E W Scripps Co (SSP) 2013 Q1 法說會逐字稿

Welcome to the E.W. Scripps Company first-quarter earnings conference call. At this time all participants are in a listen-only mode; later we will conduct a question-and-answer session. (Operator Instructions). As a reminder, today's conference is being recorded and I would now like to turn the conference over to the Vice President of Investor Relations, Miss Carolyn Micheli. Please go ahead.

Thanks, Brad. Good morning, everyone, and thank you for joining us for this recap of the E.W. Scripps Company's first-quarter results. We are going to start this morning with Scripps' CFO and Treasurer, Tim Wesolowski; then Rich Boehne, our President and CEO and, as of last Wednesday, Chairman of our Board will provide additional details about the quarter. Then we will open up the lines for your questions.

Also in the room are Tim Stautberg, who runs the newspaper division; Brian Lawlor who runs the TV division; Adam Symson, Chief Digital Officer; and Doug Lyons, our Corporate Controller.

The commentary you will hear from our executives this morning may contain certain forward-looking statements; 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 referring to the Form 10-K and other regulatory filings.

You can visit Scripps.com for more information such as today's release and financial tables. You also can sign-up to receive e-mails anytime we disclose financial information and you can listen to an audio replay of this call. The link to the replay will be on our site this afternoon and will be available for a week. Now here is Tim Wesolowski with a summary of the first quarter.

Thanks, Carolyn, and good morning. We are coming off a record year in 2012 and, broadly speaking, the first-quarter unfolded about like we anticipated. We made good progress rolling out our digital bundle in the newspaper group, hiring experienced sales folks who were focused on selling digital advertising to our existing and new accounts, and building the audience for our homegrown shows in the broadcast group.

Two things that were a bit different than we expected tended to offset each other on the bottom line -- some softness in spot advertising in a couple of TV markets and a slower ramp and spending to grow our digital business. And the comparison to prior year is muddied by a loss of political, the Super Bowl and last year's non-cash charge. I will try to hit on each of these factors as we walk through the results. Let's begin with the consolidated results.

Revenues for the first quarter declined 4% to $199 million. More than half of that decline, about $4.5 million, was due to the absence of political advertising in the TV division following our record performance in 2012.

Our costs and expenses for segments, corporate and shared services were $188 million; that is a 1% decline over last year. And if you take out the incremental investment from the P&L in our digital operations, costs and expenses declined nearly 3%.

The Company reported a pre-tax loss of $7.6 million in the first quarter and that is basically flat from the first quarter of 2012. But the prior year included a non-cash acquisition integration charge of just under $6 million. You may recall that this non-cash charge resulted from the termination of an agreement with a national sales firm of the stations we acquired.

Net loss for the quarter was $2.7 million or $0.05 per share, that compares to a net loss of $4.4 million or $0.08 per share in the year ago quarter. Excluding that non-cash charge last year's EPS was a loss of $0.02 per share.

Turning to the broadcast division, revenue in the first quarter was $97 million, down $2.7 million from the first quarter of 2012. As you read in the release, the increase in retransmission fees, digital and national advertising were not enough to offset declines in local advertising and expected declines in political.

While a couple of our local advertising markets were lighter than anticipated, we knew first quarter would be impacted by the loss of political advertising and the Super Bowl. Our TV portfolio does not include any CBS stations and Brian discussed in our last call that the Super Bowl and March Madness provided upside for groups with CBS stations.

If you take out the impact of political and the Super Bowl advertising, our broadcast revenues in the first quarter are up 2.6%. The division's performance was impacted by solid national advertising that was up 4.6% for the quarter, but, as I mentioned earlier, local advertising was a bit soft in the quarter, down 5% the $54 million. That was mostly within the services, which is our largest category, which was down 7%.

Auto was up a healthy 8% even though we lost some local advertising late in the quarter. That happened when some car makers moved previously booked to schedules over to March Madness on CBS. Second quarter is looking stronger for us in both categories and we expect to be on a more level playing field with the NBA finals on our ABC stations as well as the return of Dancing With the Stars and The Voice.

There are other bright spots in the television revenue numbers as well. Total revenues in the four former McGraw-Hill stations were up 3.3%, a good sign that our recent acquisitions are performing well. Also digital advertising revenues in the broadcast division increased 23% to $3.8 million.

Our retransmission revenues were up a strong 35% year over year and we expect to see nice double-digit growth in re-trans in 2013 and over the next several years.

Expenses in broadcast fell nearly 2% primarily due to lower syndicated programming costs. This was from our decision to replace expensive syndicated programming in the access hour with our own programming in a handful of markets.

Our three Scripps owned shows continue to perform well. The List, our newsmagazine that runs in access hour in six markets is consistently growing in households and key demographics. In less than six months on air The List's rating with women ages 25 to 54 ranks it as the 12th most watched syndicated TV show nationally in that demographic. It has beat shows such as Dr. Oz, Extra, Katie, Inside Edition and Steve Harvey.

Let's Ask America, our Company's access game show, is also showing impressive growth. In the February ratings period the show grew 25% with adults 25 to 54 and 10% with women 25 to 54 from the November 2012 rating period.

Finally, Right This Minute, our daytime program that is a partnership with Cox and Raycom, hit some big milestones in the last few months. Our syndication sales partners cleared the program in New York, LA and Chicago giving us more than 60% clearance nationally. And we're seeing ratings growth from Right This Minute at the majority of our properties.

Those of you that have been following us for a while know that taking control of our programming and driving ratings growth are fundamental to our long-term margin improvement plan and that plan is working. Our segment profit in the first quarter of 2013 was more than double that of the same quarter in 2011, the last nonpolitical year, and our segment profit margin improved by 7 percentage points.

We still have work to do but we've made a great deal of progress. Growing our segment profit margins remains a top priority.

Turning now to the newspaper division, the story is all about starting the rollout of our subscription bundles and controlling expenses. We launched subscription bundles at two of our newspapers in late March. We plan to roll out the bundles in all of our markets this quarter and next. And while it is still early we are encouraged by the results of other companies that are ahead of us on this path. Rich will talk more about the subscription packages in a few minutes.

In terms of newspaper revenue, the trends we saw in the first quarter are broadly in line with what we've seen with newspapers in the last year or so. Total revenue in the first quarter was $99.5 million, down 4.7% from the first quarter of 2012. Advertising and marketing services revenue was down 5% compared with the year ago quarter; that total was $63 million.

Local advertising was about flat at $20 million. Classifieds came in at $18 million; that category continues to struggle, as you know, and was down more than 9%. Pre-print and related products were down 6% to $16 million and national advertising was down 21% to $2 million.

Digital revenues rose 3% to $7 million; pure play digital revenues increased 13% over the year ago quarter. Digital revenue tied to print classified struggled along with weakness in the individual verticals.

Revenue from subscriptions decreased 3.6% to $30 million driven largely by weakness in single copy and home delivery volume. That number was not impacted by the subscription bundles; as I mentioned, we had only rolled this out in two markets and they were in the last couple of weeks of the quarter.

Total segment expenses decreased 4% to $94 million; newsprint expenses decreased 8% due to lower volume and lower price. First-quarter segment profit in the newspaper division decreased 17% to $6 million.

Now I wanted to spend a minute talking about the investment we're making through the P&L in our digital capabilities. Recall that our digital efforts support both the TV and newspaper segments and the four platform strategy is critical to success in each of our 26 local markets. The lion's share of our spending is directly tied to converting our digital efforts into dollars. Our combined digital revenues in newspapers and TV was about $40 million in 2012 and we'd be disappointed if that number didn't about double in 2015.

Our spending falls into three roughly equal buckets -- dedicated sales resources or feet on the street; a streamlined process for salespeople to take in order, get it served and bill it to the client; and third, a heavier production of content.

First, feed on the street -- through the end of April we added 35 digital only salespeople to the team and we plan to get to 100 by year end. We expect to see the positive impact of those new hires on our Digital revenue by later this year.

Second, the investment in a more streamlined Digital revenue operations process will also help us increase revenue. That project is on track. Through the year we will be implementing new technology workflows and a much more efficient process that will free up our sales teams to spend more time face-to-face with clients and prospects. We expect to roll out the new sales management system to the television markets this fall and will follow with our newspaper sales teams early in 2014.

Finally, in addition to veteran salespeople we're hiring veteran journalists to create premium news content across our properties. This is an investment in creating the kind of in-depth and exclusive local content people will pay for. That is critical to the success of our four platform strategy.

And I'd like to finish this morning with a look at our cash position and finally our guidance. Our cash position remains strong at $221 million compared to $243 million at the end of the fourth quarter, largely down because of normal seasonal factors and our share repurchases in Q1.

In November you will remember the Board approved a share repurchase authorization that would allow us to buy back up to $100 million of our shares. We repurchased 942,000 shares in the first quarter for $11 million. And our cash on hand of just over $220 million is still more than our debt of $192 million.

I will wrap up my presentation with a review of our guidance; you can read what we said in our release and I just wanted to touch on a few things. In February we said full-year shared services and corporate expense would be in the $60 million to $65 million range. We've trimmed that back to the lower end of the range, $60 million.

That is because while we are off to a good start, the hiring of digital salespeople has gone a bit more slowly than we expected. We are looking for seasoned salespeople and we're taking our time to make sure we have the right ones.

Also we said we expected TV revenues to be down high-single-digits for 2013. Due to the first-quarter results we now expect that decline to be about 10%. But don't read too much into that though; our previous view had us down 9%, so this is really a minor adjustment.

And for the second quarter we expect television revenues to be down low-single-digits because of the loss of political revenue. Backing out political we expect our total revenue to be up in the mid-single-digits. Television expenses should be about flat. Newspaper revenue and expenses are expected to be down in the low-single-digits. The decline in expenses should be greater than the decline in revenues. Again, see our release for the full details. And now let's hear from Rich.

Thanks, Tim. That's a detailed look at the first quarter. Before we take questions let me take just a few minutes to look ahead and let you know where we are most focused heading into the summer and the back half of the year.

Just a reminder, there will be lots of noise in our 2013 results from beginning to end. Obviously the most prominent complicating factor is the tough year-over-year TV revenue comps due to the every other year political advertising cycles.

But if you look across the cycles at our performance, we continue to improve the financial results and the value of the Company aided by our attractive geographic footprint in many crucial political swing states and the strategy we have to make the Scripps stations among the most attractive sales platforms during critical campaign seasons.

So despite the tough comps this year, we look forward to being on the sunny side of the cycle in 2014. During 2013 we are particularly focused on three hot spots that should deliver substantial upside later this year and even more so as we head into 2014.

The first is to focus on local TV news ratings in all of our markets. Across our station group that is where the juice is, particularly in Denver, Indianapolis and San Diego, the largest former McGraw-Hill markets. Those three have made strong progress and are ahead of where we hoped they would be when we closed the deal 16 months ago.

In fact, year over year in the first quarter Denver, Indianapolis and San Diego were collectively among our best performers. Brian can provide some highlights not just on these markets but others. The local news performance built on high-quality enterprise journalism will be our largest cash flow upside over the next few years.

You may have recently read about the fruits of our labor in Denver and Phoenix where our stations won Peabody awards for stories of high impact in their communities. We see time and again that good journalism expands audiences and that has happened here again.

Our second area of focus in 2013 is the roll out of the digital and print bundled subscriptions in newspaper markets. We got off to a strong start earlier this year in Memphis and at the papers along the east coast of Florida. In Memphis, which launched the bundle in late March, more than 15% of subscribers have already activated their digital service.

That strong start in Memphis is encouraging as we roll through the rest of the group; 11 of our 13 markets will be launched before Memorial Day. This is a critical period for the newspapers as we rebalance the business model with more revenue from subscribers who are attracted by high-value content on tablets, smartphones and of course also in print. We are creating content worth paying for across all those platforms.

Our third area of focus this year is the execution of our plan to build a larger base of digital advertising revenue in all of our TV and newspaper markets. As you well know, we are adding about $20 million in expense this year for the expansion of digital operations. The bulk of that is going for advertising systems and feet on the street, sales reps focused solely on digital advertising.

At Scripps I'd like to think we are experienced in creating value by what we call investing through the P&L, adding expense based on an expected return of profitable revenue. The return isn't instant, it will take us much of this year to locate the most talented sellers, nearly 100, and get them in place in our local markets.

As a good sign in the first quarter the revenue growth that we saw in the markets that we've already staffed is running about twice what we saw in the first quarter in the other combined TV markets. It is an excellent opportunity and we are plowing ahead. At the same time we are investing in and launching market leading mobile products and improving our websites to capture the growing digital audiences.

Our expansion of digital products and platforms built upon high-quality content that is worth paying for is essential to capturing value in all of our local markets. Those are the three areas where we are most focused this year.

Finally, just a final reminder that Nackey Scagliotti, who is the great-granddaughter of our founder, retired as Board Chair last week and the Board and the Scripps family asked me to take on the Chairman's duties. It is a big honor for me, but much more important is the accountability that as Chairman I have to our owners including all of you on this call.

We have a skilled Board and we added to its heft last week with the election of Kelly Conlin, the CEO of NameMedia and an experienced leader and entrepreneur in both digital and more traditional media settings. We are honored Kelly agreed to join the Board and provide wise counsel to our development of strategies for creating value.

So on behalf of the Board and all the talented employees of The E.W. Scripps Company, thank you for entrusting us with your precious capital. We are determined to deliver the attractive returns that you expect. Now with that, operator, we are ready to take questions.

(Operator Instructions). Alexia Quadrani, JPMorgan.

Good morning, this is Nadia in for Alexia. Just a couple of questions. On the broadcasting side, can you give us any color on how the current quarter is looking and what major categories are outperforming and what is lagging?

We will let Brian Lawlor take that.

Second quarter is kind of in-line with first quarter, although our biggest category, services, which we called some attention to in Tim's statements, is pacing much better. So Automotive remains strong, retail has bounced back from last year and we are seeing that similar trend in the second quarter.

Foodservices, travel and leisure, were a bit off in first quarter and we are still pacing a little soft there. But auto strong, services bouncing back and, although it is not one of our top five categories, telco has got some pretty good momentum, with some pretty good spending out west and in California and Arizona.

Okay, great. And then on the newspaper side, as you mentioned earlier, you'll be rolling out bundle packages in 11 out of 13 markets on Memorial Day. Can you give us a little color on what those packages look like, what your pricing strategy is in general and any color on expectation for revenue upside?

Sure, Nadia; it's Tim Stautberg. We're really excited about the bundling of our digital products along with our print subscriptions for the folks that are out there that have been loyal subscribers, we have close to 600,000 of them across our footprint and encouraged about the activation of their digital subscriptions and access to all of that content.

As a precursor to having deeper relationship with them the pricing that will offer to digital only subscribers will range anywhere from probably $9.99 to $14.99 a month. And then we will look to price our Sunday only print subscription in all of our markets just a little bit above that with the hopes that many folks who are digital only subscribers over time will look to actually take a Sunday paper as well and have a deeper, richer experience with us.

So, that should give you a sense. I think that is in line with a lot of other newspaper companies.

Okay, great. My last question is on M&A environment. As you have mentioned before, you are the largest ABC group in the country and that has provided you with some advantage. I'm wondering, could you look to expand that footprint in ABC or do you have a preference to diversify in your affiliate exposure.

Nadia, it's Brian. Look, I think ideally we would be more diversified, not have as many stations in one affiliation. Although we do enjoy the scale and leverage of being the largest ABC group, we think that does give us a bit of advantage.

But that said I think that, as we showed last year, we are active in the space and we continue to look at everything that pops up. If there was an opportunity that strategically made sense for us to diversify our portfolio in Tim's affiliation we would. But we also wouldn't look at any ABC -- we would look at ABC stations.

Again, I think we are very strategic as it relates to specifically what we are trying to accomplish as a company. So we would get larger with ABC or we would like to also get larger outside of ABC, whatever the best opportunity presenting itself would be.

Okay, thank you very much.

Craig Huber, Huber Research Partners.

I had some questions on the newspaper side first. I believe last quarter, Tim, your daily and Sunday circulation volume for print was down 5% each year over year. How was that in the first quarter, please?

Yes, Craig, first quarter our daily was down 6% and Sunday was down close to 8% for print.

Okay, and then another housekeeping question. For newsprint what was the percent change there for consumption and average price year over year?

Do we -- I think we are down probably 2% or so in price and volume was the difference -- 6% or 8% there.

Okay. And then also the other Tim, the shared services and corporate costs, I think you talked about $60 million this year. The increase this year versus last year, can you just break apart the dollars roughly for us? Is that roughly -- you gave us three different areas and it is roughly one-third, one-third, one-third for each of them?

You are talking about the year-over-year increase in that line, Craig?

Yes, yes, yes.

So we have been investing in the Digital group through 2012. So, last year in the first quarter that number was about $8.5 million, it was just shy of $12 million in 2013. Most of that was related to content and systems; we really started hiring the sales folks more here in 2013.

let's see here, that $60 million number you are talking about for the full year I guess is roughly versus like $37 million or so last year up. How much of that do you think will repeat next year? I mean what do you think you get a ball park, how much would it be lower in 2014?

So, we haven't given out any 2014 guidance yet and if you think about those three different buckets that they are in, we anticipate that we will be successful on the sales side with adding the feet on the street; we could very well be ramping that into 2014 as well. That middle piece that we've talked about of the systems, there will be some reduction in that I anticipate in 2014.

And then the content piece will kind of play out depending upon where we are successful. One of the real advantages of this investing through the P&L that Scripps has been so successful at is if it works we can keep doing it; if it doesn't work we can turn it off and move it somewhere else.

And also I believe on the McGraw-Hill TV station, I think you said the revenues there were up 3.3% year over year. I would be curious how the margins trended versus a year ago?

Hey, Craig, it is Brian. Margins are growing.

Okay. No chance you will give us a sense -- give us some quantity around that (multiple speakers) percentage points or --?

No chance.

No chance. And could you talk a little bit further, Brian, about the cost for your TV station group, I mean just the big swing factors this year -- programming cost in particular, (multiple speakers)?

It is Brian still, Craig. We talked about the fact that our total expenses were down 1.6% in the quarter, programming is a large part of that. Our programming costs year to year are down almost 12% with syndication cost being down 18%. And so, that is obviously a large part of it. Our payroll is relatively flat.

So when you think about the fact that even as you look at the fact that we are down even with the investments we've made in our own programming and with reverse compensation and all I think clearly the programming has been a big part of that strategy.

When we talked a couple years ago we talked about being pretty aggressive as it related to lowering our programming costs. And I would tell you that over the last two years if you would just look at our legacy markets, Craig, we have lowered our programming costs -- our syndicated costs by about 50%.

Then my last question, Brian -- I get this question a lot from investors. I know you guys have no interest in selling your Company and all of that, but investors do ask me all the time if the Company -- Scripps was sold, are your retrans contracts transferable to somebody else?

It really depends contract to contract. Those are individual provisions within our negotiations and so I can't speak on the whole because everyone looks differently. So it would really depend on, A, our contracts and, B, somebody who were to acquire us, what their contracts would look like. So they are very different in each case, Craig.

Hey, Craig, it is Rich. And just to emphasize that even though where you started, that is correct, the Company is not for sale.

And then on the flip side of that question, please. If you guys did buy any TV stations out there how are your retrans contracts written? With the stations that you buy, would those be able to transfer to your existing contracts, some of which are not very good of course.

Yes I guess I would answer it the same way. We do have some deals that we have very favorable language in and most of those are the deals that we have been able to negotiate as they have expired over the last couple of years. Again, some of it relates to what other companies may have in their agreements with their [MPPVs].

So, obviously that is an important consideration. As we have discussed in the past, we do have some limitations, most of them are relatively short-term and we are long-term investors. And so, while something may create a little bit of a disadvantage for 12 or 18 months, inevitably we think we will get our full value for the long haul.

My last thing about that. What about these Comcast and Time Warner contracts that are locked in for many years here as far as 2019? Would you get stuck having to move over to those contracts? Have you bought anything in terms of retrans?

I want to be a little careful with how I address that, but I would tell you that, for example, the McGraw-Hill contracts that -- or acquisition that we had, they did not roll into our existing deal. And so, there is clearly opportunity for us to be able to have agreements outside of our existing deal through acquisition.

Okay, thank you.

Michael Kupinski, Noble Financial.

As you mentioned, the local television advertising was just a little soft. Was there a difference between larger market stations versus smaller markets or regional differences that you can talk about?

Hi, Mike, it is Brian. You know what, it really was just kind of market by market. I can't tell you that there was a Midwest issue or a West Coast issue. I mean our largest market that was soft was Denver and then Kansas City, Baltimore, Tampa, Phoenix, they were all on their spot business down year to year. But all of the others were up. So there is not really a trend there, it really is specific to markets.

It seems like you said the services category is coming back a little bit in the second quarter. Any thoughts on the healthcare category as you go into the second quarter? Are you seeing any signs there?

We are seeing a bit of improvement. That was an area that was pretty soft for us for a first quarter. I think we are optimistic that there will be some pretty good spending in healthcare in the back half of the year. Some of it may come in the form of some issue advertising related to Obama Care.

The states are mandated to spend some education money on the roll out within the states in the back half of the year. And so, how that gets folded into specific categories versus issue remains to be seen. But we do expect that to be a pretty healthy category for us in the back half of the year.

And just in terms of rank, healthcare is what in terms of the total of your advertising -- in terms of the category itself?

In terms of -- within services, maybe 20%, something like that.

Okay. And then in -- thank you, Brian. Local advertising in newspapers was just a little bit better than I was looking for. Was that due to Naples or did you see some local ad trends moderate across all the newspapers at this point?

Yes, Mike, it's Tim. Naples is doing well and fortunately the winds are blowing from west to east and the Treasure Coast newspapers also picked up some momentum in the quarter and they are starting to see some growth there as well. It is also a reflection of the emphasis we have on our local sales activity and focusing on businesses that we can go in and spend time with.

And we are doing a pretty good job with how we are going to market and having the right products and solutions for them, help drive their business. It is helping overcome a lot of the softness and weakness from the larger retailers, which we have been battling against for many years. But we are really pleased to see some progress there on those mid-size and smaller accounts in our local markets.

Thanks, Tim. And in the newspaper group the expenses were just a little bit higher than I was looking for. Is that related to the Company's rollout of their digital bundle in some other markets or like in Memphis? Or was there -- can you talk about the expense line there?

Yes, they were pretty much on target with what we were guiding. We did put through an increase in compensation to a large majority of folks out there to help with over the years we've had a pay freeze in place and it was something we felt it was important to do from a merit standpoint for certain folks. So there is a little bit of comp that might be there. But I can't think of anything that is out of line.

Okay, thanks, Tim. And I was just wondering in terms of the total FTEs, full-time employees in the quarter, can you give us the year-over-year number at the end of the first quarter?

You talking about total Company, Mike or --?

Yes, I'm sorry total Company, yes.

We'll have to get back on that.

We will dig that back out and get back as soon as we have it.

Okay. Perfect. That is all I have, guys. Thanks.

Michael Kass, BlueMountain Capital.

I just wanted to just follow up on two items that others had asked about. On the pay wall, could you maybe just clarify are you guys seeing a price increase and kind of an opt in -- or sorry, an opt out strategy with respect to getting your current print subscribers to digital? I mean obviously that is something that a lot of other -- of your peers have used to kind of effectively get a price increase as they have implemented these pay walls.

Yes, our approach is very similar to that.

And what kind of a price increase are you guys looking for from just the folks that are opting -- are being opted into the joint bundle versus what they were paying on a print subscriber basis?

Yes, Michael, it will really depend and it is really just getting started. It will depend on an elasticity of demand for the subscribers and of course we have different frequencies of home delivery. But we are taking our cues also from other what other newspaper groups are learning and getting intelligence from what is working and what successes folks have had. So we are very encouraged the kind of results that you are seeing at a Gannett year over year with their increases is certainly something that has us very excited.

In terms of just the print -- the price increase that you are attempting to push through, is it similar to this kind of 15% to 20% that we see at some of your peers?

We are taking our cues from what they are doing and those are what -- $0.50 to $1 a week for bulks would be nice.

Great. And then with respect to just the local advertising decline in Q1 -- I mean that is something that we didn't see at a lot of peers. I think you mentioned that -- you mentioned something about that having to do with the Super Bowl, but I was kind of -- the explanation was a little lost on me. I was wondering if you might be able to delve into that a little bit. Was that what you attribute it to or are there other factors?

Any, Michael, it's Brian. A couple of things. Number one, we don't have any CBS stations and so the Super Bowl was on CBS. But a year ago it was on NBC and we do have a couple. So we lose the revenue in the Super Bowl that we had a year ago and we don't get to move it to anywhere else because we don't have any CBS.

So going into the quarter and even on last quarter's call I talked about the fact that I knew that would take some money off of our books. Keep it in the market and then -- in each of those markets and then move it to another station. So that was one situation.

And the fact that we don't have any CBS also plays in -- big college basketball in the first quarter leading into March Madness. And in fact we had some automotive orders on the books that got canceled at the end of first quarter to move it over because some CBS markets had some additional inventory.

So those two things, just a little bit of a disadvantage by not having CBS stations. And we knew that going in this time, so we benefit from your portfolio with your affiliation and there are times where it goes down.

The other thing that probably drove that was just a couple of the key markets, and I touched on this earlier or just relative softness. I alluded to the fact that Denver, Baltimore, Kansas City, Phoenix and Tampa were all down year to year in terms of the overall spot environment inside that market. So I think really the two -- and services being softer, which is a big local category. So I guess if you roll all of that up that would explain our shortfall.

Okay, and so the first group of that is stuff that you presumably aren't seeing in Q2, but the second half, meaning the services and the market by market, is stuff that is continuing into Q2?

I think I mentioned earlier services is actually looking much better in the second quarter.

Okay, thanks a lot.

Barry Lucas, Gabelli & Company.

A couple of items, maybe if we start with Tim Stautberg. Other than the acceptance of sign-up rate that you are seeing in Memphis, anything else even in these early days that you can point to as indicators of success on the digital bundle?

Yes, Barry, we are still really, really early here. And we are probably six weeks -- six to eight weeks in from our launch in Memphis. So we are now in -- six of our markets have rolled out, we'll roll out another five before the end of this month and then two more later this summer after we get some systems configured to work with our approach.

There's a lot of technical stuff that goes on behind the scenes to make the customer experience enjoyable and to give you the ability to just have one username and password working across all of these different products and platforms. And we have worked through a lot of those issues to where it is going really smoothly.

So I would say we are encouraged by how well it is working. And then the pickup -- the activation rate in Memphis with 15% of the home delivery subscribers is encouraging. We are hoping that number marches towards 50% over the course of the next year because we think it is important that our subscribers have an experience with all of our different platforms and products and that time spent with our content, as a proxy for value, we'll be able to measure that over time.

And that will then help us understand from a consumer facing standpoint how much revenue we should be able to generate. Plus the digital only uptake is impressive we think early on. Even in some of our community markets where we are seeing any given day 50 folks signing up for a digital only account, many of them signing up for what we call a premium account which includes some frequency of home to delivery.

So the way that we have approached metered access to our content, the interface with the consumer experience in terms of the offers that they are presented, all are working well in our view. And we'll have a lot more to report I think after second-quarter results.

Great. Maybe I could put it just another way, Tim, and squeeze a bit more out of you. If you are successful in this path and you got the roll out essentially complete at the end of June, since we can't see the internal dynamics, maybe you could you just share some expectations with what subscription or circulation revenue goals might be, how much it moderated? Could it be up at some point and that sort of thing?

Yes, we would be disappointed if our circulation revenues weren't growing by the end of this year, by fourth quarter. What is exciting for us -- and not just the management team, but in our buildings is the chance to start to grow again in a measurable way where we now know who our subscribers are.

We have a relationship with about 40% of the households in our local markets. That means we have no known relationship with 60% and that 60% is a target. So I think key is to just make our relationship stronger with that 40% of the households, so about 600,000 subscribers. And then we have 800,000 that we are going to be aggressively marketing to and encouraging to become a subscriber either digital or a premium subscriber.

So those numbers over time I think are going to be -- it's going to be a meaningful transition for not only Scripps but I think the industry over the next two or three years and is going to be able to shift the focus, shift us to a consumer facing enterprise.

Great, thanks. Maybe if I could ask Brian a question or two, it would be helpful. Brian, I know you certainly sound enthusiastic about what you are seeing thus far in the first year plus at the McGraw-Hill stations. And speculation is in minimum there could be over $2 billion worth of television stations coming to market.

So is there any way you could put a little box on what your priorities -- or you did mention network diversification, the overwhelming bulk of your stations at top 50. So is it large to mid-sized markets? Is it underperformers and that you want to turn around? And maybe then just how big your appetite might be?

Hey, Barry, it's Rich, let me give you a little color and then Brian can add on as well. So just a reminder that we have talked about a lot, we are very disciplined buyers and we focus on cash-on-cash return on investment. And so, finding deals at what we think are attractive prices is absolute critical because in general we are not rollup enthusiasts.

Instead we are much more focused on either great markets for rent or getting into additional very attractive markets and then taking as much additional revenue as we can out of these great markets. That is -- going deeper is much more our strategy then going broad and trying to roll up the industry.

Having said that, we are looking and have looked at pretty much everything that has come along. I will let Brian add -- talk about some of the market dynamics we really find attractive.

Hey, Barry, it's Brian. To Rich's point, we don't have a desire to get bigger for the sake of getting bigger. I think that we go into every opportunity looking strategically how it fits our footprint and makes our Company better. If you look at our portfolio there is probably a lot to tell about who we are. We are in markets 10 through 60, we like network affiliates, we like stations with strong brands and somebody who clearly is in the news game.

And I think that we have an open mind to moving beyond 10 to 60 if the right opportunity presented itself. We still would like to be a market -- in network affiliates. We would like to potentially be able to expand our footprint in some of the markets we are in possibly.

There are geographic strategies that we have, there are affiliate strategies, we would like to be a little bit more diversified if we could. We like states that are active politically because of the way we handle political; we think it is a competitive advantage for us. So that is a little bit of insight on how we look at the world.

Great, Brian, thanks very much, that's it for me.

Westcott Rochette, S&P Capital IQ.

On reverse retransmissions, can you just remind us where you are in that process, whether those contracts are locked up long-term or where those negotiations stand?

Hey, Westcott, it's Brian. We have been in our current affiliation agreements now for about two and a half years with both our ABC and NBC. And since the point that those contracts were signed we had an agreement where we were returning some revenue to our networks. And so, that continues to be part of our expense line moving forward.

We have all of those expenses rolled up within programming. And so, when you hear me talk about the fact that total programming is down 11.6%, that includes all of our programming costs related to our homegrown programs that we are investing in as well as any reverse retrans that we are paying. So even with all of that rolled in we are still able to have double-digit declines in programming. So it is clearly within moderation.

Okay. So then to paraphrase then, it is a percent of retransmission kind of going forward that you agree to?

I prefer not to give you (multiple speakers).

Okay. And there has been a lot of talk about consolidation. What about on the newspaper side just given that there seems to be a lot of newspapers out there actively being shopped. Is there a situation that would interest you on that side of the business?

Hey, it's Rich. I mean, again, we look at a lot of everything that comes through, but just in general we have not been a buyer of newspapers -- of additional newspapers.

All right, thank you very much.

Michael Kass, BlueMountain Capital.

With respect to the three homegrown TV programs that you guys referenced, could you -- maybe for those of us that are a little less sophisticated in that area, I mean what is the ultimate opportunity to maybe sell those outside of your current footprint? And what would be the timeframe on that and how would we have a sense that that is a realistic prospect and might be able to generate revenue?

Hey, Michael, it's Brian. I think that first and foremost the most important thing to us as being able to build programming that creates good loyal viewership inside of each one of our markets, that is where we have the best return. And I think so far we have been pretty successful with that.

As Tim talked about, we continue to see very strong growth in 25% growth quarter to quarter in ratings with Let's Ask America, The List being ranked 12th nationally of all syndicated shows. So I think we are very proud of the quality and the performance of the shows we have.

Continuing to grow those, we have only been on the market -- on the air six or seven months now against a lot of legacy shows in the access time period. So we have still got a lot of work to do but we are very pleased with those -- where those are at.

Long-term we have had calls from other broadcasters and even syndicators that are seeing the success of these shows and have interest in taking it beyond the Scripps markets. And so we are having conversations. And so, I think you could expect to see an expansion beyond our current markets coming up at some point and probably sooner than later future.

As it results to Right This Minute, that was our first project that is a partnership with Cox and Raycom. We produced the show out of Phoenix and three years in we now have MGM syndicating the show. And as you heard in Tim's comments, it is now cleared in over 60% of the country, you've got clear on WMBC in New York, KABC in LA and Chicago and Boston and Miami. And so I think we have learned a lot from that model and we are pretty excited to be part of a group or broadcasters that is able to develop a good enough show to get that kind of clearance.

Is that -- are those syndication revenues that you are looking at from what you say 60% clearance, is that material to your results? I mean, I'm just trying to get a sense of is this something that we should start looking at as an opportunity for you guys that is meaningful?

You know, I -- look, I think it is early. And so, again, we build these to be successful and profitable within our own markets. While we have internally modeled some things, they are really not part of the numbers we share moving forward just because we wouldn't want to mislead you and it is really in an uncertain space for us.

But as we get into it we start to get more expertise in this I think there could be an opportunity and we'll be more forthright about that opportunity as we better understand it. And, Tim, to you want to comment on that?

Yes. And I would just describe that the math works on this if we keep this in our own markets only. So we did -- we are experienced at building programming and when we look at the return on these shows we get a very nice return from building these shows, getting rid of that expensive syndicated programming in our own markets and we really view the syndication potential on this as really kind of an option or an upside going forward.

We have got -- Brian and his team have done a great job executing a multi-phased program and expanding our margins in the TV group and this would be one of the things that could be a help down the road.

Thanks a lot, that's really helpful. And then just lastly on the share buyback. I was curious if you guys had been active after the end of the quarter? And more broadly, it sounds like your stock is obviously up almost 50% over the last two months. Can you give any indication of kind of where you are a buyer of the your stock and where you would rather preserve your capital for a rainy day or later days?

We will let the CFO answer.

Well, I expect we will be pretty active in the second quarter in our share repurchases. Part of -- there is a lot of things that go into the decisions on how active we are buying shares, one of which is a level, the other of which is what is going on in terms of the share count. As you know we've got a fair number of options that are outstanding.

At the end of the year we had 6 million options outstanding at an average price of about $9.77, they have been underwater for quite a while. And we have seen about $16 million of option proceeds in Q1. So I think if some of that money comes in expect to be pretty active in share repurchases in Q2.

Got you. Thank you.

[Alfred Anderson], [Anderson Family LP].

First of all I would like to congratulate Rich on his elevation to Board Chairman. I think that is a positive move and we are looking for great things. I represent a number of smaller shareholders, as you know, and I have a number of questions one which is for Tim Wesolowski.

And, Tim, if you can remember, I was looking at the 10-K from the end of last year and I should have asked this question at the annual meeting, but I forgot. And I wondered what the $6 million investment in plant, property and equipment was for head office. Do you happen to remember?

That is primarily related to two things, one it is some IT spending that we are doing as we are moving some of our IT operations out from the field into a more centralized area. And we are also, as you may have seen when you were here, because of the digital growth that we are experiencing we are spending some money on the offices here to get more people in less space so we can execute all of these plans that we have got on the digital side.

Oh, good, I thought that might be the case, but I wasn't quite sure. The second question is for Tim Stautberg. And we heard a little bit about which TV stations were contributing the most and growing the fastest and doing well by names of cities. I was wondering if you could give us the same sort of information on newspapers, which are contributing the most to your $6 million first-quarter profit?

Yes, Alfred, we tend not to -- that is where we might differ a little bit from our TV friends who have ratings and other things that folks can see visibly market wise. What I can say is that typically our larger markets are the ones that are contributing more and we have talked a lot about Naples being a very attractive market for us. That is certainly the case. And I would say that the larger the markets the better they are from a contribution standpoint.

Thanks. That tells me something too. And finally, this is -- I look at like the previous questioner asked some questions about the share repurchase program. And I know that you -- management -- the directors and so forth have all been selling their shares for several years as the price has gone up.

And the Company keeps re-buying shares and trying to keep the share level stable and a little bit more even to reduce the level of shares outstanding. By and large though the shares that are repurchased are just rewarding management members and recovering by repurchasing the shares that we issued.

And so the total number of shares outstanding at the end of the year are not going down very fast. We are all very pleased the share price has gone up by 40% or 50% since November.

But we wonder -- I wonder whether at the current level where the Company is selling at 20 times earnings and almost double shareholder equity, whether one wouldn't want to reconsider holding back some of the capital and maybe even giving the shareholders who don't profit by any other way this small shareholders like myself sort of a $0.50 annual dividend which would only cost you about $25 million of your precious capital.

Thanks, Alfred, it's Rich. Let me -- we'll touch on that a couple ways. First, we really like stock-related compensation for employees because it aligns their interests with those of the shareholders and it is worked extremely -- it has worked really, really well.

At the same time, and we look at total compensation versus market, and in general we probably tend to be a little lighter on the cash side and a little heavier on the equity side. And again, we think that is a good thing because it aligns interest better with the shareholders than leaning more heavily on the cash side of compensation.

And additionally, we have rules around, especially for the senior people, stock ownership. So you might see some selling as people need to pay taxes or send a kid to college. But in general our employees, especially our managers, are very well aligned with the shareholders. And again, we think that is a good thing.

On the use of cash, we just still tend to like share repurchase, it is certainly my favorite alternative for returning capital because it benefits people who have for whatever reason decided that they want to be sellers. And we over time chip away at the outstanding number.

We talk about dividends, but so far we continue to favor share repurchase and making sure that we have the financial flexibility to make investments like we are doing on the digital side where we expect a very attractive return and in programming and potentially in additional markets at the same time.

So I guess at this point I would say no change in our thinking on dividends, but we look at it all of the time and historically over the years off and on the Company has paid a dividend and we will continue to keep it on the table as an option.

Thank you, Rich, that completes my questions and thanks for the very good conference call.

Thank you. Nice seeing you last week.

Good seeing you too, bye-bye.

(Operator Instructions). It does appear at this time there are no further questions from the phone lines. Please continue.

That wraps up the first-quarter earnings call for E.W. Scripps Company. Thank you very much.

And ladies and gentlemen, this conference will be available for replay today after 11 a.m. Eastern Time through May 13, 2013. You may access the AT&T teleconference replay system at any time by dialing 1-800-475-6701, entering the access code 291022; international participants may dial 320-365-3844. And again those numbers are 1-800-475-6701 and 320-365-3844, again entering the access code 291022.

That does conclude your conference for today. Thank you for your participation and for using the AT&T executive teleconference service. You may now disconnect.