Content

Outdoor’s Expedition May Lead to a Sale

8/25/2006 8:01 PM Eastern

Founded in 1994 as a vehicle to sell memberships in a gold-prospecting club, Outdoor Channel Holdings recently hired two experienced industry consultants to mine more value out of the fledgling network.

That expedition could result in the ultimate sale of the company, according to AG Edwards media analyst Michael Kupinski.

According to an 8-K filing with the Securities and Exchange Commission Aug. 23, Outdoor Channel said it hired former Food Network senior vice president of affiliate sales Cathy Rasenberger and former Great American Country and Food Network president Jeff Wayne to “assist the company in examining The Outdoor Channel’s positioning in the industry to uncover potential opportunities that could help expand the Channel’s leadership in its genre.”

SNAPSHOT: Outdoor Channel Holdings
2Q Revenue: $10.9 million
2Q Net Income (loss): $377,000
Subscribers: 27.6 million
Main Asset: Outdoor Channel
Other Assets: Gold Prospector’s Association of America, publisher of Gold Prospectors & Treasure Hunters in the Great Outdoors magazine; Lost Dutchman’s Mining Association, a national gold-prospecting campground club with properties in Arizona, California, Colorado, Georgia, Michigan, North Carolina, Oregon and South Carolina. Also owns a 2,300-acre property near Nome, Alaska, used to provide outings for a fee for members of Lost Dutchman’s and GPAA.
Source: Company reports.

The Outdoor Channel, home of hard-core hunting and fishing programming such as Turkey Call Television, American Rifleman Television and Bowhunter Magazine TV, has been trying to boost its carriage on cable and satellite networks for years. The channel is currently available in about 27.6 million homes across the country.

That, though, is a far cry from the 91 million subscribers that is generally considered to constitute full carriage in the United States.

HARDCORE FARE

Outdoor Channel declined to elaborate on just what it wants its consultants to do. Kupinski said it is likely a fishing expedition to see whether paying launch fees to cable operators will increase its carriage. If that doesn’t improve its subscriber base, the channel could then look to find a buyer.

Louis Landon, a vice president at a public-relations firm that represents Outdoor Channel, declined to comment on its hiring of consultants or on sale speculation. Rasenberger also declined to comment.

Back on Aug. 9, in a conference call with analysts to discuss second-quarter results, Outdoor Channel CEO Perry Massie said that hiring the consultants was mainly a move to determine how to better close deals with operators.

“We hired two people that we feel have a very strong background in the industry and will give us a new perspective and better perspective on what we need to do to close these deals,” Massie said on the conference call.

Massie expressed some frustration over the channel’s inability to increase its carriage significantly. He said many of the deals it struck in the past did not anticipate the advent of HDTV, video on demand or Internet video. Outdoor Channel launched its HD service — Outdoor Channel 2 HD — in 2005.

“Regarding certain details like high-definition, video-on-demand, even programming via the Internet, the industry is still developing models to capitalize on these new offerings,” Massie said on the conference call. “Interestingly, the good news is that we have existing relationships with all major MSOs. The bad news is that we have existing relationships with all major MSOs.”

In its 10-Q quarterly financial report filed with the Securities and Exchange Commission earlier this month, Outdoor Channel said that it was actively seeking to boost its carriage, including investigating whether to pay launch fees to get operators to add its channel to lineups in more systems. In the filing, the network warned that as a result, subscriber fee revenue may not increase over the foreseeable future and could decrease over the remaining lives of its existing contracts.

Outdoor Channel already is getting subscriber fees from some operators — in the second quarter, subscriber fees totaled about $4.3 million.

Kupinski, one of the few analysts that follows Outdoor Channel stock, said that while paying launch fees is nothing new, he believes it may be too little, too late for the channel.

Kupinski estimated that the channel could weather paying operators a one-time fee of about $3 to $7 for each new subscriber. But he added that is unlikely to sway cable operators to start carrying the network.

Outdoor Channel has several options, Kupinski said, including taking itself private; selling a partial stake to a broadcaster, which could give it some leverage with operators when they would have to negotiate for the right to retransmit the broadcaster’s signals; or selling the network outright.

Kupinski said that the latter option may be even more likely, given that Outdoor Channel has also hired a separate consultant to examine its gold-prospecting business, as well as the two it hired for the cable network. And he added that when Outdoor Channel was in the middle of a 3.5 million share follow-on offering last year, it was talking to Scripps Network — parent of the Food Network, Home & Garden Television and Do It Yourself Network — about a possible sale. That deal obviously fell through.

Scripps vice president of investor relations Tim Stautberg declined to comment.

Kupinski estimated Outdoor Channel could attract a price of about $17 per subscriber, or about $469 million, in a sale. He added that in addition to Scripps, possible buyers could include ESPN — which had once planned its own outdoor network — and Comcast Corp. Comcast paid about $513 million for an 83% interest in another outdoor-focused network — OLN, originally the Outdoor Life Network — in 2001.

CHANGES AT OLN

Comcast has dramatically changed the programming lineup of OLN since it gained control, adding sports programming like the Tour de France, boxing and National Hockey League games to a dwindling mix of hunting and fishing shows. The network also plans to change its name to “Versus” next month.

“If they’re not in discussions currently with potential buyers, I would think that it would be fairly soon,” Kupinski said of the Outdoor Channel. “You have the likes of Comcast and Scripps on the hunt for additional cable-type programming and networks. Secondly, I think the level of frustration is building at Outdoor Channel. I think they’re going to try and see what these consultants come back with and if they don’t see any results, then I think we could see the company move down a different path.”

October
November