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Scripps Takes Shopping Markdown

Shop At Home is turning out to be a rare misfire for E.W. Scripps, with the company taking a big writedown on the network’s assets and considering shopping the operation itself.

As part of its fourth-quarter earnings release, Scripps says it is taking a $103 million writedown against Shop At Home's assets, about two-thirds of the network’s value. Losses for 2005 were nearly double what Scripps had expected.

“While we believe there's still opportunity at Shop At Home, we're being very sober about the capital decisions that may have to be made to maximize the value at Shop At Home for the benefit of our shareholders,” says Scripps CEO Ken Lowe.

Scripps has hired investment banker Allen & Co. to explore “strategic alternatives” for the channel, which could result in a partnerhip with some other company or an outright sale.

A year ago, the company predicted that Shop At Home’s losses would shrink from $21.9 million in 2004 to $15 million in 2005. Instead, the red ink increased, with losses hitting $28.3 million. With no immediate revival apparent, Scripps executives say they had to take a realistic view of the unit’s value and mark it down on the company’s books.

A major problem is poor distribution.

Shop At Home has a series of short-term, very expensive deals with cable and DBS operators. Some cable systems only carry the network part time and, as a shopping network, Scripps has to pay for distribution. Those payments can exceed 20% of Shop At Home’s revenues.

Scripps bought Shop At Home for $100 million in two stages beginning in 2002. Since then, the unit has accounted for an additional $74 million in operating losses and required an additional $22 million in capital spending.

Shop At Home’s problems contrast with the continuing success of Scripps’ other cable networks, notably HGTV and Food Network.

Revenue for the three months ended December jumped 21% to $247 million, while operating profit surged 34% to $121 million.

The broadcast-station division slumped because of the absence of 2004’s political-ad sales, with revenues down 10% to $89.4 million and operating profit down 25% to $29.9 million.