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Transcript

Second Quarter 2005 Earnings
Conference Call
July 14, 2005

Ruthellyn Musil, Sr. Vice President/Corporate Relations
Good morning, and welcome to Tribune’s conference call to review 2005 second quarter results. Since we recently presented at the Mid-Year Media Review, our opening remarks will be very brief, and we’ll leave plenty of time for questions. As always, we’ll try to be finished within the hour.

Our speakers this morning are Dennis FitzSimons, Tribune’s chairman, president and CEO and Don Grenesko, senior vice president and chief financial officer. Scott Smith, president of Tribune Publishing and Pat Mullen, head of our broadcasting group, are with us for Q&A.

Turning to our press release, Tribune’s first quarter diluted EPS of 73 cents on a GAAP basis includes a net non-operating gain of 13 cents per share. Our release contains the information needed to make a meaningful comparison to First Call estimates.

Now, before turning the call over to Dennis, I need to remind you that our discussion may include forward-looking statements that are covered in greater detail in our SEC filings.

Dennis...

Dennis FitzSimons, Chairman, President and CEO
Our second quarter results reflect continued focus on expense control. While consolidated revenues were down 2%, cash expenses were slightly lower than last year after adjusting for the charges that were taken in last year’s second quarter.

Staffing is down 5% year-over-year in publishing and we’ve reduced headcount in broadcasting as well.

At this point, we expect consolidated expenses for the full year to be flat to up slightly, despite significant increases in pension and medical benefits, plus newsprint pricing. We’ll continue to look for more cost-saving opportunities.

Our newspapers and TV stations generated operating cash flow of almost $400 million in the second quarter. This is despite the challenging advertising environment that’s most pronounced in the major markets. These businesses are resilient and provide a strong base for future growth.

Now, let’s turn to an update on new developments.

First, at Newsday and Hoy, New York we are bringing the overall settlement process with advertisers to a close. Significant progress has been made; Tim Knight and his team are finalizing agreements with a few major advertisers and those efforts are expected to be completed soon. This will essentially leave outstanding only the few advertisers involved in litigation outstanding. Our $90 million reserve remains adequate and most importantly, the disruption this has caused at Newsday is, for the most part, over and the management team is looking to the future.

Second, deregulation. Based on comments from the office of chairman Kevin Martin, we expect the FCC to launch a local media ownership rulemaking today. This is the result of the 3rd Circuit remand. That rulemaking document will outline a timeframe for completion and final vote. Given the FCC’s original findings in ruling on cross-ownership relief in major markets and the Court’s affirmation of those findings, we would hope the Commission will separate the cross-ownership rule out from the other rules under consideration.

Third, we’ve made a couple of new investments in the online segment through Classified Ventures. First, CV acquired HomeGain, which provides online resources for buying or selling a home.

This creates a leadership position for CV in the online real estate ad industry. The second investment is Newcars.com, a leader in automotive sales lead generation which will expand Cars.com’s presence in the new car market.

Finally, we’ve repurchased more than 6 million shares year-to-date. Currently, we have about $370 million remaining in our current board authorization, so we’ll continue to be active. Coupled with our recent 50% dividend increase, we think this clearly demonstrates our commitment to returning capital to shareholders.

Now, let’s go to Don for the details on the quarter, and then we’ll take your questions.

Don Grenesko, Sr. Vice President and CFO
Thanks Dennis, and good morning everyone. I’ll go directly to the performance of our publishing and broadcasting groups in the second quarter.

Starting with publishing, operating revenues of $1 billion, were down slightly from last year.

Newspaper ad revenue grew by 1%, led by Chicago and our Florida papers. If you exclude Newsday, which implemented lower ad rates last fall, ad revenue for the group was up 2%.

Retail advertising was down 1%, with the entire decline attributable to Newsday. The rest of our newspapers were up slightly in the aggregate.

Preprint revenues increased 4% in the second quarter. LA was up 11%, indicating that our preprint investments are paying off.

National advertising was down 4%, although both Chicago and South Florida were in positive territory.

For the group, transportation, wireless and resort advertising was weak; auto manufacturing and financial were strong.

Classified advertising revenues for the group increased 6%, largely driven by growth in interactive. Help wanted rose 13% and real estate almost 18%. Auto was down 7%, as local dealers relied on national spending.

Circulation revenues decreased 9% in the quarter primarily due to volume declines at each of our newspapers, as well as selectively higher discounting. We are focusing on individually paid copies and expect to show meaningful trend improvement with our September ABC report.

On the expense line, compensation is down 1% excluding the special charges last year, as higher pension and benefit expense was more than offset by the 5% staff reductions that Dennis mentioned. Newsprint and ink expense was flat, as higher newsprint prices were mostly offset by a decline in consumption.

Turning now to broadcasting and entertainment, second quarter operating revenues for the group were $423 million, down 6% from the second quarter of 2004. Cash operating expenses were flat.

As Pat noted at the Mid-Year Media Review, softness in the television advertising market persists, especially in the major markets. And our TV revenues are being affected not only by the overall ad environment, but also be the impact of Local People Meters in our top markets.

Turning to the equity line, we posted income of $12 million in the quarter, up from
$4 million last year. This reflects improvements at TV Food Network, CareerBuilder and Comcast SportsNet in Chicago.

We're particularly pleased with the progress at CareerBuilder. Revenue for the CareerBuilder network for the second quarter was up 78% year-over-year, and increased 83% year to date. CareerBuilder network traffic for May was up 47% to approximately 20 million unique visitors, compared to last year.

Finally, our average shares outstanding declined by about 4% due to the significant stock repurchases that Dennis mentioned earlier.

With that, we would be happy to take your questions.

Questions and Answers

Alexia Quadrani, Bear Stearns

Q. First on the growth and the preprint sent out at the L.A. Times in the second quarter. Do you feel that you’re maintaining market share there or winning market share against ADVO or is it really just that the market there is very healthy?

A. We believe we continue to gain market share overall in the Los Angeles preprint market. With revenues up 11%, that’s clearly more than the market growth overall.

Q. ADVO suggested there’s significant discounting going on in this sort of market share war, do you see that?

A. We point to the fact that revenue and pieces are up about the same for us, so it’s a very competitive market. But we’re not seeing a diminishment in pricing there.

Q. I guess once you’ve cycled through the circulation issues and the difficult comps at Newsday having lowered the ad rates there, do you think you’ll be in a better position? I know you’ve mentioned that the FAS-FAX numbers in September will be better. Do you think you’ll be in a position to actually raise ad rates at Newsday next year?

A. We’re still looking at what we’ll actually do at Newsday on ad rates. But, certainly, cycling the declines that averaged around 7% will be significant. And we’re optimistic we’ll see revenue growth in advertising at Newsday starting as soon as the fourth quarter.

Just add to that. I mentioned this at Mid-Year Media Review, the amount of time required by the Newsday sales staff and management team to focus on this restitution process really took a lot of effort away from their sort of proactive sales efforts. So we see that as a positive too, now that that is, for the most part, behind us.

Q. You’ve obviously are seeing some nice benefits from the staff reductions taken. Once those have cycled through do you have other initiatives maybe to maintain cost down or keep costs down?

A. Yes, we do. We’ve been looking, as I mentioned earlier, at other cost-reduction possibilities. And as we get further into third quarter, we’ll be determining if those are prudent. But we do feel we have some additional potential. We are investing in some additional marketing efforts on the circulation side, though.

Lauren Fine, Merrill Lynch

Q. I’m wondering if you could give us some forward-looking updates. If there’s any sense of how the papers are doing in July. Some of your peers have indicated some improvement. And then also on the TV side, if you could give us a sense of third quarter pacings.

A. Keep in mind we’re two weeks into July, that includes the holiday period, so I wouldn’t read too much into a couple week trends. But they, on balance, are similar to slightly better to what we saw in June.

The same is true on the TV side, slightly better.

Q. And then on the newspaper side, you gave in the release some detail by category for the bigger properties. I’m wondering if you could tell us what the overall ad revenue growth was for at least the big three in the quarter and then any update on what’s going on with your relationship with General Motors in the Los Angeles market?

A. L.A. was up a little less than 1%, Chicago was up close to 4%, and Newsday was down 6% total ad revenue.

There’s been meaningful progress in terms of the General Motors situation. First of all, the few dealers that were participating in the boycott, although one of those is back, we’ve got some SAAB advertising that’s part of the overall General Motors account and indications are that more General Motors business will return in the foreseeable future.

John Janedis, Bank of America

Q. What kind of impact on revenues do you expect from anniversarying against the LPM or, I guess, maybe said differently, if you excluded the impact of the LPM’s in the second quarter what would your decline have been for the TV segment?

A. LPM’s continue to have an impact in the top three markets. As you know, we believe this technology tend to under report that younger viewing audience in the homes with five or more people. So our top three markets were down more than the rest of the group during the quarter. We are, though, getting toward the end of the cycle of LPM’s in the top three markets and we believe we will cycle through completely by the end of this year.

Q. But can you quantify any kind of revenue impact?

A. We’re not giving any specific numbers market by market. But, again, we’re a few percentage points behind in the top three markets compared to the average for the rest of the markets.

Steven Barlow, Prudential

Q. Can you just give us for June the classified categories, pluses or minuses for those? Secondly, is there a way to size the CareerBuilder change in the loss there? And then finally, are you hiring more salespeople for TV and/or newspapers?

A. The classified split. So in aggregate for the group, automotive was down 7% in the second quarter, help wanted up 13% and real estate up 18%.

Q. Could you give me June, please, because that’s not in the release?

A. June is auto down 8%, help up 11%, real estate up 17%. And on the salespeople question, in publishing, yes, we are selectively adding salespeople in some markets, particularly in local territories where we see upside and where we’ve seen good growth in the last year or two.

On the television side, we have selectively added a few additional salespeople and committed to an effective sales training program.

Q. It appeared that your CareerBuilder loss that you’re taking in the equity line is little smaller. Is there a way to size what that difference is from last year?

A. It’s a modest loss in CareerBuilder in the second quarter and it’s almost half of the loss of what we had last year, somewhere around in that range.

Brian Shipman, UBS

Q. I’m wondering if you could elaborate a little bit on your statement about ABC audit results coming in September by major market, what your expectations are by major newspaper. Coming out of the second quarter, do you expect circulation revenues to also show some improvement in the third and fourth quarters?

A. Well, building on Don’s comments and mine at Mid-Year Media Review, we’re focused first and foremost on individually paid circulation that we believe is most valuable to advertisers and also the best read copies that we circulate. And in terms of individually paid circulation, we believe we’ll see meaningful improvement in the trends in the September period versus March, which means significantly smaller year-over-year decline. We’re seeing progress in that regard through June and we expect to make more progress based on the content and marketing programs we have in place across the group. We also expect that to be true in the biggest markets, Chicago and L.A. And that the decline in circulation revenue will moderate as the year progresses.

Bill Bird, Smith Barney Citigroup

Q. When would you hope to have resolution on the methodology being used on LPM’s? And on circulation, just wondering where you are in the process of re-basing circulation, specifically what’s the percent of other paid circ today versus your goals, say, by year end?

A. In regards to the LPM methodology question, the system that Nielsen has rolled out in the top markets is the new system, it is the new currency that we’re now working with. So our efforts have been concentrated on working with Nielsen aggressively to improve their ability to measure the audience and make the current system work. Nielsen has put fair effort into that, not a great amount of positive results. But we continue to work aggressively with them to try to improve their ability to measure the young audiences.

And on the circulation composition, in March other paid was 8% daily, 4% Sunday. Or looked at the inverse, individually paid 92% daily, 96% Sunday. That proportion of other paid is lower than most of our major market peers already. We’re expecting the other paid in the daily category to go down a little further. We think Sundays are at a level that’s about appropriate.

I want to mention one thing on the Local People Meter front. What’s been difficult about this is change from the set top meter methodology, which showed certain statistics and even when they run parallel. When the set top meters and the local People Meters are running at the same time, you see big declines in the younger demos, not only in terms of demographics viewing but also the younger stations are disproportionally hurt. Then there’s also a test going on in Houston with passive people meter technology that shows much higher participation by younger demographics, or much higher viewing by younger demographics. So it’s a little bit difficult. Nielsen has a marketing agreement with Arbitron for that passive people meter technology. And it’s just very difficult when you look at the varying levels of young demographic viewership provided by the different research methodologies. So, Pat continues to work with Nielsen to try to get those younger demo sales better measured.

Michael Kupinski, A.G. Edwards

Q. I just want to drill down a little bit on the national advertising category. How much of the national business comes from the likes of General Motors and just trying to gauge the impact of it being down 5.1% in the quarter.

A. On the publishing side, as we said, for the quarter national was down 3.8% in total. That decline essentially is driven by just a couple categories. First is wireless, where the AT&T/Cingular merger led to a 10% decline and that’s almost dollar for dollar what those two combined accounts meant for us. Second, transportation, primarily airline, is down by a third, and that’s the really big airlines that we were promoting actively in the second quarter last year pulling back. Resorts are also down, as we said, in the press release. Offsetting that, auto, which is a combination of manufacturer and dealer association spending driven by funding from the manufacturers, is actually up 9% for the quarter.

Q. And I was just wondering in terms of some of these other advertisers, are you seeing any type of pushback, because national’s usually bought on based on circulation. I was just trying to gauge what you anticipate national will do in the second half as you come up against some easing comps, especially in the fourth quarter.

A. We think the dynamics of national are largely driven by the category-specific supply-demand factors and whether those categories are promoting more or less. Then on the margin, we have an opportunity to gain share or potentially lose share. And we see that as more upside for us going forward than downside.

Q. And in terms of national, do the national advertiser buyers generally look at readership? I assume that they just look at paid circulation. I was just wondering are you seeing any interest in buying newspapers on the basis of readership versus circulation?

A. They look at both, the big sophisticated ones do. Certainly there’s a lot of dialogue around circulation and we’re telling our story. We think very effectively about focus on individually paid as the most valuable to them. Also, the information from readership, not just in aggregate but about the demographics and responsiveness of our newspaper reader, are important in their buying decisions.

There’s clearly and industry-wide move to continue to advance the use of readership information with major advertisers because we think it’s a really significant and important part of the selling pitch and the value we create for them.

Doug Arthur, Morgan Stanley

Q. On the IRS tax issue, there are a lot of figures flying around the street in terms of what the liability is there. And I know you break it out in some of your filings. Could you just update us on if you lose the case, what is the total liability including interest and how much have you reserved against it?

A. If we were to lose the Matthew Bender tax case the liability at the end of this year would be around $950 million. Our reserve at this point is around $240 million. That’s basically $180 million that we had picked up from Times Mirror at the acquisition, that’s what they had reserved, plus interest since that point in time.

Q. And if you get an unfavorable ruling, are there grounds or are there avenues for appeal or could this carry on for several years?

A. We would immediately appeal. We would have to pay the money, but we would then appeal. You know, initially, when we looked at this case, we felt the odds weren’t that good in tax court and were much better on appeal. As the case went forward, we were more confident of the position in the tax court and what the outcome might be. Now, there’s no guarantee. But we would immediately appeal if we happen to lose.

Q. Just drilling down on ad trends, et cetera, in Los Angeles. I know that you’ve had a new management team in place there for several months now. How do you see that playing out over the next four quarters in L.A.? There’s an overall ad momentum.

A. We have a very talented team with significant sales and marketing experience now in place. And they are optimistic that we’ll see improved results over the next four quarters. That said, it’s work in progress and they’re both going through their organizations and advertising by category and have made some further changes there to make sure we have the best sales talent available. And also that our go-to-market strategy with how we sell the great strengths of the L.A. Times in that market. We’re telling that story as well as we possibly can to all the right clients. So I’m optimistic we’ll see improved trends in the months ahead. It’s certainly tied to also improving the circulation picture. And, again, we’re very optimistic that what we report in September in L.A. on circulation will be better as well.

Q. Are there any specific categories, retail, national, or classified that you’re excited about near-term or is it just sort of across-the-board?

A. I think it’s pretty much across the board. But, for example, financial advertising that’s in the national category but is largely driven by local phenomena, L.A. was slower to pick back up in this cycle than other markets like Chicago, and we’re now seeing good growth there. Movies are actually up year-to-date in Los Angeles, despite the fact that you’ve had fewer releases and less movie support overall. So it shows that the selling we’re doing, including the increased color capacity we have, has held movie advertising in a kind of tricky market. So I think that’s good news. And they are up in many of the preprint categories as well -- food and drug, many of the other home furnishings, et cetera. So we see good growth there. Their real estate market is very strong right now. We’re showing the biggest gains in the group in real estate in L.A. And help wanted, which has been kind of lackluster, has improved some recently, not quite to the group average but showing pretty good growth. So, overall we’re optimistic that the year ahead will be a significantly better one with the Los Angeles Times.

Q. New York Times has talked about 24 more movie releases in the second half this year than a year ago. Is the movie category, which is pretty critical to L.A. Times, likely to get better as a result of that or time will tell?

A. Well, if there are more releases and the studios overall promote them longer than they have, it would be a help. But what you’ve seen through the first half is actually fewer releases and when some of the recent releases didn’t take off, the studios pulled spending pretty quickly. So I think we just got to watch it as it goes, but know that we’re doing all we can to get our share and then some of that movie advertising.

One very positive thing we’ve got going in L.A. is the increased use of color by the studios. So the additional capacity has enabled us to generate that color premium. So movies actually in L.A. for us in second quarter were in the plus category.

William Drewry, CSFB

Q. Just wondering on the cost cuts. Scott, you said you were actually adding some sales positions. What positions in particular were those 5% of headcount reductions coming from? And would those types of positions be where you would continue to look to cut? And I’m just wondering if you think there’s any connection with the slowdown in revenue growth and the cost-cutting. In other words, it’s pretty severe cost reductions at this point in the cycle and I’m just wondering if there’s any correlation to the revenue growth. And then, I’m just wondering exactly how, if you lost the tax case and we took the less optimistic scenario, would you pay for that? Would you just basically raise the current debt levels and what would that make the balance sheet look pro forma if you had to take down the full, I guess, 900 million?

A. On the staffing reductions of 5%, or just over a thousand people, through the first half of the year, almost all of those came out of operations, distribution, some newsroom, and support functions, not out of frontline sales force. And we continue to look at smart ways to take advantage of our scale, of technology across the group to get those kind of efficiencies going forward. We see, as Dennis said, some additional opportunities to do that smartly in ways that let us be more efficient and provide as much or more value to our customers, both consumers and advertisers. You’ve also seen some of those reductions occur on the core newspaper business as we’ve added people in the faster growing parts of the organization, Internet and our more targeted print publications.

If we were to lose the tax case, then our debt would go from, excluding the PHONES, from roughly $2 billion to $3 billion. But our debt-to-operating cash flow would still be around two times or a little bit less than that. So we think that we would still maintain an "A" type bond rating. We would do some combination of fixed rate financing as well as tapping into our commercial paper backup lines.

Q. If you’re able to see the kind of sequential improvement in the September circulation that you’re hoping for, would that make you, Scott, optimistic that you could see a complete flattening of that in 2006 or maybe even a return to circulation growth?

A. Well, with the nature of averaging across the six-month period and the results improving through the six months in September, we think that will give us some momentum going forward into the fourth quarter and next year. But the market challenges are significant. And we need to show the improvement in September, see if we can get back to results that are as good or better than our peers and have a picture that’s stable in terms of overall circulation where we sell the value of our audience going forward. We’re optimistic we can do that. We’re not giving out any specific forecast on exactly where that will take us fourth quarter and beyond.

Frederick Searby, J.P. Morgan

Q. You’re outperforming in the real estate category and I was just curious to what degree that is driven by the somewhat of a bubble out in the L.A. market and what your thoughts are there? And then secondly, if you can look into your crystal ball and tell us what you think about the WB ratings going forward. It’s been a drag for you. And then finally, My assumption is that you would probably slow down share buy-back due to the uncertainty there, but maybe I’m wrong on that so if you could give me some insight there as well.

A. On real estate, as I said, L.A.’s up very significantly year-to-date. But what’s interesting is they still have less real estate revenue in total than the Chicago Tribune does. And there’s the phenomena that you all know where markets can get too hot and people don’t need to advertise homes and condos, et cetera, and so a little bit of cooling likely leaves a very healthy real estate ad market in L.A. and in our other markets around the country.

In reference to WB, this past year our ratings for adults 18-to-49 for the network were down about a tenth of a point for the full season. We had strength in our returning shows, the shows we’ve had on air for a few years. It was our new shows that were disappointing. As we talked about in the Mid-Year Media Review, we’re very optimistic about the development season, working with some of the best producers in Hollywood. Jerry Bruckheimer’s got a new show on the network called "Just Legal." McG, who’s been the producer of the "OC," has a new show called "Supernatural." We have "Related" by Marta Kaufman. So a number of top-notch Hollywood producers, new shows, people we’ve never worked with before. And we think with the strength of our returning shows and some of these new shows, we’re set up pretty well for a good fall.

In terms of the share buybacks, we’re repurchased about $220 million worth of our stock year-to-date and we would expect to continue to buy in the second half of the year probably at a little faster pace than that. But having said that, you know, our debt is projected at the end of the year to be about $2 billion and it takes into account all those share repurchases that we’re planning for.

Q. You decelerated a little bit the share buyback recently and so we should actually see a pick up, again, in the second half regardless.

A. It will be the same or a little bit faster than the first half.

Craig Huber, Lehman Bros.

Q. You’ve talked a lot about the Local People Meter impact in your top few markets. Could you quantify, if you would please, how much the household viewership is down by these LPMs in your top three markets? Because when I look at the prime time ratings on the methodology that’s been in place since 1987, looks like the ratings are down 8% to maybe 12%, you know, prime-time for total households. Are you trying to suggest to us then that the Local People Meters in your top three markets are worse than that figure?

A. It varies significantly market to market but in general we’re seeing a drop of anywhere from 15 to 25% in broadcast viewing in the top markets. And as I say, the younger skewing stations, WB stations, are more impacted than the average. Dennis mentioned the PPM technology being tested in Houston. What’s frustrating from our point of view is the LPM does show these declines. At the same time we’ll be seeing significant increases in viewing in the test in Houston, particularly in the young demo, that 18-to-34 demo, where we’re seeing substantial increases in viewing. So we’ll work with Nielsen aggressively to try to improve their LPM system and maybe eventually move toward the PPM technology.

Q. Looking at individually paid circulation, this latest six month period with L.A. down 8-8.5%, New York down 5.5- 7%, Chicago down 8.5%, and Baltimore in the worst. Do you still maintain when we go into this upcoming January time frame that you’ll be able to get 3-4% ad rate hikes at your markets that are on that one extreme?

A. Well, first of all, as we’ve said, we expect those declines to diminish significantly in the September reporting period, including in Los Angeles and Chicago. And secondly, the real rate realization has not been quite 3-4% in those markets on average across categories, it’s been more like 2-3% this year. And we would expect, subject to a whole bunch of negotiations, that sort of moderate pricing ability to continue going forward assuming we make the progress that we expect to make on the circulation front.

Q. When I talk to your other peers, they tell me that a good 60-65% of their advertisers in their newspapers are on fixed annual contracts for pricing, so I’ve got to assume your company is pretty similar. So that means most of your advertisers have not had a chance to react yet to these huge falloffs in circulation, which all kind of gets public knowledge in early May. And you’ve told us in the past that you never told your advertisers this, you wanted to tell them when everybody else learned about it and all that. So, therefore they can’t react to it until this upcoming January for upwards of two-thirds of your advertisers. So aren’t you guys in kind of a tough haul here in terms of trying to convince them to take a 2-4% ad rate hike with lower circulation volume and also hope you don’t get hit on the volume side for advertising?

A. Well, first of all, the circulation decline in Los Angeles, if you go back a year ago September, was fairly substantial. I don’t have that figure in front of me. And it’s true a lot of our ad revenue base is tied to annual revenue contracts. Those are subject to negotiation. But we have active dialogue with those people, not just at contract time, but throughout the year, and we’ll have those negotiations again, not everything’s up in January. Some are up different times a year and we remain optimistic that they see great value relative to their other choices in our markets in our newspapers and that we’ll be able to raise rates on average slightly. In some categories we won’t, in some others we’ll be able to raise it a little more than slightly. It varies a lot by category and by client.

I’d like to just focus on one point that Scott made is relative to advertisers’ other choices. And what we’re selling is value to only relative to what everybody else is selling. So if advertisers are looking at Local People Meters, whether it’s the major broadcast stations or local cable interconnects, you’re seeing the major cable networks suffer a little bit with Local People Meter reporting also. So they’re going to have to view newspapers in the context of what else they can buy and ultimately what produces results. So we have good relationships with our advertisers and, as we go into these negotiations, we’re seeing a media environment where you’ve got a lot of fragmentation occurring. But advertisers still need to push product and we have a medium in newspapers that where people actually like the advertising. So we have a lot of strengths. And as we get into negotiations, we’ll see how it plays out but we believe there’s potential for us to increase our revenues.

Q. For May and Federated, could you just update us where your dollar exposure is there for the combined companies.

A. We haven’t given out an exact figure. If you take the two combined, they’ll be our largest single advertiser. As you maybe saw, the merger was actually approved yesterday and they’re now focused on how they integrate those two companies. There aren’t conclusions yet on questions like do they keep the Marshall Field name. They’re doing a lot of research to figure out what customers really value, which is smart. We have a good relationship with them. And are confident we’ll be a really important part of their picture going forward. Dennis and I had a dinner recently in New York with some of their senior people and the message was that they don’t know, even some of their senior people, what those decisions will be yet. But we’re in active dialogue and we’ll make the most of the opportunity.

Paul Ginocchio, Deutsche Bank

Q. Just a question about the print versus online classified. You mentioned that most of the growth was coming online. Could you just breakout what print grew versus what the combined grew and any difference today between the number of people taking online only classified advertising versus say a year ago? I guess by category as well?

A. If you take the second quarter, across all classified, print’s up 1.5 points and interactive’s up 50%. And if you look, it would say that in help wanted, print’s up but almost all the growth is online. In automotive, you’ve got a slightly bigger decline in print, like near 10%, and all the growth online. Real estate is actually interesting. T here’s more percentage growth, as well as much more dollar growth, in print than on the Internet. And if you think about it, and this is true in automotive as well, many advertisers use newspapers much more as a display advertising medium as opposed to trying to get all their listings out. And the value of that broad reach in a display environment is still huge in print. And you’ll continue to see more of the detailed listings go online but that display value of newspapers is very, very important.

Q. Is there any meaningful change in the number of people just taking online only advertising in Q2 ‘05 versus Q2 ‘04?

A. No, I don’t think there’s been a meaningful change in that trend.

Christa Quarles, Thomas Weisel Partners

Q. Just a follow-up on the classifieds a little bit. Autos, obviously, start to hit some fairly easy comps in Q3. In Q3 of ‘04, for example, you were down 8% versus flat in Q2 of ‘04 and up 5% in Q1 of ‘04. I was wondering if we could start seeing some, at least, stabilization or even getting close to positive growth any time near-term? And then just a brief question on the improved losses at CareerBuilder. Just wondering if given that, obviously, there was significant spending with additional Super Bowl ads this year, sort of is it just reaching the scale at CareerBuilder now that’s lending to some greater profitability?

A. Well, you’ve got this dynamic where you’ve got General Motors, in particular, but now the other manufacturers promoting very aggressively their employee price discounting across-the-board and that’s driving the increase in auto spending that’s in national. If you look at combined auto spending across national and classified, for example, year-to-date it’s down 4%, not the 7% that you see in the classified category. I think a lot depends in the second half of the year about how aggressive the manufacturers are in promotion. When they’re very aggressive the dealers lighten up some. And I think the dealers are selling cars. That’s a very good sign, okay? We’re optimistic we’d see some improvement in the dealer area. But it’s that combined dynamic with the manufacturers where it seems like they’re deciding month-by-month what they’re going to do in terms of their own promotion plan. So it’s very hard to see forward six months and give you a good reading on the trend. Your point on comps being easier is true.

Q. And just can you give us by market what auto classifieds were up or down, just the big three?

A. L.A.’s down about 9%, Chicago’s down just 1% where we’re gaining share, and Newsday’s down 6% for the second quarter.

Q. And then CareerBuilder?

A. In terms of CareerBuilder, I think that what you’re seeing here is that the deals that CareerBuilder did with AOL and MSN at the beginning of last year are really starting to pay results, as we mentioned, both with regard to the additional revenues and the traffic. So the revenues are covering the cost of those two deals.

And not unlike television advertising, there is a sort of a lag effect so all this traffic that CareerBuilder has generated is causing them to gain market share on HotJobs and Monster. So we see continued upside in CareerBuilder revenues.

Jim Goss, Barrington Research

Q. I had a question about classified, too. I was wondering about the sustainability of the gains in employment classifieds that you’ve been having and maybe what you’ve just talked about with CareerBuilder is one of the issues. But in one of your bullets in the press release, you mentioned that Newsday was flat and L.A. and Chicago were both trailing the overall help wanted gain. And where is the rest of the gain coming from? Are some of the smaller markets particularly strong or are the CareerBuilder online ads being counted separately?

A. Several parts there. First of all I did say, when I was talking about L.A. earlier, that their help wanted gains had been trailing but are picking up recently. Year-to-date they’re around 7%. Chicago’s a little over 10%. So all that would trail the first half total growth of 11.5%. We’re seeing the best growth in Florida. I think that’s a strong part of the country for most people. The softest part of the country for most people, and this is our experience too, is the northeast. In terms of your question on the CareerBuilder ads and how that revenue is booked, if I understood you correctly, essentially any CareerBuilder ad, print online or online only, that sold by us in our local markets, the revenue flows through us. CareerBuilder also has a national sales force where they go do the direct selling and, in that case, we get a piece of the revenue in our markets, but we don’t book all the revenue.

Q. Do you categorize them within the markets where they’re placed even if they’re online or does it get grouped separately so it’s an incremental addition over and above the Florida gains you mentioned?

A. Well, it’s categorized within CareerBuilder in those markets. If you go on CareerBuilder and look for the jobs it’s there, right?

When we talk about L.A.’s improvement revenue, for instance, that would include all the revenue that we record related to CareerBuilder. So that 25% share we get of their national sales into L.A., that’s included in L.A.’s revenue for help wanted.

Q. So the Florida gains then were especially strong and that’s offsetting even the pretty good gains in L.A. and Chicago? And then separately, one detail on the circulation issue. Have we come close to or are we close to anniversarying the "Do Not Call" factor as an issue? Or is that still to come?

A. Well, what you have is people continue to sign up for the "Do Not Call" list but at a diminishing rate. o, this is a rough average across our markets, but say 40% of the people in our markets have already signed up to be on the "Do Not Call" list.

But what that means is that may grow a little bit going forward, probably not a lot, but what it means is continually the percentage of the market that you can telemarket to is that much smaller, o, while we’ve cycled the biggest impact and we’ve rebalanced our marketing between telesales, direct mail, field crews, and also our strong focus on once we get a subscriber retaining them longer. We think we’re near through the big sudden shock to the system, if you will, but there will be some ongoing challenges that linger as a result of that fundamental change over the last year or so.

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