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Scripps Networks Interactive, Inc. (NYSE:SNI)

Q3 2009 Earnings Call Transcript

November 6, 2009 10:00 am ET

Executives

Mark Kroeger – VP, IR and Corporate Communications

Ken Lowe – Chairman, CEO and President

Joe NeCastro – EVP and CFO

John Lansing – EVP and President, Scripps Networks

Lori Hickok – SVP, Finance

Analysts

John Janedis – Wells Fargo

Doug Mitchelson – Deutsche Bank

Jason Helfstein – Oppenheimer & Company

Alexia Quadrani – JP Morgan

Tom Eagen – Collins Stewart

Jessica Reif-Cohen – Merrill Lynch

Anthony DiClemente – Barclays Capital

James Marsh – Piper Jaffray

Benjamin Swineburne – Morgan Stanley

Michael Morris – UBS

Matthew Harrigan – Wunderlich Securities

Brian [ph] – Goldman Sachs

Michael Nathanson – Sanford Bernstein

Chris Ferrell [ph] – Capital Asset Management

Wendy Machana [ph] – Wells Fargo

Operator

Ladies and gentlemen, thank you for standing by and welcome to the third quarter earnings report conference call. At this time, all participants are in a listen-only mode. Later, we will conduct the question-and-answer session; instructions will be given at that time. (Operator Instructions)

And as a reminder, this conference is being recorded. I would like to turn the conference over to our host, Vice President of Investor Relations, Mark Kroeger. Please go ahead.

Mark Kroeger

Thank you, Katie. Good morning all, and thanks for joining us. We’ll start the conference call today with comments from Ken Lowe our Chairman, President and CEO and Joe NeCastro, Executive Vice President and Chief Financial Officer. Our prepared remarks should take about twenty minutes and then we’ll open it up for questions.

Also on the call are John Lansing, Executive Vice President and President of Scripps Networks and Lori Hickok, Senior Vice President of Finance. Let me remind you, if you prefer to listen him on the web, go to www.scrippsnetworks.com, click on Investor Relations and find the microphone icon on the landing page. An audio archive will be available on our website later today and we’ll leave it there for a few weeks so you can access it at your convenience.

Let me remind you that our discussion this morning will contain certain forward-looking statements. Actual results may differ from those predicted, and some of the factors that may cause results to differ are set forth in our publicly filed documents including our Form 10-K.

And with that, I’ll turn it over to Ken.

Ken Lowe

All right. Thank you, Mark. Good morning, everyone. I really appreciate you joining us. As always, we value your interest in Scripps Networks Interactive, and needless to say, these are truly, truly exciting times for the company and our shareholders. Not only did we have a solid third quarter in terms of operating results, but we are also building momentum on several fronts as we move decisively to execute our strategies for long-term growth. You know about our announcement yesterday regarding the travel channel, and we will talk a little bit more about that in depth in just a few minutes, but first let me highlight some other recent developments.

First the Food Network. Well, the story all year long has been the phenomenal growth in audience. For the first time in its history, Food Network broke into the top ten among all cable networks during the third quarter. Thanks to the standout hits like Next Food Network’s Star, Chopped, Diners, Drive-ins and Dives and of course, Ace of Cakes.

Total household primetime viewer-ship grew a staggering 32% during the period, and primetime viewer-ship among the young adults, aged 18 to 34 was up 35%. Viewer-ship growth at the end of the quarter has been equally robust. Clearly, Food is a television channel [ph] and Food Network, in particular, are in extremely high demand right now. That’s why we are moving quickly to tighten our competitive grip on the food category by announcing the launch of the new cooking channel and leveraging the immense popularity of the Food Network brand internationally.

An international version of Food Network, by the way, launches Monday on Sky in the UK, and we announced just this week that we will begin to roll out Food Network in Asia starting in January. By yearend or very early in 2010, we expect Food Network to be available to $15 million cable and satellite subscribers in Europe, the Middle East and Africa, thanks to our joint venture with Liberty Global’s Chello Zone.

Now, we expect the Chello Zone partnership, which we control by the way should be first among many as we move forward with our plans to expand Scripps Networks internationally.

As for the cooking channel, while we have named a new general manager and we are on track to complete the re-branding about midway though the third quarter of next year. The new general manager, by the way, is Michael Smith, and Michael has been with us for about ten years now and is truly one of the masterminds behind Food Networks’ tremendous success, and by the way, a great guy.

I have an opportunity to see some of the programming concepts for cooking, and I have to say I am very, very encouraged with what our creative team is cooking up their service stake. It is going to be great.

Now just a reminder, our plan is to have the cooking channel step into the sizable distribution footprint that we have created with the Fine Living network. Fine Living will be re-branded as the new cooking channel domestically, but we are giving some serious thought to using the Fine Living brand in some fashion is part of our international strategy.

Also, within the Food and Shelter [ph] the new Food Network magazine continues to just not get out of the part, the fourth quarter issue was very, very successful with overall circulation reaching 975,000 readers and initial estimates for issue number 5 which is on the stands now, by the way, are projected at 1.1 million.

Our partners, our host tell us this is the most successful new magazine launched since Oprah and Ad-Age [ph] just last month declared it their A-List launch magazine of the year. Food Network is currently entrenched as an American top icon. It is on a roll.

In the Home category, HGTV is hitting some milestones of its own, I am pleased to say. Some creative programming adjustments that we made starting in the fourth quarter last year are really driving a surge in audience growth. So looking at total household of HGTV primetime viewer-ship jumped 20% in September and 16% again in October.

The number of total households tuned in and during primetime on averaged topped 1 million during both months. The third quarter was the best in HGTV’s history in terms of total household viewer-ship.

The remaining audience growth is really a credit to our creative team at HGTV which shifted gears in the midst of the housing market meltdown last year, and literally turned the network around. Shows like Property Virgins, Income Property and My First Place are successfully targeting first-time homebuyers, which is why viewer-ship among the young adults grew 14% in September, and was up a very solid 20% last month. Now we think that’s outstanding growth, especially for a network has being growing now for 14 years. Stay tuned. Lot more good things to come for HGTV.

And then, finally, yesterday’s announcement. I have to say it was probably one of the worst kept secrets in M&A history, so I am pretty certain our announcement didn’t take many of you by surprise. But let me start by saying that by adding the travel channels, our portfolio of Lifestyles Networks is a tremendous opportunity for the company and its shareholders. This transaction makes eminent sense, both financially and strategically. It gives us three powerful and completely distinct programming categories to build on, of course, food, home and our travel.

The travel channel provides us with a compelling opportunity to expand into another promising lifestyle category that’s highly desirable to media consumers, to advertisers and programming distributors alike. Adding the travel channels our portfolio of television brands make Scripps Networks Interactive an undisputed leader in Lifestyle programming across the globe. Our vision for travel nearly followed the same script which made Food and HGTV two of America’s most powerful and beloved brands in all of television.

By lending our unparalleled expertise in developing successful Lifestyle media businesses, we have every confidence that we can build on Travel’s strong brand identity and leverage the success that we have achieved to date by the topnotch team at travel channel and our new partners (inaudible).

As a matter of fact, let me pause for just a minute. To recognize the great job the folks at Travel have done, raising the brand’s profile, of late, President and General Manager, Pat Young, Michael Klein, Pat Lapperty [ph] and (inaudible) and John Fishel [ph] can take a lot of pride for building a great team and steering the network in a promising new direction. Our congratulations and sincere thanks and we are really looking forward to working with the team at Travel.

What I have been saying it’s not often that a fully distributed basic cable channel comes on the market. It’s even rare to find one that complements our brand of non-fiction programming has completely has traveled us. Available in 95 million households in the United States, the Travel Channel is growing to become one of cable’s most recognizable brands and is the cornerstone asset supporting a growing range across platform initiatives including the Internet, mobile and social media applications.

Travel is among the top 15 cable networks for primetime ratings growth in 2009 and its content is perfectly suited for digital platforms, for licensing, for e-commerce and digital video consumption. Like HGTV and Food Network, Travel fans are affluent and engaged with a passion for immense exploration.

They turn to the Travel Channel for travel inspired entertainment featuring star personalities and is a trusted destination for travel related information. When you come right down to it, there is a page right out our successful playbook at Scripps Networks, it fits very nicely.

As you know we have a lot of experience working with partners to build value over the long-term, and we are looking forward to a mutually beneficial collaboration with our new partners at Cox. Leading up to the definitive agreement that we signed early yesterday, we were able to identify several path to increase advertising and affiliancy revenues and substantial cost synergies by integrating Travel’s business operations with ours.

We also see great potential for Travel’s on-air personality by providing valuable platforms not just on television, but through creative licensing and brand extensions, really just as we’ve been successfully doing now with all of our other brands.

In addition, we anticipate great international appeal for travel related programming, which really dovetails perfectly with our emerging international expansion strategy. Obvious that there is a great deal of enthusiasm at all levels of our organization for this milestone transaction; I could not be more pleased.

Adding Travel Channel to our mix of Lifestyle Media businesses is a logical next step in the evolution of Scripps Networks Interactive. Now this is a business we understand completely. It’s what we do best, developing quality lifestyle programming for television and emerging media platforms, that delights and engages audiences and delivers creative solutions for our advertisers and distribution partners.

Now given the tremendous success that we have had building HGTV and Food, I’d say we more than demonstrated an exceptional attitude for creating value for our shareholders on these very sturdy media platforms. Travel, if you will, widens the most, it opens up a host of new opportunities for us. Again, I can’t emphasize how excited we are about this new brand.

All in all, our third quarter results and the key developments that we’ve announced since the end of the period demonstrates the success we are having as we strengthen our portfolio of Lifestyle Media enterprises, and we work for achieving our various business objectives. We are delivering on our promise to dominate the Food and Shelter categories on television, the Internet and other emerging media platforms.

And now, we are taking direct aim at Travel. We began exporting our networks, began exporting our networks in considerable programming expertise across the globe. We are leveraging the marketing power of the Lifestyle Media brands through creative and promising partnerships. And our online comparison shopping business is exceeding performance expectations, and are completely retooled just in time for the important holiday shopping season.

Now Joe is going to talk about the progress that we are making on Shopzilla and BizRate in just a couple of minutes. So, put it all together and we believe Scripps Network Interactive is uniquely positioned to take full advantage of the emerging economic recovery as it unfolds.

So with that let me turn it over to Joe who will talk about some of the specifics of the Travel transaction and some third quarter highlights. Joe?

Joe NeCastro

Thanks, Ken. Good morning, everyone. Let me start with the Travel transaction since that’s likely on the top of everyone’s mind. As we discussed in yesterday’s press release the transaction will be structured as a leveraged joint venture between Scripps Network Interactive and Cox Communications. The deal will result in F&I holding 65% of Travel and Cox retaining a 35% minority stake. The all-in cost of Scripps Network Interactive will be above $634 million, which represents a combination of upfront cash investment of $181 million and our share of the net debt that will reside in the new Travel channel partnership.

Based on current trading multiples, we certainly anticipate that the transaction will be significantly accretive in the first year on a valuation basis. Excluding one-time cost related to the transaction, adding Travel will be modestly dilutive to earnings in 2010 as we integrate the network’s various business operations and as we transition the brand to our control. It will be nicely accretive in 2011 and beyond.

The leveraged joint venture will be structured like this. Cox will contribute the Travel Channel which is valued at $975 million, and will contribute the $181 million in cash into a newly created partnership. This partnership in turn will take on $878 million in third party debt that we will guarantee and Cox will indemnify.

Proceeds from these borrowings representing 90% of the value of the network will be distribute the cost. That leaves a partnership of net debt of around $696 million with each of the partner’s share equal to their relative percentage stakes in the venture. The agreement we reached yesterday, includes a liquidity mechanism that allows Cox to put its minority stake to us during the fifth year following the completion date of the transaction, and we have call rights that starts in the sixth year.

We will control the joint venture and travel will be operated as part of our portfolio of Lifestyle Television Networks. And just as a point of reference a number of Travel’s business operations and managed through service agreement with Discovery. Those agreements will expire or can be terminated as early as May, 2010 and the resulting savings represent a significant portion of the cost synergies that we have been able to identify during our due diligence process.

We plan to consolidate Travel results with ours and we will recognize the minority interest just like we do with the Food Network.

SNI has now got committed bridge financing in place for the Travel channel acquisition. We intend to take up the bridge financing with term debt in a very near future. Internally, we have had an integration team in place for sometime now in anticipation of yesterday’s signing. As you imagine, their work will kick into high gear, now that we have an agreement and as we work towards closing the transaction by or before January 2010.

We have lot of work ahead of us to make sure that we can realize the great potential of Travel, and we will update you as we move forward with the integration.

I suspect we have more to share when we are in New York for the Investor Meetings in December.

With that, let’s move onto the third quarter highlights which came in a bit stronger than we anticipated. This is in large part due to the improving advertising environment for our cable television networks and slightly stronger than expected affiliancy revenue.

The scattered advertising market place continues to improve sequentially for us throughout the period. It’s a trend I am happy to report that’s continued into the fourth quarter. The pricing environment has firmed up with scatter running comfortably ahead of the upfront business we will during the summer.

You will recall from our second quarter conference call that we finished the upfront at or near the top of our cable network peers from a pricing standpoint. Also, we committed a little less inventory during the process that we normally do to take advantage of the improving scatter market place.

Total upfront volume was even with last year, thanks primarily to the robust audience growth at Food Network, and the improving number of impressions we are delivering at HGTV. Since we haven’t offered any guidance on advertising all year long, we are going to stick to that game plan for the fourth quarter as well, especially considering that business continues to be both very close to airtime.

We will revisit our practice of providing ad revenue guidance in the coming weeks provided the market place shows some signs of returning to semblance of predictability.

As a affiliate revenue, we continue to get a lift from the higher rates we negotiated in 2007 for HGTV from the built-in step ups in our current food agreements, and from the expanding carriers of DIY and the Fine Living Network.

We didn’t change our full-year guidance for affiliancy growth, but obviously we are already a bit ahead of where we thought we would be three quarters of the way through the year.

This might be a good time to update you on how the food network renewals are coming along, although, there is not much new to report. We are actively engaged with all of our distribution partners, and as clearly stated our case, we remain confident that we will achieve a rate card for Food that commensurate with the audience and value we are delivering to our distribution partners and to their customers.

Now back to third quarter results. You will notice that consolidated expenses were down about 4%. That’s largely a function of lower cost structure at Shopzilla and a reduced marketing spend we maintained this year in all of our businesses in response to the economic recession. We are keeping a tight reign on expenses for the balance of the year as well and they are still expecting non-programming cost at our Lifestyle Media businesses to be flat to down slightly relative to 2008. We expect programming amortization costs at are networks to be up 9% to 11% as we previously guided, so no change there.

Now let me take a minute to review some highlight from our interactive services business segment which includes Shopzilla and its related businesses. Within the week BizRate will re-launch with a new look and improved functionality that focuses on comprehensive product search results, consumer royalty and a measurable return on investment for our merchant partners.

We continue to see positive trends as result of this year’s repositioning efforts at Shopzilla. As we head into the holiday season, the number of product offers available to consumer has nearly doubled over the last holiday season.

Consequently, consumer engagement with product content is at an all-time high and leads to direct merchant partners were up and encouraging 19% year-over-year in the third quarter. In Q4 those positive trends are continuing especially in Europe where merchant lease were up 35% year-over-year in October. That was driven by the rollout of our new site platform which has significantly improved performance of our European comparison website.

And we launched an entirely new brand call Biso [ph] to help shopper’s target their favorite stores and brands, and we expect good results there.

Our team out in Santa Monica has done an incredible job getting ready for what we believe will be in good season for e-commerce in general, and for our comparison shopping services in particular.

Now, before we open it up for questions, let me turn it back to Ken to wrap up our prepared remarks.

Ken Lowe

Thank you, Joe. Clearly, there is a lot going on in Scripps Network Interactive a very exciting time. The management team has been fully engaged and very busy during our first full year as an independent company. The list of accomplishments is growing. We’ve added the Travel channel. We will be launching the new cooking channel. Food and HGTV are shattering audience records. We are making solid progress on Food renewals. We are rapidly expanding internationally and we’ve repositioned and retooled Shopzilla and BizRate. There is lot of positive momentum at SNI.

Let me finish up by just emphasizing how absolutely enthused we are about adding the Travel channel to our family of Lifestyle Media brands, and let me repeat, it gives us three very distinct, very engaging content categories on which to continue to build this company

Home, Food and now Travel. We see this acquisition as a transformative event for the company and we believe it will benefit our shareholders for a long time to come.

So, with that operator we are ready to turn it back over to Q&A.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from John Janedis from Wells Fargo. Please go ahead.

John Janedis – Wells Fargo

Thank you. Congratulations on the deal, guys. Can you talk a little bit more about ad growth in the quarter. If you take out Fine Living, what was the adjusted ad growth rate for the segment and does that drag go way there at year end?

Ken Lowe

I will tell you what, John, let us be a real quick (inaudible) on subtracting Fine Leaving and get back only we have that immediately.

Joe NeCastro

John, I can just comment on -- Fine Living is obviously off just a little bit year-over-year because it become a Nielson rated service for the first time this year, and we hadn’t anticipated reduction in revenue as a result of that because we were setting high PPMs in the years leading up to the period where we become a rated service. But, it really is not all that material for the larger ad revenue story for us.

John Janedis – Wells Fargo

Okay. And maybe just a follow-up, Joe, I know your stance on new ad guidance, but some of your peers have talked about a sequential slowdown in 4Q, just given the comp, if you will, on the scatter, are you guys seeing similar trends?

John Lansing

Let me -- John, this is John. Let me touch on fourth quarter a little bit. Actually, as you’ve heard up throughout the year, we’ve seen scattered pricing improving sequentially quarter-to-quarter, and that story has continued into the fourth quarter. The fourth quarter will be the best in terms of scatter pricing.

In fact, we’re seeing currently scatter pricing that’s in excess of the mid-teens to the high-teens over the recently completely upfront negotiations, and the most recent business that we’ve been negotiating this quarter. We are actually seeing scatter pricing that is at the level or slightly above the level of last year’s scatter.

John Janedis – Wells Fargo

Okay, great. And one quickly for Joe. Thanks John. Joe, can you talk about your commercial expenses related to the Cooking Channel launch and maybe the timing around them?

Joe NeCastro

Yes, certainly. We do have an ongoing business plan for the Fine Living Network, and if anything, the way we think about this is that, Cooking Channel will certainly fit within that footprint. It’s a little earlier to say what the plan will be exactly and I -- there will likely be some expenses related to the launch when we are ready to go. But I think it’s little early to say anything beyond. We have money obviously for marketing and staffing and all the other expenses are roughly about $55 million home network, and we are going to continue and we think we can move well within that footprint.

John Janedis – Wells Fargo

Thanks a lot.

Joe NeCastro

Sure.

John Lansing

Thanks, John.

Operator

And our next question comes from the line of Doug Mitchelson from Deutsche Bank. Please go ahead.

Doug Mitchelson – Deutsche Bank

Thanks very much. A few general questions if I could. Is $200 million of revenue a good estimate for 2009 for Travel?

Joe NeCastro

Hand on one second, Doug. We are going to dig out --

Lori Hickok

For 2010, that’s a good estimate.

Doug Mitchelson – Deutsche Bank

2010. And then, any sense you can give us sort of what margins we’re starting to add either ‘09 or ‘10 and where you ultimately think you can get that given sort of the synergistic nature with the other networks as you said?

Joe NeCastro

Yes, actually, let me try that without giving specifics there because we’re still working on the account, and we do expect that it actually will improve the overall margin within -- probably in the 2010 year and beyond.

Doug Mitchelson – Deutsche Bank

All right, that makes sense. And then, lastly, just curious when the major affiliate renewals for Travel begins, it’s probably too late but is it possible to include Travel on your Food and HGTV negotiations that are taking place?

Joe NeCastro

Yes, indeed it’s too late and that won’t be a factor at all. We expect to be fully done with the food renewals before anything comes up on Travel. We may not even have a close before those renewals are over, and in fact like we won’t. So, we don’t expect any crossover there. The renewals on those networks -- on the Travel Channel come up as early as one at the end of 2010 and then they sort of run through 2012-13 and the latest is ‘14, I think.

Doug Mitchelson – Deutsche Bank

And I guess, sorry one last follow-up, is it fair to say, given your living through the Food negotiations right now, I mean, do you believe Travel Channel after a few years a very good rating growth? And what you have to do with the brand that is undervalued as well similar to Food?

Joe NeCastro

You will hear, I talked exactly the way we talked about Food Network.

Doug Mitchelson – Deutsche Bank

All right. Thank you.

John Lansing

Thank you, Doug.

Operator

And our next question comes from the line of Jason Helfstein from Oppenheimer and Company. Please go ahead.

Jason Helfstein – Oppenheimer & Company

Yes, hi, thanks. Two questions. One, have you seen any impact or are you optimistic about the impact of upcoming magazine closing and what that can have on you guys, if you can quantify perhaps the methodology and things that’s out there for grabs, and happening. And then, do you see any synergies with travel websites and the travel channel, and could this lead to acquisitions in that area or is it too early to comment on that? Thanks.

Joe NeCastro

One, I’ll take the second one, and then John, maybe he could talk about (inaudible) magazine. But we fully expect to execute around travel the way we think about the other networks. It’s probably too early to think about anything concrete there. But, our strategy is to try and dominate the category, and obviously getting a very well recognized, well distributed brand on cable is probably the first step.

We certainly hope to see opportunities to widen in (inaudible) the way we try to do on the other categories as well. But, as I said, it’s a little early to comment on any specific there.

John Lansing

Yes and Jason without commenting on gourmet magazine I would just say that the success of the Food Network magazine, I think, is just evidence of the overall success of the brand reaching consumers on all platforms, digital and otherwise. And we see that continuing beyond the magazine platform in to other digital and mobile platforms.

Jason Helfstein – Oppenheimer & Company

Thank you.

Operator

And your next question comes from the line of Alexia Quadrani from JP Morgan. Please go ahead.

Alexia Quadrani – JP Morgan

Hi, thank you. Couple of questions, first, is there any way you can quantify or give us a sense of what you are sort of budgeting or hoping for the revenue contribution could be for international efforts? And then my second question, maybe for John, and any comments on how you are seeing trends for cancellation -- options for cancellations for Q1? And I assume the remnant space, the selling of remnant advertisers has dropped off, is that fair?

Joe NeCastro

Yes let me, Alexia this is Joe. Let me talk about international first, and John will pick up the second question. International, we don’t have a specific budget yet, to be honest with you. We are engaged in -- you see the announcements so far, we are engaged in one or two other situations. So it’s really early to comment on that. And what I would like to do is, maybe in terms of guidance for next year, we have something that I think is a little more concrete for you. We do have some longer term objectives. We would like to hit, but it’s really choppy at the moment, I could say lumpy because it comes one deal at a time. So, I don’t mean to be difficult there, but we will, as soon as it’s practical, come up with some guidance for you there.

John Lansing

Yes, and Alexia this is John. The news is positive compared to where we were a year ago. Significantly less in terms of cancellations, we are beginning to start the negotiations for our calendar upfront business, and we believe we’ll see some solid growth, the net calendar negotiations compared to where we were a year ago.

And with regard to the direct response advertising, remnant as you call it, we’ve seen it improving in terms of its percent of total throughout the year, first quarter obviously being the worst and then improving in the second and in the third, and then I will tell you in the fourth quarter where we are really are back to normalized levels of the -- in terms of inventory usage.

Alexia Quadrani – JP Morgan

Great. And then on the calendar upfront is that, remind me that’s about 10% of your inventory, is that correct?

John Lansing

Yes that’s correct.

Alexia Quadrani – JP Morgan

And then any comments lastly on the -- how the verticals are trending, different categories in terms of how they are spending in the quarter, what you are seeing there?

John Lansing

Sure, quickly. The Food category continues to be our number one overall category across all of our businesses, and we are seeing positive strength in consumer product goods, retail and good news on the financials. The financial category, for the first quarter of this year, is showing strength, and our Auto category is flat which in this environment is probably fairly good compared to the overall market, and our Auto is compared to a lot any other media company, if I, less than a factor and are just driven largely by imports.

Alexia Quadrani – JP Morgan

I think you mentioned this earlier, and maybe I was wrong, but you said it when you went to contract upfront, you ended up being about same amount of inventory sold year-over-year as previously around 50%, is that right?

John Lansing

We sold slightly less in terms of inventory, but we have more rating points due to the growth of HGTV and Food Network. So, the result of that is our volume is about the same.

Alexia Quadrani – JP Morgan

All right. Thank you.

John Lansing

Thanks, Alexia.

Joe NeCastro

Thanks, Alexia.

Operator

And our next question comes from the line Tom Eagen with Collins Stewart. Please go ahead.

Tom Eagen – Collins Stewart

Thank you very much. Just a question about the re-branding of Fine Living to Cooking. Does that mean that potentially some of the programming costs with a Channel could be lower than before. For example, could you use some of the programming at Food Network, do you think it will be less shooting kind of locales and stuff, and then I have a follow-up. Thanks.

Joe NeCastro

Sure, Tom. First of all, let me just say Cooking is re-envisioned. It will have some really exciting new and original programming that will drive the branding and the consumer awareness, but as you suggest we will be using a small amount of library programming that’s still out for schedule. But the original program that we will be producing will also, I think, be at a lower cost basis in many cases because of the type of programming wins that it would be perhaps less location shooting, et cetera, more in studio. So, overall -- the overall programming plan for Cooking does not look a whole lot different than what it did fore the Fine Living programming plan in terms of total investment in programming.

Tom Eagen – Collins Stewart

Right. And then just wondering what other elements of the Life Style, John, where did you guys think about before you kind of re-branded it over to Cooking. And, for example, did you think about, are we branding at – example Travel, next?

John Lansing

Right. Obviously, we did have that discussion, but clearly our biggest strategic concern was to solidify our position in the rapidly expanding Food category, and so, we felt like by focusing and -- in the cooking and food category that we could be both offensive in taking a greater share of that expanding audience, and also defensive in terms of discouraging competition. So, we felt like it was a smart move for us to strengthen our position in the Food category, and then we had the opportunity to enter the third major Lifestyle vertical with Travel. It just really allowed us to sell off the three major Lifestyle categories, Home, Food and Travel.

Tom Eagen – Collins Stewart

Okay. Thank you.

Operator

Our next question comes from line of Jessica Reif-Cohen with Merrill Lynch. Please go ahead.

Jessica Reif-Cohen – Merrill Lynch

Thank you. I was hoping could you backtrack a little bit, and just get some of the basic on Travel, just to get a starting base. Can you give us the 2008 actual EBITDA and 2009 expectations like a rough range? There is a wide range in the past?

Joe NeCastro

Sure. I don’t have 2008, but maybe we can talk a little bit about 2009, I think. But it really does, as you know, when you get into these things, it depends on what you -- how you slice it, but I would argue strongly that what you have to adjust for, sort of, the excess cost of the discovery agreements, and once you get there at or a little bit north of $80 million in ‘09 is the way we look at it. There are synergies obviously on top of that, but they result from the combination of the scale. But, I think on a normalized basis, if the network were running, and as I said without, sort of, afraid of the Discovery profit on those agreements here in the low 80s.

Jessica Reif-Cohen – Merrill Lynch

Thank you. And then, can you break down the revenue between affiliate fees advertising, and if online or other is meaningful, that would be helpful as well?

Joe NeCastro

Yes, we have Lori to take that.

Hickok

Yes, I would say there are bad event that you are going to see on the advertising, so I thought, maybe 50%, 40%. 60% advertising, 40% affiliate with some inventory amounts related to Interactive and other fees.

Jessica Reif-Cohen – Merrill Lynch

And then will you consolidate to shovel that?

Joe NeCastro

Yes, we will.

Jessica Reif-Cohen – Merrill Lynch

And then last question. I think it’s even including that now leverage is only roughly just over one time, what’s the plan for the balance sheet? Are you comfortable leaving it there or do you plan to de-lever, maybe just talk about uses of your cash flows as we go forward?

Joe NeCastro

Sure, let me take that. The debt itself that sits there will not amortize over the initial five-year period at a minimum, and that’s because of the tax structure of the deal. But that’s not to say we won’t have plenty of cash generating elsewhere and as those profits rise, the partnership itself will de-lever naturally. Not so worried about that. Frankly, it’s not a significant amount.

Beyond that, though, as you’d point out on a net basis, because don’t know the approximate cash value, it will be at or below one time just coming out of engaged. We’re comfortable -- we’re north of that if we -- as I have always said if we find the right reason to do it, we’ve talked – it starts around 2 to 2.5 times will nearly strain the company, so if there were things that came up.

And the only of any size that we ever even think about beyond Travel is of course, the minority stake in Food. So, we will still be generating plenty of actual cash and we think with the same high class problem, what to do there, and as I said before, we like to stay flexible. These guys use the balance sheet for a sum which is nice. And then, beyond that I think where we -- as always consider whether or not it’s time to start distributing more cash to shareholders.

Jessica Reif-Cohen – Merrill Lynch

And then just last is a follow-up to the comment. Is there any progress with (inaudible) on the Food Network?

Joe NeCastro

There is really not much. I think they are down to whatever, into the funnel [ph] in terms of working through bankruptcy there, and I don’t expect -- more or less confirmed. I don’t expect anything to happen until they exit. And then as everyone knows they’ll have a new board. They may or may not have a new management team. I think their priorities will become clear after they emerge.

We’ve made it clear -- continue to make it clear we are an interested buyer. That said, of course, we know what our limitations are there. We won’t get (inaudible) by that. There are no synergies to work on. So, we remain interested. We are first in line if that ever comes on the market and we remain active. But there is no current discussions around taking a decision.

Jessica Reif-Cohen – Merrill Lynch

All right, thank you.

Operator

And our next question comes from the line of Anthony DiClemente from Barclays Capital. Please go ahead.

Anthony DiClemente – Barclays Capital

Hi, guys, thank you for taking my questions, and congratulations on the transaction. I was wondering if you can just quantify those cost savings from terminating the service agreement with Discovery? So was it – you said low 80s and EBITDA would have increased those service cost?

Joe NeCastro

The total amount of the service agreement, I won’t tell you. Just the margin on those that Discovery realizes is around $20 million a year growing, year-on-year.

Anthony DiClemente – Barclays Capital

Okay. And then you mentioned -- thanks for helping us with the margin, I think you said that the transaction will improve your total company margin in 2010. So, then I assume that it’s dilutive in 2010 because of the debt that you are taking on and the interest expense incurred below the line? Am I thinking about the right way, and then if so what happens in 2011 that makes it, as you said Joe, nicely accretive?

Joe NeCastro

We can get into and I would rather get into some of the mix later by year, but you are exactly right it will be things below the line. There is also -- there’ll be a write-off of the amortization on the goodwill. And there are some, some significant one- time costs on the transaction itself. So, that’s exactly right.

Anthony DiClemente – Barclays Capital

And does the amortization will get higher in year one? Or is it like an accelerated schedule or --?

Joe NeCastro

No it’s not. It’s just another below the line item. So, you are right here, You are focusing on a different stream ‘10 and ’11, it wouldn’t be the amortization.

Anthony DiClemente – Barclays Capital

Okay. I guess if we can talk about that offline, and then finally I just, I am sorry, but I didn’t catch all of what you said in terms of put rates for Cox, and the call rates that you guys have. I am wondering if you could please repeat, maybe elaborate a little on that. And if there are put rates, maybe help us with what’s the driver of the price determination at that time period of the minority stake? Thanks.

Joe NeCastro

Yes just to be very clear, at any time after roughly the fifth anniversary of the deal, Cox had the right to put their interest to us. And, any time a year later and beyond we have the right to call their interest. So, the mechanic is very standard, you’ve seen in a million times. It’s a fair value market exit. There are limitations around -- around the ask and the calculation of fair market value, but largely it would be a fair market value determination at that point.

Anthony DiClemente – Barclays Capital

Got it. Thank you.

Joe NeCastro

Sure.

Operator

And our next question comes from the line of James Marsh with Piper Jaffray. Please go ahead.

James Marsh – Piper Jaffray

Yes, just a couple of housekeeping items, and then another question. What do you expect the cost of debt to be on the term? And then secondly on the discovery affiliate net sales termination, that in simple words, you terminated as soon as you closed or is there some period where they continue to run those operations where you can fight back?

Joe NeCastro

Yes. On the debt terms and then in the (inaudible) I have given to them exactly, but they just say their market terms in the mid-singles. We are not -- we haven’t obviously haven’t finalized that. We put the bridge commitment employees. We hope not to drive, will go right to turn. And, again I think here it’s market terms pretty well, but we are looking at something around five year. It’s probably the term (inaudible) we are looking at. In terms of its service agreements of Discovery, they have an exploration date on two out of the three major agreements of May of 2010. We will get in -- we will engage with discovery as soon as we can to start thinking about transitioning those over. I expect us to be sort of cooperative relationship on advertising especially more so then on the affiliation agreements only because those, and have a natural end data and we don’t have it coming up until the end of 2000. So that’s not quite as important.

On the technical services, that naturally expires in 2012, but there is an out that can be bought earlier then that which would make it simultaneous with the -- the other two dates. And we are looking there – how that -- it’s our intention to go ahead and exercise that at the moment. But we have to see -- we obviously have to dig in and meet with them and look at those services more closely.

James Marsh – Piper Jaffray

And then just related to affiliate negotiations for Food, could you tell us little bit how Cooking plays into that, and where you think the distribution for cooking should be over time. And do you think that’s a fully distributed network? It is an active part of the negotiation process for Food or it has got a separate negotiation with the affiliate?

John Lansing

Yes, James, this is John. It’s happening concurrently and we spend a lot of time explaining our strategy throughout the summer to our distribution partners and we found a great deal of enthusiasm about the idea. And, keeping in the mind that is effectively it’s a re-branding of Fine Living. So it’s an existing channel, and existing set of bandwidth. And, what we are really doing is working with the affiliates just on re-branding the channel to a cooking channel. So distribution is potential and its footprint is essentially stepping into the shoes of that of Fine Living.

James Marsh – Piper Jaffray

I guess, my questions were related -- do you expect that to be a fully distributed. The Fine Living always seem to be stuck at some 60 million homes? Would you imagine that cooking would be closer to 90 or 100 over time, or do you think it's got a limited target audience?

John Lansing

For the time being Fine Living and DIY are part of a number of networks that are deemed premium second tier digital channel that came with the expansion of the digital footprint. And so, by that, and they come to subscribers who pay an up charge for the second level of service to cable subscribers. So, to the extent that that tier is further penetrated, which we are that happened this year, for instance, then the growth of DIY and Cooking will move along with that expansion. But one advantage that cooking will have is that we are fully distributed on DirecTV with Fine Living. And so when we complete our re-branding with DirecTV then we will be on the vast majority of the DirecTV footprint.

Ken Lowe

Hi, James, this is Ken. But I think it is safe to say, that one of the reasons we made this move is we felt long-term there is more upside potential in the Cooking Channel than they would have been in Fine Living. And some of that to John’s point is, it’s very much response we are getting back from the distribution folks. And, just our own internal research that says there is room to expand for us in the (inaudible). So long-term, if the distribution is available, we got a better chance to getting there with cooking then we did with Fine Living.

James Marsh – Piper Jaffray

And just one last, quick one here. Did the robust Cooking Channel diminish your appetite, pun intended, for the Food networks to pay good tribunes?

Ken Lowe

No, it doesn’t at all. In fact, it really doubles down our interest in having a commanding, I would say domineering position in the Food category, and that fits exactly with Joe's strategy of working with tribune to buy in that piece.

James Marsh – Piper Jaffray

Okay, excellent. Thanks, guys.

Joe NeCastro

Thank you, James.

Operator

Next question comes from the line of Benjamin Swineburne from Morgan Stanley. Please go ahead.

Benjamin Swineburne – Morgan Stanley

Hi, good morning, guys. And couple of questions. One just point of clarification on that revenue number, I think you said 200 million at Travel, and was that a 2010 number or 2009, it wasn’t clear?

Lori Hickok

It’s good to clarify some (inaudible) of 200 million was a good estimate. I would say if you want to look at that on FY consolidate basis 10% to 15% revenue, is probably a good estimate on that, all trying to get to a revenue number.

Benjamin Swineburne – Morgan Stanley

And the 50% of consolidated is for Travel?

Lori Hickok

Yes.

Benjamin Swineburne – Morgan Stanley

Okay, thank you.

Lori Hickok

We have to get this somehow in that.

Benjamin Swineburne – Morgan Stanley

Okay, great. And just on the debt, I guess, leverage at the JV is almost from a financing perspective kind of irrelevant, right, because that’s already course back to Scripps, so really de-leveraging at the JV doesn’t really -- is not much of a focus in your cost, so it sound like it’s going to be a, sort of, a Scripps consolidated level, is that a fair assessment?

Joe NeCastro

That’s very fair.

Benjamin Swineburne – Morgan Stanley

Okay. Great. And then lastly just on -- back on the Cooking Channel, there have been some instances I think when Spike converted and came in, and I remember what spike used to be at this point in a week, but where the distribution deals, sort of, there was a trigger with your distributors, with the cable guys that said old contract was relevant and you need to start from scratch. Doesn’t sound like that's how this is playing out at all with Cooking. You keep -- having it as a re-brand and it doesn’t sound like you have to go back and sort of start, and there is new launch amortization cycle and all that stuff, again just a clarification on that would be helpful?

Ken Lowe

Yes, I know I did say – as I say there is a lot of enthusiasm on the part of our distributors because keep in mind that they benefit as well from the Food category with their local affiliate sales. And so, we are bringing to them more valuable local ad time and also our ability to promote and cost promotion network obviously with Food Network adds to our leverage. And so, effectively we are working with our affiliates to re-brand the network. Some of the programming on Fine Living today is actually in the food category including Hamelin and Martin Stewart. So it’s not really a great relief, it’s really just a matter of achieving the re-branding.

Benjamin Swineburne – Morgan Stanley

Okay, terrific. Thanks, guys.

Operator

Next question comes from line of Michael Morris with UBS. Please go ahead.

Michael Morris – UBS

Hi, thanks. A couple of questions on advertising, and then one on cooking, first on advertising. Can you remind us, I apologize if you told us before, but where did your pricing come in? Were the inventory that you sold in the upfronts are, on a year-over-year basis in that -- it sounds like given the greater -- the higher ratings that you placed about the same amount in terms of impression, so I am trying to get that piece of kind of the ad puzzle.

And then on the other side, the scatter prices up 20%, 25% in some cases across some of the broadcast competitors really speak to there being a robust demand in the scatter market right now. Can you help us understand on a year-over-year basis, what you are seeing in terms of volume. I think that your comments on direct response may have pointed in the direction, but how much more volume are you doing at this point, this year in the scatter market than you were last year?

And then -- sorry, finally over on Cooking, are there any changes in terms of ownership structure or were there any concessions that you had to make to tribune when you changed the brand and the content of the network over to a Cooking theme channel? Thanks, guys.

Ken Lowe

Okay, great. I will take the first two questions, and then I will let Joe to comment on Cooking. The simplest way to think about the upfront process, if you look at all of cable and the most recent upfront, the range was from the low minus singles to mid singles for the market -- cable market. We came in at the high end; it's not the top of all of cable with their pricing. And we brought in slightly less inventory, hoping to take advantage of as an improving scatter marketplace. But we also brought in two networks with growing ratings, particularly Food Network with extremely high ratings. And so, the result of that, the simplest way to think about it is that we came out of the upfront with slightly less inventory, more audience ratings and that translated to volume that was flat for last year

Joe NeCastro

So, Mike, on Cooking ownership, because it is sort of meets the definition of our competitive network to the Food Network, they -- the Tribune has an option which they are currently considering to invest along side SNI network. and our take on is 69% of business a lot was still work a whole lot more than a full, sort of, Fine Living network though its currently configured. So that doesn’t bother us.

And then we would obviously have to pay up to maintain their share of the overall partnership. So they do have an option, they are currently evaluating it. We’ll get back to you when we know from them what their plans are.

Ken Lowe

Michael I will just finish.

Michael Morris – UBS

All right thank you.

Ken Lowe

Your question on scatter. Yes, the volume on scatter in the third quarter was the highest. It was a record volume in terms of scatter for Scripps Networks all time, and up 35% year-over-year. Scatter is improving, as I have said, in the fourth quarter. And as you pointed out that as we look at our remnant inventory that goes to direct response, it really has now achieved levels that are normalized. And so, and we are seeing scatter pricing improving actually within the quarter. So, even the most recent business we are riding is better than the early part of the quarter.

Michael Morris – UBS

How does normalize compared to where you where in the fourth quarter of last year.

Ken Lowe

Well, the fourth quarter last year, I don’t have in front of me. Normalized would be in 4% to 5% range, would be in there.

Michael Morris – UBS

That’s great. Thank you.

Ken Lowe

Thanks, Mike.

Operator

Our next question comes from the line of Matthew Harrigan from Wunderlich Securities. Please go ahead.

Matthew Harrigan – Wunderlich Securities

That’s not quite right, but that’s okay. Three questions on travel, more qualitative. One, what’s the extent of the (inaudible) over indexing on the HD side, I imagined you are seeing some of that already, and certainly it looks like one of the channels it would perform very well there. It looks like there should be more upside. Two, internationally I guess travel channel at London and Tasman [ph] TV are fairly entrenched in some of the Europe markets. This is going to be a little bit tougher to take it more overseas, and it already is, what’s the competition there? And then thirdly, I guess your advertisers on HGTV and Food, certain of them were doing pretty well in this environment whereas it seems that some of the guys who logically should be large advertisers then on Travel has some real issues right now off the economy. Is that something that’s going to make the near-term advertising upside a little bit less robust then your current bouquet of networks?

Ken Lowe

Okay. I will start with the last one, and then Joe will talk about international and then HGTV [ph]. Obviously the endemics in the travel industry today are down somewhat. I think that’s obviously cyclical. But, we believe that the direction of the network has been so strong over the last couple of years, and the development of successful programming, the team has done a fantastic job positioning travel channel. And as a result I think we can continue with that momentum and bring to their similar top categories that perhaps aren’t as well represented today as they could be including the Food category, and particularly the CPG category.

Joe NeCastro

Yes, Matthew on international, we are certainly aware of the competitive entries there. There is one that’s available pretty widely internationally, that we like and in fact, we do think, though that we have a great opportunity in many, many markets. It’s early to tell exactly what our plan would be for that, but we are not at all worried about the appeal of the programming on a global basis. And especially, if we can, sort of jointly sell something very unique like Food or even some whatever newly constituted Fine Living brand might be internationally with the travel, Travel Channel. We think there’s great opportunity there. And it’s a little early. We will give you more color when we give out that plan finally, but we still feel pretty good about it.

Ken Lowe

Matthew, this is Ken. On the potential over indexing, High Definition absolutely, again, this goes back to or why we like this category as we do in the Food and Shelter. As we said, there are a lot of beauty shots here, Networks just looks so spectacular in High Definition. That’s something we foresee as an opportunity.

Matthew Harrigan – Wunderlich Securities

Congratulations. Thanks for taking my questions.

Joe NeCastro

Thanks, Mathew.

Operator

And our next question comes from the line of Mark Weinkes from Goldman Sachs. Please go ahead.

Brian – Goldman Sachs

Morning. It's Brian [ph] in for Mark here. Just a couple of quick questions, on the online side within Lifestyle, it looks like it took a bit of turn for the worse on a year-over-year basis. Any color on the dynamics there?

Ken Lowe

Yes, its been actually about over the last year and half the advertising on the websites for the networks has been under some pressure. It really saw the leading edge of the housing downturn we felt early on hgtv.com. The good news is we are a strong comeback in the fourth quarter. In fact, we expect our fourth quarter online advertising to be at the high-end, if not, the highest end in any quarter we have ever had.

And so we are seeing demand really improved for online advertising, and thankfully, our impression levels are continuing to grow for all of our websites including some of our newer sites in both categories, including Recipezaar.com and frontdoor.com, which allow us to really take advantage of a variety of online advertising categories that are new to us that we didn’t have available to us a year ago.

Brian – Goldman Sachs

Okay. And then just broadly on Travel, I think when Discovery liked (inaudible) -- one of the piece of rational, at least publicly was that they had trouble justifying incremental investment there because it tended to cannibalize their viewers on the other networks. Obviously, it’s growing and Food has been growing concurrently last year and half. What’s your view on that, what’s research tell you, how are you looking at that?

Joe NeCastro

Well, Travel has done a fantastic job of growing their ratings with their programming strategy, and we view these three categories as being very distinctive, Home, Food and Travel. And just for instance, looking at the Food category, while we have had record breaking ratings we have also seen Food programming grow on another competing networks. So, it’s clear that the category itself is expanding, and to the extent that Travel is having success with this programming, we believe we can grow all three of our categories concurrently as we have done with Home and Food and with DIY, and we hope to do with Cooking. And that is to stake our claim in these specific categories, and use our assets to build the category and then grow the largest share of that category.

Brian – Goldman Sachs

Okay. And then finally in 3Q, I know, you said that scatter total dollars of 35% year-over-year, what was the mix of inventory scatter versus upfront in 3Q?

Joe NeCastro

Oh, gosh, I don’t have it specifically, it would be probably slightly off of what our total 50% would have been in the year-ago upfront, so it may have been something just 5 points off of that.

Brain – Goldman Sachs

All right, that’s helpful. Thank you very much, guys.

Joe NeCastro

All right. Thank you.

Operator

And our next question comes from the line of Rod Bourgeois with Sanford Bernstein. Please go ahead.

Michael Nathanson – Sanford Bernstein

Thanks, it's actually Michael Nathanson, contact dropped off. I have a couple of questions. Let me just start by putting on the cost-synergy question. You mentioned the savings from Discovery, what other savings can you get in 2010 from your own cost actions, and what will be the global (inaudible) restructuring charge that you kind of eluded to this transaction?

Joe NeCastro

Michael, this is Joe. The other cost synergies are related to, broadly speaking marketing and then just sort of the efficiencies that comes with running network and a group as oppose to running a standalone network. When you look at the on number of different functions, it's very expensive to do it on your own. It costs the same to do with three as because of one. So just a rough way of describing that I don’t want to get any deeper than that frankly, because we haven’t really fully developed plans. We look at the way, we provided services where cost and what they had to pay and there is just we think there is good upside there. So, what was the second question?

Michael Nathanson – Sanford Bernstein

Second was what here you kind of alluded to a below the line restructuring charge, so for transaction how big of charge could be?

Joe NeCastro

It's not restructuring, it is cost related to the financing largely and bring the putting the bridge in place and then fees around the transaction.

Michael Nathanson – Sanford Bernstein

Okay, that's good. Let me ask this for Ken. I guess in the past few months the world changed a bit, you now have News Corp asking for probably $1 a month for a Fox network. You have ABC which sounds like was asking it affiliates for reverse RETRANS. Comcast is taken by NBC. So, I wonder do you think is there a greater risk going forward that you could be carry out for your negotiations and do you think you need for more scales on those negotiations just going forward?

Ken Lowe

Well, I think since we are out in market place right now with food. It's always going to come down to the quality of the programming, the passion the audience has for it and this is always been true. We will see how all this retransmission and talks play out. You have to also remember the lot of retransmission concern has been granted to the right with certain cable network with certain media companies.

So, it's not all going to be very clean where it might totally revert back to NBC or ABC Disney or the fast network et cetera. There was a lot of chatter in the market place. At the end of the day quality wins, passionate viewers on the other end, demanding what they want from the distribution partners. So I don’t worry so much about it. Quite frankly there is nothing we can do except to create great networks and likely there were no Food [ph] go out and negotiate with operator for better rates. So our market place will take care itself, I am not overly concern at this time.

Michael Nathanson – Sanford Bernstein

We have just one last for John. I was trying to square the circle which is given the great rating, no doubt you have third quarter and given. The unbelievable strength in scatter market, why there such a large gap in the growth rate in earnings ratings versus growth in advertising dollars on some of these networks?

John Lansing

Well, there is just a lag effect, for instance their upfront for most of 2009 was negotiated in the summer of 2008 and that 50% inventory that committed and then rating improvement that we had in 2008 over 2007 for Food network for example was 20% to 25% overall. We didn’t anticipate another year that will take us 25% to 35% on top of that. And so now that we are catching up with that incredible rating performance [ph] we are adjusting our rate card, we adjusted in the scatter market place in the second quarter upward.

We adjusted it further upward in the upfront negotiation this summer for 2010 and then we pushed it further upward into fourth quarter scatter business that we are negotiating today, and I fully anticipate -- In fact I think is fair to say that we will have in terms of revenue for the fourth quarter for food network the highest revenue quarter we ever had and that will be commensurate with the fact that we just completed the highest ratings quarter we ever had for the network.

Michael Nathanson – Sanford Bernstein

Thanks.

Operator

And our next question comes from the line of Chris Ferrell [ph] with Capital Asset Management. Please go ahead.

Chris Ferrell – Capital Asset Management

Hey this is question for Joe. Its on Food profitability as the dividend that you guys pay is growing greater and greater. And I am having a harder time making sense of what the formula exactly is to determine the dividend that’s going to the minority $2.

Joe NeCastro

Chris there is not really much science in that formula, there has been over the years a catch up in terms of recruitment and investment by the majority partner which was us. But now that we are sort of in clear, we do dividends on quarterly basis for tax distributions and then we catch up with them at the end of the year there is a lag so you are not going to be exactly write year-over-year. But if look at the fourth quarters, where some distributions relative to the earnings of the Food network it would be, it would just be their percentage of the cash that comes out. It’s not exactly tied to profitability because they have some cash adjustments, if there is any capital spending or any other cash requirements. They come ahead of dividend, so it’s just whatever cash we generated on their percentage.

Chris Ferrell – Capital Asset Management

Okay so you guys used to provide a EBITDA margin that for Food it gotten up in to the 60%, 160, mid sixties I think when you will cut off providing and then there was and that was excluding a sort of big line item of shared services. When you are calculating the Food profitability would shared services be allocated back to that network?

Joe NeCastro

Yes they are distributed out.

Chris Ferrell – Capital Asset Management

Okay. If so to be reaching the levels of dividends that seem to be distributed and suggest those margins now it seems almost like they got to have an eight, some of them are in line in front of us. Is that accurate, is that directionally accurate?

Joe NeCastro

No I have to see your math to tell you where you are missing but its not there.

Chris Ferrell – Capital Asset Management

It’s not that okay all right. The formula for travel formula will it be similar? In terms of their 35% ownership and the point which you would be getting dividending [ph] to them.

Joe NeCastro

It will be similar.

Chris Ferrell – Capital Asset Management

Okay. And so we have a couple of travel numbers provided earlier in response to questions and I only missed a couple of them. It sounded like you used a better $200 million of revenue estimate for 2010 and someone said that was your guess and that be up 10 or 15% of ’09?

Joe NeCastro

No, no there were two different ways just watching at the same number. That’s about right and what Lori said is one way I think about it as the percentage of the total revenue would be represented by travel, and that was the number he used not that was network thing.

Chris Ferrell – Capital Asset Management

Okay I see, and then did you guys used $80 million as a cash flow margin or was that number turn out there?

Joe NeCastro

Yes what I said in answer to your question was the, we thought about EBITDA they way we thought about it and the analysis was in ’09 on an normalized basis was north of $80 million.

Chris Ferrell – Capital Asset Management

Okay, and normalized is that before your synergies that you are anticipating getting, or after?

Joe NeCastro

It is before.

Chris Ferrell – Capital Asset Management

Okay. And then the last question is on the debt line which in your press release, where you said the debt guaranteed by Scripps and you later confirmed it essentially recourse [ph] to Scripps and indemnified by cost. Is that any indemnification to Scripps?

Joe NeCastro

Yes, it is.

Chris Ferrell – Capital Asset Management

Okay. All right, that’s all I have. Thank you.

Joe NeCastro

Okay, thanks.

Operator

(Operator instructions). And we have a follow-up question from John Janedis from Wells Fargo. Please go ahead.

Wendy Machana – Wells Fargo

Yes, hi, this is Wendy Machana [ph] for John. Paul's question related to Food, I think the Food networks partnership dissolves about three years, so if you don’t come terms that should be in by then. Do you have some sort of call option like you could push yourself?

Joe NeCastro

Yes, this Joe. Technically, it does expire, it is certainly renewable, so we don’t expect that would be an issue, so that’s not my consideration at this point.

Wendy Machana – Wells Fargo

So they have the option renewal are you saying?

Joe NeCastro

No, we do.

Wendy Machana – Wells Fargo

Okay. Thanks. That’s all I had.

Joe NeCastro

Sure. Kroeger is that the end of the questions.

Operator

That is the last question.

Mark Kroeger

Okay. It's good. Go ahead and give the call back or the replay instructions and everybody this is Mark, I will be available for the rest of day. Thank you.

Operator

Thank you. Ladies and gentlemen, this conference will be available for replay after 12:00 PM today, through November 13th at Midnight. You may access the AT&T teleconference replay system at anytime by dialing 1800-475-6701 and entering the access code 122842. International participants dial 320-365-3844. Those numbers once again 1800-475-6701 and 320-365--3844, access code of 122-842.

And that concludes our conference for today. Thank you, for your participation and for using AT&T Executive Teleconference. You may now disconnect.

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Source: Scripps Networks Interactive, Inc. Q3 2009 Earnings Call Transcript
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