The E.W. Scripps Company (SSP) Q2 2008 Earnings Report, Transcript and Summary

Welcome to the Second Quarter Earnings Report Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question and answer session. [Operator Instructions]. I would like now to turn the conference over to Tim Stautberg, Chief Financial Officer. Please go ahead.

Good morning all and thanks for joining us. By way of explanation, this will be our last conference call as a consolidated company that includes national lifestyle television networks and global transactional-based interactive business. As you know, Scripps networks in our interactive mediate segment, Shopzilla and uSwitch were spun off July 1st into a separate publicly-traded company, now called Scripps Networks Interactive. But since the EW Scripps Company, as it was previously structured was intact through the second quarter, we are reporting operating results for the period one more time on a consolidated basis. The two companies will begin reporting earnings separately in the third quarter and as a precursor, as I'm sure you have noticed, Scripps Networks Interactive issued its own press release this morning providing some forward guidance. The senior management teams from both the EW Scripps Company and Scripps Networks Interactive are participating in this morning's call. We will start conference call today with some comments from CEOs and CFOs of both companies. Then we will open it up for questions. As always we keep our prepared remarks brief because we know you have busy schedules. We promise to be done well within the hour. Before we begin, let me introduce members of the two senior management teams, who are here with us in the call. Joining us from the EW Scripps Company are Rich Boehne, President and Chief Executive Officer; Mark Contreras, Senior Vice President of Newspapers; Bill Peterson, Senior Vice President of our T.V Station Group; Doug Lyons, our Vice President and Controller and Tim King, Vice President of Investor Relations. Form Scripps Networks Interactive are Ken Lowe, Chairman, President and CEO; Joe NeCastro, Executive Vice President and CFO; John Lansing, Senior Vice President and President of Scripps Networks; Lori Hickok, Senior Vice President of Finance and Marc Kroeger, Vice President of Investor Relations. Let me remind you that if you prefer to listen them on the web, you can go to scripps.com, click on the Shareholders link and find the link at the top of the page. An audio archive will be available on scripps.com later today and we'll leave it there for a few weeks. So you can access it at your convenience. Our discussion this morning will contain certain forward-looking statements. Actual may differ from those predicted. Some of the factors which may cause results to differ are set forth in our publicly filed documents including the EW Scripps Company's 2007 Form 10-K and the information statement filed for Scripps Networks Interactive on June 11th. With that I'll turn it over to Ken

Alright Tim. Thank you, good morning everyone. As always we appreciate you joining us. For those of us around the table here in Cincinnati, this truly is one of those bitter-sweet moments that gives you pause. For me personally, I've had the extreme pleasure and privilege of serving as the Chief Executive Officer of The EW Scripps Company for much of the past decade. Now we've accomplished much during that relatively short period of time, creating new businesses and in the process, substantial value for our shareholders. The time has comes out to move in a new direction, to set our national lifestyle media businesses and global interactive services on a new path, free to grow and be reborn so to speak as a modest distinct investment proposition for our shareholders. We accomplished that goal on July 1st with the successful spin-off Scripps Networks Interactive from The EW Scripps Company and with a lot of hard work by a lot of very dedicated people throughout our organization, I might add. Now it's my extreme pleasure and privilege to be serving as the Chairmen, President and CEO of America's newest media company. A company that also happens to be the undisputed leader in creating developing and delivering lifestyle content via cable and satellite television, the Internet and other emerging platforms. Our success in building powerful brands that resonate with media consumers is reflected once again in the stellar operating performance of our television networks and the Internet businesses, during the quarter just completed. Growing audience trends at HGTV improved network coupled with the strong pricing in the scattered advertising market, resulted in solid revenue and segment profit growth. Affiliate fee revenue also grew strongly, demonstrating the success we've had building our relationships with MSOs and direct-to-home satellite operators. And our newer networks, particularly DIY, are making significant contributions as viewership and advertising sales build in concert with the rapidly expanding distribution on cable and satellite systems. And just about every measure, our lifestyle media businesses stand out from the crowd, both in terms of engaging original content and industry-leading operating performance. Our transactional-based internet business has also had a very good second quarter, continuing to rebound that started really in the later half of 2007. Shopzilla, BizRate and uSwitch, the online comparison shopping businesses that combine our interactive service business segment, all showed marked improvement over the prior year. Our ability to effectively monetize growing end-user traffic at Shopzilla and renewed interest in energy switching in the UK, drove double-digit revenue growth and contributed to improved segment profits. So, we began life as a separate publicly-traded company on several high notes. Solid operating results at all of our businesses, engaged in growing audiences on television and the Internet and powerful media brands recognized the world over. Scripps Networks Interactive is poised for growth and improve [ph] the creation of long-term value for our shareholders. With that, let me just say it's my privilege now to turn it over to Rich Boehne, my successor as a President and CEO of The EW Scripps Company. As many of you know Rich, has really been there from the beginning; a real champion of change and always cognizant of our responsibility to shareholders. Rich has been instrumental in the company's transformation over the years and has truly been an added proponent of our decision to separate the company. He is now taking on the awesome challenge of guiding our local media businesses through some very difficult times. But if anybody in the industry can come up with some greater solutions for local media. It's Rich Boehne. Rich?

Thanks Ken. Good morning, everyone. I am going to spend just a few minutes focusing on the factors that are going to influence future investment decisions at The EW Scripps Company. I am often ask and we would ask quite a bit on the recent roadshow, probably you saw, we saw many of you' of the recent conditions in the local media market have led us to second guess our decision to separate into two companies. To on the contrary, what we are seeing today and what you are seeing today, illustrates exactly why we proposed and advocated this spin off. I would admit foresee the severity of the cyclical economic downturn that's affecting some of our markets, particularly Florida and California. But nothing about the secular challenges surprises us at all. Our results and those of peers in local media well demonstrate the wisdom of decoupling our national business from our local businesses; the newspaper and broadcast stations that are confronting head-on the underlying fundamental challenges that are causing so much aches in this industry and in the market as well. What's important for you, the owners to know is that we decided to relaunch The E.W Scripps Company as a company focused exclusively on local media, because we believe there will be a long-term opportunity to increase the economic value of this enterprise. That's what you all pass to do. So we've setup this company properly focused and well capitalized to be among the few who can play offence, during a period when value should accrue to the strongest players in each of the local market. That could be a newspaper or it could be one or two of the TV stations, but without a doubt it will be whoever captures the largest share of the audience in the local air dollars on the growing Internet platform. Don't get me wrong, in the next few years they are going to be bumpy and uncomfortable as these markets adjust and as we shift resources and carefully allocate our capital for the best long-term return. But even in the weak part of the economic cycle, Scripps brings a few advantages to the table. One, we are concentrated in favorable growth markets, primarily Southern and Southwestern and Western growth markets for attractive long-term prospects, we like midsized growth markets. Two, we have very low debt, which affords us the financial flexibility to seize opportunities, to increase our share in attractive markets and at the same time, return some cash to owners [ph] in the form of dividends. Three, we have the right attitude built on a firm belief that where there is axe there is opportunity. And we have faith in the value local media market and intend to use this period of difficult transition to our and to your advantage. That's the view and enthusiasm that the team on The EW Scripps Company brings to the job each and every day, now that we've sharpened the focus of The EW Scripps Company. And now, I am going to turn over it to Joe to talk about Scripps Networks Interactive.

Thanks, Rich. Good morning everyone. As usual I am not going to give a full recitation of everything that's in the press release. So all there if have seen, so no need to go in level detail in the call. I do want to give little color though on the quarter, as it relates to our lifestyle media and interactive services businesses and provide some context for the forward guidance that we issued this morning for Scripps Networks Interactive. Tim Stautberg will talk about the local media businesses and provide some context for The EW Scripps Company's financial forecasts in a couple of minutes. As for Scripps Networks Interactive, we've begun life as a publicly-traded company coming out of a very solid quarter at both of our business segments. Total revenue at Scripps Networks grew 13% and segment profit was up nearly 10%, continuing our longstanding pattern of sustained growth. Growing audiences of HGTV and the Food Network combined with strong pricing in the scattered advertising market and improved affiliate fee revenue, drove these very strong results. The good news wasn't limited to our flagship networks though. DIY Network had a very good quarter as well with the top line up a very strong 28%. Now that's a metered network, DIY is demonstrating its ability to deliver an engage the audience to advertisers, as we promised. By just about every measure, our lifestyle media businesses are moving in the right direction. At our interactive services businesses, the second quarter was very good for Shopzilla and uSwitch, as our focus on improving fundamentals at both brands is paying off nicely. Combined revenue was up 13% year-over-year and segment profit more than doubled. The success we've had monetizing growing user traffic at Shopzilla and the renewed interest in energy switching at uSwitch are driving improved results. Now quickly a little color on the third quarter. At Scripps networks, as we indicated in the guidance we offered ahead of the spin off, we're expecting total revenue growth during the third quarter to be in the 5% to 7 % range. Now keep in mind that the third quarter of 2007 was enormous for us, up 16 % from the prior year, setting us up for some difficult comps this year. Also, our forecast takes into account, all the inventory that we expect the Olympics to take up. On the full year, as we noted in the release, we still anticipated that our lifestyle media segment will finish at the high end of our forecasted range of 8% to 10% growth. As for the upfront; it looks like we're going to end up on the top end of the range in terms of CPM increases and we will be committing slightly more inventory this year than last because of the strength in pricing. I will let John provide a little more colour on that, on the upfront when we get into the Q&A. One more note on Scripps Networks, we're anticipating about $30 million in capital spending for the third quarter. Most of that is for an expansion for our operations headquarters in Knoxville, Tennessee. We will be breaking ground on that project, which we've talked about in the past, during second half of this year. Looking at Shopzilla and uSwitch; were on track to finish well within the range of $55 million to $65 million for segment profit, as we forecasted in December last year. The rebound that we've seen in the first half of this year looks to continue into the third quarter and we expect segment profit to be in the $8 million to $10 million range. One note of caution though; Shopzilla's sponsored-link contract with Google ends on October 31st. We are in active discussions with them right now, but depending on where we end up, we could see some impact at the beginning in the fourth quarter. In the meantime, Shopzilla is enjoying solid growth in Europe as well as domestically and we are working hard to diversify sources of traffic, strengthen our competitive position with both consumers and merchants. Likewise, at uSwitch profit has been surprisingly stronger than expected, allowing us to pursue a number of initiatives to help us diversify the business away from its reliance primarily on energy switching. Our goal is to better position both Shopzilla and uSwitch as valuable consumer services that can support sustained growth. Now to quick look at Scripps Networks Interactive and with that I'll turn it over to Tim to talk about the EW Scripps Company.

Thanks Joe. The operating results for our local media businesses in the second quarter reflect the same forces that work across the newspaper and broadcast TV industries. You're well aware of them, and in the interest of getting to your questions more quickly, I won't recount them here. Turning to the third quarter forecast, we're expecting more of the same for the Scripps newspaper group. All three classified categories are expected to be down 20 % or more as the cyclical forces further compound the challenges we were facing from secular shifts. We are forecasting to be flat on expenses compared with last year, although we certainly hope to do better than that. Reductions in employee costs and other cash expenses are helping to deflate [ph] an anticipated 30% increase in newsprint prices. As I said, we hope to do better. We have been and will continue to explore ways to reduce the fixed cost structure of our newspaper enterprises. The challenges we're facing across our portfolio of newspapers managed solely by us are also affecting our daily newspapers, particularly in Denver. As a result, we expect our third quarter results from daily newspapers and other partnerships to mere those in the second quarter. On the TV station front the news is much better, thanks to politically season that is upon us. It helps to have strong TV stations in Florida, Ohio and Michigan. We also expect to see some political dollars flow into our stations in Kansas City and Phoenix. All in, we are expecting 15% to 17% increase in total revenues from our TV station group in the third quarter. Although difficult to predict, we still expect political advertising revenue will reach $40 million or more for the full year. TV station expenses will be up mid single digits in the third quarter, as we continue to invest in our online and interactive enterprises. Corporate expenses, excluding cost incurred as a result of the Scripps Networks Interactive spin off, are expected to be about $11 million in third quarter. Third quarter earnings per share from continuing operations, excluding separation costs, are expected to be between $0.10 and $0.15. Now based on the stock price of the company, subsequent to the July 1st spin-off of Scripps Networks Interactive and the continued effects of weakening economy on our newspaper advertising revenue, the company will test goodwill, long-lived assets and equity investments for impairment, as of July 1st. If it's determined that the fair value of those assets are less than their carrying values, our non-cash charge for impairment will be recorded in the third quarter. Such charges are not included in your earnings per share forecast provided above. Finally, let me turn to some housekeeping items. As part of the spin-off at Scripps Networks Interactive, The EW Scripps Company drew down $60 million under our new five-year revolver... unsecured revolver. We typically carry $10 million to $15 million in cash on hand. So our net debt is around $50 million. Capital expenditures, during the second quarter for the combined company's pre-split were $38 million. The figure is $23 million for the businesses that comprised The EW Scripps Company after the spin. During the second quarter, we did not repurchase any shares. And on July 16th, we completed the one-for-three reverse stock split on shares of The EW Scripps, bringing our weighted average shares outstanding down to approximately $55 million. With that, we are ready the open up for your questions. Operator? Question And Answer

Thank you. [Operator Instructions]. Our first question is from the line of Peter Appert from Goldman Sachs. Please go ahead. Peter Appert - Goldman, Sachs & Co.: Thank you. So Joe, I heard what you have said was about the reason why you are offering what seems to be fairly cautious guidance with regard to third quarter on the network business. But even so it seems particularly cautious, so maybe this is proper time for John to tell us what happened to the upfront market and are there any glitches from a rating standpoint that we should be aware of in the third quarter?

I will be happy to have John answer that question.

Good morning, Peter. Peter Appert - Goldman, Sachs & Co.: Good morning.

Well let me begin by saying that our full-year guidance is exactly where we have said it would be for the last 12 months. The upfront is coming in, I believe strong and I think it will be at the high end of our peer group. I think it's safe to saying CPMs will be in the mid to high single-digit growth. We are about 50% finished with our negotiations at this point. When you think about the third quarter there are two dynamics; first of all our comps are fairly difficult compared to the last year's third quarter, which had growth in a high teens in terms of percentage growth. Plus in addition to that, we have all of the Olympic inventory in August on the variety of NBC cable outlets that is suppressing the scattered marketplace substantially. And so the combined effect of tougher comps with a challenging third quarter causes us to be somewhat conservative in our forecast. But again, our full year and our back half continue to support the growth that we have been projecting all along for the entire year. Peter Appert - Goldman, Sachs & Co.: How about scatter pricing currently?

Scatter pricing has come up a little from a torrid pace in the first and second quarter, but it's still in the mid single-digit range when you compare scatter to scatter and it's still pacing at 20% to 25% better than last year's upfront. But Peter let me also talk about ratings at our networks, because you asked about trends there. Food Network in June had the highest rated month in the history of the network. And in fact, last week Food Network had the highest rated week in the history of the network. It continues to post 20% increases in adults, 25 to 54 and its median age happily has dropped now to 45 from over the last couple of years, when it was hovering closer to 50. Similarly, HGTV while somewhat flat on 25 to 54 impressions, it is increasing high-teen percentage increases in the younger student demographics 18 to 34 as well and then DIY as you heard Joe mention, continues to be very, very strong. And so, when you consider everything that we have within our control, which is the programming, the marketing, the ratings, delivery and all of those key indicators are doing exceptionally well. It's really the marketplace that we are just a bit cautious about, but as I say, even with those dynamics in the marketplace we are continuing to perform at or above our peers in the upfront negotiations in the scatter negotiations and we are holding firm with our guidance for the full year. Peter Appert - Goldman, Sachs & Co.: Great. Thanks, John. And what percent of the inventory will you sell then in upfront this year?

We are usually right around the 50% range Peter. Last year we held back a little bit because we anticipated, I should say our ad sales teams lead by Steve Gigliotti; anticipated strong scatter pricing and they were right. This year they are anticipating that the scatter may come off a bit and it's a time to put more inventory into the upfront. And so we are taking a few more percentage points than 50% this year in the upfront in anticipation of scatter pricing, not necessarily being as torrid as it has been in the -- Peter Appert - Goldman, Sachs & Co.: Thank you. And then just one last thing, the interactive component of the cable networks, John, how did they look in the second quarter?

If you think about where the -- often we have question you and I have spoken, Peter, where does the economy really hit Scripps Networks, particularly our endemics. And our endemics have held up exceptionally well through the housing economy on a cable channel. We have seen some small endemic hit on the interactive side for us, simply because interactive advertising is a much more fluid, it's cancellable up to the last minute and we're also seeing a flight if you will of advertising, back to television during tough economic times. And with that, we saw second quarter ad growth that was only in the high single-digit range for interactive on Scripps Networks now our, all of our associated websites. But the good news is that coming out of June, which was probably the weakest month of the year for us on interactive ad sales, July is proving to be one of the stronger months. So we're seeing a rebound. July looks to be at this point as at least a 15 % growth on the interactive ad sales, and I think that's a fair projection for what the quarter will do. Peter Appert - Goldman, Sachs & Co.: Great, thank you.

Thank you. Our next question comes from the line of Alexia Quadrani from J.P. Morgan. Please go ahead.

Alright thank you. John, I just wanted to follow up on your comments on the scatter market. Would you expect sort of that 20% to 25% premium range through the remainder of Q3 or should we them a little soft in August once some of the programming starts? And then also you said, you obviously are expecting some slowing in the scatter and that's what you are selling more in the upfront. If you can give us any color on sort of what your expectation on the scatter, maybe going a bit further?

Sure Alexia. The effect of the Olympics is mostly due to a glut of inventory. And so, it's a one-time only suppression on pricing that I think will wash through the system and then be out. So it we will have if you will, a one month somewhat artificial effect on the overall scatter pricing in the quarter. And that's one of the reasons we are a little bit cautious on revenue growth in the quarter. As we look to ahead, it isn't a dramatic shift from the scatter pricing that we have seen in the first and second and third into the fourth. If you think about it there has really been for us, we are in the 10% to 12% CPM growth range in the first quarter. In the second quarter we are in a high singles and in the third quarter, we'll be in the mid-to-high singles. So there has really been an incremental slowdown. And I think there could actually be at least a flattening of the slowdown or even a little bit more price pressure in the fourth quarter coming out of the Olympics, because there will be dynamics in place. One will be the post-Olympic demand that could push pricing somewhat in a stronger direction, just because many advertisers will be on the sidelines. And then there will the post-political advertising, when all the political revenue washes through the local TV and the national spot business, which will push some advertising onto the cable platform and I think support pricing in the fourth quarter. So I am actually somewhat optimistic that the fourth would not be any worse than the third, in fact perhaps a bit better.

And then, if you can give us any commentary on GAC. It's really not showing the same impressive growth via the networks. What you have thought about that network?

Well GAC is doing everything that a great network in the country music sector can do and the issue there is there are some ratings erosion, I think based on a the summer time I think has one effect on GAC in terms of viewing the music videos. And then I think there is the effect that music videos can be seen another platform as well. And so there is a continuing competitive issue that GAC faces. And so our team in Nashville, I think has done a fantastic job of developing content along with our ad sales groups that is both relevant to viewers and to advertisers in such a way that it has allowed them to work competitively against those forces.

And then just one last question on the newspaper side. I guess the outlook on what you think, how committed I guess the company is with the current dividend given the ongoing weakness in that segment in the quarter. And then I guess your guidance is well and is there the possibility of maybe selling a newspaper property or two or is there really no market for that right now?

Alexia this is Tim. I'll tackle I guess the dividend question and maybe Rich want to jump in on the portfolio question. From a dividend standpoint, coming out of the shoot, our philosophy is to target about 50% payout for dividends of free cash flow over time. So we will be engaging in a conversation with our Board in two weeks and looking at certainly the forecast over the next couple of years and will come out of that with an announcement of what the quarterly dividend is going to be. Going into the roadshow, we were anticipating what is now a $0.78 to $0.80 a share dividend. So we will see if that holds up and we will be engaging in the discussion about with Board.

Hey, Alexia its Rich. I think, in general if you look at how Scripps has operated, we have always try to be disciplined around the portfolio and make sure that it's healthy and if it needs to be pruned or added to, we want to do that. And I think that continue to be the case on the EW side. Having said that, most of our newspaper markets are good. I mean they are long-term growth markets. In some cases, the markets in Florida they have been harder hit in the industry average. But we will take Florida all they want. Long term there is a great growth markets and they will real household growth overtime. So at this point we don't have any markets that, that demand that kind of attention or need to be pruned, at this point. But like I said, we will always keep our eyes open and try to be disciplined about it.

Thank you.

Thank you. Our next question is from a line of John Janedis from Wachovia. Please go ahead.

Hi, thank you very much. Can you guys talk about what you are seeing in the comparison shopping business? It looks like traffic may have slowed somewhat at Shopzilla in June. And I am just wondering if you've detected a change in habits of the consumer due to the economy? Thanks.

John, this Joe. Hard to read that exactly, you saw the results from Amazon today and you wrote about what happen with Valueclick [ph]. We seem to have some conflicting information there. Our sense is that, there is a very modest effect but it's certainly not too heavily pronounced. We had very, very strong session growth in the second quarter. We continue to have decent session growth in July... through the month of July. So it's not what I would refer to as any kind of alarming slowdown. There are some seasonal ups and downs and we watch that very closely obviously, but we are not seeing anything that I would say is sort of indicative of the economy slowing down. If anything, we also expect there will be some strengths related to people not wanting to get in the carnival shopping and also sort of a hunt for better prices in this environment.

Okay. And that make sense. Joe on that front; in terms of the back end of the year, can you just clarify the numbers? I think on the June 3rd release, you guys have said that you are looking for $35 million to $38 million income or EBITDA from the segment. And I think today's implied guidance is $19 million to $29 million. Does that mean that your expectations to the holiday season have been tempered somewhat or am I missing maybe some of the numbers?

I am not sure, which numbers you're looking at. I think it would imply a lighter number in the quarter spread in the fourth quarter than you would have modeled. And say that it's more like mid 20s than high teens, but that would imply sort of flattish to down slightly. And again as I mentioned, it's not that we have any less confidence in our ability to handle the traffic or even in the traffic arriving itself. It's just that, we have an ongoing discussion with Google over the expression of our agreement with them. I think what you're seeing there is an abundance of caution. Everything that's going on is at uSwitch we have authorized some reinvestment in the fourth quarter. They have outperformed our expectations of first half and continue to outperform. And so we have discussed and approved a number of initiatives to reinvest and a lot of that will find a home in the fourth quarter. So for the full year, we still expect this business to be where we said, if anything maybe a little upside from that. And what we are seeing in the back half of the year or again some caution on Google and some deliberate reinvestment at uSwitch.

Right. It's fair to say you feel pretty good about that business is going forward, than right?

Yes, we do. We always have our eyes open and these businesses can change very quickly. And Shopzilla is in the thick of things and any kind of upstream issues that we experience there could have an effect, but I like the way they positioned and I like the way they are performing very well.

Great. Thank you very much.

Thank you. Our next question is from line of Craig Huber from Lehman Brothers. Please go ahead.

Thanks this Genie Lather [ph] asking on behalf of Craig Huber. I just have a couple of quick questions. First, for classified advertising in the quarter, what is a percent change for help on it, for auto and then for the real state? And then also how are newspaper advertising revenues tracking so far in July compared to a year ago? Thanks.

Genie [ph], this is Mark Contreras. Auto in the second quarter was down 16.3%, wallet down 39%, real estate down 29 %, and the total classified let me get it for you. Total classified down 21 % and we're anticipating a continuation of that in Q3 and a slight improvement in Q4, but only slightly. Did that help?

Yes, and then I guess for the rest of... besides classified. Could you give some more color on how local and how national avenues say for advertising revenues are tracking so far in July?

We don't have a sense for July or really for how the third quarter is going to shape up, other than for the entire quarter. But we don't directionally sense right to spin it.

Okay. Thank you

Other than to say total ad revenue in the third quarter, it's going to look like in the second.

Okay, thanks.

Thank you. Our next question is from line of Anthony DiClemente from Lehman Brothers. Please go ahead.

Hi, thank you for taking my questions. I have two questions, the first for John and the second one is for Ken. First on affiliate fees; we are seeing that the HGTV affiliate increases that you guys have wrapped up were for low-to-mid teens growth initially in the first few years of the contract and then coming back down towards EPI towards the end? On the other hand when you look at something else like Fox News, I think that there were able to get in some cases one-time rating in those fees, where they get them the triple in some cases the initial year of the new contract with MSO. Now when we look at the Food Network and the negotiations that you have coming up at the end of 2009. Can you help us give a sense that what type of growth we should expect? Is it just the type of acceleration that we saw at HGTV or can we expect something more like a one-time jump or a re-rating of the affiliate fee level are higher. And then a second question for Ken, sorry for being longwinded; Of course there are probably four or five large media conglomerates that would love to own your company. I think there are many reasons for that. The Food Network renegotiations obviously could be a part of that strategy. The question is, is any of the CEOs of the large account media companies called you today unsolicited with interest in buying Scripps Networks Interactive? Is that a conversation that you can entertain legally without, in fact violating the tax-free nature of your July 1st spin off? Thank you.

First I would like my General Counsel to stand beside me while I. No, Anthony first off, let me repeat what I have been saying publicly at recent forums, whether it is Bloomberg or CNBC or recently out on the road show, we did not execute this spin off for purpose of selling the cable networks interactive businesses; they not for sale. If you'll excuse the analogy, it's some what flattering to have a house that everybody wants to buy, before you've even put a sales sign in the front yard. There no for sales sign. That does not prevent rumors that does it not prevent any window and there is nothing we can do about that. To the contrary, we feel very strongly because of the team that John Lansing has in place across all of our networks. We have a tremendous opportunity to continue to not only increase shareholder value but grow these brands, especially as we move content to other platforms beyond cable networks. So we are very excited about the opportunity to continue to grow shareholder value and therefore, tax issues notwithstanding. And you're right, there complications there which would prevent us some doing anything in the near-term. We believe that if any thing we can increase the value of these properties over the coming weeks and months. So I have to say gain what I have been saying. They are not for sale but we can't control the rumors. John?

Yeah thanks Ken. Anthony to your question on Food Network; food Network today is the fastest growing, one of the most popular network in all of cable and it is in my opinion severely under-priced and undervalued in the distribution community. So your question, will we be looking in '09 at a reset of the rates and the answer is, yes we will.

Great. Thanks to taking my question.

Thank you. Our next question is from the of David Clark form Deutsche Bank. Please go ahead.

Okay. Thank you. Good morning. A couple of questions for Rich and Tim and Mark; First, I guess if you give a bit more color on flat newspaper cost guidance for the third quarter. Given the 13% to 15% revenue decline you are looking for, it seems to be surprising that the costs wouldn't come down mid-single digits. So I guess if you can give us bit more color on that, if there is some unusual about your cost situation or you have to just set the bar a low. And then the second question on online for the newspapers I think is down 8%. I am assuming that's the result of a loss of classified upsell. I guess if you could tell us both what percentage of your online for the newspapers comes from classified and then also how did the non-classified piece grow for you in a quarter? Thank you.

Go ahead Mark.

Dave, this is Mark. Let me start with the expense question. So far year-to-date, our expenses are down about 8% and FTEs are down about 9%. We frankly anticipate much of that to continue but what's really frankly affecting us the most severely is the relay meteoric increase in newsprint prices in the back half after the year. We are looking at fairly 30% plus in terms of price and we are doing a lot to try to mitigate that in terms of web introductions and the amount of usage of newsprint. But it's primarily and singularly the increase in the rate of the newsprint that's going to affect our expense numbers. We'd obviously hope to do better than those but that newsprint hit is just is really very difficult. Let me just tell you little bit about the online revenue piece. If you split apart the online revenue that is still tethered to print, which is primarily classified, it was down about 17%. If you looked at the pure play source of revenue, it was up about 26%. So clearly that source of online revenue that's tethered to print is going with the decline in ad linage print. We are focusing all of our efforts going forward on pure play primarily and again that's about 8% to 9% of our total ad revenue base in the aggregate. 68% of that, of our online is still tethered to print, 32% is pure play, and we are trying to get that pure play to 50-50 as quick as we can. Hope that's helpful.

Yes very helpful, thank you. And then just one quick follow up on the cost question. Does your cost guidance, include anticipated severance? I know it excludes transition, spin-related costs, but does it include does it include severance?

Dave it does not.

Okay thank you.

Thank you. Our next question is from the line of from Harry DeMott from King Street Capital Management. Please go ahead.

Yeah, hi there. Quick question just on the television segment there; you have you numbers outlook for Q2 and you obviously just gave guidance for Q3 of plus 15 plus 17, if you were to exclude the political stuff, what would those sort of two quarters stay or what was it historically and what would the guidance be let's just say if you exclude political, just trying to get a sense of what the underlying average retail business is doing?

It would be near what we put out for second quarter.

Which was what?

Local was down 7%, national was down around 7.6% and those... that weakness carries into third quarter.

Okay, that is just and is that... obviously that's just coming across the board. I mean if they were both down or roughly the same thing?

That's true. I mean we are seeing considerable weakness in automotive, which is very important category for us. It was down 15% in the quarter. Actually the only top-five category that we saw growth in was travel and leisure which was up nicely but still amounting up to mitigate the other weaknesses.

Thank you very much.

Thank you. Our next question comes from the line of Edward Antorino from Benchmark. Please go ahead.

High just talking about ad categories, could you talk about what kind of strong or weak categories you might be seeing in the network business, Scripps networks business? Also just sort of address this indirectly, has there been any impact of the housing slump on Food Network Advertising. And then lastly could you talk about your programming cost plans at the Scripps Networks and then would you go over again the comments you made regarding Shopzilla, and the impact or positive or negative on the economic slowdown in this slump in retail?

Okay.

Ad categories, programming costs and hosing slump?

Okay, let me start with ad categories. We are seeing some downward pressure as you might expect in the financial category, in consumer package goods category. Automotive, which is also important for Scripps Networks, has been under pressure on the domestic side. Imported automotive has actually been alright. Our endemics for HGTV, which leads to the question you asked about the housing slump, have actually been fairly very strong, particularly at the big box endemics. And when you think about it, HGTV the real substance of HGTV is about improving the experience of living within the home you have and so to some extent the housing dilemma has drawn A) more audience to HGTV and B) more advertiser interest in this specific category related to home improvement. Okay.

I understand, yes.

And what was your third question for me? I am sorry.

Sir, you talked a little in response to previous question about the Shopzilla performance in the slow retail environment. Are people using it more, or are they simply hiding under the table, what have you seen in the experience of the Shopzilla related to either the housing crises or the gasoline crisis?

This is Joe. Ed its hard to opinion anything directly on anything that going on with housing or with energy cost. I would say we have been with pleased with the traffic... any kind of interruption in traffic or John Janedis has you pointed out a slight slowdown in July had more to do with technical issues, related to serve some upstream rule changes and clarifications I'd say form the big search engines. So what we're seeing, we think is pretty steady traffic through this period and maybe that people are doing more shopping online because of higher gasoline costs the on one hand and maybe doing a little less shopping because of feeling the pinch of the economic slowdown and retail slowdown. But I'd say it's pretty much steady as you go on traffic, that we feel pretty comfortable with the way we're operating there.

Last year's fourth quarter for Shopzilla as I recall was pretty strong?

It was.

Does that mean you got tough comps or were you just coming off a real poor previous year, or both?

You mean.......

Looking at this year's fourth quarter versus last year's fourth quarter. Is it a tough comp environment or was last year's strength due to the fact that the previous year wasn't all that good.

Both are true. And I think, as I said, we're very confident about ability to perform in the fourth quarter. We are cautious just because we have a change coming in our contract approval. But I think we are very confident of our ability to perform and to convert our traffic into revenue.

I hate to prolong this but could you at least update me on what Google situation is all about? Maybe everybody else knows what it is but I don't?

We have a contract. We are coming off of a three-year contract with Google for our sponsored link business and that expires at the end of October. So we are -- at the moment, we are negotiating our renewal with Google.

On the rates and stuff, all that?

All of that.

Alright. Probability of success?

We have deal with Google if we want it.

Okay. Thanks.

Okay.

Thank you. And you have no further questions. I will turn it back for closing comments.

Well thank you operator. This is Tim Stautberg signing off. I would like to remind you, if you have any questions after the call for The EW Scripps Company, you can contact Tim King at 513-977-3732. Tim serves as Vice President of Investor Relations for The EW Scripps Company, and for Scripps Networks Interactive questions, Mark Kroeger at 513-977-3827. Thank you, operator; I think you have some closing comments.

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