Cable Operators

Scripps: Food, HGTV Fees Achieve Parity

2/10/2010 12:56 PM Eastern

Scripps Networks Interactive executives say the sometime harsh
negotiations with distributors over carriage renewal agreements for
Food Network and HGTV paid off with sizeable gains in carriage fees for
both networks.

Scripps renegotiated carriage agreements for Food and HGTV with several operators. Its most highly publicized battle was a dispute with Cablevision Systems that led to Scripps pulling the channels from those systems for about three weeks.

Scripps and Cablevision reached an agreement in January that put the channels back on the MSO's systems.  While terms were not disclosed, Cablevision had claimed earlier that Scripps was demanding a 200% increase in the combined rate paid for the networks.

On a conference call about fourth-quarter results, Scripps chief
financial officer Joe NeCastro said that the company was able to
achieve "parity" between what affiliates pay for Food and HGTV.

According to Scripps, Cablevision was paying about 25 cents per subscriber per month combined for the two networks prior to its new deal. SNL Kagan had estimated that Scripps was received on average about 8 cents per subscriber per month for Food and about 13 cents for HGTV.

Some analysts had estimated that Scripps was asking for between 50 cents and 75 cents per subscriber per month for both channels.

On a conference call about fourth-quarter results, Scripps chief financial officer Joe NeCastro said that the company was able to achieve "parity" between what affiliates pay for Food and HGTV.

NeCastro added that not only were all of the pacts reached under multiyear terms, but that the networks received the bulk of their increases in the early years of the contract, not towards the end of the deals, as is typically the case.
"We did achieve a much larger slug of the growth early on in the Food [Network] renewals," NeCastro said on the call. "We are very, very pleased with how those renewals came out. We certainly met our objectives and we actually exceeded our internal expectations."

Later, Scripps Networks executive vice president and president John Lansing said on average the deals were for between three to six years, depending on the affiliate. NeCastro declined to give specifics for rates, but said that escalators over the life of the pacts were in the mid- to high-single digit percentage range.

"It's fair to assume [the escalators] are in the single digits, I think low may be a stretch," NeCastro said on the call. "They're pretty healthy going forward; the bulk came in the first year. It was not like it an inflation escalator, it's real money going forward. My explanation was relative to HGTV where it had double-digit increases for three years in a row and then it flatlined to an inflation adjusted number. This is a big step-up upfront, but then still meaningful going forward."

Lansing said that the increase bodes well for future carriage negotiations for its recently acquired Travel Channel. He added that Travel Channel renewals are spread out from the end of this year to 2012 an 2014.

"We do believe there is headroom to improve affiliate fees for the Travel Channel," Lansing said. "The network has done a fantastic job in developing a great ratings story. It is our intention to provide the support and resources to help them continue to do that. As we saw with Food, to the extent we can deliver a strong audience proposition, then the negotiations become that much easier to complete."

For the quarter, Scripps reported revenue growth of 6% (to $430 million) and segment profit, excluding one-time items, rose 4.8% for the period to $191 million, fueled mainly by Food and HGTV.

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