Scripps Networks Will Find a Buyer … Even If It’s Not DISCA

by Jonathan Berr | December 12, 2013 3:21 pm

Shares of Scripps Networks Interactive (SNI[1]), the parent company of TLC, HGTV and The Food Network surged 8 percent yesterday. The jump came amidst media reports that Discovery Communications (DSCA[2]), which owns the cable namesake network and Oprah Winferey’s OWN among others, was considering making a run at the company.

The news was quickly followed a slew of reports trying to debunk the story, noting that a combined Discovery-Scripps wouldn’t gain much leverage with cable and satellite providers when it came time to negotiate carriage agreements. Others argued that Discovery would gain very little leverage in expanding overseas by adding Scripps since the Cincinnati-based company doesn’t have much of a presence overseas, although it is seen in more than 200 countries.

Some analysts are likewise skeptical. RBC Capital downgraded the stock to “sector perform” from “outperform,” citing rising programming expenses and lackluster affiliate fee growth.  Macquarie also slashed its rating on SNI to “neutral” — down from “outperform.”

Though the shares slumped today, these naysayers appear to be in the minority. Analysts price targets range from a low of $74 to a high of $90. SNI appears to be attractively valued as well, trading at a price-to-earnings ratio of 17.29, near a 5-year low, according to Reuters[3]. Even if Discovery takes a pass on Scripps, investors shouldn’t fret, because there are many other companies such as Comcast (CMCSA[4]), Disney (DIS[5]) or Viacom (VIA[6]) that would be eager to take its place.

Scripps is that good.

Strong Networks

More than 170 million consumers access the company’s cable networks and website every month.  A whopping 94% of its viewing is done live, which is a staggering  number in these days of DVRs and video-on-demand — on par with sports networks such as ESPN. The company brags that its cable networks is the “number one cable group for live viewing.” For advertisers worried about consumers skipping over commercials, that’s a huge benefit.

When companies look at media properties, they are particularly interested in the level of passion amongst their viewers. Scripps has that in spades. Americans spend a whopping $3.9 trillion on food, travel and home purchases every year, and the company has a strong platform for people interested in those subjects.

Take the Food Network. The channel attracts everyone from food connoisseurs to people who don’t know the difference between bolognese and bouillaibaise. According to Scripps’ latest 10-K, the Food Network had record ratings in 2012. Even though viewership slipped this year amidst the Paula Dean scandal, the network still attracts about 800,000 viewers a day, which is pretty respectable.

The channel, which is distributed to about 100 million homes, is run smartly as well, getting hosts to do multiple shows. That’s a good way to manage production costs. is the top website on the Internet for food, dining and entertaining content. According to Scripps’ internal research, Food Network was one of viewers’ top 5 favorites, and was cable’s 12th most-watched channel.

HGTV has also managed to make buying a house entertaining through shows such as House Hunters and House Hunters International. According to Scripps[7], HGTV is the most watched cable channel among affluent women aged 25-54 in prime time. During the most recent quarter, Property Brothers and Love It or List It both hit ratings highs.

Keep in mind that, for advertisers, the ability to target audiences is the only thing that matters. As Burton Jablin said, during the company’s recent earnings call[8]: “The audience at HGTV is one of the best, if not the best in the television industry: upscale, educated, lots of money to spend and advertisers are willing to pay for that.”

Even amid soft ratings, the company’s channels are holding their own. Revenue at Food Network rose 1.8 percent to $202.4 million while HGTV earned $219.1 million — a 12.1 percent gain.  Meanwhile, Travel Channel revenues hit $77.3 million, up 12.2%, and DIY Network sales rose 13.8% to $34 million. Great American Country, whose programming is being overhauled, was a laggard. It’s small potatoes, though, with revenue of $6.6 million — down 5.5% year over year.

Bottom Line

The biggest potential roadblock to a sale of the Scripps Networks had been the Scripps family. Last year, however, the family’s trust that had controlled the company for generations dissolved after the death of E.W. Scripps’ last surviving grandson.

The Scripps family must give other family members the first chance to buy their shares should they want to sell. However, as the Bancroft family showed a few years ago with the case of Dow Jones, the right price can trump family history.

As of this writing, Jonathan Berr did not hold a position in any of the aforementioned securities.

  1. SNI:
  2. DSCA:
  3. Reuters:
  4. CMCSA:
  5. DIS:
  6. VIA:
  7. According to Scripps:
  8. recent earnings call:

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