A SMOOTH HANDOFF AT SCRIPPS CO.

By: Lucia Moses

As CEO Passes Baton, Company Grows Cable, Web Assets





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by Lucia Moses



Six years ago, Kenneth W. Lowe was tooling around home-improvement
stores in suburban Cincinnati, chatting up customers about their
projects. He was conducting market research, even though he is in
no way connected to the retail chain. He was thinking television.
And he managed to convince himself there was a market for a cable
TV network for do-it-yourselfers.



He also managed to convince his bosses at the Cincinnati-based E.W.
Scripps Co., where he was working in the broadcast division. The
company decided to invest $75 million in what would become HGTV (Home
& Garden Television network), which now reaches 64 million U.S.
households. It later spawned the Food Network and made a star of
Emeril Lagasse and later yet the Do It Yourself network.



Not bad for an old-line newspaper company. Together, the three cable
nets comprise the company’s fastest-growing enterprise, with $229
million in revenue in 1999. The division, Scripps Networks, is
expected to contribute 18% of the company’s total revenue this year,
up from 11% in 1996.



The gamble also paid off for Lowe, whose category TV success propelled
him to the top of the company. He became president in January and will
become CEO Sept. 30, the eighth person to head the 122-year-old company.



The ‘light’ stuff



Lowe will take over a company with a rich history. In 1878, Edward
Wyllis Scripps, a 24-year-old from Rushville, Ill., took $12,500 and
started The Penny Press in Cleveland on the then-novel principle of
nonpartisan and straightforward journalism. ‘Give light and the people
will find their own way,’ was his motto.



He went on to start papers in cities such as Chicago, Dallas, Los
Angeles, and Philadelphia. When he died in 1926, Scripps controlled
more than 30 U.S. dailies and United Press International, once the
world’s leading news service. In the 1930s and ’40s, the company
branched out into radio and TV.



As reader preferences shifted to the morning cycle, many of Scripps’
evening dailies disappeared. Today, with the exception of the Denver
Rocky Mountain News, Scripps’ newspapers are confined to small to
midsize markets, mainly in the South and Midwest. One-fifth of the
company’s revenue comes from broadcast; licensing and other media,
primarily through its United Media unit, contribute about 7%.



Outgoing CEO William R. Burleigh started a new chapter in Scripps’
history. He listened to Lowe and led it into cable networks, spent
heavily to build a Web presence, and bought stakes in early-stage
Internet companies.



Scripps likes to point to Lowe as proof that the entrepreneurial spirit
that built the company is alive and well. Now, he’ll have to figure out
how to translate his accomplishments in cable to Scripps’ newspaper and
broadcast businesses.



‘This year will be by no means an easy one,’ PaineWebber media analyst
Leland Westerfield says. ‘He’s not building a new business from scratch.
He’s got to find a way to enliven the newspaper and television businesses
as he has the category TV business.’



Stock analysts are generally bullish on the company, with its stable
management, disciplined spending record, and category TV success. But
the stock has barely budged from a year ago, when it was trading around
$49 a share.



Scripps will have to get bigger to get the share price moving. While
consolidation is creating giants in the media business, Scripps lacks
scale in newspapers and TV; though it is the eighth-largest U.S.
newspaper company, its dailies are mostly middle- and small-market and
are not clustered, and only one of its TV stations is in a top-10 market,
WXYZ in Detroit. Elsewhere, it has eight other network-affiliated
stations, which are WFTS, Tampa, Fla.; WEWS, Cleveland; KNXV, Phoenix;
WMAR, Baltimore; WCPO, Cincinnati; KSHB, Kansas City, Mo.; WPTV, West
Palm Beach, Fla.; and KJRH, Tulsa, Okla. ‘I think they realize they’re
not big enough in TV,’ surmises Credit Suisse First Boston media analyst
Steve Barlow.



For now, the near outlook is bright. Operating revenue rose 10.8% to
$850 million in the first half of 2000, driven by rapid cable growth
and improved results in broadcast TV following a poor 1999. Scripps
Networks became self-sustaining this year, which will free up more cash
for acquisitions and investments. With six of its nine stations ABC
affiliates, Scripps expects improved network program ratings and
political advertising to drive broadcast division revenue up 7% to 10%
this year.



The newspaper division has been pummeled by losses in Denver, where
Scripps has been waging a long and costly battle with MediaNews Group
Inc.’s Denver Post. That could change next year if the government
blesses a proposed joint operating agreement (JOA). In the first half
of the year, Scripps’ newspaper operating cash flow was down 6.3% to
$126.4 million on revenue of $469.2 million. In May, Burleigh decided
to seek a JOA. Scripps won’t comment on earnings potential. Analyst
Barlow, however, looks for the News to lose as much as $20 million this
year, but begin to show profit in late 2001.



The company’s 31 Web sites are gaining scale, with page views up 42% to
329 million in the second quarter. Some of the sites are starting to
show profits, and Scripps sees little evidence that the Internet is
cannibalizing its newspaper classified revenue, which rose 7.7% to $78.3
million in the second quarter.



But sooner rather than later, the company will have to shrink its
Internet spending deficit, which will run about $10 million this year.
‘We’ve survived the first wave, but, hopefully, what it’s told us is,
there are some opportunities we need to take advantage of,’ Lowe says.



Milking the cash cows



Outside Denver, the newspapers have been the cash generators for the
company, with above-average ad revenue and profit margins. But newsprint
prices are rising, the retail advertising climate is shifting, and the
Internet looms.



To boot, three of Scripps’ papers are in the trailing afternoon position
in JOAs. Its next JOA to expire, in 2007, is with Gannett Co. Inc. in
Cincinnati, where Scripps’ Cincinnati Post has a daily circulation 65,000
to The Cincinnati Enquirer’s 197,000. Its other JOAs are in Birmingham,
Ala., with Advance Publications (expiring 2015) and Albuquerque, N.M.,
with the Journal Publishing Co. (expiring 2022).



The company is relatively protected by the Edward W. Scripps family trust,
which owns 84% of the company’s voting shares. Most of its 28 future
beneficiaries have signed an agreement giving right of first refusal to
other family members and the company if they decide to sell stock.



Lowe, who discussed his vision in an interview with Editor & Publisher at
his Cincinnati office last week, allows he’s willing to look at forging partnerships and entering new businesses to boost the company’s stock
price. But he rules out selling properties, citing the family trust, which
says that any merger would have to leave Scripps in control. ‘If cross
ownership was approved, we’d look at trades, acquisitions, in our newspaper
and TV markets,’ he says. ‘But it’s not our intention to let the company
get smaller.’



Lowe, who drives a Porsche Carrera 4, has a penchant for anything fast,
including the Internet. He plans to plow more money into technology as
he seeks ways to cross-pollinate the properties and extend them to the
Internet and wireless devices.



The company has begun delivering content from The Knoxville (Tenn.)
News-Sentinel to Palm Pilots, investing in bar-coding technology that
links newspapers to related content on the Web, and exploring the
possibility of creating personalized newspapers. Scripps Networks plans
to launch its fourth cable network next year, Fine Living, targeting
high-income viewers. As video on demand takes root, Lowe wants to create
networks with more narrowly focused niches and an interactive component.
He sees one day localizing HGTV through the newspapers. ‘We’ll have to
continually reinvent ourselves,’ he says.



All-around media man



Growing up on a tobacco farm in Westfield, N.C., Lowe, 50, inherited his
father’s voracious appetite for newspapers. Lowe says he goes through six
to eight papers a day. But it was radio that fascinated him as a boy. He
started at a station when he was just 10 and continued doing radio in high
school and college. He joined Scripps in 1980 as manager of its radio
properties.



Lowe concedes it was a ‘little tougher’ moving to a corporate role from
his hands-on job running Scripps Networks. There, he was known for his
‘Ken bombs,’ yellow sticky notes scrawled with ideas that he stuck on subordinates’ desks. But he believes his operating experience will be a
plus. ‘Many people in corporate didn’t do that, and I can be more
empathetic with the challenges of our operators,’ he says. ‘I realize
how tough it is to recruit and retain people today. I think the
corporation needs to be a little more helpful in doing that.’



Lowe, who’s only the second CEO at Scripps to come from the broadcast
side, has made overtures to the newspaper division to quell any concerns
that his TV and radio background will prejudice him against print.



‘At the end of the day, I’m a content person,’ he says. ‘If I can get
you information you’re passionate about, it really doesn’t matter how
it ends up coming to you. We’ll rise and fall on the quality of our
content.’





~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~



Lucia Moses (lmoses@editorandpublisher.com) is an associate editor
for E&P.











(c) Copyright 2000, Editor & Publisher

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