Newspapers killing Scripps profit picture

Mick Gregory

When did newspapers make 20 percent profits?

The Scripps Co. owner of several newspapers and the popular HGTV channel, sent out a press release to stock analysts stating it is “talking about options” for its newspaper division, which is dragging down the company’s stock price.

“We’ve reached no conclusions, it’s fair to say,” Chief Financial Officer Joseph NeCastro said at an investor conference late Tuesday. “But we do believe that there probably is some value to be created in looking at a structural alternative there . . . maybe some form of separating the newspapers out.”

Scripps has built its cable-networks business, which includes HGTV and the Food Network, into the company’s leading profit generator. It’s now entering e-commerce with acquisitions of Web sites Shopzilla and uSwitch.

Scripps’ newspapers are slow-growth or no-growth. In the first nine months of 2006, the Scripps Networks division, which includes its cable business, posted a 17.8 percent gain in revenue. Meanwhile, its Interactive Media division, aided by the uSwitch acquisition, grew 408 percent.

Newspapers, which account for less than 30 percent of the company’s revenue, saw sales drop by 0.1 percent in the same time period.

Compared to broadcast television, “Newspapers seem to be much more troubled, and it’s hard to call a bottom there,” NeCastro said. “I think up until this last year probably it wasn’t that clear. I think we collectively feel like there is some damage.”

The newspaper industry is in a death ride. The Knight Ridder chain sold itself last year after investor pressure, and the Tribune Co., which paid more than 8 billion dollars for Times Mirror, is now being pressured to break up its newspapers, especially by the Chandler family, (former owners of Times Mirror), to boost its stock.

Scripps’ comments cheered Wall Street, with analysts from Merrill Lynch and Goldman Sachs publishing positive analyses Wednesday. Scripps stock hit a 52-week high, closing up 3.8 percent to $51.92.

“We were positively surprised by the company’s comments, which indicate that management has given more serious consideration to this possibility than we had previously thought,” Goldman Sachs analyst Peter Appert said. “Elimination of the newspaper unit would meaningfully enhance the company’s growth prospects and likely translate into a higher valuation for the shares.”

Scripps has daily and community newspapers in 18 markets, including Denver; Memphis and Knoxville, Tenn.; and south Florida. Scripps is a 50-50 partner with MediaNews Group, the owner of the Denver Post, in the Denver Newspaper Agency.

Scripps executives did not say an investment banker has been hired to assist in the deliberations. But NeCastro said the company’s board has spent “a fair amount of time” discussing options.
One possibility is a spinoff, in which Scripps shareholders would receive shares in a new, “pure play” newspaper company. Investors could then choose to sell the newspaper company shares and stick with the higher-growth, new-economy Scripps — or vice-versa.
“We believe (Scripps) could spin out its non-newspaper businesses, could sell most of its papers, or likely pursue many other scenarios,” Merrill Lynch analyst Lauren Fine said.

— David Milstead, Rocky Mountain News