Even Scripps Networks Interactive, whose lifestyle networks have done relatively well in a down period of U.S. ad sales, considers overseas prospects to be worth the investment.
Evidence of that is the programmer’s purchase of 53% of Polish content producer TVN. After the TVN purchase — amounting to $1.5 billion in cash and assumed debt — Scripps said international sales would make up about 25% of total revenue, an eight-fold increase from the previous year.
Scripps shows have been seen in Europe for years. Its network stable, led by Food Network and HGTV, reaches an estimated 200 million homes in 180 countries worldwide.
But as with other U.S. programming groups, including Discovery Communications and AMC Networks, Scripps has concluded it makes sense to own a presence in non-U.S. markets, where there’s a strong potential for ad growth. Discovery derives about half of its total revenue from outside the U.S., and international revenue is rising at AMC, Time Warner Inc. and 21st Century Fox.
U.S. SLOWDOWN TROUBLING
Scripps reported a 5.3% increase in total ad revenue in 2014, but that was almost half the 9.2% growth of the prior year. Other programmers have experienced flat to single-digit declines in U.S. ad revenue as falling ratings and competition erode the ad base.
Scripps Networks has a plan to increase its international presence, and chairman and CEO Ken Lowe called the TVN purchase “a key pillar” in that strategy.
AMC Networks made waves last year with its $1 billion purchase of programmer Chellomedia. Adding Chellomedia, with its dozens of movie and entertainment networks, pushed international up to 20% of total revenue in 2014, AMC said.
Time Warner Inc. made its push into Eastern Europe in 2009, acquiring a 31% stake in Central European Media Enterprises, a media and entertainment company that operates in six geographical segments — Bulgaria, Croatia, the Czech Republic, Romania, Slovakia and Slovenia. Time Warner has since increased that stake to 49.9% and has steadily expanded its influence outside of the U.S.
Last year, Time Warner invested about $1 billion into international operations, including continued investment in CME, the purchase of Dutch TV production house Eyeworks and the purchase of UEFA Champions League soccer rights in Brazil to bolster recently acquired Brazilian sports network Esporte Interativo.
International revenue amounts to about 44% of the total at 21st Century Fox and 28% at Time Warner. Other big international slices are coming to Viacom (26%) and Disney (24%), per a Discovery analysis of company and analyst reports.
International markets have better adgrowth prospects, though programmers might have to look harder for opportunities. Zenith Optimedia said global ad spending should rise by 4.9% in 2015, to $545 billion; then by 5.6% in 2016 and 5.2% in 2017.
Ad revenue in Eastern Europe and Central Asia should grow at a 5.9% clip between 2014 and 2017, Zenith forecast, versus only about 2.9% in Western and Central Europe.
North America, including the United States, is expected to see ad markets decline from 4.6% growth in 2013-14 to 3.9% in the 2014- 17 period, per Zenith.
Pivotal Research Group senior research analyst Brian Wieser said European ad-market prospects vary by country. In the United Kingdom, TV advertising was up about 6% in 2014, despite a 5% audience decline. France, Germany and Italy have fared worse. And even in declining markets, there are still places to see gains.
Wieser sees the shift of focus outside the U.S as good for programmers, and he agreed they should be pumping money into growth areas.
Sanford Bernstein media analyst Todd Juenger, a big proponent of international expansion, wondered if Scripps wasn’t paying too much for TVN. The price tag represents a 20% premium, he said, which could be hefty given that it appears TVN’s reach is limited to Poland.
“TVN appears to be a one-country pony,” Juenger said in a research report. “It is hard to imagine much of TVN’s content is portable.”
The TVN deal could be seen negatively by potential Scripps buyers, other than Discovery, he said.