Scripps Cooks Up Profit Increase

Credits growth of advertising, affiliate revenue in Q2

By Jon Lafayette -- Broadcasting & Cable, 8/9/2010 11:02:53 AM

Scripps Networks Interactive said Monday its profits rose in the second quarter thanks to strong growth of both advertising and affiliate revenue.

The gains came despite increased costs as the company absorbed and reprogrammed the Travel Channel and re-branded its Fine Living network to become the Cooking Channel.

Second-quarter net income rose to $106 million, or 63 cents per share, from  $79.5 million, or 48 cents per share, a year ago.

Revenue increased to $516 million, an increase of 32% from a year ago. Excluding Travel Channel, acquired in December, consolidated revenue increased 16% to $454 million.

"Scripps Networks Interactive had an outstanding second quarter, benefitting from robust affiliate revenue growth and the strong advertising marketplace, particularly for our targeted lifestyle television networks," said Ken Lowe, chairman, president and CEO. "Food Network, HGTV and Travel Channel all contributed to the solid quarter, delivering growing and engaged audiences thanks to standout programming hits like Next Food Network Star, HGTV Design Star and Man v. Food."

On the company's conference call with analysts, Lowe said Scripps was on track for an excellent 2010 and that 2011 was looking good as well.

Total revenue from the company's Lifestyle Media business segment was $475 million, up 36%. Excluding Travel Channel, Lifestyle Media total revenue was $413 million, up 18%.

Affiliate fee revenue grew 73% to $139 million. Advertising revenue was $331 million, up 27%. Excluding Travel Channel, affiliate revenue increased 42% and advertising revenue was up 13%.

Affiliate revenue was up because of new affiliation agreements for HGTV and Food Network signed toward the end of last year. The new deals called for big increases in payments for the first year, and more moderate increases over later years.

The next round of major distribution deals representing about 25% of Food Network's subscribers expire at the end of next year, and Lowe said the company will be negotiating the same rate card with those operators.

John Lansing, president of Scripps Networks, said the company's upfront was among the best in cable, with volume up 30%, compared to 17% for cable overall, thanks to higher ratings and getting more advertisers to buy commercials on the company's smaller networks.

Scatter in the third quarter remains strong, he added, up in the double-digit range from scatter a year ago.

Total expenses increased 34% to $238 million.

Programming expenses increased 32% to $103 million. Programming expenses excluding Travel Channel were up about 15%. The company said the relatively large increase was caused in part by accelerated amortization of Fine Living Network programming related to the Cooking Channel re-branding.

Scripps said it incurred $8.6 million in costs associated with the transition of the Travel Channel. In all, it expects integrating Travel Channel will cost more than $30 million. Some of those expenses involved ending contracts with Discovery Communications, which had been handling ad and affiliate sales for former owner Cox Communications.

In the upfront, Scripps' sales team was able to increase volume on Travel Channel by 60%, adding about 30 new advertisers to the channel. They also managed to reduce the amount of direct response advertising on the channel from 30% and hope to get it down to the 5% to 8% range at the company's big networks.

It also restored marketing budgets at its channels, which had been cut back because of the recession.

Lowe said replacing Fine Living with the Cooking Channel was already paying off.

"Our newly re-branded Cooking Channel, launched May 31, is off to a positive start, delivering a considerably larger audience and higher ad revenues than Fine Living Network was at this time last year," Lowe said. "The wisdom of launching a flanker network targeting the popular television food genre is evident in the solid operating results the brand has achieved since going on the air."

Just 30 days after the launch, Cooking Channel was able to attract nine new advertisers spending one million or more on the network during the upfront. Upfront volume for the channel was up 90% from what Fine Living attracted, Lansing said.

Scripps provided some financial information for its individual networks:

• Operating revenue at HGTV was $174 million, up 6.2%. That was a decline from 12% in the first quarter. There was "ratings softness" in April and May that lead to make goods to advertisers, Lansing said.

• Food Network operating revenue was $173 million, up 35%.

• Operating revenue at Travel Channel increased 13% to $61 million.

• Revenue at DIY Network was up 26% to $22.8 million.

• Revenue at Cooking Channel was $13.6 million, up 24 percent.

• Revenue at Great American Country (GAC) increased 26% to $8.5 million.

• Revenue from the Lifestyle Media segment's digital businesses, which includes its network-branded Web sites, was $21.4 million, up 2.8%

Lowe said that it was unlikely that Scripps would be able to buy the 20% of Food Network owned by Tribune Co. this year because of delays in the Tribune Co.'s bankruptcy process.