Scripps Splits: Newspapers, Cable Form New Companies

Ten months ago, a top Scripps executive gave a much-publicized indication that the company was eager to split its slow-growth newspaper assets from its blue-chip cable networks HGTV and Food Network. On Tuesday, the company said it would do so. Investors applauded the news Tuesday, sending Scripps shares up nearly 9% in midday trading to the $46 range.

The 130-year-old E.W. Scripps will divide itself into two publicly traded entities--expected in the middle of next year--that will allow a focus on national and global growth with one operation, and offer a hyper-emphasis on local media with the other.

One company will keep the E.W. Scripps moniker and include newspapers in 17 markets, along with 10 local TV stations (accounting for some $1.1 billion in annual revenue). The other, in a nod to the importance of new media, will take the name Scripps Networks Interactive, and will include the two flagship cable networks plus three others, and two Internet shopping search businesses (for some $1.4 billion in revenue).



Scripps CEO Ken Lowe said Tuesday on a conference call that the strategy behind the split is "a clear vision of how best to build on the specific strengths of our national and local media franchises." Lowe will head Scripps Networks, and E.W. Scripps COO Rich Boehne will lead the new company carrying that name.

Scripps may have been able to take a similar tack to what Belo did recently, creating a pure-play newspaper-based company. (Belo split its print operations from its TV businesses. Instead, it went with what it believes is a global-local divide as its modus operandi.

On one level, it's surprising that Scripps opted to keep its 10 local stations bundled with the newspapers, since executives have said repeatedly that the stations provide value as far as helping generate retransmission consent dollars in negotiations with MSOs for carriage of its cable networks. (Also, newspapers are considered one of the slowest growth areas in the media landscape.)

But at least in the near term, Lowe said any value regarding retrans leverage would be minimal, since most of the current deals with cable operators are locked in for years going forward. MSOs are increasingly willing to pay more for added programming options, such as HD and VOD versions of networks like Food Network and HGTV.

Among the goals for Scripps Networks Interactive are what Lowe called "modest-size acquisitions" in the Internet space related to its TV networks--such as its recent purchase of Also, investing in more "high-quality original programs" for the networks. There's also the opportunity, he said, to grow its three smaller digital cable networks--Fine Living, DIY and GAC--which he said are approaching the 50-million subscriber mark.

"There's still plenty of runway left for these emerging businesses ... and solid programming schedules will be keys," Lowe said.

Globally, programming from the networks is expected to continue to have resonance abroad--and Scripps Networks Interactive, Lowe said, will place a renewed focus on building its two Internet shopping portals: Shopzilla and uSwitch, which is based in the UK.

On the E.W. Scripps side, Boehne indicated the company would look to provide shareholders with the opportunity to invest in local media--an area that has an uncertain future with Internet competition, but which Boehne said can capitalize on the new-media evolution. Opportunities would include building robust Web sites and mobile offshoots of the flagship brands and taking advantage of consumer interest in news in their communities.

The new E.W. Scripps represents a "faith in the long-term viability of the local media marketplace," Boehne said. "Platforms and business models will change over time--we know that--but local markets, we believe, will provide an enduring opportunity for making money and building value for shareholders," he added. He noted that the newspaper and TV assets are located in areas with notable population growth, including papers in Florida and California, along with stations in Phoenix and Florida.

Investors had thirsted for some sort of move that could potentially unlock the value of the cable networks. The split was foreshadowed in January when finance chief Joe NeCastro had said: "Clearly, the most advantageous route would be separating the newspaper business from the rest of the business." Scripps quickly backtracked, but a month ago, Lowe seemed to waffle on the split issue.

Any sort of spinoff possibility has been complicated by provisions in a Scripps trust--albeit murky ones--which Scripps' executives had pored over for some time as they looked for options. They seemed to indicate that the newspapers must always be a player in E.W. Scripps.

But Scripps family members have signed off on the split, and the trust will control both companies. Both will be based in Cincinnati, even though the hub of Scripps Networks Interactive will be in Knoxville, Tenn.--home base for the cable networks.

For the second quarter this year, combined revenues for the networks and interactive operations were $367 million, with segment profit at $170.8 million. Combined newspaper and TV station revenues were $250.5 million, and segment profit was $56.7 million.

While revenues (7.6%) and profits (9.2%) were up significantly for the cable networks versus the same period a year ago, the Shopzilla and uSwitch unit saw notable declines.

Newspaper revenue dropped from $182 million to $166 million, and segment profit was down to $33.2 million from $55.1 million. The TV station group experienced slight declines on both fronts.

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