In its first conference call with analysts to discuss quarterly results since separating from former parent E.W. Scripps Co., Scripps Networks Interactive chairman and CEO Ken Lowe last Thursday tried to squelch sale rumors while another executive vowed that affiliate fees for its popular Food Network channel would rise.
Scripps Networks officially split from E.W. Scripps on July 1. Overall, the combined company reported that its revenue rose 3.8% to $664 million and net income plunged 48% to $51.2 million from $97.5 million, primarily because of shortfalls at its newspapers and television stations. The conference call was the last time that Scripps will report quarterly earnings as a combined company.
At Scripps Networks — including cable networks HGTV, Food, DIY, Fine Living and Great American Country — revenue increased a healthy 13% to $349 million and segment operating profit rose 9.8% to $180 million.
Speculation has been heavy ever since Scripps announced plans for the split in October that SNI — which includes cable networks Food, HGTV, DIY, Fine Living, Great American Country and online shopping giant Shopzilla — would be an acquisition target. Potential suitors have been said (including in a Multichannel News article on July 14) to include NBC Universal, Time Warner Inc. and Viacom.
On the conference call, Lowe said that there is no intention to sell the company and added that there would be tax consequences if SNI was to be sold so soon after the split.
“We did not execute this spinoff for the purpose of selling the cable networks [and] interactive businesses,” Lowe said. “They're not for sale. It's somewhat flattering to have a house that everyone wants to buy before you have a 'For Sale' sign in the front yard. There is no 'For Sale' sign.”
Lowe said that there would be tax issues that would prevent SNI from selling out in the near term, although he did not elaborate. Lowe said that the focus will be to grow the networks.
“We believe we can increase the value of the properties over the coming weeks and months,” Lowe said. “They are not for sale. We can't control rumors.”
Regarding Food Network, SNI senior vice president and president of Scripps Networks John Lansing said on the call that affiliate fees for Food Network were “severely underpriced.”
“Will we be looking in 2009 at a reset of the rates? The answer is, yes, we will,” Lansing added.
Food Network currently averages about 8 cents per subscriber per month from cable, satellite and telephone operators, according to data from Kagan Media. But the network has consistently high ratings and has begun to attract younger viewers.
On the call, Lansing said that the median age of Food Network viewers dropped from about 50 years old to 45 years old in the second quarter. Ratings for Food, as well as the rest of SNI's cable properties have been improving — Lansing said that Food had its best ratings month ever in June.
Lansing added that pricing for the upfront has been strong. He added that SNI will sell a little more than 50% of its inventory in the upfront and that CPMs should rise between 10% and 12%.
SNI also provided guidance for the third quarter, predicting revenue would rise between 5% and 7% in the period and net earnings per share should be between 35 cents and 38 cents. While the revenue forecast appeared to be conservative — SNI has averaged at least 10% revenue growth per quarter for the past few years — Lowe said that the company expects to finish the year at the high-end of its previous estimate of 8% to 10% revenue growth.
Lansing blamed the conservative forecast on the upcoming August Summer Olympics, which, he said, has suppressed scatter-market pricing.
“This is a one-time-only suppression on pricing that I think will wash through the system and then be out,” Lansing said.