E W Scripps Co (SSP) 2013 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the second-quarter earnings call.

At this time all participants are in a listen-only mode. Later there will be an opportunity for questions. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Ms. Carolyn Micheli, Vice President of Corporate Communications and Investor Relations. Please go ahead.

Good morning, everyone, and thank you for joining us for this recap of The E.W. Scripps Company's second-quarter results.

We're going to start this morning with Scripps' CFO and Treasurer, Tim Wesolowski. Then Rich Boehne, our Chairman, President, and CEO, 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, Head of the TV division; Adam Symson, who is our 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 emails anytime we disclose financial information and you can listen to an audio replay of this call. The link to the replay will be up there this afternoon and will be available for a week.

Now here is Tim Wesolowski with a summary of the second quarter.

Good morning. The second quarter unfolded pretty much as we expected. We increased television advertising revenues in the local and national categories, nearly finished the rollout of our subscription bundles in our newspaper markets, and continued hiring aggressively in our digital sales group.

Of course, our reported results in the TV group were impacted by the lack of political advertising versus the prior year, but we did see some nice growth in a couple of categories. We also benefited from strong management of expenses and had continued success with our TV programming strategy. I will hit on each of these factors as we go through our results.

Let's begin with the consolidated results. Revenues for the second quarter declined 4% from second quarter 2012 to $208 million. Essentially all of that decline, about $10 million, was due to the absence of political advertising in the TV division following our record performance in 2012.

Our core television ad growth of 2.1% appears to compare pretty well with the broader TV marketplace. Our cost and expenses for segments corporate and shared services were $184 million, despite our aggressive investments to build out our digital products and revenue streams. That is about a 1% decline over last year. If you take out the incremental expense to invest in our digital operations, costs and expenses declined nearly 3%.

The Company reported a pretax income of $3.9 million in the second quarter. Net income for the quarter was $3.2 million, or $0.05 per share, compared to $5.4 million, or $0.09 per share, in the second quarter of 2012.

Turning now to the Broadcast division, our revenues, excluding political, were up 4.5%. Core local and national advertising revenues were up 2.1%. And as you saw in the release, total revenue on a reported basis from our TV stations was $111 million, down $5.7 million from the second quarter of 2012.

We saw gains in retransmission fees and local and national advertising, but they were not enough to offset the expected declines in political. Last year we booked $11 million of political and we had about $1 million this year.

The automotive sector was strong, as was our communications category, but we saw some medical and insurance advertisers sitting on the sidelines, perhaps waiting to see the details of the Affordable Care Act get worked out this fall. Overall, we were pleased with steady growth in national advertising up 3.3% for the quarter and local up 1.5%.

Just to dive a little deeper there, auto was up 8% making it our largest category for the first time since 2008. Our food stores category was up 10% and the communication category was up about 80% due to some heavy competition among some of the cable companies. Digital revenue for the TV division rose 14% to just over $4 million.

Another bright spot in TV revenues is retransmission. Revenue grew by about a third and we expect to see double-digit growth in retrans over the next several years. At the same time, expenses were down in part due to new Scripps' owned programs, Let's Ask America and The List. These shows launched last September and are quickly building audiences and helping us become more independent from shows we have to buy in syndication. Our shows mean our revenue.

Right This Minute, a show that launched two years ago as a partnership between Scripps, Cox, and Raycom, has now been cleared in 109 markets, representing 81% distribution across the country. That is up from 60% at our last earnings call. The program is cleared in all of the top 30 markets and 46 of the top 50. Our syndication partner, MGM, has done a great job of selling the show over the past seven months.

The List is also seeing strong growth. Our research shows the program continues to grow in audience affinity and in key demographics as well. Our best success to date is in the Tampa market where The List finished as the number three show in the access hour beating Wheel of Fortune, Two and A Half Men, and two local newscasts in key demographics. The List also provided strong ratings success in key demos in Cleveland and Cincinnati.

Finally, season two production has begun on Let's Ask America. Once again, the show will be produced by Warner Bros. Telepictures. We have got a new set, graphics, and music and have tweaked the game a bit to make it even more fun. We will also be adding two clearances on Scripps stations this September, WPTV in West Palm Beach and WXYZ in Detroit. These launches will add even more scale to our investment.

You know this well by now, but I will remind you again that taking control of our programming and driving ratings growth are fundamental to our longer-term margin improvement plan.

Our segment profit in the quarter has seen terrific growth over a two-year cycle. Segment profit for TV more than doubled over the same quarter in our last nonpolitical year, 2011, from $14 million to $31 million. Of course, this isn't exactly an apples-to-apples basis as this year includes the former McGraw-Hill stations.

On a same-station basis segment profit increased more than 70% and our segment profit margin grew by more than 9 percentage points in this two-year period. As we have said many times, growing our segment profit margins remains a top priority for us.

Now turning to the newspaper division, we again moderated the year-over-year percentage decline in revenue. Total revenues from newspapers was $93.5 million, down 3.8% from the second quarter of 2012. That performance is better than the first quarter when we saw a 4.7% decline.

Second-quarter segment profit in the newspaper division increased about 30% to $5.9 million. That is due to good expense management in this challenging print advertising climate. Total segment expenses decreased 5.4% to $88 million.

Advertising and marketing services revenue were $60.5 million, down 4.5%, and the biggest decline was in classifieds down 11%. Employment was the weakest category there. Local advertising was down about 5%. National advertising represents less than 5% of total advertising revenue and was down about 9% to $2 million.

Preprint and related products were about flat at $16 million. Digital revenue rose a healthy 6.6% to nearly $7 million with pure-play digital increasing 11%.

Subscription revenue decreased 2% to $28 million. We are optimistic about our subscription revenue now that we have rolled out our subscription bundles in 11 of our 13 newspaper markets. We said in the release that about 20% of our subscribers have activated their digital accounts with us. We would be disappointed if we didn't more than double that number by the end of this year.

The rollouts happened late in the quarter, so we didn't see a lot of impact yet in the financial results, but we do expect to begin reaping the benefits to our subscription line in the second half of the year. We have only two markets to go, Knoxville and Evansville. They are launching this month and next. Rich will talk more about our subscription packages in a couple of minutes.

I would like to finish with a look at our cash position, share repurchase program, and, finally, our guidance.

We continue to hold on to our rock solid financial position. Our cash on hand is $218 million and we had $188 million of debt, meaning we have a net cash position of $30 million. The Board approved a share repurchase program in November that allowed us to buy back as much as $100 million of our shares. We repurchased 1.7 million shares for $24.3 million in the second quarter and have so far this year purchased 2.7 million shares, or $35 million.

Before I turn things over to Rich, I would like to address our guidance. You can read all the details in our release.

For the full-year we are now saying television revenues will be down low teens and television expenses will be down low single digits. That is a bit more cautious on the revenue side from 90 days ago.

Services and retail remain somewhat softer than expected and there has been a lack of robust [ballot] initiatives. We now expect television expenses to be down low single digits, which is better than our prior guidance. These two tweaks offset each other for the year from a segment profit perspective.

Also, in February we said full-year shared services and corporate expense would be in the $65 million range. We revised that in May because the hiring of digital salespeople has got a bit more slowly than we expected. Now we are revising it again to $55 million. Again, see the release for details on Q3 guidance.

Now let's hear from Rich.

Thanks, Tim. Good morning, everybody. On the first-quarter call we talked about our priorities for 2013, so before we take questions let me give you an update on each of those priorities.

These are the three areas where we expect to make substantial progress this year setting us up to reap benefits during the top of the political ad cycle in 2014. The first is focusing on local news ratings in all of our TV markets, which has direct benefit now and even more so in the upcoming election year.

The second is the rapid rollout of our digital advertising salesforce in digital tools, digital sales tools. And the third, which is unrelated to the political cycle but just as key to 2014, is the rollout of the print and digital subscription bundles in our newspaper markets.

So starting with local news ratings. As planned, we are seeing strong improvement, in particular in Denver, Indianapolis, and San Diego, the former McGraw-Hill markets, and also strong growth in the Scripps legacy markets of Tampa, Cincinnati, and Phoenix.

In addition to those strong markets, we are seeing nice growth across the board. 13 of our 14 stations improved their shares of local news viewers in the major time periods in May and 10 of them finished number one or number two in the targeted adult demographics. Cincinnati, Tampa, and Tulsa even expanded audiences in every major newscast.

What do we focus so much on it? Just a reminder, nothing moves the needle at Scripps like expanding audiences for local TV news. That was the attraction to the former McGraw-Hill markets and it remains our number one goal and our number one margin opportunity. Local news built upon high-quality enterprise reporting is our core product and our core competency at Scripps.

It reaps benefits as well across other platforms, the digital platforms in addition to on-air TV.

Just to go back and put a finer point on Tim's review of our other programming ventures -- The List, Let's Ask America, and Right This Minute -- we are very confident in our ability to leverage creativity for financial gain. Whether it is local news, game shows, or magazine shows, we are comfortable with the creative risks that can attract premium audiences and drive cash flow.

Our second priority has been the execution of our plan to build out digital products and services and tap a larger base of digital advertising revenue in all of our cities. Just a reminder, if you look at the map that include some of the most attractive digital markets in the nation.

The bad news is through the second quarter we have only spent about a third of the $22 million that we had committed to expanding our digital operations in 2013. The bulk of that has been spent on improving our advertising systems and adding veteran sales reps across the country who know how to sell digital advertising, and like I said, and have a proven track record of doing it.

The good news is the ones we have hired are producing beyond expectations, but we are only hiring proven talent which has slowed the process and some of the spending. We are making progress, though, and we should be on track to add 100 of these digital sellers by the end of the year. Bottom line, expenses for digital -- the rollout of the digital operations could trail our initial projections for the year, but believe me, that is not my intention.

We are also rolling out the next generation of news apps and Internet news brands that are designed to set us apart in our markets with high-quality enterprise reporting, storytelling, and advertising on every platform. This fall will begin an overhaul of all of our TV market sites and mobile products to better highlight the quality journalism content that we produce. These product upgrades are crucial and they are going to continue across our markets.

Our third priority is the rollout of the digital and print bundled subscriptions in our newspaper markets. As Tim told you, 20% of home delivery subscribers in 11 markets already have activated their digital accounts. We've also added 12,000 new digital-only subscribers, well ahead of what we projected.

We are bringing down overall newspaper expenses, while at the same time securing our valuable audiences through bundled subscriptions and building an all-new revenue stream in the form of digital-only subscriptions. Together these are the catalysts of a repositioning of the newspaper business model -- one much more dependent upon revenue direct from consumers. There is still much more ground to cover, but combined with the moderating declines of print advertising these are more optimistic days for newspapers.

Across the board, whether on TV and print, on a mobile device, or a desktop, we build value by delivering value to local communities. Our mission-focused culture, anchored by a commitment to enterprise journalism, provides the energy that drives outsized returns for our owners. Year in and year out that is always our priority. Thank you for entrusting us with some of your precious capital.

That is a look at the quarterly results and our current priorities. Now I think we will take questions.

(Operator Instructions) Craig Huber, Huber Research Partners.

Good morning. My first question has to do with -- on the newspaper side. Newspaper costs, Tim, as you look out for the next couple years do you think you have much more runway here to take out costs? And if so what areas are you focused on here to try and help stabilize the margins or actually potentially grow them?

Just a reminder, we have got two Tim's here -- Tim Wesolowski, the CFO, and Tim Stautberg, who runs the newspapers. We will let Tim Stautberg take the question.

Thanks, Craig. Good morning. As we look out over the next several years the current allocation of resources against our activities doesn't provide a lot of room to take additional costs out, because we are really focused on making sure that our consumer-facing business has the best opportunity to provide real value to subscribers in our local markets.

I am sure that over time there will be an evolution of the business and there will be opportunities to align resources based on revenue opportunities, but as we sit here today I don't see a sizable change in resource allocation unless the Company were to decide to do something along the lines of other markets where they have reduced frequency of distribution. We are not at that point at this moment.

Also a housekeeping question on the newsprint front. Your press release says newsprint costs are down 13.7%. How much was volume down versus average price, please?

Sure, Craig. They were split evenly 7%-ish for both.

Okay. If you could just jump over to the TV side if we could. Can you remind us on the retrans side how many subs do you have up for renewal at the end of this year and the same question for next year please?

Craig, it is Brian. We don't have a ton up at the end of this year. We have a much bigger opportunity next year.

We have a major deal up in the middle of next year for 1.2 million subs and then at the end of next year one of our biggest deals is up that is just under 3 million subs. We also have another couple hundred thousand in another one at the end of next year. And then a lot of our small deals were up at the end of next year.

So we have got one or two moderate sized deals at the end of this year and a couple of more significant ones at the end of next year -- one in the middle of next year and then the big ones at the end of next year.

My last question here on the TV front. You guys talked briefly about lowering your guidance on the TV revenue outlook here for the remaining part of the year. You hit on retail and the service area, which I believe was two ad categories that were soft 90 days ago. So can you just talk a little bit further on what has changed now versus back then?

I think services and retail through the last quarter were a little bit softer than we expected. The services, as Tim had mentioned, was kind of driven by a softness in the doctors, hospitals, insurance, everything around that healthcare. And while we are optimistic that we are going to see some of the Affordable Care dollars in the back half, we are not sure it is going to make up what we have been short as people have kind of sat on the sidelines on that.

Also seeing a little bit of softening of telcom. I think our release said that we were up plus over 80 in second, which was very strong. I don't expect that trend to continue at that rate.

Then just overall, as we are looking at the political landscape for the back half of the year, the odd years are harder to predict. You hope that there will be some big ballot initiatives in a couple of states and maybe given some issue money that pops up, and that really hasn't been the case. It has been a relatively quiet year.

And while I think the healthcare provides the biggest opportunity for us in the back half, we are not seeing anything big in California which is usually known for a good ballot initiative or two. That is really going to drive kind of where our thinking on the political had been as we modeled out this year.

What is your outlook for TV auto advertising for the back half of the year, please?

I think the trend that we saw in the second quarter is what we are looking at for third. We are seeing that same kind of very strong growth. It is early for fourth, but we have no reason to believe it will be anything but the continued high-single growth that we have seen through the year.

Great, thank you.

Michael Kupinski, Noble Financial.

Thanks for taking the question. Just following up on the political dollars. Obviously in the second quarter it was actually a little better than I was expecting, but you kind of indicated that you didn't think that that might continue. Was just wondering if you can give us your thoughts on the level of political advertising for this year.

Mike, it is Brian. Look, second quarter was kind of light, there really wasn't a lot. We are seeing a little bit of mayoral races as we look at the back half of the year. Again, we will see some smaller ballot issues but nothing huge.

I think really the back half of the year political is going to be made by the Affordable Healthcare Act and it is going to come in three buckets. There is the federal exchange that about half of our states have opted for. There is the state exchange, so I think about the other half are kind of going down that model. I think one of our states has done a hybrid, Michigan; doing some of the state and some of the federal.

Then there is also some opportunity on in rural America, which is some ag money around that. And so I think that is where we find the most level of volatility or opportunity around the Enroll America, so we are kind of watching that closely.

All of those will then have an impact, bringing it full circle back to that services categories to see how much of the insurance and medical and hospital money that has kind of been sitting waiting to see how this plays out. We are curious to see how much of that gets unlocked now in the back half.

Brian, do you still anticipate that you could do about $5 billion in political this year?

I think that is in the range of what we are thinking.

Okay. Then on the acquisition market front, can you just give a little bit of the landscape? Obviously you weren't successful in looking at a couple of potential acquisitions that were out on the marketplace, including [Tribian] and maybe [Alberton] and so forth. Can you just describe the multiples as well as the landscape?

Then also, do you anticipate that there would be any benefit from the SEC possibly changing the UHF rules and lift the TV ownership caps and kind of restricting some that are pushing against those limits already?

Mike, it's Rich. We continue to be interested in -- probably first priority is going deeper in the markets where we already do business. We would love to add some additional stations in those markets, but that has been difficult to do with a lot of owners waiting to see what happens with the spectrum auction at the same time.

And the affiliate marketplace. We are interested in other affiliates in new markets, but we kind of have a target in mind for the kind of returns we expect and obviously we have not been successful since we did the McGraw-Hill deal about a year-and-a-half ago. But in general, beauty and value are in the eyes of the beholder so it is pretty hard for us to say how other people value stations. Obviously, we just haven't been able to hit any of them recently but we remain interested.

I will let Brian talk about the issue around the [U's].

Obviously in recent weeks now been a little bit more interest relative to some of the FCC rules around ownership and the UHF rule and so forth. Look, I think it is an interesting discussion relative to the industry. It is not something that we really have a lot of stake in. We are not bucking up against the ownership cap. We don't have a lot of the kinds of stations that are impacted by the UHF.

So I think we will continue to watch that and if there is any changes or discussion on that we will make decisions on opportunity relative to what we are trying to accomplish as a company. But it probably has impact on a lot of other companies much more than us.

Mike, it is Rich again. We are probably more focused and we would like to see some relaxation that would be in the rules that would allow more in-market consolidation. We just think it would make a lot of sense, especially in smaller and midsize markets, for somebody to be able to own a few more brands and signals.

I am sorry, Rich. In terms of looking at UHGF stations versus VHF stations, I mean for your standpoint do you see any particular difference given the level of cable satellite and cable penetration in the markets?

No, we don't. It just depends on the dynamics in each individual market, but just in general we would favor rules that would allow for much more end-market consolidation than what we see today.

Okay, perfect. Thanks, that is all I have for now. Thank you.

Barry Lucas, Gabelli & Co.

Thank you and good morning. I have several this morning actually, Rich. Maybe we could start with Mr. Stautberg there.

Since you have got kind of a late push on rolling out the digital alternatives in your markets and looking at kind of where circulation revenue trends have been, any way to frame what circ revenues might do in the back half of the year, Tim?

Sure, Barry. Our hope is that they would be growing, quite simply. We are probably nine months to a year behind Gannett, for instance, in terms of their rollout and maybe a couple behind McClatchy, so you can kind of look at some of the trends in their circulation line for what we would expect.

I think we want to be cautious about becoming too exuberant on what that could be, but Rich mentioned in his remarks the opportunity here from a consumer-facing business, a direct revenue relationship with consumers. And especially across our different products in our portfolio that we are offering as a bundle, we think this is a true pivot point for our business and we are geared towards making sure that we take full advantage of it. So the back half of this year we would expect that line to be up.

Great, thanks. Couple for Brian here if I may. Just maybe a little bit more color, Brian, on geographic variances in the television division on the revenue front -- who is doing well, what areas are doing well, what aren't, what areas aren't doing well.

Good morning, Barry. It is Brian. We have got a couple of markets that are pretty hot. We have got some others that are a little bit softer.

As I look at the second quarter, the strongest spot markets were Kansas City and San Diego and West Palm. All three of them were up high singles to even bucking against double-digit growth just straight up on spot. Now obviously a couple of those markets a year ago had some political in it, but even despite that a market like Kansas City total year, political and all-in, was up 5% in the second quarter. So I thought certainly that was positive.

The Midwest, for the most part, looks pretty good. Detroit market is up in spot business year to year. Cleveland is up almost 9%, Cincinnati is up, so I think the Midwest seems to be trending well. As I mentioned, no consistency in Florida. West Palm really strong. Tampa kind of flat.

On the West Coast, Denver is up a little. Phoenix is just off a touch, but San Diego is on fire. So I don't know that there is really a pattern to the geography; it really is a market-by-market basis.

Okay, thank you. Just to come back to the M&A issue. As you look at what is out there, most of the bigger groups are now off the table. I am just wondering how you get to where you want to be, whether it is in-market or market expansion, as we go forward from here. And just thinking about how do you leverage what you have got.

Part of the question, and I don't want to extend this, but your discussion about both revenues in, let's say, Denver and San Diego and news ratings, which obviously go together where you have made real progress in those McGraw-Hill markets, suggests to me that you guys either should or would really like to be a little bit more aggressive having had your hypothesis essentially proved out.

It is Brian again, Barry. I think we are a good operator. I think we know how to run good television stations. We know the kinds of television stations that we're good at running.

Obviously we like network affiliates. We like to build strong new brands. We don't have to going to buy the largest news brand in the market. We have a lot of confidence that we can grow products and improve them, and I think that is surely playing itself out with the stations of the acquisition that we did in December 2011.

I think our balance sheet says that we are in a position to be able to acquire and so I think we strategically look every day. Rich talked about the fact that in-market is important to us, I agree, but also there is a lot of other markets we would like to be in and trying to use our leverage in terms of our size. And I still think at 13% of the country we are a significant player. I know others have rolled up a little bit bigger now and that provides A) opportunity but B) a competitive situation that we have to be aware of.

But I think that we continue to look for those opportunities. And while big groups may be going, we still think there is a lot of television stations are the right fit for us that we will spend time assessing and see if there is ways that we can fit them into our portfolio.

Barry, just to add on to what Brian said, if you look at a pie chart, the industry is far less consolidated than the headlines would suggest and there will be an awful lot of opportunity for consolidation probably in the future. Also, you and I have worked together through probably three or four cycles. The last deal we did was when stations were largely out of favor and there was not much action.

There will be opportunities in the future. You have to be patient and focused and know what you expect and know what markets you are looking for and there will be good opportunities. But there is not necessarily -- I think as you have probably told me several times, there is not necessarily a benefit to winning an auction. So we will pick our spots and we will find our opportunities.

Great, that is a terrific segue. It is my final question, Rich. I think net cash is actually up a smidge from 1Q to 2Q, and this is not to minimize the share repurchase effort, but how do you characterize the balance sheet and the manner in which you have been buying back stock? Is this, in your mind, more a function of caution about the economy, about the newspaper business and various other uncertainties, or is it more a function of just waiting or hoping or keep kicking the tires and looking for that next decent opportunity on the M&A front?

I will let Tim Wesolowski talk about share repurchase in just a second, but we sort of balance several cash priorities and one we have talked about. We would like to be deeper and broader in markets where we do business. We wouldn't mind adding some additional markets if we can get the returns that we expect buying back stock, but also not much talked about because of the frenzy that is going on in the broadcast TV business is the opportunity on the digital side. We continue to aggressively build out our digital products and services.

If you go back, one of the strong attractions to the former McGraw-Hill markets and in the Denver and San Diego is those are terrific digital markets. So we are looking to add some markets, go deeper, buy back stock, but also we just intend to be among the most aggressive digital players in our markets and believe that is a clear opportunity, but it has been, like I said, much lost in much of the consolidation talk that is going on in TV.

So as said, we haven't had an opportunity to spend as much as I would have liked to on the digital side just because we are trying to be smart about it and hire the right people and put the right tools in place. But that will also consume a little bit of cash. But obviously it is not going to run us dry just investing in digital.

But we have been buying back. We have an authorization of up to -- I will let Tim Wesolowski jump in.

So the Board authorized $100 million last fall. Through the first half of the year we have purchased $35 million worth of shares, 2.7 million shares. In second quarter I would characterize us as pretty active; picked up 1.7 million shares.

So is your question, Barry, why don't we just buy far more aggressively than we have been?

No, I don't think so, Rich. As I said, I'm not at all trying to belittle it. I am just trying to sort of gauge what the strategy here is. Is it husbanding cash and making sure that you have either the availability on the balance sheet or the opportunity to come to the market to borrow money in the event that something really attractive were to come on the market?

Or is it just that native caution that you and Tim and Tim have exhibited over the years that would prevent you from being a little bit more aggressive on the buyback and that kind of thing?

No, I would think if you were to really characterize it, you know us well, we like to be opportunistic and often times counterintuitive, like we were when we picked up the McGraw-Hill stations. So, yes, we would like to make sure that we have financial flexibility to grab really good opportunities as they come along and not necessarily be forced into just doing deals inside of a larger frenzy or a trend.

Okay, great. Thanks very much, Rich, for the color.

Westcott Rochette, S&P Capital.

Two quick questions. One, on ABC and their rollout of TV Everywhere and to some other stations; I think Hearst is working with them. How does that work into your digital plans? Is that complementary and how do you look at that?

I think we do look at it as complementary and the ability for us to bring live programming, which is what the TV Everywhere is, the Watch ABC app, is the live ABC programming as well as the live programming from our local affiliates to consumers wherever they are and whatever they are doing in their lives inside of a local market is pretty exciting for us.

So I think we see a dual-revenue stream opportunity there. One from being paid to sell the digital rights to MVPDs and the other one is, ultimately, to be able to charge advertisers for a new revenue stream that we are creating. And so I think we are very optimistic about the possibility of strong revenue streams there and I think it really complements the products and services that Adam and his team have been rolling out on the digital side to support our local news brands.

Okay. So would there be a more formal kind of agreement, like Hearst has kind of put out there, or kind of wait and see as it rolls out and you guys work on those capabilities?

No, we are not waiting and seeing. We are in conversations with the network now.

Okay, perfect. And, second, just kind of a big picture with retrans and the consolidation that is happening across the industry, do you believe that that impacts, I would guess favorably, your ability to negotiate retrans as you have stronger combined entities that are going to the cable providers? Does that help your kind of leverage as you come to market or are they just completely separate one-off conversations that happen with every agreement? Thank you.

Sure, that marketplace continues to develop and every time we come to the table the stronger the marketplace is the better we do in each of those negotiations. You can see the strong growth numbers that we have been putting up and we think that is going to continue.

All right. Thank you very much.

(Operator Instructions) Michael Kass, Blue Mountain Capital.

With respect to the digital bundling rollout, I was wondering if you could put some math behind the conversion rates that you are talking about, the 20% this year so far in the markets that you have rolled out. What does that actually translate to in terms of incremental revenue?

Sure, Michael, it is Tim Stautberg. There is not a direct relationship between the activation of digital accounts and revenue. To be clear, we have about 550,000 home delivery subscribers across our footprint and our first priority is to get as many of those subscribers, who today have a relationship with us in print form, to go ahead and sign up and activate a digital account so that they can begin to access our content on the different digital platforms, whether it is web, tablet, or phone.

Upon activation then and upon usage and engagement over time, as we get our consumers to move beyond a print relationship that is where we have the opportunity to exchange value. Consumers getting value from the content that we are delivering and hopefully we are able to convert that into revenue.

So there isn't a price increase that is being marketed along with the offer of a bundle, like there would be at, for example, Gannett or McClatchy?

There is, there is. But, again, our first priority is to make sure that our consumers, our subscribers in local markets are setting up accounts and being able to get the full value of their subscription as renewals for their subscriptions come in the mail. To the extent that they have engaged with us on digital platforms and are getting value there that gives us a much better chance of being able to generate more revenue from our consumers. So that is the key link there is activation of digital accounts with our current subscribers.

So should I take that 20% as meaning that -- I assume what as you have -- what percentage of the base has come up for renewal where you have either offered them a bundle or the opportunity to stay print only?

Again, we are still early in the rollout here. Most of our markets rolled out in the April and May timeframe. The average duration of our subscriber base is probably three months, so there is a mix of subscriptions there. Some folks are monthly, a lot are three months, but we have some six and 12 months as well. So folks are getting renewal notices today and we are very encouraged by the early results, but it is early.

Okay. And what is the price increase -- do you have a lot to go with the bundle on average across your papers?

I would prefer not to disclose that other than we believe that it is a fair exchange of value for the content that we are providing and the functionality that we are providing on our digital platforms.

Okay. Then, lastly, I feel like I would be remiss if I didn't talk about M&A from the sell side as well here. You have had an unprecedented boom in broadcast TV acquisitions at multiples that haven't been seen in many, many years. A lot of them over 9.5 times on a seller's multiple basis.

I recall last time you guys had been asked this you thought that, and I assume you still think, that you can deliver more shareholder value by remaining independent. Could you give any context to that in the sense of you guys are, by far, the cheapest broadcast TV station in the public markets from everything I can see, why you think that? And speak a little bit to how you and the Company and the family look at the prospect of monetizing this business given the M&A frenzy that is going on.

It is Rich. Remember you are not looking at a pure broadcast TV company, also you are looking at a company that owns some substantial newspaper assets at the same time so it is a little different than looking at a pure-play company. But, yes, we do think that if you look at particularly the margin opportunities we have over time in the markets we are in we can deliver value by operating the stations that we have today.

And, yes, we have a retransmission fee lag behind some of our peers in the industry, but that catches up over time and gives us the opportunity to take advantage of current market rates each time we go to the table. So, no, we don't have any plans to be a seller at this point. We see very good opportunity in our markets and believe we can deliver the value.

Okay.

Michael Kupinski, Noble Financial.

I just had a quick follow-up for Tim Stautberg. Tim, obviously you have had the benefit of seeing some of the strategies that some of the larger players in the industry have had and picking and choosing which ones of those are working and which ones are not. I was just wondering; one of the strategies that the industry seems to deploy or being deployed is the scaling back of daily print editions in lieu of digital-only daily publications.

I was just wondering where does the Company stand on that strategy and is that something that you are taking a look at as you move forward with your digital subscription strategies.

I don't know that that is a subscription strategy as much as it is more of an expense savings strategy today. Our focus is on providing valuable content on the digital platforms with the functionality that is best-in-class.

And the opportunity for us to actually begin to engage in the marketplace where today we have a financial relationship with the 550,000 subscribers that represent roughly 30%, maybe 35% of the households in our markets. That means we have 65% of the households that don't have a relationship.

We think that is a huge opportunity. That is our primary area of focus today and going forward over the next months and years is to really build that out. It would be not our preference to diminish our relationship anytime soon by reducing the amount of home delivery frequency in markets.

And of those 13 papers, are they all seven-day-a-week print editions?

They are today, yes. That is right.

And so you are saying that, in terms of the future cost-cutting opportunities, you wouldn't foresee, for instance, just doing a digital edition on Monday or Tuesday and not doing a print edition? Your strategy, at least for now, is to continue with the daily print editions?

Mike, I would say our current strategy is to continue to operate the way we are operating today with the offerings that we have. That is not to say that it is not something that we study and look at, but it would not be our preferred path at this moment.

Okay, perfect. Thank you.

Craig Huber, Huber Research Partners.

As a follow-up, the extra spending you guys are doing here in the corporate shared service area, particularly hiring more digital-only salespeople and stuff, can you just put a little bit more numbers around that? What you guys are expecting going forward here in terms of the hiring rate that you are doing versus what potential digital revenues you hope to get from that? And is the split in your minds roughly 50/50 your newspaper markets digital benefit versus the TV station markets?

Craig, it is Rich. No, just mathematically the opportunity is bigger in the TV markets because they happen to be much bigger markets. There is good opportunity in some of our newspaper markets that are of decent size, but our TV markets are much, much larger.

Adam Symson is here. I will let him talk about the revenue opportunity and then we will come back to Tim Wesolowski to talk about the expenses.

Good morning, Craig. So we look at every market individually and try to assess what the opportunity is in the market. Sort of worked out a math program, a math equation around what we think a digital seller, an experience digital seller is worth.

And so we are on track at this point to add about a little over 100 digital sales staff executives and support in each of -- across the enterprise, across all of our markets. And it's, as Rich said, not necessarily split evenly. I would say we probably have more opportunity in our larger markets, the television markets where we have fewer sales account executive is a television station today, although we do anticipate adding staff and sales management in those newspaper markets where we think we can achieve additional scale.

From a revenue opportunity perspective, it is essentially determined by looking at what the market can bear. In each of our markets we think there is significant opportunity in the outlying years in the millions that we think we can add on to our local markets relative to digital advertising that today we are not necessarily taking share.

Tim, talk about the expense this year?

So when we talked going into the year we gave an amount of about $60 million, which was -- cost in that really fell into three different buckets -- feet on the street, building out a system to streamline the process and really make the business more leverageable across our different properties, and also the third bucket being on the content side.

We are making terrific progress on the second two areas for sure. On the systems implementation we are going to be rolling that out here and actually going live in properties in the next couple of months. The content side is going well and the spend on the salesforce is a bit slower, but we are being very, very picky.

We are not going out and hiring inexperienced people and handing them the phone book and telling them to knock on doors. We are hiring experienced people that have got a book of business. And to scale this a little bit differently as well, I think we said on the last call our combined digital revenues in our newspaper and TV group was about $40 million in 2012 and this effort that we have been doing through the different areas we are spending on we would be disappointed if that number didn't about double in 2015. So that is sort of the numbers that we are looking at.

Great, thank you.

Michael Kass, Blue Mountain Capital.

Just following up on the digital opportunity for a second, just was looking to understand a bit more the products that the salespeople will be selling is this primarily real estate on the respective TV and newspaper websites? I assume it also includes some mobile and new products being developed. I am wondering how you guys think about -- when you say that you are under-monetized what are you comparing yourselves to and how are you coming up to the view that more salespeople and better systems equals more revenue?

Hi, Michael. It is Adam again. Actually, I think it is that it is real estate obviously on the products that we own -- our websites in our TV and newspaper markets along with our other digital properties like mobile and tablet. But additionally, in each one of our markets we are almost like a well-developed digital agency.

We sell a number of different marketing services from the relationship we have with local advertisers around cost-per-click advertising, like Facebook and search engine marketing, and ad services, like Google, Bing, and Yahoo. We also do a lot of SEO, search engine optimization, and even email and other marketing services.

So the opportunity is not necessarily constrained to the size of our owned and operated audience. It is really constrained to the strength of our sales force and that is where we really see that leverage point. The ability to add experience digital sellers in our market is not going to be held back by the size of our digital audience.

Now that said, I think all publishers would admit that we have got plenty of opportunity within our own audiences, but we have got a series of different products the likes of which you would find in any well-developed, large digital agency that we sell to all of our local, small, medium, and large business advertisers.

But if the problem is that you don't have enough experienced digital salespeople because you are hiring them, what is the competency that you are building around?

I think if you step back and take a look at the approach we are taking, first of all, we are looking for people who already have, in many cases, a well-developed book of business that they are serving. We are putting all of them through very, very in-depth training both on situational leadership, sales management, sales as well as product training.

And then we are really working hard on developing a salesforce that is very, very aggressive. There is a number of digital pure-play advertisers -- digital pure-play agencies out there in our markets. And we feel like we should be able to significantly increase the share we take, because our brands have been around, in some cases, for 100-plus years. These advertisers have long-standing relationships with us and we want them to continue to do business with us on these digital platforms.

So you are talking about primarily selling property that isn't necessarily Scripps property through a new salesforce, but it will be leveraging the brand of Scripps? Is that what you are building it around?

I would say it is probably split somewhere between 70% Scripps and 30%. We think that our advertisers enjoy the effect of advertising on our owned and operated branded properties. But additionally I think once sort of recognize what fragmentation has done in the digital space, it is necessary in order for us to actually achieve the results that our clients want for us to offer them a number of different opportunities.

And so it is not enough alone anymore to just sell advertising on a television station website or a newspaper website. You need to bring in audience extension products, like our association with Yahoo or our association with Google and Facebook, to help extend the reach of their advertising dollar and then essentially to help them achieve the goals that they have growing their local businesses.

Michael, just to step back -- it is Rich again -- we have last year stepped up our research pretty substantially to size the opportunity on the digital revenue in each of our markets. And then market-by-market building a salesforce and building the tools against the opportunity that we see in each individual market. So there is no real magic to it; it is just looking and seeing a substantial opportunity that we think is untapped in our markets and then building against that through investments that flow through our P&L and then return revenue.

Thanks.

There are no further questions in queue.

Thank you very much for joining us for this earnings call today. Have a good day.

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