E W Scripps Co (SSP) 2011 Q2 法說會逐字稿

Welcome to the second quarter earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and the instructions will be given at that time. (Operator Instructions) As a reminder, the conference is being recorded. I'd now like to turn the conference over to our host, Mr. Tim King. Please go ahead.

Thank you very much, Lori. Good morning, everyone, and thanks for joining us on the call. As is customary, our call will begin with Tim Stautberg. In his role as the CFO and Treasurer, he will recap the financial results of the second quarter and cover the typical non-operating data. Then Rich Boehne, our President and CEO, will give you a glimpse at some of the activities we've been working on that don't show up in the P&L. After that, we will open up the phone lines for your questions. Joining us for that portion of the call will be Brian Lawlor, who runs a TV station, and Doug Lyons, our Corporate Controller. Tim Stautberg, who has been wearing two hats since the June announcement that he will be transitioning to the role as the head of the Newspaper division, will answer your financial and you newspaper questions during that portion of the call.

The commentary you will hear from our executives this morning may contain certain forward-looking statements, and actual results for future periods may differ from those predicted. You can read more about some of the factors that may cause results to differ from what you are about to hear by turning to the 2010 Form 10-K.

Now as a reminder, you can always go to Scripps.com and click on the Investor Relations link at the top of the page. From there, you can print this morning's earnings release and tables as well as access a streaming audio replay of this call. It will be active later this afternoon, and we'll leave it there for a few weeks. Having said that, here is Tim Stautberg, our CFO, to begin today's discussion.

Thanks, Tim. Good morning, everyone. Our second quarter was pretty much in line with our guidance for May. Newspaper revenues and expenses came in as projected as did television expenses. We thought TV revenues would grow at a year-over-year rate that was better than the 3.2% we reported in the first quarter. Instead, we reported growth of 3% due in part to the effect of the Japanese earthquake on the automotive markets. But given the tough comparison and seeing the numbers from some of our peers, there is reason for optimism in that 3% figure. More on that in a minute.

Let's first look at the consolidated numbers before we giver you details from the divisions. Consistent with industry-wide softness, our revenue decline in the Newspaper division more than offset the relatively strong performance of our TV division, resulting in a 3% decrease in consolidated revenues. The top line was just over $183 million. Our cost totaled $175 million. Flat to last year. For the quarter, we reported an operating loss of $2.2 million. That's much better than the operating loss of $10.5 million in the first quarter, but it's a far cry from the operating income of $3.2 million in the second quarter of 2010.

Moving below the operating line, our loss from continuing operations net of tax was $2.2 million, or $0.04 per share. Compared to income from continuing operations net of tax of $1.8 million, or $0.03 per share a year ago. On a year-to-date basis, we've reported a net loss from continuing operations of $0.19 per share whereas we essentially broke even through the first six months of 2010.

Let's turn now to the TV division to start to look at our operations. Three months ago, we told you that our TV account execs had done a magnificent job of increasing revenues 3.2% despite the tough comparisons caused by the airing of the Winter Olympics in the first quarter of 2010. We also told you that we thought the year-over-year revenue improvement in the second quarter would be better than that of the first quarter. If you exclude political advertising for both years, our performance was outstanding with ad revenue up 8%. But all-in, TV revenue was up 3% in the second quarter. We are confident that we would indeed have been up more than 3.2% if not for the lingering constraints faced by the dealers of Japanese cars. Still, as we listen to conference calls of our TV peers, we're pleased with the performance of our sales team in reselling well more than $1 million worth of spots to fill the gaps left by dealer and dealer group cancellations during the quarter. Disrupted supply lines still plague those Japanese dealerships, but the auto category is growing for us despite that fact. We think the category could be up in the mid- to high single-digits in the third quarter based primarily on activity from domestic brands alone. It will be icing on the cake if we are able to layer on some incremental dollars from the likes of Toyota, Honda, and Nissan as the quarter progresses, giving us real confidence about improving conditions as we approach 2012.

Our national advertising was up modestly, but local advertising which is twice as big a category as national rose more than 8% in the quarter. There was [other] revenue to be replaced in the quarter. You will recall that we received network compensation from NBC in the second quarter of last year, but as was the case with last year's ABC contract, we now pay a licensing fee to NBC for its programming and receive no network compensation under the terms of our new network affiliation agreement with the network.

Our retransmission consent revenue was up 31% in the second quarter to $3.9 million. As we've noted before, much of our retransmission consent rights are tied up for years to come in agreements reached before we spun off Scripps Networks Interactive. As old contracts expire, we will negotiate new deals at market rates which will result in a nice bump for us in the years ahead. The really big tranches of subscribers become available to us in 2016 and 2020, but we do pick up 1 million new homes at the end of 2011 and another several million at the end of 2012. In the financial tables accompanying today's release, you will notice that we have broken out retrans revenue for the first time. As you monitor this category over the next couple of years, it's reasonable to expect this line to steadily reflect strong growth.

Another category with a small, but fast growing base, is our digital revenues. This includes the sale of ads on our TV websites as well as premium mobile applications. Digital revenues grew 26% in the quarter and double-digit growth like that should continue through at least the rest of the year. Further down the road, we expect to include in this bucket the subscription and advertising revenue from our live mobile broadcasting efforts which are just getting off the ground.

Expenses in the TV division were up 3.3% year-over-year, down from the 4% increase we reported in the first quarter. The increase was driven by higher cost for programming as well as the added cost of certain employee benefits that had been suspended in 2009. As we noted in the press release this morning, there will be a little relief on the TV expense line in the third quarter and significant relief in the fourth quarter following the end of Oprah's run in syndication this September.

TV segment profit was $13.5 million in the second quarter of 2011, compared with $13.3 million in the 2010 quarter. I don't normally get animated about such a small increase in segment profit, but keep in mind some of the data I shared with you already -- the Japanese earthquake crimped the ability of many dealers to advertise at their normal pace. No politicians are running for office in our markets this year. And instead of NBC paying us for our local presence, we now pay NBC for access to its programming. Given those circumstances, I think the increase in segment profit is a noteworthy accomplishment.

The story in newspapers is pretty much the same as you've heard from our peers this quarter. Total revenue declined 5.6% year-over-year which is essentially the same figure we reported three months ago when the year-over-year revenue decline was 5.7%. Print advertising revenue was $61.3 million which was 7.7% lower than in the 2010 period. The main culprits for the softness are the usual players, classified advertising and national advertising. At just about $3 million of print advertising, national ads are a fairly small piece of the pie, but the 31% drop in revenue would be noticeable on just about any scale. The weakness in classified persists. The category was down 9.4% to $20 million. Help wanted rose again. This time it was up 4.4%. But automotive was down 6.4%, and real estate was down 16%. Preprint revenues have been pretty consistent, down 3.5% in the second quarter to $17.4 million. Circulation revenue continues to be fairly stable. In fact, it was about $40,000 higher in the 2010 -- than in the 2010 quarter, but let's just call that flat.

This was the second quarter that the newspaper financial tables provide a breakout of our digital revenues which include advertising on our newspaper websites, digital advertising provided through audience extension programs, and other digital marketing services. The digital revenue we reported was down 3.9%. But you will recall that we began this year reporting revenue from certain of our digital offerings net of the amounts paid to our digital partners. If 2010 revenues had been reported on this net basis, then our pure-play digital advertising would have shown an increase of 10% in the second quarter, and overall digital revenues would have increased 3%. Both of those figures are significantly better than the year-over-year increases we experienced in the first quarter, and we are optimistic that our digital momentum will continue.

On the expense side of the ledger, our newspaper costs were up 3.9% in the second quarter. Increasing newsprint cost figured prominently in our expense story with double-digit price increases resulting in a 10% spike in the expense for newsprint and press supplies. Employee costs rose more than 3% due largely to the restoration of retirement plan benefits including the match on employee 401k contributions that were reinstated on July 1 last year. Segment profit from our Newspaper group was $4.9 million, down from the more than $14 million in the year-ago period.

I'll spend a little more time on the Syndication and Other segment than I usually do. The numbers are straightforward. Revenue was $4 million, and expenses were more than $5 million resulting in a segment loss of $1.4 million. But the real story here is that the second quarter was an inflection point for our syndication business. On June 1, we completed the evolution of the United Media business model, whereby we essentially outsourced the syndicate functions to Universal Uclick. It was the last quarter for which we expect to report as much as $4 million in revenue from syndication, and the quarter included an unusually high level of expenses related to employee severance and transition costs. Starting with the third quarter, our syndication revenues will be much lower than you saw in the first half of the year, but our expenses will be slashed even further so that you will see break even or profitable quarters going forward.

Let's turn now to some non-operating items. Scripps stands out among its peers in the local media category in part due to the strength of our balance sheet. We have no debt and had nearly $160 million in cash on hand as of June 30. We ramped up our share repurchases under the authorization we announced late last year. During the second quarter, we repurchased nearly 2 million shares at a weighted average price of $8.88. Year-to-date through June 30, we have repurchased [23 million] and have [52 million] left in our current authorization.

Looking to the expected performance of our operations in the third quarter, we believe our TV sales force will continue performing at peak levels. Total TV ad revenues should be down approximately 10% because of the influx of political ads that filled our coffers in September and October last year that totaled $15 million. Backing out political ads from the calculation, we think our TV revenues will be up in the high single-digits in the third quarter. Newspaper revenues are estimated to be down at a mid-single digit amount during the period. On the cost side, expenses at both newspapers and our TV stations in the third quarter are expected to increase due to some of the factors that affected the second quarter. We stated in the release the increase would be in the low- to mid-single digits at the TV stations and mid-single digits at newspapers. Corporate expenses should return to their run rate of about $8 million in the third quarter. With that, let me turn it over to Rich.

Good morning. Thanks for joining us on a morning when the broader market is commanding everybody's attention, and we will try get done in just a few minutes. To wrap up the second quarter in a nutshell, our newspaper performance was pretty much in line with our guidance, and our TV performance was slightly behind our ambitious projection, but among the best in our peer group. And we believe the strength of non-political advertising at the stations speaks volumes about the emphasis we put on building audience through improved quality of our broadcast and digital journalism. Looking ahead, let me quickly answer three questions. First, why do we believe our television performance will continue to strengthen? Two, what are we doing to change the trajectory of our newspaper results. Three, how are we using our resources, including our strong balance sheet, to develop new cash flow sources.

First, television. As Tim just talked about, we are on the weak side of the political advertising cycle, but that soon will change. The 2012 presidential race is shaping up to be a real humdinger. We intend to get more than our share of the dollars spent to elect the next President. Our geography and our political advertising strategy, which includes staffing and operation of Washington and handling all of the dollars directly without a rep firm in the middle, should put us in position to maximize the impact of this historic race. But as you read in the release, behind the ebbs and flows of political advertising is a local television operation that is gaining momentum. The revenue growth, excluding political, of 8% year-over-year resulted from a specific plan that starts with strong content both on-air and on-line. Our investments in high quality news programming are paying off, and we intend to stay the course, setting our stations apart, gaining on-air audience and revenue share, and building new digital businesses.

In addition to our focus on local news success, we are also improving profitability by replacing much of our syndicated programming with local or owned content like Right This Minute which we will talk about more in just a few minutes. This is a significant opportunity for us to lower expenses, improve margins, and build local brand. We're also using our station brands and spectrum for platforms for new revenue streams like mobile TV and paid apps for tablets and Smartphones. Finally, we are increasing retransmission revenues from cable operators as contracts roll off and new deals are struck. So 2012 should be a very good year for local television thanks to much more than just the wave of political advertising and also the Summer Olympics next year in London.

In the Newspaper division, we are racing to alter the trajectory by simplifying the operations, focusing on the most profitable revenue sources, and building digital audiences and businesses. During the second quarter, Tim Stautberg agreed to move from CFO to Head of the Newspaper division, continuing and accelerating our efforts to streamline decision-making and focus on serving consumers and advertisers with high value products and services. And just as an aside, we are engaged in a search for a new CFO, and it's going well and we hope to have that wrapped up in the coming weeks.

In both divisions, we believe a successful future depends upon our ability to provide the very best and most relevant local media products. That includes -- printed newspapers, linear newscasts, Smartphone and tablet apps, and websites for desks and laptops. Instead of focusing on convergence, we are investing our resources and opportunities that arise as media diverges and becomes a portfolio of products under the same brand. We continue the aggressive rollout of new and upgraded apps for Smartphones and tablets and the aggressive testing of subscription models and bundling strategies. This long-term evolution from having one core product in every TV and newspaper market to producing a portfolio of products for different consumers is where we continue to make investments, both for content and for platforms that drive revenue. With a strong balance sheet, we intend to continue expanding our local footprint and our local shares of ad revenues while many competitors are under pressure to cut costs and retrench. Building out our portfolio of local digital businesses will continue to be a top priority, but it's not the only development effort consuming our energy right now.

We are also looking for cash flow streams with upside in industries where we already do business in a period when they are out of favor. For example, we continue to look at available broadcast TV stations, both in new markets and in markets where we already do business. We are kicking as many tires as we can to see if a good fit with an attractive cash return is possible. And the attractive cash return is always essential. We've also invested in Right This Minute, an hour-long daily mash-up of a national newsroom powered by search engines with the attitude of TMZ. It premieres coast-to-coast next month. We're also a charter investor in the News Licensing Group, the Associated Press-driven partnership that we believe will do for news content what ASCAP did for music. And we're a principal investor in Ebyline, a new content exchange that marries publishers and journalists in an on-line platform that is very attractive to budget-challenged print and TV newsrooms. And if you think about it, it's like the next generation wire service, and you can go online and take a look at it today. Ebyline is already operating and a growing business.

There are other projects I can't mention here for competitive reasons, but what's important for you to know is that we are aggressively looking for new opportunities. And in the meantime, we have been fairly aggressively investing in ourselves through share repurchase. Unknown for all of us will be the economic consequences of the recent turmoil in the markets and of the budget circus in Washington. But growing by the day is the demand for skilled coverage of these events and commentary on their impact, both local and national. And that's what we will continue to do through products that consumers value and advertisers need. With that, we will open up the lines for your questions.

(Operator Instructions) Our first question is from the line of Alexia Quadrani with JPMorgan. Please go ahead.

Thank you. Could you give us a bit of color how July came in on the newspaper side of the business? Then on the national weakness also on the newspaper side. I know it's not very significant for you. Is that a business you think will eventually sort of peter out of the newspaper? Or do you see that eventually coming back?

Alexia, it's Tim. We still report our financials on a calendar month basis, and in July we had an extra Sunday. So it's not a precise comparison to last year, but it feels a lot like June. I would say the malaise is still with us. We didn't see any significant acceleration or deceleration relative to our June performance.

On the national front, a lot of that is driven by communications which as that industry consolidates, we are losing the national advertising that comes into our newspapers. I'm not sure that I'm ready to write off national advertising for newspapers. But I think it does take a dedicated effort on a broader scale across the industry to sell the reach of our newspapers. As I take on this new role within Scripps, one of the things that occurs to me early on is the reach that we have in our daily newspaper and in our markets that is unparalleled in any other local media. And I think that's a strength that we need to focus on and celebrate, and we probably have hidden it under a bushel basket for too long. That's going to be a key priority of mine. I'm not ready to write off national yet.

Then on the better circulation trends in the newspaper business. Is that driven by the re-org that you have done? Or do you generally see less bad volume declines and some benefits from pricing? If you could dig into that a bit further? Thanks.

Sure. I think what you have seen is over the last two years, Scripps and other organizations went through a rationalization of their circulation by geography in an effort to trim costs where there just wasn't a return from that extra circulation. We are now on the other side of that. We have a very stable core loyal group of readers that are out there. We also, as part of our Scripps 3.0 plan, instituted an effort to increase circulation. We've put marketing dollars and solicitation dollars into budgets and protected them. So in the quarter, we spent probably $0.5 million in the Newspaper group driving new subscribers into the pipeline. And so that's an important tactic for us through the balance of the year. Again with the reach that we have of 30%, 40% household penetration, we think that's important as we move forward.

Okay. And then the last question, on the newspaper re-org. When will that -- I think the guidance was -- forgive me if I've forgotten. Was that the higher expense on the newspaper side will last through the year-end on that project. Is that still the case where you should start seeing better expenses or expense declines again in 2012 on the newspaper side?

I would hope that we would start to see some improvement on the expense side by 2012. The last piece, which is the most difficult, is the systems side where we are trying to put in place one advertising platform that all of our newspapers will use. Standardize the processes, same with circulation. That's the trickiest piece, and that's one that will take us well into 2012 to get transitioned. We want to make sure that we don't lose customers and lose revenue as part of that process. That's the last component.

Okay. Thank you.

We have a question from the line of Craig Huber with Access 342. Please go ahead.

Yes, good morning. Thank you for taking the questions. For your daily and Sunday circulation for your Newspaper division, what was the year-over-year percent change? And also I'd be curious to hear the newspaper pricing in the quarter. How did that change on year-over-year basis per national cost line retail place?

Boy, you are getting granular on me, Craig. I might have to call you off-line on some of that. I know the daily and Sunday circ numbers for the second quarter -- I think daily we were down 4.5%. And on Sunday, closer to 2.5% or 3%. So improving from the first quarter, and I think a reflection of the marketing and solicitation dollars that we are putting to work there. Our hope is that by the fourth quarter, we're actually flat maybe positive with circulation net paid numbers.

In terms of pricing, I don't have that at my fingertips. I think pricing is up across our markets slightly. And again, if we are flattish on the circulation revenue side, it means pricing is up in the low- to mid-single-digits. But that's something that as I'm new to the scene here we are taking a look at as we start to do our planning in the fall.

And then also on the TV side, can you just help us -- how did the month of July go for the television stations?

Hey, Craig. It's Brian. It was a little softer than we had originally hoped. We saw that coming early on. We probably -- April and May started to identify that July was going to be a little soft. So we made the appropriate pricing and inventory strategies. The good news is I think we got out of that pretty well, and August has bounced back strong. September is pacing very strong. I think the guidance we gave for the quarter, we still feel strongly in, but July will be the weak month of the quarter.

What's giving you the confidence -- what's going on out there that August and September will do well on the TV side? Just early-on pacings here?

Correct. We actually had a decent July in automotive. August and September are pacing very strong in that category. In addition, where we were weak in July would have been in the retail and services category. They have both come back with a vengeance in August, and we still feel very strong about them for September as well. That's probably what is driving the pick-up in the back half of the quarter.

And maybe I missed, it but how did auto do in the quarter? And was there much -- can you talk about the difference between the US manufacturers versus the Japanese?

Sure. In second quarter, automotive was minus [2%]. In terms of the foreign dealer groups were down almost 30% whereas if you looked at the automotive, the domestic dealer groups were up almost 10% and as you get into individual dealers were up again almost 30%. So our weakness was in the foreign factory, minus [20%] and foreign dealer group minus [30%].

You're expecting it's up about 10% I believe you said in the third quarter, right?

Say that again?

You are expecting auto up -- I think you said around 10%?

Did we give that forecast? Yes.

Very good. Thank you.

And we have a question from the line of Edward Atorino with Benchmark. Please go ahead.

Good morning. Got a couple here. On a run rate for retrans going out of this year into next year, do your contracts allow for some ramp-up -- not ramp-up -- but a little increase in 2012? Or will it flatten out?

It's Brian. No, it will definitely ramp up next year.

Want to give us a number? No?

No.

Second, Oprah disappears pretty soon, I guess. Will that show up in your TV costs? Or do you have any plans to spend some money to replace Oprah, so to speak.

It will absolutely show up in our TV costs. You will see our programming costs start to decline in third quarter even though we have a couple of weeks of savings. You will see fourth quarter savings significant. And then as we've said in the past, we expect our 2012 programming expense to be down probably at least 20% to this year.

Would that keep total costs in 2012 pretty flat? Or will there be some offsets?

I expect us to be down.

Down. Okay. Third, what were the Olympics in 2008. I went to look, and I couldn't find it.

We'll find that for you.

I'll get you an exact number on that.

Anyway, I would think with London it might feel better. Thirdly, there are some nice stations on the market including the McGraw-Hill quartet. Have you looked at those?

Hey, Ed. It's Rich. Probably best not to talk about specific groups or stations we've looked at, but we have been around most of the deals that have been offered. And like I said, our real focus is on making sure that if we would pull the trigger and pick up a couple stations, we'd get a strong cash-on-cash return. There has been a lot of inventory out on the market, but as you've noticed very few deals have made it to closing.

The freedom sort of came and went. Is that still around?

I don't know.

And then McGraw-Hill just showed up. Very nice stations. Anyway, lastly, have you decided on launching a pay model for your newspapers? Or a pay on-line model?

Yes, we have, and I will let Tim touch on that.

Ed, it's something that frankly we think is important to our businesses long-term. And in Memphis, we are in very close to a launch of a paid model on the mobile app side for all of the different devices and doing a metered approach on the website. That's going to be our test market, and when we get that perfected, rolling that across our newspapers is going to be a high priority for us. I would say in the coming 12 months.

Are you charging current subscribers anything?

Not today. The plan is probably if you are a print subscriber not to add on any charge. But certainly for folks that are not print subscribers, there would be a charge.

Why would you not charge the current subscriber a little bit?

We will see. There are going to be all sorts of tests and experiments along the way, but we are still early here.

Have you seen the Press Plus plan?

I'm not familiar with that.

I will to have talk to Rich about that.

Yes. Some of that would be captured in bundling. You can bundle people into more than one product. What we think has really been missing in the discussion is the focus on the actual products. You can charge people for products if they are strong and good and well packaged and attractive and provide value. So as much as we're focused on pricing and subscription and pay models, we are also intensely focused on the quality of the products that we are offering to people so that we can charge for them and demand value for what we're providing.

One more quickie, just for modeling purposes. A small number for the other stuff -- down from [5], not zero, I guess. But small number?

Revenue?

Yes. What is it -- the Other segment there.

Syndication and Other.

Yes, I'd just put $1 million or [$2 million] of revenue in there.

That's fine. Thank you. I'll talk to you later.

Before we let you go, this is Tim King. Our three NBC stations in 2008 booked $4.7 million of Olympic revenue.

Okey-doke. Thanks.

Thanks, Ed.

We have a question from the line of Barry Lucas with Gabelli & Co. Please go ahead.

Thanks. Good morning. Most of the questions have been answered. On the print side, Tim, could you talk about any regional variances when you look at some of the California, Florida papers or Memphis and Knoxville. Any broader disparities that you could identify or favorable/unfavorable trends?

Yes, Barry. Taking a look at the second quarter, and it's really not as pronounced as it has been where Florida and California were just train wrecks and the other markets were hanging in there. I would say Florida, California are still declining at a little bit of a faster pace than the rest of our markets, but not by much. There is just a general malaise across the country. Our Naples market, strangely enough, is actually I think positive to up in the second quarter. But that's not like what's going on across the peninsula there in the Treasure Coast. So it's really tough to pin it on a particular state at this stage.

Thanks, Tim. And in terms of TV, while you can't talk specifics and although you do have a lot of experience with ABC affiliates. What would be the priority if you have limited duopoly exposure? Is that of more interest? Is it picking up on the performers and putting Brian in charge there and whipping them into shape? How do you approach that maybe from a strategic standpoint.

Barry, it's Rich. Well, I think you pretty much nailed it. We are -- have been very focused on increasing our presence in the markets where we already do business. That had not been an emphasis for us over the past ten years or so prior to the separation. That's an opportunity that we still have. And we just have added -- picked up some of the operations of the station in West Palm. Looking at some other markets where we do that so definitely increasing our exposure and our footprint where we already do business is an absolute top priority. Then if we would look outside -- certainly underperformers. Because like I said, as investors were fundamentalists we would be looking for a very strong cash-on-cash return if we would allocate capital to pick up existing businesses. So you'd have to focus on something that you believe that you can bring something to to increase the cash flow and margin. And then also diversification, either geographic or by network. We are pretty ABC-heavy today, and it wouldn't be bad to spread out our exposure a little bit. What else, Brian?

I think that's well said. We've got a major commitment in 9 markets with big towers and big commitments as it relates to a news presence, and we continue to look for ways to leverage that commitment and create value. We are real excited to enter into a shared service agreement with Raycom in West Palm Beach and produce their news and run their operation for them there. We continue to look for opportunities like that to increase our scale in those markets. And as Rich has said, there is a geographic or a affiliation diversification that can happen that can create additional value for our Company. We continue to be very interested in looking at those opportunities.

Just a last area -- a point of clarification, Brian. So you pick up 1 million incremental subs for 2012 because of retrans agreement that runs up at 12/31/11? And then other incremental that would fall into '13?

Correct. Number one, we will pick up another 1 million subs. In addition to that, the existing deals will have pricing increases that kick in in 2012. And then, yes, I think we have another maybe 2 million -- 2 million plus homes that come up at the end of 2012 that will kick in for '13.

Thanks very much.

Thanks, Barry.

We have a question from the line of Thomas Russo with Gardner, Russo, Gardner. Please go ahead.

A couple of questions. Brian, when you talk about the picking up of subs for the retrans coming up, how does your retrans revenue relate in size to the amount that you are now asked to pay NBC and other networks now that you lost affiliate comp. What's the order of magnitude of one versus the other?

Clearly, our retrans revenue exceeds what we are paying the combined entities of ABC and NBC. I'd prefer for competitive reasons not to share the specifics of what that split is.

Great. Then you mentioned tall sticks in 9 markets. Did those sticks have any value in terms of being used for sighting cellular tower rebroadcasting cells on them? Can you do anything with those sticks other than broadcast?

Not with cell, but I think there is a ton of opportunities as it relates to the mobile and digital spectrum. For us to be able to run a mobile signal off of those same antennas to reach a whole new audience and a whole new customer that we've never been able to reach before at a time where we used to have to have them tethered to a room with a television and that TV on. Now be able to reach people as they are out and active in their lives and still have that same level of engagement creates a whole new business for us. And again, there is very little capital that needs to be invested to build that business coming off of our TV towers.

You could work just off the towers and have enough local signal strength to take up that new spectrum?

Absolutely.

Great. And then, Tim, for your new work in the Newspaper division -- congratulations, first and foremost. Newsprint. Rich said it was up, but what's driving newsprint pricing up in the face of what looked like circulation that continued to go endlessly -- declining? Why did newspaper remain so strong in the face of declining circulation volumes?

Well, and I'm not the expert yet.

Yet.

I don't know that I will ever be, but in terms of explaining the newsprint gyrations -- the fact is that newsprint prices just cratered several years ago, and then have been working their way back up. And so it's up year-over-year, but frankly on an absolute basis, we haven't seen any ability of the producers to gain traction on pushing through increases this year. So most of it is just a reflection of the lower price we were paying last year. And as we look forward, that price increase should moderate to mid-singles the back half of the year.

Okay. Thank you. And then as well, Tim, the spending on new circulation -- the $500,000 that was spent to drive new circulation. Just talk through the way you think of the return on that investment? To what extent is it just reaffirming the loyalties of existing circulating customers because of the celebration of the news that you offer and the values that you deliver? And to what extent is it actually new subscribers? And then how do you pencil out what the value of a new subscriber is?

Yes. All great questions. The nice thing is as part of Scripps 3.0, we have realigned our newspaper operations functionally, and so our circulation sales effort is guided by one person and a team of analysts that do that very thing. And the solicitation money is for new subscribers. And the duration of those subscriptions and the offers themselves are all structured in a way that there is a return. The return is based on the advertising dollars that we can generate from the life of that subscriber with us including preprint advertising. And that's still a very sizable revenue stream for us. It has softened a bit. But it's still a pretty good vehicle for advertisers to reach into the homes. So all of those go into the calculus. And what we have found that it was really easy to drive profitability by just cutting circulation in the hinterlands, but frankly we weren't paying enough attention within our core markets on making sure that as new subscribers came into town we were able to capture them. That's an important effort. Again, I am going to be learning more as I spend more time with the group. But there is value to each of those subscribers, and in this increasingly fragmented world on the TV side and on the Internet side, reaching into the homes of 30%, 40% of the market I think is a huge advantage for us.

Great.

Tom, it's Rich. Great to hear from you. This goes really back to the beginning of the year. It was called an even and better plan. It wasn't just taking $500,000 and throwing it into marketing. It was a market-by-market, very specific plan based on return on investment that so far has worked out really well.

I commend you, Rich, for tight-fisted grasp on your cash.

Thank you.

And great management. Bye.

We go next to the line of Michael [Cass] with Blue Mountain Capital. Please go ahead.

First off, a housekeeping matter. How many shares did you end the quarter with?

Hang on a second, let's -- we are going to file the Q later today. I know that's got an average for the -- what do you think, Doug?

It lists the average, but I was just curious given the repurchases what it ended the quarter with?

We will have to get that number to you. If you could call Tim King after the call.

Sure thing. And then with respect to -- was curious if you had any sense for what political dollars might be in 2012? And to the extent that you don't want to provide guidance was just curious how you think about that? Whether you expect it to be relative to 2008 and 2010? And how you are thinking about it relative to a lot of analyst estimates out there?

Michael, it's Brian. We are very optimistic about 2012 in our opportunity related to garnering political revenue. Obviously, the presidential will drive much of the country. Having stations in Michigan and Ohio and Florida and Missouri has even gotten more competitive. We should do very well there. We have two big gubernatorial races next year in Missouri and in Indiana. Senate, we have got 7 big races. We've got an open seat in Arizona and a couple of pretty competitive races -- Ohio, Missouri. McCaskill's up in Missouri. Nelson's up in Florida. Maryland, Michigan, Indiana, and I think we've got 14 or 15 House races. We like our footprint a lot. We have a very strategic plan to how we handle political. I think if you go back and look at 2010, the intentional focus and the way we handle political certainly showed up in our share of the political revenue and the hard dollars that you would see. And I like our chance for a very successful 2012.

Okay. Looking at -- curious how you think about the repurchase plan in light of that? Specifically, with the shares down relative to your repurchases in Q2. Any thoughts to increase the authorization?

Michael, it's Tim. We have -- I got the number for you. It's 57.8 million shares outstanding at the end of June.

Got you.

Is the number. And we have plenty of authorization to buy in shares here in the next quarter, and frankly, through the end of the year probably. We are limited in how much we can buy in the open market. And have been frankly at these levels doing a pretty good job of bringing in those shares in. So that's something that we have discussions with our Board on a quarterly basis, and we are thoughtful about it. But we set it up with -- for a reason. I'm not sure that we are in a position that we'd change direction right now without consulting the Board.

Thanks a lot.

We have a question from the line of Jay Weinstein with Highline Wealth Management. Please go ahead.

Good morning. I was just about to ask the same questions about share repurchase that gentleman asked. So thank you. Quick other question. Help me in terms of perspective with the retransmission subs. You said you'd pick up 1 million at the end of this year and 2 million next year. But 2016 and 2020 were the big slugs. But give me a perspective like how many do you estimate picking up in 2016 and 2020? I'm trying to get a sense for the overall pace of it.

Hey, Jay. It's Rich. Brian is looking up those numbers, and just a reminder. The two big slugs that are coming up in the out-years are Comcast and then Time Warner. And we did very long-term deals with those two prior to the separation of the Company into EW Scripps Company and Scripps Networks Interactive. Those deals were already in place which is why they are pushed out some years. And obviously, it's the two very big operators that cover an awful lot of homes.

It doesn't have to be an exact number. You can give me a rough number. I'm trying to get an idea of how it scales up.

It's -- no, the Time Warner may be a little less than 3 million subs. Comcast -- 5 million, 6 million something like that.

So 1 million and 2 million are still not insignificant numbers in terms of the --?

Absolutely not.

Okay. I will ask you maybe just to elaborate slightly on the repurchase program. I was actually reasonably pleased that you were a little more aggressive, and obviously after the last week, even more so. You have like a little over 1/3 of your overall market cap value in cash, if I do the number. Somewhere around that range. When you went to bed last night and you woke up this morning, and you are thinking of the alternate uses of the cash versus share repurchase. How do you think about it?

Jay, it's Rich again. We would like to find good places to put money to work to build profitable businesses and based on great cash returns. And as I talked about, we continue to put money to work. But it has been a difficult period to find places to put all of our cash to work quickly. So we will continue to look for revenue streams, cash flow streams with upside. New businesses to build. Obviously, we like share repurchase, and we will let you know when we get to the end of this authorization what we would do from there. Ultimately if we can't find good places to put money to work, then dividends or special dividends are something to talk about. We just haven't gotten to that point yet.

It strikes me, and I know you can only speak somewhat vaguely, but you are in this situation where probably -- and I don't have access to the data you have that repurchase of your own shares on the cash-on-cash basis has got to be way better than the offering prices of some of these properties that are in the market. I understand because you've always said you're long-term builders, and I've always heard that very clearly. But you're now faced with the alternative of buying your own shares which I assume is much more financially attractive than some of the properties you've looked at. Is that fair to say?

Yes, that's fair to say which is why if you just look out across the marketplace, you are not seeing a lot of transactions get done. But the weakness in the market has been fairly recent. So people are probably going to be reassessing some based on what's happened to their stock in the last few weeks or so. But yes, obviously we think our stock is a good buy.

Yes. Anyway. Thank you. That's all we are looking for. The way you think about the alternatives you have for it.

(Operator Instructions) And we go back to Thomas Russo with Gardner Russo & Gardner.

Hi, Rich. In terms of allocating capital, what's your funding status on pension and health care liabilities, and does that require any additional funding going forward?

Pretty good. I will let Tim answer.

Tom, we really don't have a health care liability long-term. We aren't in that situation. On the pension side, we are -- well, up through the end of June, we were in good shape. I'm not sure about what the portfolio looks like after yesterday. We are at 90% funded for the pension. We took proceeds from the United Media sale and shored things up. We also moved to a liability-driven investing strategy where we have 70% of our assets in a long credit fund which frankly has been and will prove to be a thoughtful thing to do as we go through this period where our liability is increasing as rates fall. And the fact is that the assets that we are invested in will rise as well. We are just unhedged on that return-seeking side. We're in pretty good shape, and it's something that we don't worry about at night that lets us focus on the business instead.

Thank you. We go to Michael Cass with Blue Mountain Capital. Please go ahead. Michael, we have your line open?

I apologize. It was on mute. You spoke a little bit about how you source political advertising and the differential in terms of using your own reps. Could you just give a little bit more color on that? And how widespread that is amongst your peers?

What we do is unique amongst our peers. We do not have our political business handled by the national rep firms. We made a conscious decision a couple years ago to start our own office in Washington that we staff. It's staffed every year whether it's a political cycle or not where there are 365 days developing business, extending relationships, working with the major political shops there. As well as working with the digital shops and trying to enhance their advertising opportunities in our markets and even beyond our markets. I think we have a unique competitive landscape there that I think provides great value to our Company.

How much does that save you on commissions versus overhead? If you don't mind me asking?

It's significant. We used to pay a couple of points to a rep firm, and our overhead we work out of the Scripps Howard News Service in there. So it's an office we already own, and so it's really just the cost of our staff there.

Thanks a lot.

Thank you, and I will turn it back to our speakers for any closing remarks.

Thanks, Lori. I do actually have one point of clarification. In the exchange that Craig had earlier with Brian, he had speculated that our guidance for the third quarter in the automotive category might be up 10%. What we actually said in the script was that automotive in the third quarter could be up in the mid- to high single-digits based on domestic -- on activity in the domestic car markets, and that we might get a little gravy if the Japanese dealers come along. I wanted to make that clarification. Having said that, we appreciate everyone's attention this morning, and good luck to you the rest of the day.

Thank you. Ladies and gentlemen, this will conclude our conference call for today. We thank you for your participation and for using AT&T Executive Teleconference Service. You may now disconnect.