Fourth Quarter and Full Year 2005
Earnings Conference Call
February 1, 2006
Ruthellyn Musil, Sr. Vice President/Corporate Relations
Thank you, operator, and good morning, everyone.
Welcome
to Tribune’s conference call to review our
2005 fourth quarter and full year results. Our opening remarks
will be brief in order to leave plenty of time for questions
and be finished within the hour. Speakers this morning will
be CEO Dennis FitzSimons; and Don Grenesko, our chief financial
officer. John Reardon and Scott Smith, heads of our broadcast
and publishing groups, will join the Q&A session.
Turning
to our press release, which we hope you had a moment to take
a look at, Tribune’s fourth quarter diluted
EPS of $0.43 and full year diluted EPS of $1.67, both on
a GAAP basis, includes several special items. Our release
contains the information that will enable you to make a meaningful
comparison to First Call estimates. Before turning things
over to Dennis, just a quick reminder that our discussion
may include forward-looking statements that are covered in
greater detail in Tribune’s SEC filings.
Now here’s
Dennis.
Dennis FitzSimons, President, Chairman and CEO
Thanks,
Ruthellyn, and thank you for joining us this morning. We’ll
cover both our 2005 results and a brief look at the year
ahead.
But first, some positives from a difficult
year. In 2005 overall, we saw good revenue growth in several
of our newspapers led by our Florida papers and Chicago.
Interactive was strong, with revenues up 43% overall and
CareerBuilder revenues increased 75%.
Revenues from our interactive
operations totaled $180 million. If you add our share of
revenues from joint ventures such as CareerBuilder and Classified
Ventures, which are not included in consolidated revenues,
this category totaled nearly $300 million in 2005.
Also in
publishing, color press installation was completed at the
L.A. Times and more color capacity will come on stream in
Chicago and South Florida in 2006. That positions us well
for the future. As you know, color advertising carries a
significant premium because of high demand from advertisers.
Our
targeted publications amNewYork, RedEye and Hoy, are showing
good growth. Just last week the New York edition of Hoy converted
to a free model and we expect increased distribution and
readership as a result. In Chicago, RedEye’s
competition has folded, and we expect both RedEye and amNewYork
to turn cash flow positive in 2006. Between these three publications
we reach 3 million readers a week.
Circulation revenue trends,
while still down, improved significantly throughout 2005;
and we continue to make progress toward our goal of stabilizing
individually paid circulation. Those are the copies that
matter most to advertisers. During the fourth quarter, individually
paid circulation was essentially flat on Sunday and down
2% daily.
In TV, our morning news performance was solid
in November book. KTLA’s Morning News continues to rank number
one in Los Angeles among all newscasts. And Chicago, WGN’s
Morning News was number two in all key demos. We also continue
to see growth in Denver, New York, and Seattle in what is
an increasingly important day part to advertisers.
Education
and financial services were strong categories for TV, and
movies finished the year on a positive note. However, given
the overall revenue picture, we increased our emphasis on
cost control and took a number of steps in the fourth quarter
to further reduce expenses and increase efficiency. Some
of these actions outlined in our press release resulted in
special charges, and Don will review them in a moment.
Excluding
the charges, our local media businesses generated EBITDA
of over $1.4 billion. We converted over half of that to free
cash flow of nearly $800 million. At our current stock price,
that’s about an 8.5% yield. Most of that
cash was used to return capital to our shareholders. We repurchased
more than 12 million shares and paid out about $230 million
in dividends.
On that note, let’s go to Don, and I’ll
be back with a look at 2006.
Don Grenesko, Sr. Vice President/Finance
and Administrator
Thanks, Dennis, and good morning, everyone.
Let
me start with some fourth quarter specifics. On a GAAP basis,
diluted earnings per share of $0.43 compares to $0.67 in
the fourth quarter of 2004. Consolidated revenues were down
5% to $1.4 billion. Consolidated cash expenses excluding
special charges were up less than 1% as higher newsprint
and broadcast right amortization expense was largely offset
by lower compensation.
Fourth quarter results included the
following special items. A charge of $45 million, or $0.09
per share, related to severance for reducing staff across
the Company by approximately 900 positions. The bulk of the
reductions came from our publishing group, with the largest
reductions at the Los Angeles Times and Newsday.
Second, there
was a charge of $22 million, or $0.04 per share, for the
shut down of the Los Angeles Times San Fernando Valley printing
plant. This charge includes
$16 million of accelerated depreciation for old presses and
equipment and $6 million of cash expenses. We are evaluating
whether we will use one of the newer presses and 12 color
towers at other newspaper facilities. Importantly, this plant
shut down and the 900 position elimination I mentioned will
result in annual savings of approximately $55 to $60 million.
The
third special item was a pension curtailment gain of $18
million, or $0.03 per share, that resulted from replacing
certain defined benefit pension plans with a defined contribution
plan. This should allow us to better control our retirement
expenses going forward.
We also recorded a non-operating loss
of $20 million, or $0.04 per share, associated primarily
with the change in fair value of our phones and Time Warner
stock.
Now let’s take a closer look at our publishing and
broadcasting groups. Publishing’s revenues in the fourth
quarter decreased approximately $25 million, or 2%, to just
over $1 billion. Publishing cash expenses, excluding the
special charges, increased 1%. Newsprint and ink expense
rose 6%, as higher newsprint prices were somewhat offset
by lower consumption and a switch to lighter weight paper.
Advertising
revenues were down 2% for the quarter, reflecting declines
in retail and national advertising. Preprint revenues declined
3% as a 9% increase at Los Angeles was more than offset by
a 24% decrease at Newsday. You’ll recall
that last year we severed a relationship with a preprint
distributor for Newsday because of an ethical breach. Excluding
Newsday, preprint revenues were up 1%.
On the positive side,
we continue seeing double digit increases in help wanted
and real estate categories.
Circulation revenues decreased
by 4%, primarily due to volume declines at most of our newspapers
as well as selectively higher discounting. This was an improvement
over the 8 to 9% declines we saw in the first three quarters
in 2005. Broadcasting revenues at $343 million were down
11% compared to the fourth quarter of 2004. Cash expenses
for the group were up 1% due largely to higher broadcast
rights amortization expense.
Turning to our equity line, income
was $21 million for the quarter, up slightly from
$20 million a year ago. The increase is largely due to additional
equity income from our interest in the TV Food Network. As
a reminder, we are no longer recording losses for the WB
Network as our book investment has been reduced to zero.
Also, we have no equity interest in the CW Network, which
will launch in the fall.
And with that, I’ll turn it
back to Dennis.
Dennis FitzSimons
Okay. Thanks, Don.
So you can see we’ve
taken steps to improve our expense picture for 2006. And
each of our units will continue to look for opportunities
as the year progresses. But we started the year with two
very positive developments.
First, Newsday labor settlements.
We agreed to four year contracts with six collective bargaining
units at Newsday. And terms of the new agreements include
position eliminations, work rule improvements, greater sharing
of healthcare costs, and a switch to a less costly defined
contribution retirement plan. We expect savings of approximately
$7 million in 2006 and more than $10 million annually in
future years.
Our most recent positive development is last
week’s
announcement of the new CW Network, a 50/50 joint venture
between Warner Brothers and CBS. As you know, the WB and
UPN will cease operations in the fall. 16 of our 19 WB stations
have agreed to ten year affiliations with the new network,
and this is a great move for Tribune for several reasons.
First of all, stronger programming. Starting in September,
we’ll have an improved primetime schedule, effectively
the best of WB and UPN. Plus we’ll have the development
capabilities of two large successful TV studios. Greater
investment in programming will result from better overall
distribution because of a stronger station lineup that will
lead to high ratings for the network. And the network will
also have reduced operating costs because the CW will operate
off the CBS television network’s infrastructure, effectively
a network duopoly. So these higher ratings will mean increased
revenues for both the network and the affiliates.
The 10-year
affiliation agreement has significant economic value for
us. First of all, primetime program costs will be predictable,
locked in. We get shielded from the economic uncertainty
of the network business, and while the WB has been great
for our stations, had we and Warner gone forward alone, we
would have had to fund significant losses. Now maybe the
most important point here is that one of the 50% owners,
CBS, also will own 12 CW affiliates. This ensures the alignment
of the stations’ interests and the network’s
interest. And CBS certainly is going to have very strong
incentive to put a great lineup on the air.
Now this also
means we’ll be back in the independent
station business at three of our stations, Philadelphia,
Atlanta and Seattle. And a couple of key points here. First
of all, the stations gain additional advertising inventory
to offset lower ratings. And while we’ll have new programming
costs, part of that increase will be offset by the elimination
of reversed compensation that would have been paid to the
network. A third point, there was lots of activity at NATPE
regarding this newly available real estate; but that’s
going to take a while to shake out to see exactly what happens
to primetime programming in a lot of markets that are going
to have time periods available. One other point to note here
is in this negotiation, we’ll have independents in
Philadelphia, Atlanta and Seattle, but we held on to the
affiliation for this stronger network in Boston, Dallas,
Miami and New Orleans where we also have overlap with CBS.
Now
turning to publishing, interactive will again be a key driver
of our growth. CareerBuilder continues to gain market share
in the U.S. and is looking to expand overseas. Topix.net
has tripled its monthly unique visitors to 3 million since
we acquired it last March, along with Gannett and Knight
Ridder. And another priority is to accelerate the growth
of Shoplocal.com in the online retail category.
Now looking
ahead in publishing in some key advertising categories, in
national, automotive should show growth driven by domestic
manufacturers. Transportation should be up with the airline
category gaining strength, and we should see continued growth
in financial, while movies will be again difficult to forecast.
The department store category will be challenged by consolidation,
although we may have a positive impact in Chicago with the
rebranding of Marshall Field’s
to Macy’s. Preprints will benefit from increased targeting
and zoning capabilities, although overall growth will be
slowed by Newsday. In classifieds, we expect continued growth
in recruitment in real estate, but auto classifieds will
be challenged. January is off to a better start in publishing
with ad revenues basically flat compared to the same period
last year, which was up nearly 4%.
On the broadcast side,
first quarter has improved from the fourth quarter; however,
we do expect some weakness in February as the Winter Olympics
drain money from many of our markets. Pacing for several
of our key categories is strong in particular telecom and
the education category. Movies are rebounding due to favorable
comparisons to last year and a 30% increase in scheduled
releases for first quarter. Also, the move from kids’ animated
programming to off-network dramas and sitcoms on weekday
afternoons is a positive for our WB stations. They’ve
been able to increase rates significantly in the Monday through
Friday 3:00 p.m. to 5:00 p.m. time period. Also our Fox stations
are off to a solid 2006 fueled by the success of "American
Idol" and "24",
and the group is pacing positive for the quarter despite
losing the Super Bowl this year.
So overall, as we move into
2006, we’ve got our cost
structure in line to reflect what have been challenging revenue
trends. Now our priority is top line growth. Now we’re
ready to take your questions.
Questions and Answers
Lauren Fine, Merrill Lynch
With
all the head count reductions that you’re making
from on outside position looking in, it looks very reactive.
Is there a semblance of a strategic thought process of sort
of how you need to reengineer the publishing business and
view of the Internet and your successes there, and are the
head count reductions being made sort of with that thought
in mind?
Scott Smith, President/Tribune Publishing
We very much are focused on how we overall
reengineer our cost structure in publishing to take advantage
of our scale both within our local markets and across our
markets. We think the progress we made last year was smart
progress where we were taking advantage of scale. A number
of the changes we made were tied to technology and greater
resource sharing across the group. And we continue to pursue
that path to take advantage of similar dynamics moving forward.
Dennis
FitzSimons
Just a couple of points to expand
on that. When you say reactive, the game is changing. We’re investing in
sales systems that are giving us new e-commerce capabilities
that will be common across the group. We’re also investing
in a new editorial system which will be common across the
group which will enable greater content sharing in a more
efficient way. So we’re looking forward and we’re
using our size and investments in technology to better position
us and better structure our costs to continue to deliver
quality products at the same time as we reduce costs.
Lauren Fine, Merrill Lynch
And
then just on the broadcasting side, you noted that there
was an increase in program amortization in the fourth quarter.
I’m wondering if you could tell us what the percentage
increase was? And for ‘06, you’ve said that’s
likely to be up mid-single digit, and I just want to know
if that’s going to be first half weighted and if that’s
changed at all in view of the CW announcement?
Dennis FitzSimons
The
fourth quarter was about 10% on the program amortization
line, and that was because of the premiere of "Sex
and the City" on our stations and also "My Wife
and Kids" on a number of our stations. Now, going forward
into 2006, we’ll see mid-single digits.
Lauren Fine, Merrill Lynch
Right. I guess the question there was, will
that be presumably first half weighted? So higher increases
in the first half, but lower in the second half?
Dennis FitzSimons
It’s about even. It’s not heavily weighted.
Might be a little more, but not heavily. We’ll have
"According To Jim" premiering in the fall.
Lauren Fine, Merrill Lynch
When
you look right now at the landscape of what traditional media
companies have been doing, some have made some pretty large
interactive acquisitions and you’ve made some
comments over the last few months that would suggest that
maybe this is something that you’re looking at as well.
Would you consider some type of a large, interactive acquisition,
and are you just, even philosophically, looking at acquisitions
right now?
Dennis FitzSimons
What we’ve said, and what we’ll continue to
say, is that we’re looking to expand that part of our
business. We’ll look for acquisitions on our own; or
as we’ve done very successfully with our partners,
sort of the network affiliate-type model where multiple partners
invest in a network-type operation and get the advantages
at our local newspapers. The equivalent of affiliates. So
we’ll look at both types of acquisition.
William Bird,
Citigroup
I was wondering if you could talk a little
bit about strategies for improving top-line performance at
L.A. Times, and also if you could just discuss what you’re seeing in online
ad pricing in ‘06?
Scott Smith
At the Los Angeles Times, we’re very focused on dynamics
within every advertising category there and how we best position
the Times and its high-quality, broad-reach readership and
the value of that to advertisers. We have significantly also
revamped the sales force there. There’s new sales leadership
in almost every category and they are very focused on how
we both improve revenue and improve share in Los Angeles.
An example would be in recruitment, where we are growing
at very healthy rates in Los Angeles now, have significant
market share upside and where we’re working with CareerBuilder
to expand significantly our sales force and are seeing great
results in that category .
William Bird, Citigroup
I was kind of curious
kind of what rate of increase you’re
seeing, like, across your sites in ‘06, and maybe if
you could just put that in the context of what you saw in ‘05.
Tim
Landon, President/Tribune Interactive
Well, Bill, I think
just generally you have to go segment by segment. But I would
just say simply generally across all our advertising lines
in interactive, pricing is creeping up. We have more pricing
power, and we’re seeing that
consistently. So I would say whether it’s from the
classified advertising space or the run of site space, rates
are going up.
William Bird, Citigroup
Appreciating that’s
tough to put a point estimate on it, just in terms of range,
is it double digit?
Tim Landon
In some cases it is, and some cases
it isn’t.
Scott Smith
The highest increases, Bill, would
be in the recruitment category, again, where we’ve
got great momentum.
Douglas Arthur, Morgan Stanley
Scott, I’m
wondering if you can just take us back and review this preprint
issue at Newsday. In theory ,had you not had that, I would
have expected Newsday to be showing some ad revenue growth
at this point, given the comps. But this issue seems to have
gotten deeper and worse than anticipated, and when do you
see it resolving and how are you going to resolve it?
Scott
Smith
To recap, in the second quarter last year,
we terminated a relationship with an outside sales agent
because of an ethical breach -- essentially payment of money
to an executive we terminated that was undocumented that
that agent claimed was a loan, but without any documentation.
So we terminated that relationship. This company was in effect
representing us to major food and drug advertisers, and a
number of those clients chose to take their business to a
competing operation that he started up. That’s the
reason for the significant decline that essentially started
beginning of the third quarter. We are very focused on regaining
those food and drug customers. Explaining the quality of
our reach both in paper and our TMC distribution both on
Long Island and in the boroughs of New York City and are
optimistic that over time we will regain those customers.
But the pace of that progress is, frankly, hard to predict.
We are focused on it, but it likely will take sometime to
regain that business.
Dennis FitzSimons
Doug, this is a residual
impact of us cleaning house at Newsday. What prior Newsday
management had allowed to happen was a sales agent getting
in the middle between the newspaper and its customers. And
that will not happen again. And we’re
feeling the impact from that. So as Scott said, total focus
is on getting those accounts back and making sure we don’t
lose any other accounts. We will cycle through a fair amount
of that by the middle of 2006.
Scott Smith
That’s correct. And then in terms of the rest ad revenue
in Newsday, it’s performing reasonably well. So what
you would expect there is occurring. It’s just hidden
by this preprint dynamic.
Douglas Arthur, Morgan Stanley
So can you ballpark
the impact of this on the overall revenues of Newsday? Thanks.
Scott
Smith, Tribune
Well, like we said in the release, the
preprint revenues there were down 24%, some figure about
like that in the fourth quarter. In the second half of the
year it was about
$12 million.
Alexia Quadrani, Bear Stearns
First, could
you review what type of ad rate hikes you’re
expecting at your major papers in ‘06? And based on
preliminary discussions with your advertisers, maybe any
feedback from them or your sentiment in terms of your likelihood
of being successful with those rate hikes? And the second
question is, we saw some nice improvement in your circ numbers
in the fall in the ABC audit. Can we expect similar improvement
or what can we expect in March?
Scott Smith
So
on rate cards it, again, varies a lot by category and also
by paper, anywhere from some categories like classified auto
that in some markets are pretty flat to some categories up
6%, and that’s before color premiums where we’ve
increased our color capacity. In terms of negotiations with
major advertisers, the fact that we have made so much progress
in stabilizing individually paid circulation, our readership
story is good. We offer this array of product choices in
our markets. All of that is appreciated. That said, it’s
always a negotiation with them; and with large clients, the
likelihood you end up with something less than rate card
increases is high. I’m encouraged by what I’m
hearing from our sales people about how major revenue contracts
are settling in, in terms of the negotiation that occurs
about this time of year. But, again, particularly with major
retailers, where their fiscal year is just ending a number
of those contracts, as is normal, haven’t been finalized
yet. On balance, I would say we’re in a healthy, relatively
normal environment in terms of negotiation of revenue contracts.
In
terms of circulation, we’ve made a lot of progress
-- you saw the figures, and Dennis highlighted them in terms
of individually paid circulation. You will see continued
progress in March on individually paid. You will also see
the other paid category continue to be down as we manage
down hotel copies, third-party sponsored copies, NIE, et
cetera, that have value in select cases, but less value to
advertisers than home delivery and single copy. On home delivery,
I would say the story is very positive there in Los
Angeles, Chicago, and in Newsday’s core Long Island
market. Home delivery circulation is up year-over-year.
Dennis
FitzSimons
And on that other paid category,
a point to mention here might be that Orlando, which had
our best growth rate in ’05,
did a significant reduction in the other category, eliminating
just about all of their hotel circulation. So with proper
communication to advertisers, we managed that number down
to improve the expense picture and also saw advertising growth
at the same time.
Scott Smith
We also are telling our readership story, using
Scarborough in most markets, but Gallup research in Chicago
and Los Angeles. The fact that readership was up in Orlando
in this period was a really compelling fact.
Steven Barlow,
Prudential Equity
Could you give us L.A. advertising
revenues by quarter in 2005, please. And secondly, I’m still trying to understand
a little bit the television revenue picture. I’m not
sure you can blame the whole thing on the WB. So I’m
interested in sort of your news ratings. Sex and the City
had a lot of hype before you put in on the air. We, frankly,
haven’t heard much about it since. Did the ad revenues
not meet your expectations there?
Scott Smith
Okay,
L.A. Times ad revenues last year by quarter up 3, up 1, flat,
down 3. And they actually had a good October and then ad
challenges, particularly in movie category in November and
December. Wireless was impacted there more late in the year
than our other markets and they saw a greater dip in auto
classifieds in many of our markets, too. We’re
working on all those issues. The trends other than movies
in period one are better in L.A. and we’re optimistic
we will have an improvement in their momentum as this year
progresses.
John Reardon
Steve,
from a broadcasting side as far as news is concerned, last
year news revenue was actually up. "Sex and the
City" stabilized late fringe. The area still of concern
for us is early fringe, it’s the area that’s
impacting us. But overall, things are stabilizing.
Dennis FitzSimons
As we’ve told you in prior calls, primetime represents
about 17% of our revenues. Then what we saw with the big
local people meter impact and with "Friends" getting
a little bit older, in terms of the number of years it’s
been on the air in syndication, that’s what caused
the early fringe issue last year.
John Reardon
On a positive standpoint early
fringe, Steve, we’re
out of the kids business 3:00 p.m. to 5:00 p.m., and net
revenue’s up substantially already in the first quarter
going to adults, and we’re very pleased with that.
Dennis
FitzSimons
We, to a fairly large degree in four of our
markets, New York, L.A. and Chicago plus Boston, cycled through
the impact of local people meters. The New York market itself
is strong and our station is in the plus category for first
quarter, and New York was the second market to go into LPMs
after Boston. So we think that’s a real positive development.
We’re seeing news increases or improvements in our
news ratings in New York. So that’s a positive there.
The second wave of LPMs in those markets would include Philadelphia,
Dallas, Washington have not been hit as hard, particularly
Washington. We’re on the upswing in Washington, and
continue to be. That’s been a terrific growth story
for us.
Frederick Searby,
J.P. Morgan
First, one of
your competitors yesterday was saying that out of the box,
auto’s improving. It’s obviously
been a tough, tough category on the classified side and I
wonder what your thoughts are for this year on classified
and national automotive, given the concern there and the
way it’s been trending. In January are you seeing some
kind of expectation of an improvement? And then secondly,
if you could just update us on the entertainment category?
And then maybe a curve ball question, but on the CW, have
you fleshed out the affiliate relationship as the network
launches digital ventures, what the economic relationship
will be and how that will work?
Scott Smith
So
on the auto category, in period one we saw slight improvement
in the auto classified and very good growth in the manufacturer
revenue in national. If you look at the couple combined,
we’re down 3%. And in many ways, you’ve got to
look at the manufacturer spending plus the local dealer spending
together because frequently the dealers hold back when General
Motors, Ford, et cetera, are promoting aggressively. We expect
the manufacturers, particularly domestic, to do that through
the year. It may be sporadic as it’s been in the past
years. We’re also working to get more business out
of the leading import auto manufacturers. In terms of the
local dealer business, it’s really hard to forecast
how they’re going to behave as the year goes on. But
again at some point we’re going to cycle the big declines
last year and should have easier running on a year-over-year
basis. We also, in automotive, are having great success selling
our internet product, Cars.com, and are getting really good
growth on that front.
Entertainment is largely movies, and there’s a combination
of factors at work here. One is you’ve got more releases
coming in the first quarter, but January was so much low
and so much depends on quality in the popularity of the movies
because it’s proven that the studios don’t advertise
as long on a movie that’s not making it as they used
to. We’ve also got the phenomena where the L.A. Times
basically gets a whole bunch of trade advertising in the
movie category and that’s driven both by Academy Awards
and other awards at this time of the year and just promoting
to the trades in Los Angeles. There we had a soft first period.
We expect a somewhat better second period and expect over
time that we will continue to get a really big share of movie
advertising, particularly in Los Angeles, which is about
two-thirds of our total movie revenue across the group. I
think you’ve seen at the New York Times similar softness
recently because they also serve this trade advertising role
like the Los Angeles Times does. But it’s hard to forecast.
They don’t commit far in advance, and that’s
part of the reason it’s been hard to give good guidance
on the movie category as they just aren’t committing
very far ahead.
Dennis FitzSimons
As far as the CW network
affiliate relationship, we feel good about where we came
out on that. So we will still have exclusive distribution
rights in our markets. We’ll
have the right to negotiate for retransmission consent rights
and generate value there. As far as digital rights go, we
think we reached a reasonable compromise there, and believe
there’s got to be some flexibility depending which
way this develops in terms of paid distribution, that kind
of model. The network does have certain rights there, but
we feel that’s a very reasonable tradeoff.
John Janedis, Banc of America Securities
When
do expect to start announcing some of the programming on
the independents and do you think that programming currently
is out there, or do you think it’s going to be new?
And then along those lines, do you think that those stations
can run at a margin, let’s just say the 37% or so that
the rest of your station group is running at?.
Dennis FitzSimons
I think, John, this will
be determined in the large markets. So with this shuffle,
you’ve got the Fox-owned stations,
what used to be the Chris-Craft stations, that will need
primetime programming. And we’ll have to see what happens.
But if there’s some kind of national service, I don’t
think it’ll be a full network service, but you might
see a few nights of programming that will be described either
as a network or some kind of barter service that we saw before
the launch of the WB and UPN back in ‘95. So it’s
going to take a while for the market to absorb these changes
and then figure out who’s going to step to the plate
and put some national programming there. But the interest
level at the NATPE convention was really high. People see
this as an opportunity, and so we can’t really give
you a good answer right now. All we know is that we’re
getting lots of calls from other stations that are interested
in what we’re going to do. So you can have a local
solution for this or some type of national solution that
might take care of a few nights and then you put other programming
in there, it’s just going to take a little while for
this to clear up.
John Janedis, Banc of America Securities
And
just typically I’m not sure what the answer is
in this or if you have one, but what is the gap in relative
ad rates between an independent and a WB-like station, meaning
you mentioned earlier that you’re going to be selling
all the ad time. What is the rate differential? And then
also I’m not sure if you mentioned this, if you did
I apologize, but what are the current pacings in the first
quarter for TV?
Dennis FitzSimons
We didn’t mention specifically
the TV pacings, although we are significantly better than
we were in the fourth quarter. January was stronger than
February, and then March looks better again. February we
do have some issues with the Olympics which is taking a lot
of money out of many of our markets. Let me mention one other
thing about the WB because we got asked this question when
we made the announcement last Tuesday, and that is, what
is this going to mean as you put the two schedules together?
And John Reardon has some numbers on that and particularly
in our big three markets. This is a very positive impact
for us.
John Reardon
This is very positive. If you
just do the straight math and you take the best programs
from both networks and kind of look at the schedule the way
we see it going forward, the ratings in adults 18 to 34 and
18 to 49 would be up anywhere from 25 to 35%. And substantially
higher in New York, Los Angeles and Chicago. And then on
top of that, you’ve
got to factor in the strength of the television stations
that they’re going on. For example, in Chicago, the
UPN affiliate does a 2.7 sign-on to sign-off share, where
WGN does a 6.4. KCOP in LA does a 2.3, KTLA does a 4.2. WOR
does a 2.9 and TIC does 5.4. Substantially increased. And
then factor in the supply side, as you talked about, and
it’s a very, very good move for us and everybody’s
very excited about this.
Dennis FitzSimons
Now as far as your question
on what happened, so there are lower rates but you have a
lot more spots to sell. You have the increased program cost
which is moderated by the elimination of reverse compensation
to the network. So, again, it all depends on whether we’re going to get national network-type
programming that is given to us on effectively a barter basis,
or we go out and buy cash programming to program on an individual
market by market basis. And that’s going to take a
little while to shake out.
John Janedis, Banc of America Securities
Okay.
And, sorry, just one question related to the comment earlier.
Do you have the same amount of minutes per hour with the
new network in terms what you’re selling?
Dennis FitzSimons
Yes, we do.
Lee Westerfield, Harris Nesbitt
Actually, I
just wanted to follow up on the question of the retransmission
fee potential out in the future. And the question is this,
across the CW portfolio that you have now, I assume that
there are rolling agreements over the course of the next
few years with local cable operators. So in which markets
generally would we be looking for negotiations to occur sooner
and which later?
Dennis FitzSimons
Lee, most of our negotiations
are on a group basis because we have overlaps with a lot
of the significant operators like Comcast and Time Warner.
There’s been such a consolidation
in the business that’s the way usually we will do it.
But we have found ways to generate value from our retransmission
consent rights whether it’s additional coverage or
distribution for the superstation, or our biggest success
really was in ‘92 with the launch of the Food Network,
where we’ve gotten that 31% interest basically for
launching it off the power of our retransmission consent
rights. So I would say our agreements still have several
years to go that we recently negotiated with Time Warner
in particular, Comcast also. So nothing immediate on that
front.
Peter Appert, Goldman Sachs
Scott, can you
tell us what portion of the revenues are locked in in advance
under these revenue contracts, particularly in the retail
and national categories?
Scott Smith
It would primarily, Peter, be in
the retail category. And out of total retail revenue of $1.3
billion, it’s probably
still something under half of that. But it would be approaching
half. I don’t have an exact figure for you, but it
would be in that range.
Peter Appert, Goldman Sachs
And then unrelated
issue, are there any labor agreements in ‘06 that we
should be anticipating?
Lauren Fine,
Merrill Lynch
We’ll have an upcoming negotiation in Baltimore. Scott,
why don’t you give a little color on that.
Scott Smith
The press contract is up in Baltimore
this spring. It’s
a relatively isolated event for us on the labor front. The
fact that we were able to successfully conclude negotiations
with six bargaining units all part of what’s now the
GCC that’s part of the Teamsters at Newsday, and get
that done early in the first week of this year really puts
us into position. So as Dennis said, with our costs in good
shape now, we can focus on top line growth.
Dennis FitzSimons
And, Peter, we had, through
our last negotiation in Baltimore, generated some real progress
in terms of flexibility with the unions in Baltimore. We
had inherited from Times Mirror some not very good contracts
down there, and we have gotten them into much better shape,
and we’ll look to make
more progress this time around.
Peter Appert,
Goldman Sachs
With the flow-through
benefit from the staff reductions in ‘05, is it possible
that total comp costs could be flattish in ‘06?
Scott
Smith
I could tell you in publishing the answer to that is,
yes.
Dennis FitzSimons
And in broadcasting that
would be plus one.
Don Grenesko
And those comments would exclude any option
expense that we would have next year.
Craig Huber, Lehman Brothers
This TV pace use
for the first quarter, are you against just quantifying exactly
where they stand? Are they down five? Are they flat for the
whole quarter? If you could just specify where your TV pacings
are for the first quarter, like you tend to do most of the
times around. That’s
the first question. Secondly, are you guys expecting to do
another restructuring charge anytime in 2006, and then I
have a follow-up.
Ruthellyn Musil
Actually, we typically haven’t
done that, Craig.
Dennis FitzSimons
Yes, Craig, we have not done
specific pacing on that because we’ve got people, as you would imagine, just asking
us to be more and more specific and we have gotten away from
that. We -- what we said was obviously fourth quarter was
a very difficult quarter for broadcasting as we cycled through
the impact of the LPMs. First quarter is better. We’re
starting to see a turnaround in New York and to some degree
in L.A. But we’re still seeing placement of business
very late. A lot of business being written in the month,
for the month, so we don’t like to get too far ahead
on pacing other than to say it’s better than it was
in the fourth quarter.
Craig Huber, Lehman Brothers
But does this
word "better" mean down 3, 5%
or does it mean up?
Dennis FitzSimons
It means better.
Craig Huber, Lehman Brothers
Better. And the other question, please, about
restructuring charge for next year, and then I have a follow-up
as well.
Don Grenesko
We are still looking at this and
still looking at our overall staffing levels so it’s possible that we could have
some additional restructuring charges. There could be one
at Newsday related to the union agreements that we just had
signed, and also on the equipment that we’re looking
at from the L.A. Times plant that we just shut down. We’re
assuming and evaluating whether or not we’re going
to use all that equipment at some of our other facilities,
but to the extent that we wouldn’t use all of the color
towers and the press, there could be some accelerated appreciation
write-off.
Craig Huber, Lehman Brothers
And then, lastly,
just back to CareerBuilder, can you just clear this up, if
you would. Is there a change of control provision in the
contract for CareerBuilder among the three partners where
if, hypothetically, Knight Ridder gets sold it would allow
yourselves and Gannett to buy out that one-third stake from
Knight Ridder, assuming a third party buys Knight Ridder
and that you guys have first rights at a fair market value?
Dennis
FitzSimons
Craig, there are confidentiality agreements
that come into play there. We prefer not to comment on that.
Paul
Ginocchio, Deutsche Bank
Thank you. I think on the last call,
Dennis, you mentioned you were looking at all your assets
and looking at all the opportunities. That recent agreement
with CW, has that changed your view on your overall asset
mix?
Dennis FitzSimons
Well, certainly having that
long-term agreement makes us feel better about primetime.
We think our broadcast properties have gone through this
adjustment to a large degree from local people meters. But
we have always felt that in the broadcast space there’s
going to be another form of consolidation and whether that’s
through trades, through establishing duopoly positions, we
still think a lot of that is going to happen, and we will
participate in that where it makes sense for us. As far as
the other assets that are frequently described as non-core,
we sort of look at our portfolio all the time. We do take
into account what is the tax hit that we’d have to
take? What is the cash flow that we would be losing? And
what would be positive from an EPS standpoint and positive
for our shareholders? So with the multiple compression that’s
taken place in the media space, selling assets at premium
prices right now is not as easy, perhaps, as it was several
years ago. So we’re
only going to do something, not from an under pressure standpoint
to just show motion, we’ll do it if it makes sense
for our shareholders. But believe me, we look at these things
all the time to see if we can generate shareholder value.
Brian
Shipman, UBS
Could you give us an update on the New Orleans
market performance and your two TV stations in New Orleans?
The TV performance in the quarter, what would that have looked
like excluding New Orleans, and what’s your outlook
for that market going forward?
John Reardon
The impact of New Orleans, it’s better than I anticipated
right now. The demand there is better. The impact -- it’s
about 1% differential if you factored New Orleans out of
the actual pacing. But there’s great demand down there
for news right now. Automotive is in demand. So it’s
holding up better than I anticipated, to be quite honest
with you.
Dennis FitzSimons
Yes. Initially, I’d say that probably in October,
revenues were 30% of what they were in the year past. And
now that’s 50 to 60%. So it’s still not pretty
but it’s better than it was and we were starting to
see more activity and obviously renovation, rebuilding, and
as John said, the automotive category, with so many cars
being put out of commission, is very strong.
Jacqueline Spring,
Thomas Weisel Partners
I was wondering if you could quantify
the impact you saw in ‘02 because of the Olympics.
I also was hoping you could give us newsprint usage and prices?
And then my last question is, do you have any idea what percent
of revenue your targeted publications contribute and where
you possibly see that going?
Scott Smith
We have over 40 targeted publications
that generate about $340 million of revenue a year. And we
see that continuing to grow at very healthy rates. Also on
targeting, keep in mind the role of preprints in that mix,
not just in paper but our growing total market coverage business
delivered largely through the mail.
Dennis FitzSimons
In terms of newsprint usage,
it might be better for Ruthellyn to get back to you offline
because you’ve got volume
differential, price differential, and different weighting.
We’ve got a lot of different factors on that one, which
would be complex to cover right now.
Scott Smith
Because we converted to lighter
weight paper that complicates that, as Dennis said, but if
you take comparable weight paper prices in the fourth quarter
were up about 11%, consumption was down 5 or 6%.
:: :: ::
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