E W Scripps Co (SSP) 2007 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Scripps second quarter earnings report. At this time, all participants are in a listen-only mode, and later we'll conduct a question-and-answer session. (OPERATOR INSTRUCTIONS)

As a reminder this, conference call is being recorded. And I would now like to turn the conference over to our host, Vice President, Investor Relations, Mr. Tim Stautberg. Please go ahead.

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. We know you have busy schedules, so we'll still make sure that we're 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'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 2006 Form 10-K. Now here's Ken.

Thank you, Tim, and good morning, everyone. As always, we truly appreciate your interest in the E.W. Scripps Company. Before we offer our commentary on the second quarter and outlook for the next three months, let me set the stage a little by providing some historical perspective. In over the 130-year life of this Company, the focus has always been on building solid, sustainable media businesses for the long-term. Throughout our history, Scripps has succeeded by staying ahead of the changing habits of media consumers. That determination to evolve, if you will, our heritage, is what drives our decision-making every day here at Scripps. As a result, we're a collection of valuable media assets that includes some of the most recognizable brands in America, and for that matter, even across the globe. Of course, the evolutionary process has not always been pretty, and our legacy businesses, our newspapers, the ones that brought us to the dance, if you will, we're doing everything within our means to keep our footing in one of the most challenging print advertising environments that we've seen in a very long time.

On the other end of the evolutionary spectrum, growth at our online comparison shopping businesses, our newest media enterprises, isn't as smooth as we would all like, as they experience growing pains in an ever-changing and untested marketplace. And even our popular national lifestyle networks, still growing a dozen years after their birth, are in some ways burdened by their tremendous success. As annual revenues move well past the $1 billion mark, it gets increasingly difficult to sustain the double-digit growth that we've all enjoyed for so long. Although I hasten to add that we are on track to do it again this year at Scripps Networks for the full year. The common thread that connects all of these different businesses is our determination to anticipate and get in front of promising trends in the broader media marketplace. That's why Internet advertising accounts for a rapidly expanding share of our total newspaper revenues. And that's why, just last week, Scripps Networks acquired Recipezaar.com, increasing our share of the online food and recipe category, a space by the way, that we already dominate with FoodNetwork.com. That's why Shopzilla is growing by leaps and bounds in France, Germany and the United Kingdom, and why uSwitch is having measurable success in the UK, breaking into new service categories like personal finance and insurance. And it's also why we're investing now in our television stations ahead of next year's very promising political season, so we can broadcast local news in high-definition and be ready to provide candidates with top notch television and Internet platforms. In other words, at Scripps, we don't tolerate the status quo. We're not content to watch the trends of full potential pass us by.

We've often said that we consider these to be incredibly exciting times to be in the media business. It's not always easy. In fact, in times like these, exciting seems to be a good euphemism for gut wrenching. But we know instinctively at Scripps, from our tradition of entrepreneurship, that we can't evolve as a media enterprise if we're timid or we're weak at heart. It's been our experience that at times we've had to weather short-term disruptions in the long-term growth of the Company as we work toward our goal of creating sustainable value for our shareholders. Now, for those of you who have been with us for a long time, the soundness of our strategy is evident in the outsized returns that you've enjoyed. Now, with that, let me turn it over to Joe to talk about the second quarter and provide a little more analysis on our forecast. Joe?

Thanks, Ken. Good morning, everyone. I think the best way to characterize the second quarter is to describe our results as mixed. On the one hand, financial performance at Scripps Networks was solid, with growth in both advertising and affiliate fee revenue. Segment profit for the division, which includes our national lifestyle networks, also grew respectably. On the other hand, we're continuing to work through some issues at our other business segments, including persistent secular weakness in newspaper advertising, lower referral fee revenue in our comparison shopping businesses here in the U.S. and in the UK, and the biannual effect the nonpolitical year is having on our broadcast television stations.

At Scripps Networks, which accounted for nearly half of the Company's consolidated revenue during the period, the top and bottom lines continued to move in the right direction. Advertising revenue improved, albeit at a somewhat slower pace, largely because of softer daytime viewership at HGTV and Food Network, even though prime time ratings remain solid. The good news is that we reacted quickly, made some programming adjustments at both networks, and are confident that impressions growth going forward will help support our full-year forecast of 10% revenue growth. Our optimism is also based on the favorable trends we're seeing in the advertising marketplace. We're anticipating stronger year-over-year pricing during the summer's upfront negotiations, which we're now in the middle of. The effects of stronger upfront pricing, as you know, will show up in the fourth quarter. As for total revenue growth at Scripps Networks during the second quarter, we were just a hair short of meeting the low end of the range that we had forecasted. We got close, thanks to better than anticipated affiliate fee revenue, which was a direct result of the rapid growth in distribution at DIY Network, Fine Living, and Great American Country.

Now, turning back a moment to the ratings and viewership story at HGTV and Food Network, we're seeing some improvement as we move deeper into the summer programming season. At HGTV, for example, Color Splash, a show hosted by last year's winner of the HGTV Design Star competition, is breaking out as a hit for the network. Season two of Design Star, by the way, debuted Sunday night, and based on the show's success last summer, we're anticipating some very solid prime time numbers. As for daytime and weekends, we're seeing improvement in viewership after a challenging April and May, thanks to some of the scheduling changes that we made.

Over at Food Network, we kicked off season three of The Next Food Network Star during the second quarter. Viewership for the popular series was up 30% year-over-year, and on July 15th, the show achieved the highest viewership in the history of the network, about 2.5 million people tuned in that night to watch the drama unfold. We're also seeing steady ratings improvement at DIY Network, thanks to our strategy of adding time-tested favorites Bob villa, The New Yankee Workshop, and This Old House. Combined with our quality original programming, DIY has become the exclusive television destination for how-to enthusiasts.

Our interactive initiatives at Scripps Networks also showed significant improvement during the second quarter. Advertising sales on our category-leading websites were up strongly during the period. Last week, as Ken mentioned, we announced our acquisition of Recipezaar.com. Our intent is to position ourselves to grow in the online food and recipe category. There's very little duplicated traffic between Recipezaar.com and Food Network.com, so we see an opportunity to build the business through both increased user traffic and advertising sales. The acquisition will increase our share of the food category traffic to around 20%. The Recipezaar.com acquisition also is part of our broader strategy at Scripps Networks to move our online businesses beyond extensions of our networks, to become multibranded user-centric applications that create communities of online consumers. The news from Scripps Networks continues to be very encouraging on several fronts.

Now, turning to Scripps Interactive Media, which includes Shopzilla and uSwitch, referral fee revenue from both businesses was lower during the second quarter, primarily due to the changing market conditions. At uSwitch, a sharp decline in natural gas prices in the UK, which occurred in the first quarter and persisted into the second, has resulted in reduced consumer demand for energy switching. We believe this is a short-term dynamic that will, over time -- and, sorry, that over time energy prices will move higher, following historical trends. We're at the low end of the curve right now. But even so, keep in mind that referral fee revenue at uSwitch during the quarter was more than double what it was just two years ago.

In the meantime, we're seeing meaningful growth in the other service categories we're developing, including personal finance and insurance. The momentum we are creating in those areas, however, hasn't been enough to overcome the malaise in energy switching. Temporary market conditions notwithstanding, we believe there's considerable potential to create value at uSwitch. It's the leading comparison shopping website for energy switching in the UK. Other service categories are growing rapidly and brand recognition in the UK is very high. We believe the business is well positioned to capitalize on growing consumer acceptance of online price comparison for higher value services.

Same is true at Shopzilla, where we're focusing on improving the online search and comparison shopping experience for consumers and merchants, both here in the U.S. and abroad. We're seeing tangible evidence that our efforts to strengthen our competitive advantage at Shopzilla are paying off, including the latest com score reports that show Shopzilla leading the pack in May and June, in terms of total unique visitors. Still, the vigorous competition for key words in the search engine marketplace has a direct impact on the business, resulting in modestly lower referral fee revenue during the second quarter, compared to the same period a year earlier. Our response has been to deploy new key word marketing methodologies that are designed to increase consumer awareness and drive user traffic. Meanwhile, Shopzilla's international expansion is going well. We're seeing very strong revenue growth in the UK, France and Germany, as we build consumer awareness for the brand in these very promising European markets. As we said before, we believe both Shopzilla and uSwitch are in the early innings in terms of their growth and development. Long-term, we think there's considerable potential to create value for our shareholders at both business.

At our Newspapers, the industry-wide weakness in advertising persisted in the second quarter, and was exacerbated by what most believe to be a cyclical downturn in the Florida real estate market. If you take our Florida newspapers out of the mix, advertising revenue from newspapers managed solely by Scripps was down about 6%, which is in line with some of our better performing peers. The economic pressures weighing on our newspapers prompted us during the second quarter to take a closer look at the division's already low cost structure. One step we took was to offer voluntary separation plans that were tailored to the specific needs of individual markets. 137 newspaper employees accepted the plans, resulting in a net 3% reduction in our Newspaper Division's head count. Total Newspaper expenses, excluding the one-time cost of the separation plans, were down 1.3% during the quarter. We'll continue to look for ways to reduce costs further, but keep in mind we're still going do what we need to do to protect and grow our share of local advertising in our markets.

I want to emphasize that we're being very deliberate in how we're dealing with the challenges we're facing in our newspapers. As always, we're determined to be efficient operators, but given how rapidly advertising revenue has fallen off, our response can't all come down on the expense side. It's equally important, we believe, to be diligently mining our local newspaper markets for new advertisers, which is why we've been shifting resources to our sales efforts. At this stage, we're doing a lot of blocking and tackling that doesn't make for exciting headlines, but rest assured that we're evaluating our Newspaper businesses from a number of different perspectives, as we readjust our strategy to reflect the current market conditions.

Finally, our Television Station group did a solid job during the second quarter, making up a huge disparity in political advertising this year compared with last. Local advertising improved slightly over last year, even though domestic auto makers have been sitting on the sidelines. Total broadcast TV revenue was down modestly during the quarter, and expenses were pretty much flat to last year. All in all, a good effort, considering the challenges they faced.

Now, turning to some non-operating items, the Company continues to generate substantial free cash flow. Debt as of June 30th was down to $620 million compared with $765 million at the end of the year. Looking ahead, we'll be retiring $100 million in 6.625% notes that expire in October this year, and $40 million in 3.75% notes that expire in February of 2008. We plan to replace those borrowings by drawing on our commercial paper program, which is currently carrying an interest rate of around 5.25%. Because there is less debt on the balance sheet, interest expense for the second quarter was down 31% to $10.7 million from $15.5 million during the same period last year. We're still expecting interest expense for the full year to be around $37 million.

Capital spending through the first half of the year is up to about $49 million compared with $29 million at the same point last year. The difference is attributable to capital we're using to upgrade our TV stations' capabilities to broadcast high-definition newscasts, some spending in preparation for construction of a new production facility in Naples, Florida, and money we're using to expand Scripps Networks headquarters in Knoxville. All in, we're still expecting capital expenditures on the year to be between $110 million and $125 million. As for our share repurchase program, we spent about $12 million to buy back our own stock. We repurchased about 273,000 shares during the second three months of the year at an average price of around $44 per share. With that, we'll turn it back over to Ken.

Thank you, Joe. To quickly recap, we're expecting solid growth at Scripps Networks to continue for the balance of the year. We'll be concentrating on driving viewership at all of our networks, and especially at HGTV and Food Network, and we'll be developing new interactive businesses around our lifestyle categories. At our local media businesses, we'll be working hard to capture new advertising dollars in each of our markets, while doing our very best to keep the lid on expenses. And at Scripps Interactive Media, we intend to strengthen the competitive advantages of both Shopzilla and uSwitch by making the experience for consumers, merchants and service providers second to none. We'll also be expanding internationally and broadening the capabilities of both websites to grow their businesses. Now, that concludes our prepared remarks. And operator, we're now ready for questions.

(OPERATOR INSTRUCTIONS) Alexia Quadrani, Bear Stearns.

A couple of questions. First, could you give us some more color on the ongoing cable upfront discussions? What do you think a good range of CPM increases are, and any early thoughts on how that may translate into growth in the fourth quarter in '08? And the second question is, any update on your use of cash going forward, the debt level so low, any consideration in planning a more aggressive share buyback?

Okay, John, go ahead.

Thanks. Good morning, Alexia. We are in the middle of our upfront negotiations, and I'm very optimistic based on what we've seen so far. We're anticipating a CPM growth in the mid to high single-digit range, and that would support the model for our fourth quarter that would indicate our full year forecast is right on target.

Alexia, this is Joe. With respect to our plans for cash flow, you're right to point out the debt is down again. This is a situation, obviously we monitor constantly and have ongoing discussions with our Board about. We're in the middle of our planning season. We just started our long-range planning, and of course, we'll be discussing those with the Board, as well. Our priority has always been, continues to be reinvesting in the business, if possible. If we find opportunities that we think are value-creating, we certainly would do that first. Absent that, and given the cash flow that we've got, I think you would definitely see us actively consider increasing the payout down the road.

Okay, thank you.

Lisa Monaco, Morgan Stanley.

Could you just provide us a little bit of color on the advertising weakness at the cable net? What came in a little bit weaker than expected, and are you seeing some impact from the housing market slowdown? Thanks.

Yes, Lisa, this is John. Happy to tackle that one. The second quarter weakness in ad revenue is really tied not to the marketplace at all, but rather to some weakness in our ratings in daytime on HGTV and in daytime and weekend daytime on Food Network. As a result of some slowdown in our ratings, we weren't able to monetize as many impressions in the second quarter. But the good news behind that is that the marketplace in the second quarter was actually quite strong. In fact, scatter CPMs on HGTV in the quarter were up 25%, and similarly on Food Networks, scatter CPMs were also up 25%. And that strength in scatter is continuing into the third quarter. And the other good news is that the slowdown in the ratings during daytime on HGTV have shown marked improvement beginning in June, actually, and even further improvement into July. In fact, this July so far month to date is up 40% over where we were in May in terms of those daytime ratings, and we're right back on track, if not a little bit better than on track in terms of meeting the guarantees that we give to the advertisers. So our 10% full-year forecast feels very solid, and certainly the third quarter should show a marked improvement over the second quarter now that the ratings are improving.

Okay, and then just separately on interactive, if, Joe, maybe you could give a little color on revenue trends there, what we should expect. And how should we think about the seasonality, because you guys have segment profit expectations for Interactive of $30 million to $40 million for the year, and that seems rather aggressive relative to where we see (inaudible) year-to-date. Thanks.

This is Rich. Let me give you a little bit of background and Joe may want to talk about the actual guidance that we issued. Yes, the business is obviously back loaded, and we're in the seasonal slowest period of the year right now. So, yes, absolutely, it is back loaded. At this point, though, we still feel pretty good about the guidance, understanding where we are today and how it looked last year and where we think we are year-over-year. Shopzilla has been picking up and accelerating, and they believe they will have a better second half. And then obviously uSwitch, just because the energy market is always better on the end of the year. I'll let Joe talk about the actual guidance.

I think actually it is laid out in the release. I think you were interested in trends that Rich addressed, so I'm not going to add anything here.

And will Shopzilla -- embedded in that guidance, is Shopzilla expected to see revenue growth in 4Q?

At this point, yes.

Okay, thanks.

Peter Appert, Goldman Sachs.

John, in the context of some of the initiatives you talked about to improve the ratings performance, what might we anticipate back half of the year and then into '08 in terms of trends in programming expenses?

Well, Peter, we are continuing to invest in programming, because now that our distribution is maxed out almost entirely at 93 million, we'll grow very much incrementally from that point forward. Our growth is tied certainly to our ability to grow our audiences. And so we're looking at midteen percentage growth in terms of investing in programming this year, and I don't anticipate that slowing down a great deal next year, keeping in mind that there's a flattening of those percentages based on the amortization of the programming over three years. The trends are very positive, though, Peter. Food Network, for instance, was up 4% in prime time in the second quarter, had a very, very strong Next Food Network Star season three to help drive that performance.

HGTV was solid in prime time, with several new series that were launched, that will -- certainly Color Splash being one that comes to mind, will be a strong series for us going forward. Plus, Judy Girard and her team at HGTV have really rethought the scheduling of HGTV and taken some of the stronger programs and using them at the same time across the entire schedule on weekdays, including Designed To Sell at 8:00 Monday through Friday, and House Hunters at 10:30 Monday through Friday, which is also stabilizing and helping to grow ratings, and also helping to create a platform for launching new successful series. And I don't know, Sunday night if you were watching, but we launched HGTV Design Star season two on Sunday night. I'm waiting to see national ratings this afternoon, but on a sampling of some of the overnight markets, the numbers look very, very good for that series, as well. And as you can imagine, not only is that series good in its own right, but it helps us launch new series into the next year. So the investment is paying off. We're seeing the growth that we were hoping to see. The slowdown in daytime was a bit unexpected, but the recovery was fairly timely, so all in, I'm very optimistic.

So, John, the follow-on then, is in the context of the need to step up programming, even with the benefit of the better ratings numbers, might it be realistic then that we should assume that margins perhaps eased a little bit lower here on a near-term basis, and maybe we get back sort of to the mid-40% kind of range you were doing in '04, '05 time period?

No, actually not, Peter. That's not my anticipation. We have certainly a great deal of discipline around all of our investment around the brands. And while the investment in programming and other key areas are growing, we're also being very deliberate in managing costs around all other line items in the budget. And it's our anticipation that the margins will not move by that -- certainly not by four or five points, perhaps a point one way or the other. But we believe there's still a great deal of growth ahead of us on the top line. Our Interactive revenue by way of example, grew 27% in the second quarter. And our focus, and much of our investment beyond programming on the linear networks is in widening and deepening our Interactive businesses so that we can drive the kind of growth we've experienced in the past, hopefully into the future.

Okay. That's great. And if I could just ask one follow-up, maybe, Joe, for you. Can you tell us what roughly the earnings contribution from Cincinnati will be in '07, so we can better understand what you need to make up next year? Thanks.

It's about $12 million.

Okay. Thank you.

Fred Searby, JPMorgan.

Yes, a couple questions. One is in your upfront discussions, given the fact that you're seeing a ratings improvement with Food having earlier in the year been a little bit of a lag or a disappointment there, what are you telling your (inaudible) clients guiding for in terms of ratings growth for the fourth quarter and '08 time period at your flagships? And then secondly, given that so much of the growth going forward looks like it's going to increasingly come from the Interactive side, you had a great number in second quarter, how do we think of the margin contribution there, the margins that are coming from the Interactive side? And then a couple questions. This is really to Ken. It's -- you guys said that you're thinking about still evaluating strategies with the newspaper business, and I wondered if you could really elaborate on that and tell us what your thoughts are with bringing uSwitch to the U.S. or given that you're going into new verticals, whether you'll focus on that and eschew going into other geographies? Thank you.

Lot of questions there, Fred. John, why don't you go ahead and tackle the upfront questions?

Okay. Will do. Good morning, Fred. The thing on the ratings to be really clear about, is that double-digit ratings and impressions growth is something that was fairly common through the last several years at our major networks, as the distribution was also growing. Now that distribution has matured, the ability to grow ratings in double-digit percentages will be increasingly challenging. And so when we think about ratings growth, we think about a much more competitive environment, 200 to 300 channels competing against us and really staying even with, or even growing in the low single-digits, we consider a great success. For that reason, then, with the margin for error slimming down, we're a little more conservative on how we're guaranteeing those impressions into the future with our endemics and non-endemics, and being a bit conservative on that, Fred, so that we can deliver on the impressions and preserve the added inventory that we have, to continue to promote the network in order to continue the slow, but steady ratings growth. And that's really our strategy. We're not a hit-driven collection of networks, like an entertainment network might be. We really believe in slow and steady audience development, and we invest very deliberately for that effect. And then we try not to overpromise and underdeliver, but do our best to be conservative in our estimates. In terms of Interactive, our -- .

But then you are guiding for some ratings growth?

We are guiding right now -- .

So low single would make sense, I guess?

Since we're in the middle of negotiations and that's a competitive issue, I would rather not get into the details of what we're guaranteeing.

Okay.

And by the way, it's different with different demos on different networks, so there's no one catch-all answer.

Sure, sure.

And Interactive is currently on a top line basis is about 6% of our total ad revenue. Our goal is to grow that over time to be much more material. We'll be this year nearing the $100 million mark in terms of international -- pardon me, Interactive revenue against about a $900 million ad revenue goal. And we are seeing, as I said earlier, 25% to 35% growth, depending on the quarter going forward, and that will become material over time. I think the three -- the three pieces of that that will help it become material, the first is our new strategy having brought in Deanna Brown as our new President for Scripps Network Interactive from Yahoo! Lifestyle Media. And she's laid out an aggressive strategy for increasing our user-generated content, our social networking, and generally just growing a much more user-centric business around our core brands, as we extend beyond their connection to our linear networks. And then secondarily to that, internally we're working on some exciting ideas to grow some interactive businesses within our category under new brands. And then as you saw with Recipezaar by way of acquisition, we continue to have an ambition beyond our existing brands, but rather to grow several brands and be the dominant -- continue to be the dominant interactive business in the shelter, food and lifestyle categories, and increasingly see the materiality of that side of our business grow as the linear business matures.

Okay. Rich, do you want to take the usage switch question, and then I'll talk about evaluating strategies.

Sure. Fred, it's Rich Boehne. Step back for just a second and think about the way we look at expansion for uSwitch and Shopzilla, because we spend more time on just looking at the U.S. for uSwitch. Right now, almost all the emphasis is on Europe and the UK, where the market is very, very strong. So Shopzilla is expanding across Europe and like we said, the numbers are very good over there. And at the same time, uSwitch is focused on the opportunity there to expand other categories outside of its core energy, which at the moment is a little bit weak. So at some point, yes, absolutely uSwitch will -- in some fashion will come to the U.S., but right now we're very focussed on the opportunity in the very strong European market with both Shopzilla and uSwitch.

And, Fred, as I said in my opening comments, we're a Company that's constantly evolving. We always have been. I like to refer to us not as a traditional media Company, but a transitional media Company. So we're constantly evaluating our strategies as it relates to all divisions. I will say, though, that I think Mark and his team have just done an outstanding job of aggressively moving in our local markets where we operate our newspapers to a Web strategy, an interactive strategy. We've documented a lot of that, Fred. You're familiar with a lot of it. And on an ongoing basis, it's just an area that we focus a lot on and we'll continue to, but there are no immediate plans on the front burner.

Okay, thank you.

John Janedis, Wachovia.

Ken, you mentioned the challenges in the Interactive business for a couple of quarters now. Are you expecting any kind of moderation as it relates to the competition for key word bidding, and is the European market much different from the U.S. for key words?

I'll let Rich dig in a little bit, but it's obviously a very competitive area that's actually gotten more competitive since we entered, especially on the retail side here in the States, with comparison shopping. But, Rich, do you want to dig in just a little?

Sure. The -- I don't think there will be any moderation in the competition for key words in the paid search markets. I mean that's not going to change. We're doing an excellent job of driving traffic there and on the free side. If you've looked at Shopzilla's numbers in May and June, they (inaudible) the marketplace. So the challenge is not so much getting the traffic and competing in those markets, it's turning that into revenue and bringing more to the bottom line. But, no, that will continue to be competitive. In Europe, it's still much less of a search engine market than it is over here. There's an awful lot more free traffic, and we generate a whole lot more traffic through more traditional kinds of marketing. Over time, it's going to become, we would expect, more of a search engine market, but today that's not the challenge over there.

Okay. So on the free side versus the paid side, can you give us a sense of how that's changed today versus maybe in, like, February, March for you guys?

We don't see the exact breakout, but the free side is up strongly compared to the paid side.

Okay, and just one quick follow-up to an earlier question. Related to the housing market slowdown, have you seen any kind of pullback from either Home Depot or Lowe's, at Home and Garden or at DIY as of yet, and do you expect one?

This is John, John. We have not seen a significant or material pullback. There's an ebb and a flow quarter to quarter. If you think about our networks, while they seem to be endemic and tied to the housing industry, it really is much more -- the programming is much more focused on design and and the voyeurism, if you will, of the process of buying a home, but not literally buying and selling homes. But, the -- they are clearly two of our top five advertising customers and they remain there, and their investments are -- have moved up and down. But we don't see anything tied specifically, nor do we hear about anything tied specifically to the variances in home sales.

That's great. Thank you.

Karl Choi, Merrill Lynch.

A few questions. First one, just want to clarify, in your guidance with Scripps Networks revenues in the third quarter, are you assuming that there will be no year-over-year erosion in ratings?

Yes, absolutely.

Okay. Second question is regarding the upfront. Can you just tell us about how many -- sort of what percentages in ratings that you actually gain or lose from going to live only to commercial-plus-three (inaudible) impact on top of your CPM growth?

Yes, Karl. On a [C3] basis, Scripps Networks, HGTV and Food being the, those that are rated and have the biggest impacts obviously on our business, DIY is rated and is also falling under the C3, but is obviously smaller. The delivery of impressions on a C3 basis on HGTV and Food are among the highest in the market among all of cable networks, based on our high engagement. Historically, we've delivered the highest numbers in terms of engagement. Put that in layman's terms, people see the commercials on HGTV, and they not only see them, they act on them. They are engaged in the message. As a result, our advertisers are willing to true-up the unit rates on a C3 basis. Our impressions run about 5% or 6% below our program rating impressions, but our unit rates will remain the same, making us whole on the exchange rate, if you will. And so when I talk about a five to say a mid to high single-digit growth in CPM, that's net of the C3 adjustment. Another way of saying that is if we were to get, say, a 5% growth in CPM, that would be in actuality an 11% growth because we're made whole on the 6% differential based on C3 ratings compared to program ratings.

That's very helpful. As far as the year-over-year sellout level, during this year's upfront, do you expect that to change from last year's?

I would rather not get into strategy, but I will tell you this. That it's our intention, based on the challenge every year of driving ratings, to maximize our pricing. And in order to maximize our pricing, we may be a little bit more selective in terms of the volume we're willing to take upfront because the history of the last several quarters, really six quarters looking backwards, shows that the scatter marketplace is far outperforming the upfront marketplace. As I said earlier, in the second quarter, the pricing in second quarter was 25% better than the pricing in last year's upfront. So I think we will be working harder to drive pricing in the upfront over volume.

Okay. Last question on (inaudible) guidance, the down 5% to 8% revenues in the third quarter, does that assume once you -- actually, one more Sunday in the quarter?

Karl, you're speaking (inaudible) -- .

Correct.

Yes, sir.

Okay. So it will be actually down more on the underlying basis?

Yes, and it's largely driven by classified, Karl.

Okay. Even though the comps actually do look quite a bit easier in the third quarter?

They do get easier in the third and fourth quarter, but the Florida classified decline continues to be the primary dragger for us.

Okay. Thank you.

Craig Huber, Lehman Brothers.

On this live plus 3 discussion, I would assume you guys anticipate that being your currency, if you will, for the ratings you'll be using starting what, January 1st, or do you think it will actually be earlier than that?

Karl -- I'm sorry, Craig, that would be beginning in the fourth quarter. For those agencies that are working on that currency. Not every agency, by the way, is using that currency, so we'll have a mix of both program ratings and C3.

And if I think I heard you correctly, you're saying your CPMs right now are tracking up five to nine, and that would be net of the C -- this commercial ratings adjustment?

That's correct.

Okay, and then Ken, are you taking off the table -- just to clarify here, taking off the table selling or spinning off your new superdivision and/or your TV stations?

No, I'm not taking it off. I'm not putting it on. I just -- as I said earlier, I think we're constantly evaluating -- as you know, Craig, we have in the past, our different businesses, whether it's radio, cable systems, TV stations, cable networks, newspapers. In the environment we're in, we have to look at all of our businesses. So at this point, nothing imminent on any front.

Okay, and just a couple of nit picks. Can you give us what the ad revenues were down at your Florida newspapers, in particular, how much the real estate component was down?

Sure, Craig. Hang on one second. If you looked at just Florida alone, let me give you classified was down about 33%, auto was down about 33%, real estate was down about 33%, and employment was down about 53%. And just for some context, if you look at our ad revenue performance, 60% of our decline was caused just by Florida. And then real estate alone, 95% of our decline is just Florida. And that has spill-over effects into retail, as well. If you looked at furniture, for example, furniture has the largest decline as a category. Half of that is just Florida, even though Florida generally represents about a third of our total newspaper revenue normally.

What was the total ad revenue decline in the quarter for Florida?

About 21%.

Okay. Then my last question, non-newsprint cash costs in the quarter, how much was that down, please?

About flat. And there's two things -- that would have been down more. There's two major things that caused that. One was online spending. Most of it related to the Yahoo! deal. And then we changed the way that we pay our carriers in Naples, Florida, and that's about $1 million.

Okay. Great. Thank you.

Paul Ginocchio, Deutsche Bank. Please go ahead.

Just back to cable -- the programming investments as you're ramping here in the third quarter, although cable costs have been under control for the last few quarters. How do you see, I guess programming investments going forward? And then just a second quick one, Joe, on minority line, is that still $83 million as the guidance? Thanks.

Yes, Paul, this is John. I see the investment in programming in the midteens percentage growth, not dissimilar from this year going into next year. And by the way, just -- since this just came in via e-mail, the investment in programming makes you feel good when you see that our Design Star premier on Sunday showed increases of 46% and 49% against households in key demographics over the last year's premier. So that's the reason we do it, because it gives us the chance to keep growing this network and keep refining the audience so that it's -- keep in mind, it's not for us -- it's not just the younger demographics. It's also the age and income. And we have the top ranked networks, number one networks among women 25-54 in a 75K-plus environment, and that kind of investment is what keeps that growing.

John, if I could ask a follow-up. You had mentioned before all the cable channels out there and that you've got full distribution. Just wondering if -- and maybe I'm going back to an earlier question. Just wondering if that changes your outlook on the margins long-term as programming costs stay in the midteens, yet maybe top line does not?

The way I think of it is that there will be some moderate downward pressure on margins while we ramp up Interactive. But as we see the Interactive business, we're not bound by two or three or four or five brands. We have those great brands, plus we have the ability to build or acquire new brands and continue to expand in the shelter, food and lifestyle category. So I think while there may be a plateau or a slight retreat in margin, I think the opportunity to grow margin in the future is still very, very much -- very real for us.

Great, and Joe, on the minority line, is it still $83 million?

Yes, Paul, that number's still pretty good.

Great. Thank you.

Scott Davis, JPMorgan.

Actually, Karl got my questions. Thank you.

[Leah Hilla], UBS.

I was just curious if you were still interested in acquiring the minority stake in Food TV, and also whether or not you might have had discussions with Tribune recently of that nature?

Sure, Leah, it's Ken. We are interested in acquiring that at what would be, we think, a good acquisition price for our shareholders. We recently have not had any active discussions with Tribune, although as you know, since they are our partners in Food, we're constantly talking to them back and forth. But on this particular issue, no discussions recently. It's pretty well understood on both sides that we're a willing buyer, and when they become a willing seller at a reasonable price, I think that would be a great opportunity for us.

Okay, thank you.

Edward Atorino, Benchmark.

Peter asked the question about Cincinnati. You said there was a $12 million make up. Any plans you'd talk about to make that up? And secondly, if you look at the affiliate revenues in the networks, is that a sort of run rate for the balance of the year, $55 million, $60 million?

Well, Ed, let me address the first question, although Mark, you're welcome to jump in. As far as quote, unquote, making up Cincinnati, let's be very clear that in our announcement we did not suggest there would be any continuing operations of any sort, web-based, et cetera.

Oh, okay.

But Mark is certainly looking aggressively, as he always does, at contributing more throughout the remainder of this year, and especially '08. But there's no planned quote, unquote, that Cincinnati-based, to do anything on that front.

Okay.

Okay?

Ed, this is Joe. That range still looks good for the rest of the year.

Okay, thanks.

And I'll now turn the meeting back to our speakers.

I think that's the end of the questions at this point. If you have any further questions this afternoon, I will be available. It's Tim Stautberg, 513-977-3826. Otherwise, thank you, and have a good day.

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