• by David Goetzl  @dgoetzl, January 11, 2007

E.W. Scripps Co. wants to heighten value for its booming cable networks on Wall Street, so it gave a strong indication this week that it's eager to shed its flagging newspaper business, perhaps through a spinoff or sale.

"Clearly, the most advantageous route would be separating the newspaper business from the rest of the business," said Joe NeCastro, executive vice president-finance and administration at an investor conference.

Scripps operates newspapers in 18 mid-size markets, such as Albuquerque, Memphis and Denver.

With third-quarter revenue for newspapers growing at less than 1% versus a year ago, compared to the nearly 20% jump for Scripps' cable nets, which include Food Network and HGTV, NeCastro said the company expects further struggles for print--but it is unclear how severe this will be. It's "hard to call the bottom there," he said.

Merrill Lynch analyst Lauren Rich Fine wrote this week "that some investors are hesitant to own the stock due to the newspaper business, regardless of the faster overall growth rate." (Still, in midday trading Wednesday, Scripps' stock price was at a 52-week high.)

Scripps has been in a decade-long push to transform itself from an "old media" operation focusing on newspapers and local broadcasting to one that emphasizes higher-growth cable networks--and more recently, their companion Internet operations and other online ventures.

Currently, a corporate structure in which a family trust requires the company to maintain some newspaper ownership could challenge a divestiture process, but company officials said they were confident they could find a way around it.

"We like the newspaper business--I just think we're pretty realistic about where it is and where it's going," said Ken Lowe, president-CEO.

While the company appears primed for a "deconsolidation" of its print operations, it gave no indication that it intends to pursue a similar strategy for its slower-growth local TV station business, which includes 10 stations in markets such as Detroit, Kansas City and Baltimore.

Despite Lowe's comments that "we're not wedded to the television station business forever," and private-equity firms seemingly chomping at the bit to acquire stations, company officials said the stations give them leverage in carriage negotiations with cable and satellite operators. Plus, they set a record for political ad dollars during the 2006 political campaigns.

Meanwhile, the company remains bullish on the continued growth of its five cable networks, which saw an 18% jump in ad revenue in the third quarter (to $192 million).

Lowe said the current scatter market is yielding CPMs at double upfront pricing levels, while companion broadband channels continue to sell out inventory, where limited avails can hardly keep up with demand. Scripps owns the rights to 98% of its content, giving it opportunities to migrate it to emerging platforms, such as mobile devices.

Also, he added, viewers' increasing use of DVRs and resulting eagerness to skip commercials "hasn't been an issue" for the networks, which also include DIY, Fine Living and Great American Country. Here, unlike scripted entertainment programming, viewers are less likely to record and view in a time-shifted fashion.

The narrowly focused lifestyle networks often air ads that match the programming, reducing the likelihood of zapping. For example, an HGTV show about kitchen repairs with "a spot from Kohler sinks is not necessarily a negative. In some cases, [it] can be viewed as an enhancement or information."

Finally, the industry is increasingly adopting single-sponsorship programs--such as the recent Rose Bowl parade on HGTV sponsored by MasterCard--and Lowe expects more innovative DVR-proof advertiser integrations to arise.

"We're in the first or second inning of this whole TiVo-PVR (also called DVRs) era. I think if you look at the creativity of our industry, we'll figure out new and better ways to involve advertisers as sponsors."