It's small compared to many of the cable and broadcast giants
it competes with.
ButScripps Networks Interactive (
SNI
) has been dishing up tasty results on the back of its iconic
flagships, the Food Network and HGTV.
Two of the most popular cable TV channels, they draw
high-margin advertising and affiliate fees to keep revenue and
profit growth bubbling in double digits.
Each draw an average of more than 1 million household viewers
a night.
Their appeal hasn't gone unnoticed by cable rivals, analysts
say. Jason Bazinet of Citigroup ventured that theWalt Disney Co.
(
DIS
) might move to acquire Scripps Networks to fill a "yawning gap"
in a cable portfolio lacking "upscale, older women."
The buy would also make Disney's cable portfolio less reliant
on sports cable network ESPN, he wrote in a report on Aug.
13.
"A Scripps acquisition would represent a nearly 50% increase
in Disney's existing cable audience," which is dominated by
Disney Channel and ESPN, he noted.
The company, through spokesman Mark Kroeger, had "no comment"
on the speculation.
But others weren't so shy.
"It's a well--run company," said analyst Eric Handler of MKM
Partners. "I don't think there is any great reason to sell right
now. But it may make sense down the road. This is an industry
that continues to consolidate."
Cable Conglomerate
Scripps Networks operates a bevy of lifestyle cable properties
that also includes the Travel Channel, DIY, Cooking Channel and
Great American Country.
It was spun off from 134-year-old media conglomerateE.W.
Scripps Co. (
SSP
) in 2008 as a separate cable-TV content company.
Knoxville, Tenn.-based Scripps Networks is viewed as one of
three pure-play cable companies, along withDiscovery
Communications (
DISCA
) andAMC (
AMCX
), home of the "Mad Men" series, IFC and The Sundance Channel.
AMC broke off from New York media concernCablevision (CVC) last
year.
Handler says it would "make more sense" for Discovery and
Scripps Networks to merge, with Discovery the acquirer.
Like Scripps, he says, Discovery has "nonfiction-type
programming." It also has a bigger international footprint,
something that Scripps is working to build, especially via the
Travel Channel.
Other cable operators are part of much larger operations. For
example, Disney's cable network is part of an entertainment and
media enterprise that also includes parks and resorts, studio
entertainment and consumer products.
Pending its planned split,News Corp. (NWS) still has
newspapers, television stations, satellite TV and film under its
wings.
"(Scripps Networks) is one of the smaller cable network owners
but they definitely have two of the most in-demand networks in
the Food Network and HGTV, particularly among women," Handler
said.
A family trust controls 93% of Scripps Networks' voting shares
and owns 26% of common class-A shares. As controlling
shareholder, it has veto power over sales to Disney or any other
company.
The trust is set to be broken up and its assets distributed to
surviving heirs after the death of the founder's last surviving
grandchild, Robert Scripps, who is in his 90s.
Some speculate that a sale, if it were to occur, wouldn't
likely happen until after the break-up since not all Scripps'
heirs have the same affinity for the business as prior
generations.
While acquisition rumors swirl around it, Scripps Networks is
focused on improving the businesses it has. High on the list is
the Travel Channel, its third and slower-growing flagship.
In the second quarter, Travel Channel revenue grew 4.9% vs.
the year earlier to $73.8 million. The Food Network, in contrast,
put up 17% growth, for $218 million. HGTV grew 8.4% to $205
million.
"Travel Channel is where we see the biggest opportunity for
the growth of the company," said spokesman Kroeger. "Defining
that brand and genre is the company's leading priority."
Though the Travel Channel is losing globe-trotting "No
Reservations" star Anthony Bourdain to CNN, it will be running a
host of new programs including "Hotel Impossible," "Baggage
Battles," "Trip Flip" and "Top Spot."
Scripps Networks acquired the Travel Channel in late 2009 to
complement its home and food categories. It recently acquired
U.K.- based Travel Channel International to help build a global
travel platform.
"It's the lowest-hanging fruit," Handler said of the Travel
Channel.
Meanwhile, Scripps' premium flank brands, the Cooking Channel
and DIY Network, are cooking up strong growth.
Revenue in Q2 at DIY, which features
rap-star-turned-contractor Vanilla Ice, grew 16% to $33.7 million
while the Cooking Channel rose 41% to $22.4 million.
Country Challenge
Scripps' one glaring laggard, Great American Country, is being
tweaked with new country-lifestyle touches, Kroeger says. The
music channel posted a 15% drop in revenue in Q2, to $5
million.
If it won't return value to shareholders through a sale,
Scripps is doing so through share buybacks. A recently approved
$1 billion share-buyback program follows a $1 billion one
completed in Q2.
Meanwhile, shareholders have plenty of other good news to keep
them content. Ad revenue in the second quarter rose 12% to $417
million while affiliate fees jumped 16% to $171 million.
Profit grew 19% to 93 cents a share. Analysts forecast
full-year earnings of $3.37 a share, up 17% from a year earlier,
according to Thomson Reuters. That takes into account higher
programming expenses, which are expected to rise 13% to 15% in
2012.
CEO Kenneth Lowe said in the second-quarter conference call
that the firm "broke through the $1 billion threshold" in total
ad business booked for the first time in the company's
history.
That puts it "in the same league with a very short list of
other programming groups," he said.
Ad revenue is growing faster than the 5% growth in the overall
cable industry.
"Clearly, we've created a distinct competitive advantage by
uniquely defining and staying true to the lifestyle content
categories that we own and it's paying off," Lowe said in the
call.