Scripps Eyes Affiliate Fee Windfall
With Deals Expiring In 2009, 25 Cent Per Subscriber Fee Possible: NeCastro
By Mike Farrell -- Multichannel News, 9/18/2008 5:09:00 PM
New York – Scripps Networks Interactive chief financial officer Joe NeCastro said that its flagship cable channels Food Network and HGTV will have a slew of affiliation deals to renew by the end of next year, and that cable, satellite and telco TV operators should prepare to pay a lot more for those popular networks.
At the Goldman Sachs Communacopia conference here Thursday, NeCastro said that about three-quarters of its Food Network and half of its HGTV network affiliation deals will expire by the end of 2009.
NeCastro said that SNI already has started mapping out its strategy and hopes to have five or six of those affiliation deals completed before the end of next year.
He said that one advantage is that HGTV already established a new rate card with the two largest cable operators in the country – Comcast and Time Warner Cable.
“We feel like we are in a pretty good position for the balance of that network’s affiliation deals,” NeCastro said.
NeCastro said that affiliate fees currently represent about 20% of total revenue at the networks, far below some other programmers. He added that over the next three to five years the goal is to grow affiliate fees closer to 30% of total revenue.
According to SNL Kagan data, Food Network is receiving affiliate fees of about 8 cents per subscriber per month, while HGTV gets about 11 cents. Asked if levels of 25 cents or more were possible and NeCastro said they were.
“That [25 cents] is certainly achievable at HGTV over the period,” NeCastro said. “The objective is to keep them in the same neighborhood.”
NeCastro admitted that there is a risk that distributors will resist increases, but he added that the gap between what the networks are receiving and what they are worth is large.
“From our point of view, we’re not even in the right neighborhood and to save a penny or two on us doesn’t make any sense,” NeCastro said. “This is a once in a decade opportunity, we really do have to get the value reflected. We’re willing to be aggressive in that. It adds a little risk but I think it’s a high-stakes game and we need to play hard this time.”
Scripps CEO Ken Lowe added that the networks have been a bargain for cable and satellite operators for years – they were initially free and didn’t begin collecting a fee until 2004. And he said that the channels also generate strong local ad sales for operators.
“We have been a very good partner for the MSO and satellite providers and we will continue to be a good partner,” Lowe said. “At the same time we have fulfilled our end of the bargain – that is, we took a network that was for free and invested a lot of money. Food is one of the hottest cable networks in terms of ratings. It’s just a matter of sitting down and hopefully reasonably coming up with an agreement that works for both sides over time.”
Investors appeared encouraged – SNI’s stock closed Sept. 18 up 5.3% ($2.07 per share) to $41.23 each.
Lowe also tried to downplay speculation that SNI is on the block. Ever since the company was split from E.W. Scripps Co. in July, speculation has been that the networks were in play.
Most recently, Discovery Communications CEO David Zaslav, on the eve of his company becoming fully publicly traded, told The Wall Street Journal that he would be interested in SNI if it came on the block.
“We did not do this separation to sell the networks,” Lowe said at the Goldman conference. “It is only logical if you look at the fact that Sundance, Oxygen and The Weather Channel have all recently sold. It just falls into the line of thinking, especially now with Discovery going public, that we’re a target. It’s flattering, but quite frankly we are focused on building value for what we have in front of us. We think there is value to be built in the food and shelter industry. Down the road, if there is an event, it will take care of itself.”
