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.
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.
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?
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?
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?
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?
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?
In some cases it is, and some cases it isn’t.
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?
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.
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.
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
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?
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.
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.
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?
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.
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.
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.
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.
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?
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.
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?.
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?
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.
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.
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?
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?
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?
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.
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.
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?
I could tell you in publishing the answer to that is, yes.
And in broadcasting that would be plus one.
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.
Actually, we typically haven’t done that, Craig.
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?
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.
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?
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?
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?
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.
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?
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.
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.
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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