E W Scripps Co (SSP) 2007 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the E.W. Scripps company third quarter earnings report. At this time, all participants are in a listen-only mode. (Operator Instructions)

I would now like to introduce your host for today's presentation, Mr. Tim Stautberg, Vice President of Investor Relations. Mr. Stautberg, you may begin, sir.

Thank you. Good morning, all. Thanks for joining us. We'll start the conference call today with 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 make sure 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, Lori Hickok, Vice President and Controller, and A.B. Cruz, our General Counsel. Let me remind you if you prefer to listen in on the web, you can go to Scripps.com and click on the shareholders button 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 and 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.

Okay. Thank you, Tim. and good morning, everyone. As always, we appreciate you joining us and of course, your continued interest in the E.W. Scripps company. This has been a momentous month for Scripps and its shareholders to say the least. Last week, we announced that our board of directors has unanimously authorized management to pursue a separation of the company into two publicly traded enterprises. One, focused on national lifestyle media businesses and the other, on local news information and entertainment franchises. And today, we reported improved consolidated results for the third quarter led by very strong double digit revenue and segment profit growth at our Scripps networks operating division. During the third quarter, ScrippsNetworks accounted for nearly half of the company's consolidated revenue and 70% of segment profits. The superb financial performance of Scripps Networks drove consolidated growth and looking ahead, we anticipate that strong performance at our national lifestyle brands will continue to carry the day for the balance of the year.

The success we're having at Scripps Networks is tied directly to the popularity of our flagship networks, HGTV and Food Network and the momentum we're creating at our newer brands, which include the DIY Network, the Fine Living TV Network and Great American Country. At HGTV, the news is all good! Now, available in nearly 96 million homes, HGTV delivered a record of 1.1 rating for the third quarter and has the average household audience for the three month period climbed to one million which by the way, is also a record. September not only marked the highest month ever for young adult viewers, but it also helped the now completed 2006-2007 season become the highest rated ever in the network's history. Programming highlights during the third quarter include the finale of our breakout hit, Design Star. Nearly four million women watched Kim Myles become this year's Design Star winner. Now, that's more women watching a single HGTV program than any other prime time series in the network's history. But Design Star really doesn't tell the whole story of the network's rating success. Other new series that launched in the wake of Design Star shows like deserving design, color correction and find your style, all garnered strong ratings. Now, we're expecting even bigger and better things now that Jim Samples is on board as HGTV's new President. Admittedly, he's got a tough act to follow, succeeding Judy Girard who really has done an outstanding job adding a whole new dimension to HGTV's programming. On the Food Network, hot prime time shows like Ace of Cakes, Dinner Impossible and Throwdown with Bobby Flay are driving 20% to 30% ratings increases for their respective time slots over the prior year. On September 8th, the finale of Ultrabrown's Feasting on Asphalt two attracted more than one million viewers. Now, that was more than double the households that tuned in during the same time slot just a year ago. Food Network has done an exceptional job establishing a solid prime time audience. In fact, the third quarter was the highest rated, most watched quarter in the network's history. Plus, Food is a top ten network for women in the 25 to 54 demo, both in prime time and total day. Now, there has been a little slippage in Food's daytime ratings as I'm sure you're well aware, but we're actively working to reverse that trend by developing new talent and creating new programming and improving current shows. We're also planning an off air media campaign that will parallel on-air promotions that will highlight our in the kitchen block of programming. The campaign's focus will be on the programming improvements that we're making and we're excited about it.

In our newer networks, the focus has been on securing carriage and greeting new viewers with quality programming. All of our newer networks, DIY, Fine Living and Great American Country, are either at or near the 50 million household range which frankly really exceeds our early expectations for these networks. In each of our networks has a growing cad Ray of loyal viewers. DIY, for example, got its usual high marks in beta researches latest digital cable subscribers study. The network ranked number two among adult viewers with household incomes of $75,000 or more and it was number two among viewers for overall satisfaction. Ratings growth was encouraging to DIY in August and September led primarily by a new series we introduced called Blog Cabin. Now, we're taking advantage of the audience that we're building and with this popular new program by giving ad exposure in the following time slots to other promising shows which include Desperate Landscapes, Man Caves and Under Construction. Now, over at Fine Living, we're welcoming new viewers with great programming including the Martha Stewart Show, which airs the day after its syndication debut. And another programming arrangement with Martha, Fine Living next month will begin carrying a best of compilation series called Martha Stewart Crafts.

And finally, Great American Country, we have the exclusive TV premiere of Garth Brooks' new music video, as well as a line-up of Garth centered specials this month and next. Clearly, we're creating plenty of momentum at our newer networks. We're also building considerable momentum on the interactive side at Scripps Networks. The 31% growth and interactive advertising revenue that we reported today is a direct result of the success that we're establishing at Scripps Network's interactive division, which is our leading destination for useful and entertaining lifestyle content.

Here are just a few of the highlights from the past three months. During September, Food Network.com marked its 15th consecutive month as Nielsen's top-rated website in the food and cooking category. The site attracted an average 8.2 million unique visitors during the month, its highest September on record, up 27% from the year before. Food Network's on-line success is also rubbing off on Recipezaar which as you recall, we added to our interactive portfolio in July. Since integrating the website with our other on-line businesses, Recipezaar's unique visitor count is up a whopping 78% and page views of have more than tripled over where they were just a year ago. Also Food Network related, we've deepened our on-line relationship with Rachael Ray with a deal that allows our ad sales group to sell placements on her website for a share of the ad revenue.

We're also seeing plenty of growth at our other websites. DIY Network attracted 37% more unique visitors during September than the same month a year ago. And nearing the quarter, HGTV.com averaged more than 4.4 million unique visitors a month. Scripps Networks is establishing itself as the undisputed leader in lifestyle content both on television and on the Internet. Scripps also has established itself as a leading competitor in on-line comparison shopping with Shopzilla in the United States and uSwitch in the U.K. At both businesses, which are the foundation for Scripps interactive media division, we're adapting to the changes in the competitive landscape that have affected results for the first three quarters of this year. While energy switching remains weak at uSwitch, we saw some positive trends building at Shopzilla as the period grew to a close. Net revenue growth at Shopzilla was in the double digits in September, an indication that we're getting a lot more efficient at acquiring paid traffic and are making solid progress building up the free traffic side of the equation. That trend, I'm happy to report is continued into October which we believe bodes very well for Shopzilla for the balance of this year. On another positive note, Shopzilla marked its sixth consecutive month in September as the nation's top comparison shopping site on a unique visitor basis. That's all encouraging news for Shopzilla as we look forward to 2008. Over at uSwitch in the meantime, we're looking at a return to profitability by paring down costs to where we're moving more in line with the lower switching activity that we're experiencing.

Turning now to our local media businesses, both our newspaper division and our television station group did a tremendous job controlling expenses in a very difficult local advertising environment. Total revenue and segment profit at our newspapers declined during the third quarter. However, largely because of the impact that slumping housing and employment markets have had on our newspapers in Florida and in California. Also on-line revenue at our newspapers grew at a very healthy pace up 19% year over year. At our television stations, we're truly looking forward to robust political advertising in 2008 as anticipated, third quarter results at our local stations reflected the relative absense of political compared with the record year that we had in 2006. We saw some improvement in local and national advertising, but those results were tempered somewhat by softer automotive than we hoped for. Let me emphasize that we believe strongly on the long-term viability of our local markets. The current economic environment not withstanding, we believe there's great potential for further growth in the communities where we operate local media businesses, particularly in Florida and in California. Our focus for now is operating our local media businesses as efficiently as possible.

And finally, before I turn it over to Joe, let me give you just a quick update on the separation plan that we announced last week. We've been quite busy since making the announcement on preparing our SEC and our IRS filings. We've also pointed an internal transition team and teams actually that will soon begin naming team managers at both companies. At this very early stage of the process, we're on track to complete the transaction in the second quarter of 2008. with all of that, let me turn it over to Joe.

Thanks, Ken. Good morning, everyone. As we reported this morning, we had a very solid third quarter. After backing out the gain on Cityfeet, an investment we sold during the quarter, we beat the high-end of our forecasted EPS range by about 6 cents. Cityfeet by the way, was one of several interactive investments we made a few years ago that we determined were not core to our holdings. As for the quarter, the strong financial performance at Scripps Networks made the difference. Ad sales tied to improved HGTV ratings, a solid prime time at Food and a strong scatter market for all of our networks pushed total revenue well past our expectations. We also got a nice boost from the robust growth in on-line advertising. Looking ahead, we had a successful up-front this year with rate increases in the mid single digits even after the C3 conversion. Altogether, I'd say that all systems are go for our cable networks.

As for other businesses, we're working through some challenges. At our newspapers, we're contending with weak local and classified advertising as are all of our peers. All classified categories are under pressure, but it is particularly acute in our Florida and California markets, which are feeling the full effects of the weak housing market. Here is a little more detail. Real estate classified revenue for our newspapers was down 18% and employment was down 19%. Automotive was a little better but not much down 16% during the quarter. As Ken pointed out, our publishers have done a good job at keeping costs down. Newspaper expenses were down about 4%, thanks in part to a voluntary separation plan we implemented in the second quarter. Our newspapers also benefitted from falling newsprint prices and overall lower newsprint usage. Our newsprint expenses were down 20% in the third quarter.

In our station group, the quarter played out pretty much as expected. Local and national advertising were up but not as strongly as we would have liked because of the softness in the automotive category. Otherwise, the lower revenue and segment profit can be attributed to the difficult comparison with last year's record political advertising.

As for our interactive media division, we're cautiously optimistic that we're see a turning point at Shopzilla. Net revenue, that's revenue net of our on-line marketing costs, grew by more than 10% in September and the trend looks even stronger for the current month and for the balance of the year. Net revenue is an important metric because it reflects our ability to efficiently generate traffic both paid and free. At uSwitch, however, weakness in energy switching has persisted. In response, we reduced our head count there and our other expenses. Even with the lower level of switching activity, we believe uSwitch can and will be profitable in 2008 by lowering our cost structure. Turning to our guidance for the fourth quarter, it is all pretty much spelled out in the press release so I won't go over all of the numbers here on the call. I would like to emphasize two points, though. First, we're anticipating double-digit revenue growth at networks will continue through the last quarter of the year. Ensuring that the full year will achieve our very high expectations for the business. Second, the early indications are that we'll finish the year strongly at Shopzilla and we'll hit our full year segment profit forecast for Scripps interactive media.

Finally, let me bring you up to date on some nonoperating items. Company continues to generate substantial free cash flow, so debt at the end of September was down to $606 million compared to $766 million at the end of the year. Because there's less debt on the balance sheet, interest expense for the third quarter was down 41% to $9.1 million from $15.3 million during the same period last year. We're still expecting interest expense for the full year to be about $37 million. Capital spending through nine months is up to about $79 million compared with $49 million at the same point in 2006. As we mentioned at the end of the second quarter, the difference is attributable to capital we're using to expand Scripps Networks headquarters in Knoxville to upgrade our TV station's capabilities to broadcast high definition newscasts and for software development in our interactive companies. We're also spending some money in preparation for construction of a new newspaper production facility in Naples, Florida. All in, we're still expecting capital expenditures on the year to be between $110 and $125 million. As for our share repurchase program, we spent about $27 million to buy back our own stock. We repurchased about 650,000 shares during the third quarter at an average price of around $42.13 a share. And with that, we conclude our prepared remarks and operator, we're happy to take questions.

(Operator Instructions) Our first question question or comment comes from the line of Alexia Quadrani from Bear Stearns. Your line is open.

Thank you. A couple of questions. First, on the changes you've made in the day part at Food Network. When do you think you might see some traction from those changes, maybe some improvement in ratings there? And second question is on uSwitch, I know you made a move into some new verticals in uSwitch earlier in the year. When do you think you'll see some benefit from that as well?

Alexia, this is John. I'll take the first one. We're very busy right now at Food Network, investing both in new talent, acquisitions, as as well as programming concepts, as well as new programming for existing series that have been successful in the past, as well as adding marketing support and I anticipate that we would begin to see that improvement in the first quarter.

Alexia, it is Rich. On your question about uSwitch, yes, uSwitch has expanded into some other verticals and has found a lot of traction there and those results are pretty good. The problem is at the same time the core energy market continues to be very weak so we're really kind of hunkered down at the moment just trying to conserve our capital and be careful about how we expand there. But long-term, we have one of the very strongest brands in the United Kingdom. The market is very strong over there. We have a very good management team. And we think those other verticals, personal finance, car insurance and the others will continue to grow in advance under that uSwitch brand.

Just so I understand it correctly in uSwitch, it is really I guess the weakness is more because of the pricing environment among the utility providers is not overly competitive right now more than the function of how you on uSwitch is positioned, is that fair?

That's absolutely correct. USwitch is positioned very well, but the energy prices are down and there is not a lot of energy switching. At the moment, that's the core products of hence the weakness that you're seeing.

Then just one last question on the newspaper side of the business. Could you just -- I know you don't report monthly numbers, but could you give us a sense how newspapers may be trended in the quarter. Did you see a dramatic drop-off as the quarter progressed or is it pretty evenly across the quarter?

Alexia, this is Mark. It was really kind of a market by market phenomenon. I can't tell you that there was a trend downward in -- as August and September trailed off. The only trend that may be of interest is expenses continued to come in strong as we anticipate that trend going into the fourth quarter as well. But -- and I'm reluctant to give any visibility in the fourth quarter at this point.

Thank you.

Our next question comes from the line of Mr. John Janedis from Wachovia. Your line is open.

Hi, thank you. Good morning. A couple of questions, guys. One is --maybe to pile on a little bit. Can you talk more about the reduced on-line switching activity at uSwitch? Should we look at that as a permanent shift? And what's the catalyst to increase switching given the competitive environment?

John, it is Rich again. The catalyst would be rising energy prices in the United Kingdom. That's -- I mean, the core issue right there. It is not anymore complicated than that. Energy prices are -- have been flat to down over the past now almost nine months. And that has really reduced switching activity. It is really not anymore complicated than that. You know, we feel and always have felt based on the due diligence we did that long-term energy prices will increase in United Kingdom and in Europe and should be a very robust market, but it is very volatile as being demonstrated over the past nine months. So, we're confident it will come back. But when is a tough call at this moment.

Okay. And then just from the cable side, how do you feel about the scatter market today relative to maybe your second quarter call and have you felt any kind of positive impacts from any make up situations from the networks on broadcast?

I'm sorry. On broadcast?

I'm saying, are there any situations in the broadcast network side that are helping you guys specifically?

Yeah, John, the answer to that is yes. There are some under delivery issues with the major broadcast networks that are eating up a lot of inventory and then creating opportunity for cable networks, ours in particular, we're continuing to see the same strength that we saw in the third moving into the fourth. So, we're seeing scatter versus scatter pricing up in the 9% to 10% range and scatter versus up-front in the 25% range and continue to see that going forward.

Great, thanks. And quickly, Joe, just on the tax rate, can you give us a sense of the fourth quarter?

Let me dig that out, John. I'll break back in when I have it.

All right, thanks.

Our next question or comment comes from the line of Mr. Peter Appert from Goldman Sachs. Your line is open.

Thank you. Follow-up question for Mark. Mark, you guys reported and some of the other publishers have reported notable improvement in the national category. Can you just talk a little about what's driving that and the sustainability of that?

Peter, a large part of that is because we made an investment in January to wrap ourselves in effect with three people dedicated to selling both print and on-line advertising. So, while we've had some categories kind of help us organically, much of that increase was attributable to the fact that we put elbow grease into it. And our return from that investment is more than two to one at this point. In terms of dollars spent for revenue generated. Because we're finding that there is a lot of revenue out there if you can put on-line revenue in one package and national print in one package to really focus on it. It is a small category for us.

Sure. So, it is not category specific.

No. No. It is attributable to the extra resources we dedicated to it.

Okay and thank you. On related question - I guess for Ken. There's been quite a bit of volatility in the profitability of the interactive segment since you bought Shopzilla. I'm wondering if you can give us help in terms of understanding where you think it settles out. What kind of margins are achievable or sustainable in this business in '08 and beyond?

Well, yeah, Peter. I've -- firm grossly obvious There has been a lot of volatility. You know, on the Shopzilla side, some of the volatility has come from increased competition from our retail partners and the whole pricing structure of keyword marketing, all of the things you know, but I think the take away is even with the management change, we've come through in pretty good shape, all things considered and I'm very impressed with Bill Glass and his team and how though have adapt and continue to continue to adapt to this change in market place. You know, on the Shopzilla side, some of the volatility has come from increased competition from some of our retail partners and the whole pricing structure of keyword marketing, all of the things you know, but I think the take away is even with the management change, we've come through in pretty good shape, all things considered and I'm very impressed with Bill Glass and his team and how they have adapted and continue to adapt to this change in market place. And as you heard in my remarks and Joe's we're feeling very good about where we are with Shopzilla right now and our ability to adjust to the competitive environment. Rich talked a little bit about uSwitch. We have a great management team there under Andrew Salmon. So, while there is volatility in these businesses, we have said all along we knew that going in. Not a lot different in the early days of when we were launching the cable networks. And we would be on calls of this nature and talking about the ups and downs of where we were with the growing new business. As far as long-range and looking at margin side, I think at this point, I would pass on that only because we need to get a little bit more into '08 to get a better feel for how these businesses are really shaping up. Hey, John, before -- with respect to John Janedis' question, we expect that the tax rate in the fourth quarter to be up some from the third quarter and there were some positive adjustments. And the rate has been up and down. We expect the full year effective rate to be somewhere between you know, 31, 31.5 so you can kind of derive what the fourth quarter rate ought to be.

Is that the same rate you think in '08, Joe?

Yeah, it is hard -- it is early to think about that. It could be up just slightly, but I think it will be in the same ballpark.

Okay, thank you.

Thanks, Peter.

Our next question or comment comes from the line of Mr. Joe Arns of Bank of America. Your line is open.

Yes. Good morning. It looks like even if I take out the effective lower newsprint cost that your newspaper costs were down about 2% to 3% in the quarter, is it possible to sustain this level of cost reduction going forward? And if so, where can you take out costs for which you are going to propose the separation plan. Then second question, can you tell us how much your revenue at Food Network and HGTV comes in prime time? Thanks.

Joe, this is Mark. I'll take the newspaper expense question. We're being very disciplined about where, when and why we spend money. We're going to spend money in three areas. To grow our Internet business, to grow our local retail territories and to grow our niche products. Beyond that, we're taking a look under every rock for ways to reduce expenses. The reductions that we've had so far in the third quarter represent about a 6% net reduction in FTEs to the extent that we add anybody, it is going to be to fill those three revenue areas and we are looking enterprisewide at looking at functions that we can centralize or outsource. So, I guess the short answer to you is that we're committed to keeping our eye very closely on expenses because we just -- it is a necessity at this point in the cycle of our business. We do think that the investments in those three other areas do have a return and that's why we're going to keep continued spending on those. But our plan is to look for the foreseeable future with expenses net, net, net down. And excluding newsprint, obviously because of the fluctuations there. Hope that's helpful.

Yeah and Joe, on the revenue-related to prime time, really depending on the network, depending on the quarter, it would fall within a range of 30% to 40%.

Great. Thank you.

Our next question comor comment comes from the line of Mr. Craig Huber from Lehman Brothers. Your line is open, sir.

Yes, good morning. A few questions. First one, just to go back to just recently, you guys announced you're breaking up the company. Can you just discuss the Scripps family trust. Are there any restrictions in there that prevent you in the future perhaps from selling the cable network interactive stub company in the future?

Why don't you take that, Joe?

Craig, this is Joe. I tell you what we do know, all right? After the split, we will have identical capital structures. The trust will continue to control both companies. The trust, what we know about the trust and its restrictions is that it must control a company called E.W. Scripps company and it will continue to control that company. That company must be in the newspaper business which obviously it will continue to be post-split. We're not making any assumptions about but we don't see, we don't anticipate any restrictions on the trust with respect to the other company.

Okay. Then also just a few nitpick questions. 2008 CapEx just in light of the one-time items you're talking about this year and also newspaper costs, you mentioned in your guidance fourth quarter. Newspaper costs would be down slightly. I believe in the third quarter is down 5%, 5.5%, looked like the comparison pretty was identical year over year. Why the slowdown? Is the mixture in investment spending perhaps, going on in the fourth quarter?

2008 CapEx, we have not finalized budgets. I would anticipate that they -- on a consolidated basis, they could be similar to this year because the significant bulk of the network's expansion expenses will be next year. And then Naples will also kick in much more significantly next year. So, I wouldn't be surprised to see '08 to be of a second large year in a row. Beyond that, I expect they would fall off on a consolidated basis again. They would fall off significantly after that. Probably down to half, to that level. And your second question was on -- oh -- not newspaper.

Overall newspaper costs.

Craig, the biggest -- this is Mark. The biggest chunk there obviously is going to be newsprint pricing and usage and that is what is driving much of that. In addition, continued FTE, we're going to hold the line on FTEs, we're down, to mention about 300 FTEs, which is about 6%. That will continue largely into the fourth quarter. We'll have some spending on Internet marketing and executing of the Yahoo! deal, but those are the major drivers of our expenses for the fourth quarter.

And then lastly, if I could, just concerning the up-front market for came networks, can you just give us a sense of what the ratings guarantee percent change that you've guaranteed your advertisers for this new year?

You know, I would rather not get into this specific ratings guarantees other than to say that we enjoyed a pricing increase going into next year of double digits once you count the C3 effect, 5% and 6% on top of the C3, but in terms of the actual guarantees, I would rather stay away from that, Craig. Okay. Fair enough. Thank you.

Our next question or comment comes from the line of Mr. Fred Searby from JPMorgan. Your line is open.

Ok. Thank you. Congratulations on the quarter. I had a couple of questions. One, could you break out whether you saw any revenues from the Kohl's deal and where that's going, to what line item that's going into. I don't know if that's in the Food Network. Secondly, Food ratings were weak this quarter and HGTV's were stellar. I follow them. I'm just curious as to why they had the same revenue growth. That surprised me. I expected HGTV to have very strong, but I was surprised by how strong Food was. If you could give me more color on why there seems to be a parity in spite of the fact that HGTV is not going to cover up the bone to which you know, a little bit of lackluster. And then the Comcast deal you struck on affiliate fees, affiliate fees were up nicely at 23%. Is that something that -- did that go into effect in the quarter and is that helping to boost it a tiny bit? And I guess that's it for now.

Let me start with Comcast. We were accruing that revenue from Jan 1 throughout the year assuming the completion of the deal, Fred. As far as revenue HGTV and Food, both, if you look at prime time, both networks had a stellar quarter. In fact, both hit all-time highs in prime time. Both airing their signature series, next Food Network star and Design Star and our ad sales grew, did an unbelievably great job monetizing those projects both on air and on-line. And as you know, our on-line revenue flows through the P&L of the networks themselves. So, we had a great deal of positive momentum driven through prime time in the quarter, during the quarter. And HGTV was fighting back somewhat. If you recall, we were in a bit of a hole in the second quarter with HGTV daytime. And so we were fighting back HGTV daytime in the third quarter and thankfully, thanks to the great work at the brand, they were able to turn that around. But some of the inventory in the third quarter was used to make good some of the guarantees from the second quarter and that would have a balancing effect on the daytime of both HGTV and food. And then as far as the Cole's revenue, that flows through the Food Network P&L through other revenue.

Ok. And what -- I didn't even look at what the other was in Food. But was that material and is that -- should we expect that to pick up going forward?

It is early. Not yet material. But by the way, the sales at Cole's have been really good and in fact, we're told by our partner at Kohl's, we're 15% ahead of their expectations quarter to date and so we're very optimistic about where that will go.

One more question. So it sounds like the parity was a little bit due to make goods at HGTV related to prior softness in the all day, the daytime ratings. I'm just curious as to whether that you know, that really so the HGTV should have a much, much stronger than Food given where things are tracking right now for the trends going into the fourth quarter I would assume. So, we should see that disparity wide, right?

There's one mitigating effect. Generally, that would make sense. One mitigating positive effect is that the fourth quarter is typically Food Network's strongest quarter. Because of the holiday season, it really goes hand in hand with programming on Food Network and our ratings, even our daytime ratings which admittedly we are still working up out of some areas where we have some issues, but they will, without question, be the strongest of the last three quarters during this year's fourth quarter. Based on just the traditional trends. So, generally, what you're saying is true although I would only say it would be mitigated by the general strength of Food Network in the fourth quarter even in a down year.

Ok. Thanks, guys. This is great news today.

Thanks, Fred.

Our next question or comment comes from the line of Mr. Thomas Rousseau from Rousseau Gardner. Your line is open.

Great news and two questions. One for Joe and Joe, as it relates to Shopzilla, you mention that the net revenue was up 10%. It was a balance between the mix shift between purchase and free and I wonder if you can describe those components a bit more.

Yeah, Tom. We haven't generally given the split up between the two, but I will tell you that we're getting a lot more effective in our keyword buying and I think we've been able to be a lot more efficient. We, earlier in the year expanded our capability to bid on a much, much larger quantity of names and we worked through that and as we have pared that back down, we've been able to get -- we've been able to get a lot more efficient and smarter about what we buy and what we pay for them. The free traffic on the other side is up over 20% year-over- year. We feel really good about that. A lot of the initiatives they've been spending money on through site development have been centered around the user experience and getting in to be more of a choice, a destination, if you will. And I think that's starting to pay off handsomely.

Ok. That free traffic which is what you were hoping for initially is starting to pan off.

Yes, it is.

Good. Mark, could you bring us up to date on the -- your end of the roll-out with the Yahoo! consortium, whether anything has yet surfaced and then independently, how your digital is working away from the national category which you discussed, succeeded because of staffing that you put on that task. How is it going across the other categories in terms of staffing and the effectiveness of your in-house Internet ad sales efforts and what's happening with Yahoo!

Ok. I'll start, Tom, with the Yahoo! deal. We've got two batches of papers. One batch that went into the Yahoo! co-branded site in December. The other that went into the summer. When you look at their year-over-year performance in terms of page views, because about a 7 to a 10 point improvement after versus before. So, they clearly -- the Yahoo! deal clearly has done good things for us. I just took a look at this. If you took all of the job listings in our markets and you looked at how many just the newspaper had, how many hot jobs had, how many career builder had, how many monster had and you threw them all into a bucket, duplicated, it does not entirely clean the hot jobs/Newspaper group is about equal to the combination of monster and career builder, at least in our market. So, that, to me, also is another important guidepost that the deal is positive for us.

And is that market share bigger now that you've joined the hot jobs effort or was that the historic relation of hot jobs against the newspaper and -- or career builder and monster?

I don't know the answer to that question.

Ok.

But I do know when we're combined with them, it is a powerful partner to have. We knew going in that they had significant traction but their traction has grown as a result of their affiliation with us as well. And in terms of you know, just generally, our on-line business, we're happy with the traffic. We're happy with the audience we're generating. Again, just a couple of anecdotes. Our -- the impressions that we're serving are up 60% as the CPMs that we're getting for those banner advertisements are up 90%. Q3 versus Q3. So, in general, we're very happy with our on-line business overall. And it is becoming an increasingly big part of our business. It is about 10% to 12% of our profit.

Already.

And about 8% of our ad revenue. So, we're generally very happy.

Thank you. Just as an aside, Ken and Rich and all who have been involved with structuring the transaction, I wanted to thank you and not only for this step of it but all of the work you've done up until here. Thank you so much.

Thank you, Tom. Appreciate that.

Our next question or comment comes from the line of Mr. Paul Ginocchio from Deutsche Bank. Your line is open.

This is a question for Joe. As you generate cash over the next couple of quarters, can you just talk about what you'll do ahead of the split. You just pay down debt if you can pay down debt or just build cash. Thanks.

Sure, Paul. You know, we're going to continue to do what we've done in terms of, you know, continue to buy back shares under this program that we've initiated. In fact, we're going back to re-up in a couple of weeks at the next board meeting. So, that will continue. We are, you know, we will use the excess cash to pay down debt if possible, but I think we're going to have a fair amount of capital spending in the fourth quarter certainly on some of the projects maybe in the next year. So, I don't anticipate a significant reduction in debt between now and then.

Ok. So, you can't buy shares right up -- so you can buy shares right up until the split.

Yes.

Ok, thank you.

Once again, ladies and gentlemen, if you have a question or comment at this time, please press the one key on your touch tone telephone. Gentlemen, I'm showing no additional questions or comments in the queue at this time.

Thank you, operator. This is Tim Stautberg. I will be available this afternoon if you should have further questions. The number is 513-977-3826. Otherwise, thank you for your participation today and have a great day.

Ladies and gentlemen, this does conclude our conference for today. Thank you for your participation and for using AT&T Executive teleconference. You may now disconnect. Everyone have a wonderful day.