The E.W. Scripps Company (SSP) Q4 2012 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to The E.W. Scripps Company Fourth Quarter Earnings Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded, and I would now like to turn the conference over to your host, Vice President of Investor Relations, Mr. Tim King. Please go ahead, sir.

Thank you very much, Kelly, and good morning, everybody. We appreciate you joining us for this recap of The E.W. Scripps Company's fourth quarter results. We have a few changes in store for you this morning. We're going to start with Tim Wesolowski, our CFO and Treasurer, who will provide additional details about the fourth quarter. And during that segment, you'll hear from Brian Lawlor, the Senior Vice President of TV, with a recap of the integration of the new stations now that they've been in our portfolio for a full year. Then we'll get some final thoughts from CEO, Rich Boehne, about 2013 before we open up the phone lines for your questions. Now as you know, we usually have Tim Stautberg, the Senior Vice President of Newspapers with us during the Q&A, but a few weeks ago, we shifted the date of this earnings call to overlap with one of his travel dates. So I'm afraid Tim's not with us. He's actually in one of our markets today helping it make some money. So there's enough other folks at this table who can help you with your newspaper questions. So the commentary you'll hear from our executives this morning may contain certain forward-looking statements, and actual results for future periods may differ from those predicted. You can read more about some of the factors that may cause results to differ from what you're 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 press release and financial tables, and you can also sign up to receive e-mails anytime we disclose financial information, and you can listen to an audio replay of this call, all at scripps.com. The length of the replay will be up there this afternoon, and it will be there for about a week. So now, here's Tim Wesolowski for a look at the fourth quarter.

Good morning. It's not often you join an earnings call where the quarter's big number was revealed 3 months earlier, but that's the case today as we reported our final political figure of $107 million during our last call. But there's still a lot to talk about as we ended a very successful year with a very successful quarter. So let's dig in. Total company revenue in the fourth quarter rose more than 30% to $260 million. Of course, that figure includes the new stations in 4 markets. But even backing out those operations, our revenues were up 14% to $225 million. Reported expenses rose 14% or $196 million. But on a same-station basis, they were up just 1.6%. That's excellent expense discipline in light of the heavy promotional activities for our new shows that I'll talk about in a minute. Our operating income in the fourth quarter surged to $45.4 million from about $7 million in the year-ago period. And below the operating line, interest expense was steady at about $2.5 million. And you know our tax line ebbs and flows a bit. Our tax rate for the quarter was about 34%, bringing our full-year effective tax rate to 30%. Our net income was $27.2 million or $0.47 per share, up significantly from the fourth quarter of 2011 where net income was $0.11 per share. Switching gears to look at our operations, the television division reported $152 million in revenue, a sizable spike from $85 million in the 2011 quarter. Even after backing out the new stations, revenue rose about 40% to $118 million. You saw in the release that spot advertising was down in the low-double digits on the year-over-year basis. That doesn't mean this business isn't healthy. The numbers were down because of the remarkable surge in political ads in the first 5 weeks of the quarter crowded out the spots you typically see from our core advertisers, such as car dealers and restaurants. In fact, in 5 of our stations, it was tough to find a nonpolitical ad in the weeks leading up to November 6. And we saw those categories return to more predictable patterns after the election, all of which of course means our political story stole the show in the quarter. You already know that we reported $57 million of political ads during those 5 weeks, bringing our total for the year to $107 million. To give you a sense of scale, our previous record figure in political dollars was $48 million in 2010. And the over-performance wasn't just due to having the new stations. In our 9 legacy stations, we reported $44 million of political advertising in the fourth quarter, which is even more than we recorded in the entire year of the previous presidential election. The bottom line, those who follow our industry know that political dollars have a big influence on the performance of TV stations. But with our own sales office in DC and with a footprint weighted towards battleground states, Scripps does political better than anyone. Our reported retransmission consent revenue more than doubled to nearly $8 million. On a same-station basis, our retrans revenue jumped 41%. Double-digit gains like this will continue into 2013 when we start to see higher rates from our relationships with Direct TV and AT&T. TV's digital revenues grew about 60% to $4.4 million or about 30% on a same-station basis. And our expenses at the stations rose 41%, thanks to the addition of the new stations. Excluding them, expenses were up about 5%, with much of that growth resulting from our decision to heavily promote the 2 homegrown access shows that launched in the fall. The List and Let's Ask America are performing at or ahead of our plan in ratings and revenue, and we're very pleased with the benefits they're providing to our bottom line. Segment profit from the television division was $65 million compared with $23 million a year ago. And before I turn to newspapers, I would like to ask Brian to give a quick update on the McGraw-Hill stations. After today, we won't be referring to them as new stations anymore, so we thought you'd like to hear a discussion of how the integration went and what those properties mean to us going forward.

Thanks, Tim. Scripps acquired the 9 McGraw-Hill television stations on December 30, 2011, so we owned them for the entirety of 2012. You'll recall that the group included the ABC stations in Denver, Indianapolis, San Diego and Bakersfield, as well as 5 low-power stations that broadcast the Azteca Spanish-language network in San Diego, Denver and Bakersfield. Through 2012, Scripps worked to integrate the stations into our infrastructure with particular focus on preparing news organizations to be able to deliver market-leading content on digital, mobile and social platforms in addition to broadcast. This was not the top priority under the previous ownership, but it became the top priority for our local managers in 2012. As a result, these stations are generating much higher audience engagement numbers and digital revenue than they did in the past. All 4 of the stations showed ratings growth in key news class, including in Denver, where KMGH finished first for 1.5 hours of the morning news in November, the first time in over a decade. We are very pleased with the increased news urgency at each of our new stations, and expect we will continue the audience and brand growth in 2013 that started last year. There remained a significant upside on the revenue front as we work to grow our news ratings, which remains our top priority. In addition, we transitioned our sales processes so that our sales executives build new digital revenue streams while also developing relationships with advertisers who are new to television. Previously, the sellers at these stations were compensated with a heavy base salary. All of our sellers at these stations have now been moved to the Scripps compensation plan, which is primarily commission-based. The former McGraw-Hill television stations beat the 2012 segment profit goals for the year that we had established at the time of acquisition. 3 of the 4 stations outpaced the full-year growth of their particular markets, and we expect all 4 to be able to do that in 2013. With several capital investments at the end of last year and in early this year, we believe there are a few additional efficiencies that can be picked up through integration into the larger Scripps infrastructure. Finally, most of you know that the Scripps language -- that the Spanish-language stations didn't factor materially into our purchase price. But Ed Fernandez, who was doing a magnificent job running our station at Detroit, and had previously spent 7 years running the Telemundo affiliate in Chicago, now oversees our 5 Azteca stations and has plans to use those assets to strengthen our position in those markets. Stay tuned for more developments there in the time ahead. So to sum it up, we remain thrilled with our purchase and believe these 4 markets will bring great value in 2013 and beyond. Now back to Tim.

Well, there's been plenty of change and growth in our television division, and the newspaper division had its success in 2012 as well. The headwinds facing the industry are well-known, but Tim Stautberg and his team delivered a higher level of segment profit than in 2011 despite lower revenues. In the fourth quarter, total revenues from the division was $105 million, down 4.6% from the fourth quarter of 2011. Circulation revenue was down 3.5% from the year-ago period to $30 million. Print advertising revenue declined about 6% compared to the 2011 quarter, preprint revenue down 2.6%, while the decline in local advertising was less than 4%. That's an improvement compared with the third quarter when the year-over-year decline was 6%. National advertising continued to be a challenge for the industry. For Scripps, that category was down 28% in the quarter. Classified advertising declined more than 7%. Real estate was down 3%, while automotive and Help Wanted revenue declined 9% and 16% respectively. Digital revenue from our newspaper operations was $6.6 million, up slightly from the year-ago period. But digital revenue that was not tied to classified ads rose 13%. Due to good cost control, total segment expenses declined by more than 5% in the fourth quarter. So as I said earlier, segment profit from our newspaper group was up 4.6% to $11.6 million in the fourth quarter. Revenues in the syndication and other segment were $2.7 million, and the segment loss was $1.7 million. It's not the syndication business itself that led to the loss; that's more or less a breakeven business. But as we explained in the third quarter, the segment loss is due to reporting cost associated with digital products and services that are national in scope, the ones not tied to any of our local markets and cost to build out support for our newspaper and TV digital services in this segment. There'll be a change in how we report these numbers in 2013, and I'll talk about that in a minute. So let's close out our discussion of 2012 with a look at nonoperating items. We dramatically improved our cash position during that quarter, increasing our cash and cash equivalents by more than $30 million to nearly $243 million at year-end. We had total debt of $196 million at year-end, and $16 million as current. In November, we disclosed that we had a new share repurchase authorization that would allow us to buy back as much as $100 million of our equity. We didn't do any buying in the fourth quarter, but you'll see us buyback shares this year, and we'll keep you apprised every quarter. And finally, I'll wrap up my section by reviewing our guidance. I'll start with the first quarter of 2013 when we expect the Television division to report revenue to be about flat and expenses to decline in the low-single digits. We expect the newspaper division to experience a revenue decrease in line with the fourth quarter in the low- to mid-single digits, but expenses should be down at a slightly higher percentage rate. For the full year, we think TV revenues will decline at a high single-digit rate due to the absence of political advertising, but expenses will be up only slightly. We believe newspaper revenues and expenses will decline at a low single-digit rate, with expenses declining at a higher rate than revenues. We're estimating depreciation and amortization will be approximately $50 million, and CapEx will be around $25 million. The real story in our full-year guidance is the changes to our shared services and corporate line, which was about $37 million in 2012. You'll see that we project that figure to be $60 million to $65 million in 2013. The increase is due to our decision to include in this line new investments in our digital organization. We're making these investments through the P&L, and we believe they'll play sizable dividends down the road. In most of our markets, the digital news landscape is wide open. We think we have a short window of time when we can make modest investments that will make Scripps digital offerings the leading platforms for local news and information in all of our markets. We know how to get there, but we can't get there without recruiting and training new resources to create unique content and sell digital ads and services. Because this effort will be cross-divisional, cross-market and cross-platform, we're going to report the expenses in the shared services line just as we report the cost of our corporate IT services and shared financial services. And for the sake of your models, I'll walk you through the difference between the 2012 and 2013 numbers for the shared services and corporate line. The reported figure for that line in 2012 was $37 million. Now add in $3 million of cost to build out our organization to support our digital efforts in our TV and newspaper markets that were previously reported in the syndication and other segment, and we get to $40 million. And finally, add in the $22 million that was discussed in the release and you'll see how we arrived at the guidance of $60 million to $65 million. I know it's a change to your models, but we believe this modest cash investment will provide attractive returns. Now let me turn it over to Rich.

Good morning, everyone. Let me start with a little background on the Board of Director changes we announced yesterday. In case you missed it, our current Board Chair, Nackey Scagliotti, plans to retire as of the Annual Meeting in May. Nackey, who is a great-granddaughter of our founder, has provided outstanding leadership for our Board. The company and its shareholders have benefited mightily from her calm leadership, keen business instincts, long-term vision and outstanding judgment. After 14 years of tireless service, she has earned a break. Although I have to tell you, we are really going to miss her. As you also read, the nominating committee has recommended to the board that I serve as the next chair, adding to my duties as President and CEO. Several other Scripps CEOs in the past have also served as board chairs. It's a huge honor and I'll do my very best. As is appropriate when a CEO serves as chair, our board will name a Lead Director, and that spot also will be confirmed in May. And in recognition of the continued evolution and importance of our digital businesses, we're adding the expertise of Kelly Conlin to our board. Kelly is CEO of NameMedia, and a seasoned digital media executive. He has been nominated for election in May. And I have to tell you, we are eager to get him into the fold. These board changes come at a critical time for Scripps. Our TV operations, including the former McGraw-Hill stations that we added at the beginning of 2012, are performing very well, expanding audiences and revenues and steadily increasing their cash flow margins. Our newspapers are moving aggressively into bundled print and digital subscriptions, which establishes fair value for digital services and stabilizes our revenues with more direct support from consumers. And both our newspapers and TV stations are seeing the benefits of our investments in high-quality, local enterprise journalism. Cash flow from our current businesses in 2012 contributed to our already strong financial flexibility, pushing us even further into a net cash position and allowing us to put more money into one of the most attractive opportunities we know, our own shares. Having used up our repurchase authorization, late in the year, the board refilled our tank and cleared us to bring in as much as another $100 million worth of the company's stock. We're also stepping up our investment, as Tim said, in our local digital businesses at a time of growing opportunity in our markets. The incremental $22 million of expense that we are adding in 2013 largely will be spent on 2 projects, 2 areas. 2/3 of that will be spent on sales and the other 1/3 on content. That means the majority of this new investment will be focused on directly on bringing in additional digital revenues. 2/3 of the investment dedicated to sales is split between enhanced digital revenue systems and an expanded sales force, which means more feet on the street out of our markets aimed at digital revenues. The system improvements will be to streamline and standardize sales processes that today differ in all 26 markets. The spending on the sales force is for market-by-market investments following market-by-market research that identified the specific scope of the digital revenue opportunity. This is not a "build it and they will come" adventure. Instead, it's an effort to bring in pre-identified and available revenue and cash flow. We believe this is by far the most attractive digital opportunity for our shareholders. The last 1/3 of the investment is aimed primarily at building out digital offerings at our TV stations to well beyond what is offered by our and most TV stations today. We believe TV stations are well-positioned to garner a much larger digital, especially mobile, audiences and revenues. We are building and testing these new products and services in several markets. As you know, we don't look at digital purely as a standalone business. And even with this incremental spending, which is deployed across a number of products and services in both divisions, we believe that our combined digital revenues will exceed our combined digital expenses in 2013. We are disciplined investors, focused on cash returns. And this modest additional digital spending, if you want to size it, is no more than the amount of expense it takes to support a small-market TV station. In return, we tap a large and growing opportunity for digital revenues across our attractive portfolio of local markets. At Scripps, we have a history of successful investing through our P&L to build business. We believe it's time to do that again to capture the growth in digital audiences and revenues. As Tim explained, in the early phases of this digital expansion, much of the added expense is running through our shared services line, which might be a challenge to explain, but it's by far the best way for us and you to follow our progress and quickly capture the opportunity. Our promise, as always, is to be highly accountable for any added expense and to be as transparent as possible as we move through this critical buildout. This is money well spent. It's deployed by an excellent team of entrepreneurs and supported by some of America's finest journalists, who each day create high-value news and information content, for which there are no substitutes in our local markets. As we head into '13, we look forward to another year of successful value creation through service to our audiences and to our advertisers on a growing menu of media platforms. And with that, I think we'll stop and we'll open it up for questions.

[Operator Instructions] We'll go to the line of Alexia Quadrani of JPMorgan. Nadia Lovell - JP Morgan Chase & Co, Research Division: This is Nadia Lovell in for Alexia. Just a couple of questions. First, just to clarify the additional expenses in '13, how much of that should we expect to go away in '14?

Nadia, it's Rich. I would not expect that to go away in -- did you say in '14, right? Nadia Lovell - JP Morgan Chase & Co, Research Division: In '14, yes.

Yes. We're building a new infrastructure aimed, as I said, primarily at digital revenue. So while we'll start to deploy the expense in '13, we think the revenue will return in '13 and '14 and beyond. And as we said, we fully expect the revenue to well exceed the expense. So yes, we're building for new revenues. Nadia Lovell - JP Morgan Chase & Co, Research Division: Okay. And then based on your guidance for Q1, you're expecting $20 million in that line for Q1. Should I assume -- should we assume that some of this is front end-loaded in the first half of the year?

We'll let Tim Wesolowski answer that.

Yes, that front end loading really isn't due to the investment and digital that we've been talking about. The way the benefit plans work with the HSA accounts and some of media investing of RSUs, that sort of front ends loads the expenses. The digital expenses that we're talking about here will probably grow throughout the quarters. Nadia Lovell - JP Morgan Chase & Co, Research Division: Okay, great. And on the newspaper side, I know there might be some limitation in some of the questions, but on the newspaper line, the real estate has been driven primarily by Naples in the past, and it's been a bright spot for the last few quarters. It seems to be slipping again. Classified seems to be deteriorating. What's going on there? Is Naples seeing any signs of weakness?

No. Actually, Naples is strong. And actually -- and California has started to come back a little bit, too. But Naples continues to be an outperformer at this point. So there might be some weakness or some up and down in other markets, but -- no, the West Coast of Florida looks pretty good. Nadia Lovell - JP Morgan Chase & Co, Research Division: Okay, great. And just a general, more general question, the TV M&A market seems to remain strong and the McGraw-Hill stations have proven to be a good investment for you guys so far. What are your thoughts on additional M&A? What's your strategy there? Any geographies or network affiliations that would bode well with your strategy?

Well, this is Rich again. We look at just about everything that comes through. Our primary focus is in markets that might work well with places where we already do business, so additional investments where we are or adjacent markets, although we look at standalone markets as well. Probably most important is that we're focused on strong cash returns on investment. And as crazy as it sounds, we're only willing to pay what we think a station is worth. So we're probably focused, disciplined investors. And if we see those opportunities with good returns, we'll move forward. And if not, we'll stay with the portfolio we have. I don't know if you want to say anything, Brian? Brian is here as well.

Yes. No, I would agree. I think that we don't have a desire to get bigger just for the sake of getting bigger. We feel like we've got more than adequate scale right now. We're the largest ABC group in the country, which gives us a high amount of leverage with our network as well as with syndicators. We know the kinds of television stations we're good at running: Network affiliates, large to midsize markets, a heavy focus on news with upside potential in growing our news and our brand in those markets. And so, as Rick said, I think we look at things on a case-by-case basis. We do look at everything, but we do have some sweet spots that we know we can maximize our investment in. And so those are the kinds of markets we target.

We'll go next to the line of Craig Huber at Huber Research Partners.

I have some questions on TV first, if I could. Could you give us some more detail on, by category, I'm curious how Auto did in the fourth quarter, particularly after the election? And also, how has Auto tracked here in the first quarter? And also maybe just 2 or 3 of other top categories with a percent change in the quarter, particularly after the election? And I have some follow-ups.

Craig, it's Brian. As you would expect, when you do $57 million in political, your core categories aren't going to have great comps, and that was certainly the case in fourth quarter with all of our key categories down. No surprise that our categories grew through the quarter. October, a significant amount of displacement with the whole month. November's starting to come back and December as we saw spot business in our categories seem to return to the positive. As we look out to first quarter, right now, automotive continues to be strong and is pacing positively relative to first quarter last year. In addition to that, some categories that we look at that even in the challenging fourth quarter performed well: communications and food stores were about flat. Even with the heavy displacement, the cellular category was strong for us. Media with cable were both positive double digits. So even in a pretty crowded environment, there were some positive growth stories within some categories. And first quarter continues to build as we had modeled.

I'm sorry, can you just maybe quantify? That made me curious. I mean, you said strong auto in the first quarters, tracking that. Is it up around 10%?

Well, I think what I said was, it's positive for first quarter. And so, yes, we're still adding dollars. But the first 2 months, looks like we're tracking around that double-digit increase.

Is that fairly similar for the month of December, too, then?

Hang on a second. The month of December. The month of December, auto was plus high-singles.

And I guess, what was it for the whole quarter, please?

For the whole quarter, it was minus 8. But I would just -- in October, it was minus 30. So it built through the quarter.

Got you, no question. Can you just talk a little bit more about the ratings progression at your 4 McGraw-Hill stations here? Roughly, how much do you think they're up year-over-year from when you first bought them? And also, I know this takes a long time to turn around TV stations. These things were under-managed for many years. What is your sort of sense where you might have the ratings up to where you really want to get them to? How many years do you think it will really take you?

Yes. As I mentioned in the opening comments, we're seeing some early success in Denver, which is significant. This is the market that's had a market leader that has owned that market for a long time. For us to be able to come in there and within the first year, win 1.5 hours of the morning news, we've got, I think, 3 or 4 days left in the Feb sweep and we may be able to expand that to 2.5 hours. We're slugging it out there. And that's clearly the biggest opportunity; out of all of the markets, the most revenue is in Denver. And so to be able to come in and make such an impact immediately in morning will set us up for the rest of the day. So we feel very good about that. Quite frankly, we modeled year 1 as a lot of change, change in infrastructure, structure, processes, workflows. I spoke about the significant investment we made through the P&L and digital in getting tools and technology that will allow us to be able to use those platforms, quite frankly, to drive television. And by fourth quarter, we saw ratings growth in Bakersfield, we saw ratings growth in Indianapolis, we saw ratings growth in San Diego. So I think the stations are exactly where we hope they would be. To your point, look, it takes a long time to take a #3 or 4 station and get it to #1. But we don't have to get to #1 to start to make significant money from our investment. Every rating point we grow, every place we move up in a ranking adds meaningful dollars to our bottom line. And so I think we're very much on track. There are 4 markets that we absolutely believe we can compete in and grow in. And I think that foundation is telling us, even within the first year that we've got success in every one of those markets, and we're looking forward to a really good 2013.

And also, if we can jump over to newspapers; I appreciate those answers. On the newspapers, your national down 28%; can you just talk a little bit further about what's going on there? I just want to -- what markets are getting hit the most? Obviously, those numbers are much worse than a lot of your peers out there.

Yes. I don't know if we've looked at the peer numbers but again, you're talking about math on a fairly small number. That's just quarter-to-quarter telecommunications, other things moving in and out. I don't see a real strong trend there in any specific direction.

Okay. Then I guess my last thing, with your $100 million share buyback plan in place, what is the thought of reinstituting a quarterly dividend, not a onetime dividend, but just a standard quarterly dividend?

Sure. Craig, it's Rich, and we talk about it and talk about it with the board each quarter. And at least at this point, we have felt that our best way to return is to buy in shares. We discuss the dividend all the time. But obviously at this point, we've decided to lean more heavily on share repurchase as a way to return capital.

Well, why is it then, Rich, you guys didn't buy back any stock in the fourth quarter?

Well, nothing to be read into that. You're just in a -- sort of between the 2 authorizations. And no specific reason other than we used up one and just got started on the other, and absolutely no message there at all.

We'll go next to the line of Michael Kupinski with Noble Financial.

Just wanted to ask a few questions here. Can you talk about the number of FTEs in the fourth quarter? And given the initiatives in the infrastructure sales and so forth that you've planned for 2013, can you give us an idea where you think the headcount might be in 2013?

Mike, it's Rich. You're talking about overall, total company?

Total company. And certainly, if you -- feel free to break that out by segment, if you'd like.

Okay, hang on. I'm going to let Tim Wesolowski see if we've totaled that up.

Yes. We ended the year with about 1,900 in TV, 2,400 in newspaper, about 400 in other, for a total of 4,700 employees.

Do you have any thoughts on, given the investments you're planning on making, any thoughts on where the headcount might go in 2013?

I don't know if we have totaled it up, but by division, newspapers continue to trend down. TV is up a little bit, but that's primarily because of the new syndicated shows. And then obviously, we're adding some digital bodies. But across the board, we also continue to reallocate and shift positions from one place to another. So we're not looking at any dramatic expansion in the overall workforce.

Okay, fair enough. And then I was wondering if you could give us an update on your digital initiatives in the newspaper group? And you mentioned digital subscriptions and that sort of thing. Can you just give us an update on where you are right now, the number of newspapers that have your -- have already rolled out your digital initiatives? Any updates there?

Sure. And we did some, as you might remember, some early experiments. But now we launch across all 13 markets in a rollout schedule that starts next month. And that'll be in 2 buckets. You have a premium subscription that bundles print and digital together, and then a digital only that offers full access. So for the most part, most of our markets will roll out over across 2013.

And then in terms of your revenue guidance for the full year, I suspect then that based on your low- to mid-single digit -- I guess, your guidance to be down low-single digits, I would expect you're anticipating a building improvement for the year throughout the fourth -- to the fourth quarter, right?

Yes, that's correct, aided, we anticipate -- although we've got to work through the schedule, aided, we would anticipate, by the bundled subscriptions.

Okay. And in terms of the guidance for your expenses in Television, I kind of -- your revenue was the down high-single digits for -- actually, it was a little bit better than I was expecting, given the amount of political. But the expense in the television is a little bit stronger than I was looking for. Are you anticipating any additional programming investments in television at this point in addition to the ones you've already launched?

Not in 2013, Mike.

We'll go next to the line of Edward Atorino at Benchmark.

On the TV side, how's your programming coming along? The new state, the new shows you own and do you plan any more in 2013? And you're stepping up costs, and I presume it's going to affect the margins this year?

Ed, it's Brian. Look, I have to tell you, I think that we're very pleased so far with the performance of The List and Let's Ask America, which are our 2 new access shows. They're achieving, what I would certainly describe as respectable ratings just 5 months into their existence. I think if you look in any one of the markets, where we're running these in the 7 to 8 time period, we're beating shows like Extra, Access Hollywood, TMZ, Millionaire; we're beating those in most of our markets on a daily basis. I think if you get to even our 2 biggest markets, being Tampa and Cleveland, on a very frequent basis, we're often beating Wheel, Jeopardy, Entertainment Tonight and -- with those 25-54 women, 25-54 and 18 to 49, which was our goal going into this from the beginning. We established these shows, a, for new programming and some creative programming in our markets, but also we recognized that there was an opportunity to build margin through these shows without having to pay the significant syndicated costs. We knew that our overall revenue would probably be down with these shows, but our profitability would be up. And that's exactly what we're seeing based on our early returns. So between these 2 shows and our partnership with Right This Minute, we've got 2 hours of Scripps-produced programming now on many of our television stations. We continue to look to expand these 2 new shows to more of our markets. We talk with our partners about the potential for syndication, and that's something that we'll keep you up-to-date on in the future. And we model out in the future. I don't see us ever going exclusively Scripps-built. We will -- there will always be a balance between stuff that we'll produce and purchasing some syndicated that makes sense in our markets. But -- and we'll continue to model that and see where there's opportunities based on our own investment. But I think we feel really good, 5 months into this thing, that we build 2 shows that are performing and competitive in our markets.

And you've -- the statement that the level of profitability in television is going to be up 50%. You got a margin target in mind for the station at TV group?

Yes. I don't think that's something that we would normally disclose, right?

If we add 50%, would we come close?

Well, I think our 50% growth probably has to do with our new television stations.

Getting back to newspapers, you mentioned Naples is doing okay. Sort of what isn't doing okay that resulted in sort of, I wouldn't call it a disappointing quarter, but a quarter like everybody else?

Well, what isn't doing well is just primarily Classified across the board, which continues to decline. Obviously, it is different by region. But the highlights for the quarter are Florida and Florida continues to be strong on the coast and also a little bit of California. But the middle of the country is a little, still a little soft. And the growth is in the places that got hit the hardest, and you have the comps that now look the best coming out. Naples still is running up low to high mid-single digits even against very tough comparisons. So that continues to be where the greatest strength is.

I got on a few minutes late. I don't know if you said -- you've talked about your pricing strategy in the newspapers' circulation prices and ad rates? It seems that the newspapers are pushing the circulation. At least some newspapers are pushing the circulation button to offset some of the softness in the advertising side. I wonder if you're doing the same thing.

Sure, absolutely, Ed. And advertising pricing strategy differs very much by market. And across the board, we're rolling out the bundled print and digital subscriptions this year that then offer -- the people that would like a digital-only subscription. But yes, just like the others, we believe that's an opportunity for revenue and cash flow, and we're taking advantage of it.

Would you give us any specifics on circulation pricing?

Again, it will vary by market. But I think what's most important in the pricing that we're doing and many of the others is establishing a true value for our digital products. And the early results for many companies and the results that we anticipate is that consumers are going to honor that and be willing to pay for digital content.

We'll go next to the line of Barry Lucas with Gabelli & Company. Barry L. Lucas - Gabelli & Company, Inc.: Just a couple, Rich, maybe just starting with Brian, looking at the first quarter comments that you've made. And the numbers would suggest that overall core, x political, in the first quarter is kind of plus 4-ish percent, and auto was stronger. So what's weakened television as we come out of the shoot in the first quarter?

Barry, I think that we knew going into the quarter that we would look a little bit different than others. We don't have any CBS stations. And so I think that March Madness and the basketball, in addition to the Super Bowl, was a strong driver at many other companies. We don't have any CBS stations. And remember that a year ago, having NBC affiliates, we had the Super Bowl, which was almost about $1 million for us. So we knew that would be a challenge. In addition to that, as we've talked about, we made a conscious decision related to advancing our own programming, which we knew would have lower revenue, but higher profitability. And so that is playing itself out exactly as we had expected. So I think that quite frankly, the quarter is kind of in line with, its building the way we thought it was going to build. And being the fact that we don't have CBS affiliates, that's a little bit of a competitive disadvantage for us in the quarter. Barry L. Lucas - Gabelli & Company, Inc.: Thanks for the comments and color on the McGraw-Hill stations. Maybe in terms of the spending, Rich, if you were talking about $20 million investment, whether it's people or systems and content, any way to size the revenue opportunity and the longer-term margin that might be attached to those revenues, so we get an idea of what the ROI could be?

I'll tell you what we've done at this point is model the revenue in each market at sort of a low, mid and high case. And in our mind, it easily justifies the investment. I mean, the best that we'll be able to do for you all is, you will be able to track the revenue. You'll see the revenue growth as we move through the quarters and into next year. So I mean, I guess at some point, we could show you, although you can look and see the size of the digital revenues in each of our markets. So I mean, we've not broken out what we think our specific targets are, but like I said, you'll be able to track it. And in our mind, this is a fairly, actually it's a fairly modest investment against what we think is a terrific opportunity in our markets. Barry L. Lucas - Gabelli & Company, Inc.: Okay, great. The last area, and not to beat a dead horse here on capital allocation, but you touched on M&A activity in TV. You touched on share repurchases and dividends and the digital for investments. So when you wrap all of that up, and you look at the free cash that we anticipate you'll be generating even the next couple of years, and you're sitting with, on a net basis, a $1 a share, give or take, right now of free cash. So how do you prioritize the use of the balance sheet from a strategic standpoint? And what do you do with the free cash that you generate?

Sure. Well, here's -- the way we prioritize is it is sustain of long sustained sources of revenue and cash flow that we can either build or buy at valuations that make sense for our shareholders. That's our primary focus. Second would be investing in ourselves, buying in shares that we think is one of the easiest ways to build value since its assets that we know the best, and it returns capital to you all. And then obviously, at this point, or so far, we've prioritized dividends third or at the bottom of those. But that doesn't mean that in the future, we won't come back and say that it makes sense to establish a dividend, a regular dividend or do some sort of special. It just hasn't been the way we prioritize it up to this point.

We'll go next to the line of Kevin Becker at Waterstone Capital.

How many households do you have coming up for renewal in 2013 for your AT&T and Direct TV retrans agreements?

Good question. Those deals are already done, Kevin. I don't know, $0.5 million, something like that, off the top of my head. I don't have that exact number in front of me. But Tim can follow up with specifics on that later for you.

Okay. And also, I noticed with your Comcast and Time Warner contracts generating no retrans for several years, is there anything you can do or are doing to bring forward some of that retrans revenue?

Kevin, it's Rich. Inside of our existing deals, that would be very difficult to do. And remember, there is some reallocation from SNI back to us. So it's not like there's nothing that comes in on those. But if you look out at any sort of new deals we would do, you just have to look market by market and deal by deal to see if there's an opportunity to increase that line.

If you acquire stations that have retrans agreements with Comcast and Time Warner cable, do you get the retrans revenue from their agreements? Or do they have to go on your agreements?

Well, again, that -- it really, there's no black and white answer to that. It would depend on the deals that they have in place and to look at the deals that we have in place and looking at the opportunity between us or us and Comcast and Time Warner. So it would just absolutely depend deal-by-deal, and what sort of contracts are in place, and what sort of upside the companies see going forward.

[Operator Instructions] We have a follow-up from the line of Craig Huber at Huber Research Partners.

Can you speak a little bit further about your programming cost expectation for this year? I mean, what sort of percent change are you looking for this year? Down at some amount?

For 2013, Craig?

Yes.

I think we're looking at total programming to be down mid-singles, with our syndicated cost being down high teens. So within total programming, we would have our syndicated cost, we would have our -- the cost of producing our own shows. As well as inside of that line, we have the payments that go to the networks for our affiliation agreement. So even with the investment in our own shows and what we're paying to the networks, we'll still be down mid-singles compared to 2012.

Okay. Then also on the newspaper side, can you just speak a little bit further about the ad revenue trend by market? I'm just a bit curious what markets in the fourth quarter may have had up ad revenue year-over-year or close to it?

Yes. Well again, Craig, it's Rich. The strong markets in newspapers right now are, continue to be Florida. And the West Coast of Florida is the strongest. California has started to come back. And again, you remember both of those were the hardest hit markets, so they're the ones that are also recovering the quickest. The middle part of the country tends to be the softest right now. So I guess, I'd say that closer to the water is better and further out into the middle of the country is a little softer.

Maybe can you maybe just quantify that roughly? Is it up 3%, 4%, 5%, for each market, Florida and California, in that range or what?

West Coast of Florida is a little better than that. California would be more consistent with that.

We'll go to line of Dennis Leibowitz at Act II Partners.

The market drop today seems to indicate that you're being penalized for the full $22 million increment in spending. And I was wondering if you could guess whether the increase in revenues associated with that beyond what you would have had otherwise means that one should look at that as a smaller hit to profit?

Yes. I mean, the $22 million should not be looked at as a permanent hit to profits. Obviously, it's an investment against an opportunity for revenue and cash flow. But as is the case when you're building businesses, especially through the P&L, you have to deploy the expense first and then the revenues come after that. So yes, Dennis, I think that's absolutely true.

And I think particularly in this example, when we said that about 2/3 of this is directly related to sales, half of that biggest piece is feet on the street. And with any sales organization, you've got ramp-up periods for sales folks that you hire. And the expenses tend to hit in earlier than the revenues. And the good thing about that is, you know whether you're performing right away. And these are expenses that in total, we can kind of turn on and turn off as we're getting the returns that we anticipate.

When would the revenues, specifically from this increase in personnel, start to affect you?

You mean, when would we start to see the revenue come in?

Yes.

More toward the fourth quarter and then into next year.

A follow-up from Edward Atorino of Benchmark.

Where are those costs going to show up on the income statement? Cost of goods sold? IPA [ph]?

They're in the incorporated and shared services line. So the $22 million incremental amount is in there, and we gave guidance for that amount of being $60 million to $65 million for 2013.

There are no further questions in the queue, gentlemen.

Well, Kelly, we appreciate your help today. Thanks so much. We're going to sign off, and thanks for everyone's attention. Take care.

Thank you. And ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.