The E.W. Scripps Company (SSP) Q3 2013 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to The E. W. Scripps Third Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. And now I would like to turn the conference over to our host, Carolyn Micheli. Please go ahead.

Thanks, Sean. Good morning, everyone, and thank you for joining us for this recap of The E.W. Scripps Company's Third Quarter Results. We'll 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'll open up the lines for your questions. Also in the room are Brian Lawlor, Head of the TV division; Tim Stautberg, who runs the Newspaper division; Adam Symson, who is our Chief Digital Officer; and Doug Lyons, our Corporate Controller. The comments you'll 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'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 release and financial tables. You also can sign-up to receive e-mails anytime we disclose financial information, and you can listen to an audio replay of this call. The link to the replay will be up there this afternoon and will be available for a week. Now, here is Tim Wesolowski with a summary of the third quarter.

Good morning. In the third quarter, we saw increases in local, national and digital advertising, as well as television revenues that benefited from higher retransmission fees. Of course, we had tough comps due to the record political spending last fall and the Summer Olympics. But our core advertising revenue held up pretty well. We saw the first increase in our newspaper subscription revenues since 2010, as we completed the rollout of subscription bundles in our 13 newspaper markets. And we've got a couple dozen more feet on the streets selling digital advertising for us. We'll get back to these things in a few minutes, but first let's talk about consolidated results. Revenue for the third quarter declined 14% over third quarter 2012 to $190 million. That translates to a decrease of about $30 million and we did $34 million in political last year. Total TV revenue, excluding political and incremental Summer Olympics advertising, was up about 10%. That appears to compare pretty well with the broader TV marketplace. Our costs and expenses for segments, corporate and shared services decreased nearly 2% to $182 million. This was despite continued cost to build out our digital products and revenue streams. If you take out the incremental expense to invest in our digital operations, costs and expenses declined more than 4%. We reported a loss from operations before income taxes of $11.9 million in the third quarter of 2013 compared to income from operations before income taxes of $14.2 million in the prior-year period. The net loss for the third quarter of 2013 was $8.9 million or $0.16 per share. That compares to net income of $12 million or $0.21 per share in the third quarter of 2012. Prior-year results included the $3.7 million or $0.07 per share in favorable adjustments to the reserve for prior-year income taxes. Turning now to the broadcast division. Total television revenues decreased 20.8% to $99.3 million. That's due to expected declines in political advertising. Last year, we booked $34 million of political advertising and this year, it was about $1 million. Core local and national advertising revenues, which exclude political, were up 5.1%. And as you saw in the release, we continued to see big gains in retransmission fees, up 40%. Political spending and affordable health care were the hot topics going into the quarter and neither of the 2 had much of an impact in our markets. Mayoral races in Cincinnati, Detroit and Tulsa did see moderate spending levels in the quarter. We also saw limited activity around a special election in San Diego and some early spending for the Michigan Governor's race for 2014. Political spending in our markets has been pretty light this year. Our expectations for the Affordable Health Care Act spending have been more conservative than many in the industry. We had looked at what the federal government was planning to spend to promote the insurance exchanges in our markets, and unfortunately, our low forecast has proven to be true, so far. We are more optimistic about 2014, when we expect insurance companies and hospital systems to advertise their own insurance plans to offset enrollment in plans they offer through the government exchanges. Auto remained our top category, growing 10% in the third quarter. Retail showed a single-digit growth, offsetting a slight decline in the services category. One category that had shown major declines over the past few years has come to life in 2013. Telecommunications grew 29% in the quarter and is up 25% through the first 3 quarters of 2013. That's driven by telecom companies trying to grow video subscribers. Digital revenue for the TV division rose about 6% to just over $4 million. Total segment expenses were down at nearly 4%. There was a reduction in incentive compensation and we saw lower programming costs because of our shows, Let's Ask America and The List, which are now in their second year. We also saw a drop in marketing and promotion costs for those shows after their launches in 2012. Let's Ask America is now airing in all 13 of our TV markets and The List is in 7. And just this week, we announced a deal for MGM to begin syndicating Let's Ask America across the country. And I'd like to use the 2-year cycle to highlight our television segment profit. I think, it's the best way to reflect the cyclical nature of political advertising. Segment profit for TV more than doubled over the third quarter of our last nonpolitical year, 2011, from $8 million to $19 million. Of course, this year includes the 4 former McGraw-Hill stations. And on a same-station basis, segment profit increased more than 90%. Our segment profit margin grew by about 8 percentage points in this 2-year period. And we've often reminded you, growing our segment profit margins remains a top priority. And now, turning to the newspaper division. Total revenue from newspapers was $88.3 million, down 4.4% from third quarter 2012. Subscription revenue increased for the first time since the fourth quarter of 2010. That's due to both the rollout of the subscription bundle and to single-copy price increases. The $28.2 million in subscription revenue reflects a 1.4% increase over last year. Expenses for the newspaper group dropped 3.2% from third quarter 2012, to $85.3 million. That includes nearly a 5% drop in employee-related costs. Third quarter segment profit for newspapers was $3 million, down $1.2 million from the same quarter last year. Advertising and marketing services revenue was $55 million, down about 8%. This was a bit worse than we expected going into the quarter. Classifieds were down 11%, driven by a 16% decline in employment ads. Local advertising was down 5.6%. National advertising, which represents less than 5% of total ad revenue, was down 24.5% to $1.4 million. Preprint and related products were down about 8%. Digital revenue was down 1.8% to $6.3 million with pure-play digital increasing 6.5%. And I'd like to finish with a look at our cash position, share repurchase program and finally, our guidance. Our cash on hand is $202 million and we had $184 million of debt, meaning we had a net cash position of $18 million. And we are in the process of refinancing the debt that we took on to acquire the McGraw-Hill stations almost 2 years ago. We expect to issue a $200 million term loan B by the end of this month, which will have a floating rate and a maturity of 7 years. We're taking advantage of the attractive credit market to both lower our rate and extend the maturity. The Board approved a share repurchase program last November that allowed us to buy back as much as $100 million of our shares. We repurchased 2.1 million shares for $34.4 million in the third quarter. So far this year, we repurchased a total of 4.8 million shares for $69.3 million. So we've got about $30 million left under the authorization. And before I turn things over to Rich, I'd like to set some context for our guidance. Despite our solid performance in the third quarter, we're a bit more cautious on the revenue side from 90 days ago. That's due in part to the unknown impact of some of the things that are happening or not happening in Washington. We're expecting uncertainty from advertisers and we find that usually translates to slower spending. So you can see the release for details on our fourth quarter guidance and we've given you some help on the math for full year guidance as well. And now, we'll hear from Rich.

Thanks, Tim. Good morning, everybody. I'm going to touch on a few third quarter items and then give you a little bit of additional context to help you think about 2014. Our TV business performed, as you saw, well in the third quarter. Excluding political -- cyclical political advertising, total revenues rose 7.5%. Make that 10% if you take out political from both years and the incremental 2012 Olympics revenue. Our TV team turned in those good numbers. Thanks to strong performances in some of our very largest markets. For example, our 4 largest stations took significantly more revenue share out of their markets, outgrowing the total pie at double-digit rates. Total spot advertising in those 4 large markets, Detroit, Denver, Phoenix and Tampa, grew less than 4%, while our stations were up a collective 17.5%. That performance was key to our 5.1% increase in local and national spot advertising. And as Tim said, it would've been even a little better had the predicted spending to support health care, insurance reform materialized in our markets. It appears the rollout of the exchanges on the website drew more than enough attention all on its own. They didn't need to spend the money. To our benefit is a geographic footprint that includes stable and growing economies. 3 of the 4 markets, the TV markets I just mentioned, are among America's best growing markets. Also boosting station revenues was our 40% pop in retransmission revenues this quarter. Looking ahead, strong double-digit retrans growth should continue next year. About 30% of our households are coming up in the second half of 2014. That will give us a nice, high stair step for 2015. And then our agreement with Time Warner, which predates our spinoff of Scripps Networks, comes up for renewal at the end of 2015 and that will boost 2016 revenue. Just a reminder that many of our contracts coming up in the next few years predate the recent run-up in rates. The coming renewals give us a big opportunity to catch up with the prevailing market. On the cost side, as Tim mentioned, total cash expenses declined nearly 2%, despite our aggressive investments to build digital products and digital sales infrastructure and to hire digital sales executives in the field. Our goal this year has been to add up to 100 digital -- additional digital sales reps and we're on track to do that. Our digital audience numbers are very good, based on the investments we've made on products and we're confident the revenue is going to follow. Excluding the incremental spending on digital products and services, the company's expenses declined about 4%. Bottom line, we're managing expenses well, including the incremental investments to build, launch and support market-leading digital products. We believe this is essential. The local digital marketplace is developing quickly and we see this as the best path to accelerating digital revenue growth and increasing our overall local revenue share. In the quarter, we also completed the rollout of the digital and print subscription bundles in all 13 of our newspaper markets. It's still early, but the rollout helped drive a 1.4% increase in subscription revenue in the quarter. As Tim mentioned, that's the first increase in subscription revenue since the end of 2010. Nearly 25% of our current subscribers have activated their digital accounts. And in several of our newspaper markets, that number has now reached 40%. These subscribers now have full access to all content on their desktop, computers, tablets, smartphones and all devices. We're also encouraged by the growth in new digital-only subscribers in newspaper markets. This is a group we watch closely because they are new customers who reach for their credit cards when they face a choice and they're asked to pay for digital-only content. For Scripps, this is especially important because we operate one of the most rigorous access markets in the newspaper industry. Our meter is based on the amount of time stories are available in front of the meter versus the number of stories consumed. In other words, consumers most often don't have an opportunity to see our stories for free. They go looking for them at a price inside our paid services and that's really good news. Finally, as we head toward the end of the year with a strong balance sheet and good financial flexibility and we believe that is a core asset of the company. Scripps has long created value for shareholders by being an opportunistic and at times a counterintuitive investor. Maintaining financial flexibility allows us to take advantage of the very best opportunities. A good example of this is our acquisition of the 4 McGraw-Hill TV station markets, now less than 2 years ago, at a time, as hard as it is to believe now, that broadcast stations were out of favor. That's a look at the quarterly results and some recent milestones and a look ahead. Operator, we're now ready for questions.

[Operator Instructions] Our first question is going to come from the line of Alexia Quadrani from JPMorgan. Nadia Lovell - JP Morgan Chase & Co, Research Division: This is Nadia in for Alexia. I was hoping that you could talk a little bit about your pricing strategy with the new digital and print subscription model or the price increases? How should we think about additional price increases going forward? And any color on how subscription is tracking?

Here's Tim Stautberg.

I didn't catch the last part of your question. Nadia Lovell - JP Morgan Chase & Co, Research Division: I'm wondering if you've seen any cancellation of subscription or anything else of that sort, as you roll out these new price increases.

Sure. So what we've done in our 13 markets is bundle our home delivery subscription with full access to our digital content on all of our different platforms. And concurrent with that bundled offering, over time as those home delivery subscriptions come up to renewal, we would pass along an increase to subscribers commensurate with the increase in value being offered. And so far, that's working well for us. We do have a program on place on the customer service side to handle any folks that might call in and want to stop their home delivery subscription due to price. We're not going to lose a customer due to price, but we're really pleased with the number of -- and the percentage of home delivery subscribers that see the value in the offering and go ahead and pay that renewal notice. From a digital-only standpoint, we have several different pricing strategies and we're testing those in different markets. But they are typically running in the $9.99 to $12.99 or $13.99 a month. And we'll continue to experiment and test those offers as we look to build out and grow our digital-only customer base. Nadia Lovell - JP Morgan Chase & Co, Research Division: Any color on how many digital-only subs you have at this point?

Sure. At this stage, we have about 20,000 digital-only customers.

Our next question is going to come from the line of Craig Huber with Huber Research Partners.

I've got several questions, please. On the newspaper side, what was the daily and Sunday print circulation percent change versus a year ago?

Sure, Craig, it's Tim. Daily down 8% and Sunday down 9%.

Okay. And then per your press release, obviously you guys have hired 81, I guess digital-only salespeople and stuff. I'm just curious, do you guys feel you're getting a proper return on this? And I ask that, just looking at your data here on the newspaper side, down 1.8% on the digital year-over-year revenue front. That was obviously worse than what it was tracking at first half of the year up 2.7%, 6.6%. And similarly on the TV side, the performance there lagged what happened in the first half of the year. Is it getting overwhelmed by the economy or what's going on here, please?

Craig, it's Rich. A lot of those new reps just didn't even start coming on board until sometime in the second quarter or so. So it's still pretty early. But I'll hand it over to Adam Symson, who heads up [indiscernible] let him speak to it.

Craig, I guess on the television side, I'd answer first. We see a lot of improvement on the horizon as we get some of these reps that are just coming on board now to achieve the revenue ramp. Just for clarification, all of these reps are essentially developmental. So we're really asking them to go out into the marketplace and add new incremental accounts, especially in the TV market. So we really think, that we'll start to see that revenue materialize as we move through 2014. On the newspaper side, we're really fighting headwinds relative to the strong -- the declines in advertising, humble [ph] advertising and classified pure-play. So I think, what we can look at is pretty strong results relative to pure-play digital advertising. That's the advertising that these sorts of digital account executives are selling, increasing by 6.5% through the quarter.

So, but do you feel the economic environment, the digital secular pressure you're dealing with here is hurting this disproportion versus what you're feeling in the first half of the year? I mean, something is causing it to slow down versus what happened in the first half.

Not necessarily. I think what you're actually seeing is also a reflection of the comps that we're operating against. We began to really focus on digital advertising in the prior year during the third and fourth quarter. I think, that digital advertising is subject to the same pressures as traditional newspaper and spot advertising. And certainly, when you've got newspaper sales folks and television sales folks also selling digital, that's going to impact the overall number. What we see in the future actually is a hedge against that. The digital-only salespeople will allow us to make sure that we're getting out into the marketplace and selling digital-only marketing services and advertising to clients that some of our traditional sales folks might not even be walking in the door of. And that's a revenue that we think, will materially appear in larger numbers over the course of 2014.

Craig, it's Brian. I just wanted to jump in. I know you referenced the fact that the TV numbers slowed a little bit in the third quarter relative to the first half of the year, and that's true. In addition to the success we have developing a lot of local business on the digital, we also handle quite a few pieces of big search business for clients, where we may be buying or helping them support their search business all over the country. We wound up in a situation in third quarter, where one of our bigger pieces there moved on with an agency. And so, when it's a couple hundred thousand dollars, it's meaningful. But I could tell you, if you strip that out, the rest of our business would be -- look more consistent with the first half of the year.

Okay, that's helpful. If I could ask, your shared services corporate line, I guess you guys are talking about in the fourth quarter, being roughly $15 million. So what you report already year-to-date, and add that in there, would be about roughly $53 million for the full year. Should investors expect that number for 2014 to be similar to that? What is your thought, because there is some onetime costs you guys have put in that number for this year, right? What's your preliminary thought for 2014?

Sure, I think, when we talked about this before is that those are costs associated with ramping up the sales force. They were some systems costs in here related to standardizing processes from getting ads sold, delivered, served and billed. And we'll be giving more context around this number and the rest of the 2014 numbers, when we announce our full year versus fourth quarter results. We're not talking much about '14 at this point.

And if I could ask, are you hinting that it's going to be somewhere between the $37 million that you had in 2012 and roughly $53 million for this year?

I don't know I'm hinting anything. We'll be talking about where we are on this when we announce our fourth quarter results.

Yes, Craig. That's so -- that number is so affected by the digital investments we've made. And we haven't finalized our budgets for next year yet.

Our next question is going to come from the line of Michael Kupinski with Noble Financial.

I was more interested in the advertising categories in the third quarter and what might be looking like -- particularly as you already went through October. Are there any particular variances in the advertising categories between the third quarter and the fourth quarter, aside from the seasonal variances that you would normally get from certain categories?

Mike, it's Brian. Are you asking on the television side?

On the television side, sorry.

No worries. Look, automotive continues to look really strong for fourth quarter. You saw a double-digit increase in third quarter and feel very good about continued growth in there for the fourth quarter. And of course, a lot of our success depends on the automotive category. Services is bouncing back pretty well in the fourth quarter. So I think, that you'll see an uptick in services on the positive side versus third quarter. I think the one category that remains to be seen is retail. We were -- we had positive growth in third quarter. This is the holiday season and we've got a lot of points of retail business still to write. So it's early. So that's the one that, I think, will remain to play itself out. But on the other side, automotive very strong and services has moved back to positive.

And then also on the acquisition front, it would seem like there's a little bit of lull in the M&A activity in the television group. I was just wondering if you're still seeing a lot of activity in that space? And what are the prospects of maybe picking up a station or 2 in the marketplace today?

Yes, Brian again. Look, I think, we still see some stuff out there. I don't know how public or nonpublic some of that is, but there is a couple of groups and some stations that are -- I think evaluating their options right now. And there's some stuff that we're looking at. And as you know, our strategy isn't just a rollup for the sake of getting bigger. We have a strategic view on acquisition and where and how and the kinds of stations that we think would complement our footprint, make our company better. And so the things that are available, we look at those. And if any of them are good fit and we see a fair price, I guess we'll be talking with them.

Our next question will come from the line of Edward Atorino from Benchmark.

I guess one of my pet projects has been your new stations. I think you make some programming changes there? How did that pan out? Have the ratings gotten better? And how are they doing in those markets versus the rest of the group? Then secondly on the newspaper side, are you seeing any early holiday stuff coming up for the newspapers?

Ed, I'll jump in first to talk about the new stations. I'm assuming you're referring to the former McGraw-Hill stations that we bought at the end of '11. Those stations are doing really very well. We're pleased with the progress. Most of the programming changes we've made to this point have been adding additional newscasts. We haven't yet folded a lot of our new homegrown programming in, although Right This Minute is running in a couple of those markets. But The List and Let's Ask America which continue to perform well in our legacy stations, we're waiting for contracts to expire to be able to roll them into the other markets. But we've launched weekend morning news in the last couple of months in San Diego and Indianapolis and Bakersfield. Those are doing very well, as well as other investments in news. And I would tell you that those stations continue to meet our expectations. And we've seen very strong ratings growth in a couple of dayparts in San Diego and in Denver, where we've been able to already monetize those investments. So we're very pleased with how those stations are doing.

Ed, it's Tim. We don't have the benefit of a ordering process like TV, where the folks are booking well into the end of the fourth quarter, but we are seeing, from a Thanksgiving standpoint, the preprint orders coming in, pacing a little bit ahead of last year, which is really encouraging. So we expect it to be a really strong Thanksgiving push for the holiday season. But beyond that, we don't have much visibility.

And you continue to trim costs or you've got a little lull at this point in the newspaper side?

We continue to keep a tight rein on costs, Ed.

Our next question will come from the line of John Kornreich with J.K. Media.

I have a few questions. Where do we stand, remind us, with the ABC affiliation agreement?

John, it's Brian. That comes up in 2015.

End of or beginning?

The beginning.

Okay. So then right now, you would be paying, I assume, very little reverse retrans? You're basically ABC.

Look, we did a deal 4 years ago, 3.5 years ago with them that had us paying reverse retrans within the entire context of this deal. So it stair steps up.

Okay. Margin questions. I understand why margins are down, okay. I'm not talking about direction. But your margins in TV are still only 23%. I know it's an off year, but that's a very low margin for TV. And in newspapers, I would also like to get a comment. The range of margins that I see out there among public companies is anywhere from low teens to low 20s and you're in the low singles. So in both counts, I don't understand how margins can be so low, not why -- not why are they down, why are they so low?

John, it's Rich.

I've been asking you this for 15 years, I know.

Well, we'll see if we can give you a satisfying answer. Brian, can talk about the year-over-year, the cycles of what he's doing. Tim, can talk about the newspapers. But I can tell you one of the big differences in the newspaper markets is we have decided not to cut as deeply to build a digital future in our newspaper markets. That makes a big difference, but let's start with Brian.

John, first of all, for clarification, I think that, Tim mentioned that our margins, if you look on an odd-to-odd-year basis, third quarter we're up 8 points over 2 years ago. So following the split of the company, our margins were well below our peer group. That's mid 2008. We put together a very intentional plan on many different areas to be able to improve our margins. We've made great progress, as you can see there. And '11 was almost 9 points better or 8 points better. I think in 2011 was better than 2009. So we continue to see big improvement.

To your point [indiscernible] quarter is 19%. Maybe it's up some 10 but it's still 19%.

No, we are better than that. Brian was talking the television side. But I think, there's really 2 things that probably have us underperforming our peers. #1, would be our retransmission contracts. As we said, we've got 30% of those contrasts coming up in the next year. Following that, we captured Time Warner. So you'll see great improvement relative to our margins because of us starting to get our arms around some of those retrans. And the other thing would be that we probably have less duopolies than most of our peers. And clearly duopolies are margin drivers. That is something that is top of mind for us. We'd love to get deeper in some of our markets. The environment to purchase duopolies is a little tough right now, but we are very active in that space. So I think your point is well taken. Know that we're not sitting here doing nothing about it.

John, it's Rich. As you well know, the margin question and the reason for the margins predates the spinoff of Scripps networks when we used the stations aggressively to build the networks. And now we have the opportunity to build the station margins up to where they need to be, competitive with the industry. Brian and his team are doing a great job of marching their way up there fairly quickly.

Brian, can you give us some guidance as to roughly what is your gross margin now on a retrans dollar? And should we assume, as most of us do, that down the road we're heading to 50/50?

To the latter point of your conversation, I think that's a fair assumption. But the contracts we have now are confidential with our networks. So I can't disclose more than that.

It would be fair to say though that, right now, it's well under 50/50?

I think we're...

I should say it's above 50/50, just margin is way above it.

Yes. Look, I think we're moving toward that. I don't want to say more than that.

Last question, a corporate question. I think in the last 4 quarters, you bought back about 6 million shares and yet shares outstanding are at 1.5 million. That's a 7.5 million share difference that I don't understand.

So there were options that were issued in the past, probably 5 years ago or so, that had a weighted average strike price of about $9 a share. There were 8 million options that were outstanding at the beginning of the year. And about 1/2 of those options, I think, were exercised during the first 9 months of this year. So we're buying shares and then there are shares being issued because of the option exercises.

So that offset reality will continue for a little bit while, where you're buying shares but you're also issuing shares.

That's right. So there's about 3.9 million options that are left outstanding and we're really recycling that cash, right? So we've spent about $70 million on the share repurchases and we've gotten in about $40 million from the options, so it's a net of about $30 million that's out.

Okay, lastly. Rich, when does Cincinnati get the Super Bowl as a home? Because that would be a great location for an analyst meeting.

That would be, except it would also mean that we would have the analyst meeting at Cincinnati at the end of January or early February. That's not the finest time to be here. But, John, the All-Star Game is going to be here.

Is that right? When is that?

It's '15. You'll want to be here.

Okay. I assume by then your margins will be up.

Our next question is going to come from the line of Barry Lucas with Gabelli & Company. Barry L. Lucas - Gabelli & Company, Inc.: I have a couple as well, guys. Coming back to the digital piece, and especially on the newspapers, Tim, could you fill out a number? You provided digital subs, but what would that represent in terms of either total circulation or home delivery circulation? Something and, maybe even -- I'm not trying to pile on this question, but is there some number that is really critical mass to make those digital-only subs work?

Yes, Barry. We think about it all the time. And across our footprint, we have about 550,000 home delivery subscribers. And so our approach is to cement our relationship with those folks and provide more value and then also receive value in exchange for that from that 550,000. So if we can increase the amount of revenue coming from that 550,000, that's an important piece of this whole strategy. And although it's not necessarily being realized right now, but if you can get an extra $0.50 a week or $1 a week from that group, that's a pretty substantial increase in the revenue stream. The digital-only right now at 20,000, that -- we look at that as how good of a job are we doing penetrating the nonsubscribers in our addressable markets. If we have 550,000 home delivery subscribers, the folks who are not subscribing number about 1.5 million. And so the 20,000 is a small but important and growing number against that 1.5 million. So the opportunity for us is to ramp up that digital-only offering. Now that's going to require a lot better job on the consumer marketing front, engaging in digital marketing, being much more sophisticated in the way that we look at analytics and data to help us target likely subscribers on our digital products and really start to drive that number, where the marginal cost of delivery, once you have those folks is very, very low. So that's an important piece of the whole strategy and really something that we're focused on. So we're encouraged at the 20,000 level. We're -- and that's growing. And the activation rates of home delivery subscribers is the other number that's important. The higher the number of activations, the bigger the number of folks that are engaging with us, the more likely they are to then renew at higher rates. And that's the causal relationship and logical sequence there. Barry L. Lucas - Gabelli & Company, Inc.: Just a couple of others. And a number of your peers seem to have made some adjustments or tweaks to their digital strategy. Body language from Gannett. I think it was a little bit different on their call. And it looks like BI - LO has kind of reversed course on their payroll. So what can you take -- what lessons do you learn from what your peers are doing? And can you avoid some of the pitfalls?

Yes. We're going to let Adam jump in on this one as well.

Barry, much of the investment in building out these best-in-class products is about essentially creating that level of customer captivity, so that we can go through the process of pricing properly, that Tim just described. And it's not really just to drive the digital-only subscriber. If you look at where the consumer is going after they pick up the newspaper, we feel like our job is to make sure that they're able to spend the rest of the day with us on mobile products, on tablet products. And for those folks that essentially are subscribing brand new, digital-only, we really should celebrate the fact that we've made the transition from a business that values a piece of paper being dropped off on the doorstep to essentially building audiences that are willing to open their wallet and transact with us on a digital-only platform. So we see a lot of opportunity and upside. I think that what you're seeing in the industry is folks trying to figure out and fine tune the kind of pay meter or relationship they're going to have that helps them. Rich and Tim both referenced the fact that we've got a very different kind of pay meter, unlike for example, BI - LO or Gannett has depended on the users hitting the meters several times in a month and then subscribing. We've essentially got a meter that starts with the time the story is published. And so we feel like we've balanced an ability to continue to drive traffic to our website, and in fact, grow our brands for those folks that today might not be ready to subscribe, especially younger folks, who use us on mobile while simultaneously being strict enough and strong enough to drive that digital subscription. By the way, we look at those times all the time and we continue to optimize the meter based on what we think is going to convert best, create that customer captivity and help us with that price elasticity around digital subscription and bundled subscription. Barry L. Lucas - Gabelli & Company, Inc.: That's quite a bit of color. The last one for me is bigger picture maybe, Rich. As you look at the current corporate structure, if you look at the kind of what should be a windfall of political for you for 2014 and again in '16, given your footprint, how do you think the structure of SSP should look like going forward? What else can you do either to fill out the broadcast side? Or is there more of a third leg that needs to be added or something else?

Sure. A couple of things, Barry. As we talked about earlier, we wouldn't mind adding some TV markets at the right price and we would really like to go deeper in our current markets. That's an opportunity that we have -- some others have already taken advantage of. While we were building cable networks, some others were doing duopolies. So we still have that opportunity ahead. And we'll see if we can do that at values that we believe make sense for you all as shareholders. The other third leg, I think, you're already seeing in our aggressive digital investments. And we see no reason to believe that we should not continue making those investments and at times accelerate them, so that we can be the strongest player in some of America's great markets. So as you know, we are very opportunistic. And we look at a lot of different developing businesses, but I think we may already have, in a sense, our developing third leg on the digital side. So other than that, I think you can expect us to look at share repurchase and dividends as it makes sense, but we would rather invest in cash flowing businesses or buying back around shares versus dividends.

Our next question is going to come from the line of Wescott Rochette from S&P Capital IQ. Westcott Rochette - S&P Capital IQ Equity Research: So now that there's a permanent head at the FCC, there's been some changes in terms of what the definition for kind of upper threshold concentration levels are. Does that change the opportunity set for you, given that some of your peers are kind of at that new kind of threshold as it's been kind of redefined? Is anything changed? Or is it just kind of the same type of opportunities that are out there that you're observing?

Wescott, it's Brian. Well, obviously, not a lot of changes here. We weren't anywhere close to a cap. We didn't have a lot of U & V [ph] issues. So -- but... Westcott Rochette - S&P Capital IQ Equity Research: Well, I guess I'm just trying to get a sense of the other guys now brought into the threshold that maybe take them out of the equation for major acquisitions.

Yes. I think, look, it's early as things continue to progress but it may change some of our competitors in terms of their ability to keep rolling up or it may prevent -- present opportunities for them to divest of some markets in order to reinforce regional strategies or other things. So we are certainly hoping that maybe some of those changes present opportunities for Scripps that we may be able to see. So as I said, it's early. We haven't seen a lot of movement yet. But I think the opportunity for some to have to potentially divest of some assets in order to align themselves or whatever their strategy is, may present an opportunity for us. Westcott Rochette - S&P Capital IQ Equity Research: Okay. And just one question on the upcoming auction and that process. Can you just remind us kind of where you stand and your willingness to participate or how you kind of see that progressing going forward?

Again, I think, if you look at our portfolio, right, we're in 13 markets, 14 stations and then a couple of Azteca's which are low power. So take the low power out of the equation at this point. Of our 14 stations, 13 of them are network affiliates. You need most of your spectrum to be able to broadcast a high-definition signal. We do see ourselves continuing the business. I mean, we purchased some of the early -- went to Washington and got some of the very first licenses in television. So we've been in it from the beginning, and we expect to stay in it. We will continue to take a look at the auction and see what opportunity it presents itself. But our strategy as we look at things is that we're staying in this business and we plan to be in the business for a long time.

Our next question will come from the line of Dan (sic) [Ben] Carter with Southpoint Capital.

I'm not so interested in the very near-term results, but I want to talk little bit longer term in a more strategic way. We continue to think you guys have one of the most interesting dynamics in the broadcaster space, and you have remarkably good assets but appallingly weak operating performance. I wanted to drill down on one particular area, retrans which you called out earlier. So we know over the next couple of years, a lot of your contracts should reset. That's an exciting opportunity. But we know also that your big Comcast contract doesn't come up until the very end of the decade. So given that it's mathematically impossible for you guys to be the best owner of the business, where you don't collect retrans but all your peers would, what are -- what is your team doing to make sure that you have the right sets of assets? And are you guys looking into station swaps, where you can be affiliated with another carrier and let someone else monetize, obviously, great cities and station routes?

Dan (sic) [Ben], it's Rich. As you and I've discussed, we do look at swaps. It's not that easy to do. It's -- I wish it was a liquid marketplace like the stock market but it's not. It's a mix and match and very complicated to do. It does happen occasionally. And there are some that we look at, but not -- I don't think you would find -- us find an opportunity to just move the whole portfolio around and reconfigure it into non-Comcast markets.

Would you agree that you guys potentially will never be able to monetize, at least this decade, those assets like somebody else could?

This decade?

That's right.

Yes. I think, as we said, an awful lot of those subs come up over the next 24 months. And then if you look at some of our stations were today, where our Comcast markets, they're some of the strongest, high-margin, best performing stations now that have the Comcast opportunity yet ahead of them. So I think, Brian and his team, their plan for increasing margins and then taking the -- getting the retrans pop as it comes along, I think we'll easily sustain value out of those stations that matches our peers.

What, if any, attention are you guys giving to creating some duopolies in your markets, like some of your top performing peers? It's a similar question but is this a significant component of your management team's time? Or is it not something you're working actively on?

I'd say it exceeds significance. But you're in a spot right now where the marketplace is a little strange because of the discussion of a spectrum auction. There are an awful lot of owners of second and third stations, independents and markets, who are trying to weigh the opportunity for the auction versus selling into some sort of local market consolidation. So the market is a little slower than it has been in some time. But we have a list of very specific targets. We've got a list of people whose hands we're holding and who we're smiling at every single day, trying to see if we can get some deals closed but it's not easy right now.

Aside from the retrans opportunity, where do you think the best opportunities are to get your margins at least in the ballpark of your peer group? Is it around moving assets around? Or is it really more about getting ratings up or just running your operation more efficiently? Can you speak to that?

Sure. And I'll let Brian give you a little more detail. But -- Yes, and just remember, many of the areas where we have opportunities today are areas that we mind prior to the split for the benefit of the building of the network. So now we have the opportunity to rebuild those directly to the benefit of the stations and that's local ratings and programming. And then as you say, along the way, the retrans pop comes along, but I'll let Brian talk about it.

Ben, really 3 areas and I think we've touched on kind of -- well, we have been through all 3 of them. But, obviously, ownership, whether swapping stations or getting duopolies, as Rich said, is something that's high priority, spending a lot of time in that space. And we do think that that's a key part of our margin strategy. Number 2, continued opportunity to grow our ratings in each of our markets. There remains a lot of upside, all of which drops immediately to our bottom line. We don't have to share any ratings growth with networks or anybody else. We get to keep it all ourselves. And we've shown some really nice progress over the last 2 years, I mean, when you hear Rich or Tim in the opening comments talk about the fact that our 4 largest markets were plus 4 and we're plus 17, that doesn't happen by luck. A lot of ratings growth, a lot of improvement in a lot of key areas and now we're able to monetize that. So I think that's one example of that. The other thing, would just be the continued scaling of our homegrown programming. You heard in release that MGM is taking Let's Ask America into national syndication. We think that there's a strong revenue stream for the company on that. In addition, we continue to look to further scale The List and Let's Ask America across our whole group. We've got Let's Ask America, Monday through Friday in 8 of our markets now, The List in 7 of our markets. We still have a lot of opportunity in the next couple of years. And each time we can add, for example, Let's Ask America into a new market. It eliminates the syndication costs of that time period and has 0 incremental cost to the scaling of that. So I think what we're doing there is unique. It's clearly strategic relative to growing margin. I'm proud of how successful the shows are doing and the audience that are garnering. And so I think those 3 things are going to be things that -- you started off by saying you wanted to look long-term. Long term, those things are going to generate margin that is going to bring us in line with our peers.

I just have 2 last questions and then I promise, I'm done. Your capital structure is also an outlier relative to your peer group. You don't carry any net debt. You've got a lot of gross cash and gross debt, which is kind of an unusual combination. How should we see the capital change -- capital structure change if at all over the next couple of years?

Clearly, we've been building cash. We successfully managed the operating company through the financial crisis and came out of it with a lot of flexibility on the other side and we continue to build cash. So as you know, we've been buying shares and looking for good opportunities to put the cash to work. But more and more cash becomes a critical issue as we look out into the future. Most of all, we hope to find real good opportunities like we did with the McGraw-Hill TV stations to buy assets that are out of favor and well below market and that have great upside. But like we said, if we can't find ways to do that, then we have a cash issue that we need to think about looking out into next year.

Finally then, I think a lot of people, even that follow this industry, probably don't realize the extent to which you -- your legacy contracts cause you to be under monetized on the retrans side. And related to that, as you saw the Time Warner Cable and CBS dispute, do you think that, that negotiation set a new precedent for the industry, in terms of retrans economics? Or do you think -- view that as kind of a one-off?

I guess, that's probably -- and I'll let Brian speak to it. That probably represents the tip of the spear in those negotiations. But I don't know if it redefined the market in some particular way. But I'll let Brian speak to it.

Yes. I would agree with what Rich was just saying. I mean, I don't think it redefined the market or the industry. Clearly, the market has been accelerating in the last couple of years, in terms of what broadcasters have been able to get. And the market was clearly starting to move towards some of the numbers that were discussed there. The market I believe is reset every time a new deal comes up and as we continue to try and get our fair share for the value of the audience we're delivering relative to the fees they are charging. And so I think the market has been escalating toward that point for a while and will continue to mature in the coming years, probably well beyond what the length of that CBS Time Warner deal was.

And then I guess we'll have an opportunity and you'll have an opportunity to see realtime what that marketplace looks like as 1/3 of our subs, almost 1/3 will come up during 2014.

We have a question from the line of Craig Huber with Huber Research Partners.

A few follow-ups please, if I could. Can you lay out for us how many subs you have come up for renewal here on the retrans front, for say each of next 3 calendar years? It's my first question.

Craig, it's Brian. As we've said now several times, 30% of our subs will come up by the end of 2014. Again, I think we're in about 14 million homes, something like that. So there's your baseline. We've got a little over 1 million that come up in the middle of next year and then most of the rest of that will come up at the end of 2014. So, it will help frame a little bit more what we're looking at. And then, as we've talked about, Time Warner is the big one, that comes up at the end of '15. I don't think we've actually said specifically how many subs are with that, but needless to say, it's significant and then we've got a couple other groups that come up around that. But I think with the deals we do in '14, you'll see a meaningful step in '15. With the deals that are done at the end of '15, you'll see a meaningful step up in '16.

What about -- what's coming up for renewal in 2016? Is it pretty immaterial?

At the top of my head, I don't have..

. There's some decent sized ones. We'll see growth. There's some contracts that come up in '16, and we'll continue to see some growth.

Yes, we've got 2 decent ones come up in '16 that will be material.

Okay. What is your updated thoughts in this area of controversy out in the marketplace, please?

Look, we still think that it's copyright infringement and we believe that at its day in court that, whether it's a Supreme Court or other courts, as other courts have found that they are improperly receiving our signals and reselling it and we still expect that at the end of the day that business is going to be shut down.

As you think out to -- Brian, as you think out to next year on the programming cost side? Is there anything we should be aware of that you might be doing differently next year versus what you're doing this year?

No. Probably not on the cost side. Our syndicated costs this year were down another 10%, obviously, we've got to share some of our retrans with the networks and we put that into the programming line. So I think our programming line was down 2.2 but that's because of a network -- us paying more to the network, our syndicated costs are down 10. I think the opportunity for our syndicated cost to come down again next year to some homegrown programming may happen again, but the time periods we're looking at are more daytime and so the cost may balance itself out, what it will do is give us scalability and potentially syndication opportunities long-term.

And my last question, Tim, I want to ask you on the shared services and corporate line. If you look at a much larger company than yours like Gannett, they book about 1% of their revenues as corporate. If you look at a company roughly half the size of your company, General Communications, their corporate line is roughly 2% of their revenues. You're looking like you booked roughly $53 million of shared services in corporate this year. If I take the midpoint of that, call it 1.5% of your revenues, and put corporate roughly 12% on that metric or $12 million on that metric, roughly $40 million of shared service costs, am I thinking about that correctly?

Yes. So we have been running at a level -- in 2011 we were at about $31 million, 2012 we were about $36 million or so. And the increase that you've seen in 2013 is almost entirely due to the costs that we're doing in building out our digital salesforce, sort of a training cost if you will associated with those people and some other systems related costs, as well as contract costs there. As far as the base -- so the increment that you're seeing in '13 is entirely the digital build out. And as far as the starting point on that, I think different organizations call different things, corporate and shared services costs.

But is there more -- I mean, I'm just trying to get my hands around this, if those companies -- using our metrics, roughly we got $12 million or $30 million to $37 million. It's almost like you're including much more, what other companies don't count that's corporate, I mean, is there more shared services in that 30 to 37 days (sic) [$30 million to $37 million]?

Yes. It was very hard to compare sort of apples and apples with where other people are on that and you also get -- a percent of revenue things can get distorted as companies get much bigger than us, right? So we could operate the size of our business at that $35 million shared services level if we had -- the TV stations were twice as big as they are, we wouldn't be changing that number much. So there's a scale factor in here as well.

Craig the biggest -- I mean, just so everybody understands, the biggest factor there are our digital investments and that seems like the best way to account for them. So it -- that's why we call it shared services and corporate because its more shared services than corporate, but we're very enthusiastic about the digital investments, we'll just have to make sure that you all sufficiently understand what that looks like aside from what you might call corporate.

I'm sorry to keep going on about this, but the $30 million to $37 million number, you're talking that for 2011 of the 2012, and if I look at a company half your size, General Communications, again they only booked, call it $7 million, $8 million of what they consider corporate. What else do you -- I'm sorry, what else do you guys have in there in terms of shared services other than this digital program that you're rolling out here? I mean, there is, obviously, a lot of other stuff in there other than just pure, pure corporate, right? I'm just trying to figure out what is that stuff.

Craig, we can dig through that for you. A lot of companies choose to charge a good bit of their stuff out into the field and into the divisions or local operations. There's often a big difference in the way companies look at it. You just -- you'd really have to dig in company by company and see what it is.

A lot of those shared service costs are IT costs and some companies choose to keep those as a shared services like we've done and other companies have more decentralized operations where the IT costs are specifically dedicated towards the segments.

At this time, we're showing no further questions.

Thanks, Sean. Thanks, everyone for joining us. Have a good day.

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