E.W. Scripps Considering Alternative Strategies for Newspapers (Dinosaur Media DeathWatch™)

NEW YORK Wall Street's darling of the newspaper sector, E.W. Scripps, could be exiting the newspaper business.

Executives at the Cincinnati-based company stated during an investor conference on Tuesday they are evaluating different options regarding its newspaper assets, according to research analysts at Merrill Lynch and Goldman Sachs.

"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," wrote Goldman Sachs analyst Peter Appert. "Elimination of the newspaper unit would meaningfully enhance the company's growth prospects and likely translate into a higher valuation for the shares."

Scripps is one of the few companies in the newspaper sector rated a "buy" by several analysts. But it's not because of its newspaper assets; rather, over the past decade, Scripps made shrewd investments in fast-growing properties like the Food Network and Shopzilla.

Its newspaper division accounts for roughly 29% of the company's revenue while its network and interactive properties make up 42% and 12% revenue respectively.

By shedding its newspapers, Goldman Sachs estimates the "new media" businesses could account for 82% of earnings. "Strategically," wrote Appert, "the transformation of Scripps' business model would be dramatically accelerated."

Even so, Scripps newspaper properties tend to perform better than its peers. Goldman Sachs estimates EBITDA margins of 26% in 2006 and Scripps could fetch a multiple of 7 to 8 times 2007 estimated EBITDA for its newspapers.

Scripps owns the Commercial Appeal in Memphis, Tenn., and the Naples (Fla.) Daily News among other papers and is involved in a few joint operating agreements including the Denver Newspaper Agency.

While management is mulling a possible restructuring, there are some internal snags. Foremost are the conditions imposed by the Scripps Family Trust. Merrill Lynch analyst Lauren Rich Fine wrote there is a stipulation set by the family that requires newspaper ownership.

Yet neither Fine nor Appert view this as shutdown. Scripps could spin out its non-newspaper businesses or sell most of its papers, suggested Fine. And Appert mentioned management has already started talks with the family.

"Management's major concern is that the newspaper business could decline in value over time hurting the overall value of [Scripps'] shares," wrote Fine. "We would also not that some investors are hesitant to own the stock due to the newspaper business regardless of the faster overall growth rate."

Merrill Lynch maintained a "neutral" rating on Scripps noting that its cable network properties could be peaking in value.

http://mediaverse-memphis.blogspot.com/2007/01/more-on-scripps.html

On Scripps

(Pictured: Ken Lowe, Richard Boehne and Joseph NeCastro.)

It's anticlimatic, really, the confirmation that Scripps is considering selling all of its newspapers, including The Commercial Appeal.

The act itself is inevitable, so much so that to even say "I told you so" would be akin to asking for a medal that any person with a clue could receive. What stings is the denial -- self-produced and company encouraged.

Lowe and Boehne visited the CA last November. It was sort of a State of the Company address, but it was really the kind of presentation given to investors and analysts. It focused more on cable networks and dotcoms than newspapers and broadcast stations. The latter were mentioned as footnotes or benchmarks to how much Scripps has transformed itself.

In a room full of reporters, I wasn't the only one who noticed. I was the only one, though, who asked Lowe about that pressure from Wall Street to rid the company of its low-performing businesses like its newspapers. (No medals, please. I'm the only one of those same reporters who doesn't have a job.) Lowe acquiesced that there was pressure, but he puffed his chest at the whims of Wall Street.

He said Scripps was not interested in selling. He reassuredly talked about the Scripps Family trust, which mandates newspaper ownership. He said we were a family.

In hindsight, it was all an understandable lie, confirmed when Boehne made it absolutely clear that Scripps was not going to put a dollar into businesses that did not provide a return. That kind of writing has always been on the wall.

"It's in our DNA. We’re constantly looking at it, constantly thinking about the company. We managed to remake the company, if you will, or transform the company. It wasn’t that many years ago – around 2000 – 55 percent of our revenue came from our newspapers and now that’s less than 25 percent."

That's what Boehne told analysts at the 17th Annual Entertainment, Media & Telecommunications Conference in Las Vegas Tuesday. It's a version of what Lowe and Boehne told the CA last November. It's business, not personal (though it really is personal). But I digress.

NeCastro said any talk of deconsolidation is premature, but he also stressed that "it's a question that is being actively addressed at the moment." It would be unwise to interpret any possibility of no sale into that statement since NeCastro said the company believes that there is some value in having newspapers under a different ownership among other alternative options.

In response to an audience question, NeCastro said:

"It’s probably premature to talk about specific options. Although, we have spent a fair amount – probably too much time – looking at the wording in that trust agreement. We do believe that there is some flexibility there. And it wouldn’t preclude us from doing some sales. We certainly couldn’t get out of the business altogether if the company were configured the way it is. But there are other options. It’s again probably premature to talk about anything specific."

See, at the CA, the Scripps Family Trust is like the evergreen clause in the Guild's un-renegotiated contract; it's a thin line--or hurdle, as Boehne called it--that keeps the status quo in place. Don't trust it. There's the sting again; longtime Scripps journalists always thought they were different--protected, even--from the cable systems and radio stations that the company shedded long ago. Those parts weren't part of Scripps's proud newspaper tradition. Now, the print folks know better.

Even more sting, Scripps is inclined to keep its broadcast stations because they seemingly retain their value better and generate cash flow better over the long term. But Scripps isn't buying any more TV stations either, management said.

The sale of its newspapers is only a matter of time because Wall Street is pressuring management who is pressuring the Scripps family about the future of those troublesome newspapers.

Save your breath about the value of newspapers and how they are cash cows and public servants. Ken Lowe knows this, but he claims to be realistic, not bearish, about the future of newspapers. He told analysts:

"Clearly, we have a lot of free cash flow [from newspapers], but I think that’s probably oversimplifying it. The fact is, it doesn’t grow, right? It hasn’t grown. If anything, as you look out the prospects over the next five to ten years, it looks like it will continue to shrink. What we don’t want to do is have the company be worth less – even that segment of it be worth less ten years from now or five years from now than it is now. So, it’s a matter of value preservation and value growth."

He went on, adding that it's difficult to reinvest money into that environment. The company doesn't want to invest in a business that might generate even less cash a year from now. (Now, you know why the Guild hasn't had a raise in four years.) Nevertheless, Lowe admitted that Scripps is in some very good newspaper markets right now. He mentioned Naples, Fla. He mentioned Denver and its publisher. He didn't mention Memphis or Joe Pepe. He said:

"Gosh, if all newspaper markets were like Naples, we’d be talking a different story. We’re not in major newspaper markets. We’re in midsize markets and that’s kind of done well for us. Believe me, we’ve been aggressive. And I kind of want to go on record because Mark Contreras, who runs our newspaper group, has done an outstanding job... "

"...You know, we like the newspaper business. I think we have to be pretty realistic about where it is and where it’s going."

In five years, Lowe maintains, the media will be focused on delivering content over multiple platforms: cell phones, TVs and other broadband mediums. It's hard to dispute that logic when you look at kind of cell phones on the market today. It really does make it seem like people won't want a physical newspaper in their hands -- or stuffed in their closets, littering their floors, lining their kitty litter boxes -- anymore. (Hey, let's see a cell phone or Google do that last one! Go newspapers!) But I digress.

Scripps obviously still believes in keeping people informed-- about recipes, do-it-yourself projects, planting flowers and price comparisons on the Net--but that other stuff might be better left to someone else.

After all, it's true, LaQuisha: there's no money in journalism.

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