verticals launched that uSwitch. And the answer is -- there is, but it's relatively modest compared to the total. That's more of a 2008 kind of impact we think. And we will be spending against the product this year and some marketing late this year and early next year. And we expect to see some pickup then. And I think Rich addressed the question on Shopzilla traffic.

Thank you.

Our next question comes from Craig Huber with Lehman Brothers.

Good morning. Thank you. When you bought uSwitch roughly a year ago, did you realize that you'd have this volatility in revenues and therefore profits from the swings in energy prices. Because I do not recall you talking about that and I'm surprised at the huge volatility here --

The answer is yes, we did understand that the energy prices are volatile, and until we grow out and diversify that possibility was going to be there. And it's unfortunate that you had a turn this quickly. It doesn't say anything about over the long term there may be periods where we make enormous amounts of money on energy and periods that are soft. It will be difficult because the volatility may not coincide with the cycles in other businesses. But the point is, the quicker we can build and diversify away from that volatility and energy, the better off we will be and the more consistency we will be able to provide to you guys.

What is your best guess? It sounds like you are pushing back perhaps this launch in the U.S. What is your best expectation here of when you might be meaningfully diversified away from the energy issue in the U.K.?

It will take some time. I mean, those businesses are building quickly in the U.K. And like we say, we have a good opportunity here. But that will take a couple of years or so before you have a meaningful change and the risk of that volatility.

And other question I wanted to ask -- given the rapid deterioration of EBITDA in Interactive, you spent $890 million on these two acquisitions over the last two years. Given your comments it sounds like you absolutely don't think there'll be any reason to do a writeoff on anything in the Interactive division. If you think out here over the next 6 to 18 months. Is that a fair statement?

Well you aren't --

You're not accepting any sort of writeoff at all?

I will let Joe comment on that. To your first comment on what we have invested -- obviously the results and we'll all pass judgment what we see what the cash flow is based on the investment over time. At this point we don't have any reason to believe that our cash flow return on investment will not be very, very good. I will let Joe talk about any -- Yes, Craig, it's Joe. Obviously you understand the mechanics of that writedown. It's based on your long-term outlook for the business and your projection of cash flow over the long haul. We have not lost confidence in the ability of the business to generate cash flow to more than sufficiently support the valuation. We certainly don't anticipate that in any of our businesses. It sometimes happens -- we will watch it and temper our forecast accordingly. But at this moment, no, we wouldn't expect to see anything like that.

I would say it should be obvious from our comments but probably important to say that we could pull more cash flow to the bottom line in Interactive right now if we wanted to and felt that was the right thing to do. We're passing on short-term opportunities for revenue and continuing to build and invest on some of those other product lines. We could pull more cash to the bottom line today, but we don't think that's the right thing to do for the long term.

More mundane question, for your newspaper division, what was the non-newsprint cash cost percent change? Thank you.

Craig, it was about 2.8%. And most of that had to do with costs associated with Interactive -- the Yahoo! deal as well as SEO and SEM costs. Also, a big chunk of that was Naples circulation. We changed the way that we interact with our carriers. So it added expense as well as grossed up revenue on the circ line. And then some spending in niche, but when you take those three big items out, our non-newsprint cash expenses were about flat.

Thank you.

Our next question comes from Adam Schwartz with First Manhattan.

Good morning. My questions, like most people's, are around Interactive and I have a couple of them. Biggest one is -- what would have to happen to depend less on the pay traffic or what I call the arbitrage opportunity, which seems to have arbitraged away to make uSwitch and Shopzilla more of a destination as opposed to a place where you have to pay for the traffic. Along those lines, what time frame do you think you need to improve based upon the traffic and the investment?

One, uSwitch is not terribly dependent on paid traffic. The United Kingdom -- they do a great job of generating free traffic and converting that. That's not an issue there at all. The issue over there is the short-term volatility and energy retail prices. On the SEM side of Shopzilla, again, SEM is not a bad place to make money. The point is that it's just volatile and there are changes in the marketplace and over time you want to build the free and direct traffic side, which takes a little bit of time. And as you say we could go another route and we could rely more on sponsored links, for example, and use that traffic to bring more revenue and cash flow to the bottom line. We think long-term the more we build brand, functionality, consumer experience and continue to watch that free traffic number climb -- that over time that will convert and we will be in the right place. Again, it's going to take a little bit of time. I can't tell you it will change in a quarter, although the marketplace is so volatile we could come back and have a very different and great showing in one of the next upcoming quarters. It will take a little time to make that full conversion.

Is that one of the things you think must happen for the improvement to happen in Shopzilla? Or is that just one of a couple of other things that have to happen?

Obviously that's key. You want to bring in more and more traffic and convert it at better and better rates. So it has to do with acquiring the traffic, what you pay for it. And then the experience and service you provide tells you how well it will convert to a quick through to a merchant. Again, merchants continue to tell us that we are at the very high end of those that deliver them with traffic that converts into sales. So again we are really undeterred by what we see at this point.

Lastly -- looking at interactive strategically, have your plans or expectations changed versus when you acquired these properties and how they fit into the company at all?

Adam, it's Ken, no, they haven't. Because we still firmly believe that these are businesses -- specialized search that more and more complement our cable network businesses. If you look at where some of the areas John is growing in the Broadband channels, and some of the things we are seeing on the horizon of full motion video in some of these interactive commerce elements. We are also gaining valuable experience in our opinion in areas that are going to play more and more, both from a complementary standpoint and competitive standpoint in the areas we operate in, and where we are expecting growth for the cable networks down the road. For that matter, in all of our businesses. So, no, as I said earlier, we're not deterred at all. As far as brand building, absolutely -- I mean, this is what this company is I hope known for. We build powerful brands and over time we believe we can build Shopzilla into a brand that will have a lot of free traffic because people will just type it in. It does take awhile and it does take some of these periods of not only learning but recalibrating to the marketplace.

Thank you.

Our next question comes from Paul Ginocchio with Deutsche Bank.

Thank you. Just your network -- for the networks, your affiliate fees outgrew ad revenues. Should we expect that for the remainder of the year and there is a way to give a breakdown between the two? Second, Mark, remind us when the Denver (inaudible) come in from the plant consolidation. Has your view changed any way about Denver I guess due to the tougher environment? Thanks.

Yes, Paul. This is John. The answer in short is, yes. Our affiliate revenue will be outpacing our ad revenue. We've had extraordinarily good growth with all of our brands -- particularly GAC, Fine Living and DIY are among the five fastest growing in all of cable. GAC now up over 46 million subscribers. Fine Living approaching 45 million and that's up 13 to 15 million over the last 18 months. And so we are really enjoying the rapid adoption of digital cable and digital satellite. And it's adding fuel to our growth in terms of affiliate revenue. And we are in the process, as you may know, of negotiating extensions for HGTV, well into the future that will also be healthy to our strategic outlook over the long term.

And, Paul, this is Mark. On Denver, we are actually about a month ahead of schedule on the production plan. I think we will be -- the agency will be printing the "Denver Post" beginning in October of this year and I think the original plan was for November. I do want to mention that Harry Whipple and his folks have done a great job on expenses. The first quarter they've taken agency expenses down about 10%. And while I don't want to signal that we we're in any way, shape or form out of the woods on revenue, we were seeing some encouraging trends, particularly in retail territories which have had robust growth frankly in March. And if we looked at March trends versus a quarter's, it's 4 to 5 points better than the entire quarter. Again, I don't want to signal in any way, shape or form that we're out the woods there. But there are some glimmers of light showing and it's very much to Harry Whipple and his team's credit.

Thanks, Mark.

(OPERATOR INSTRUCTIONS) Our next question comes from Edward Atorino with Benchmark.

Most of my questions have been answered. Thanks.

There are no further questions in the queue.

Thank you. This is Tim Stautberg. I appreciate everybody's participation today. I will be in the office this afternoon if you have follow-up questions. You can call me at 513-977-3826. Operator, I believe you have some replay instructions.

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