Scripps Networks Interactive Q2 2010 Earnings Call Transcript

Scripps Networks Interactive Q2 2010 Earnings Call Transcript
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Scripps Networks Interactive (SNI)

Q2 2010 Earnings Call

August 9, 2010 10:00 am ET

Executives

Mark Kroeger - SVP, IR

Ken Lowe - Chairman, President and CEO

Joe NeCastro - CFO

John Lansing - President, Scripps Networks Operating Division

Lori Hickok - EVP Finance

Analysts

Alexia Quadrani - JPMorgan

Eric Handler - MKM Partners

Anthony DiClemente - Barclays Capital

Tom Eagan - Collins Stewart

Brian Karimzad - Goldman Sachs

Doug Mitchelson - Deutsche Bank

Matthew Harrigan - Wunderlich Securities

Barry Lucas - Gabelli & Company

Presentation

Operator

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Ladies and gentlemen, thank you for standing by, and welcome to the second quarter earnings report. (Operator Instructions) I would now like to turn the conference over to our host, Mr. Mark Kroeger, Senior Vice President of Investor Relations.

Mark Kroeger

Thank you, Kay, and good morning all, and thanks for joining us. We'll start the conference call today with comments from Ken Lowe, our Chairman, President and CEO; and Joe NeCastro, our Chief Financial Officer. Our prepared remarks should take about 15 or so minutes, then we'll open it up for questions. Also on the call are John Lansing, President of the Scripps Networks Operating Division; and Lori Hickok, Executive Vice President of Finance.

Let me remind you, if you prefer to listen in via the Internet, go to our website, click on Investor Relations and find the microphone icon on the landing page. An audio archive of today's conference call will be available on the website later today, and we'll leave it there for a couple of weeks, so you can access it at your convenience.

Our discussion this morning will contain certain forward-looking statements. Actual results may differ from those predicted, and some of the factors that may cause results to differ are set forth in our publicly filed documents, including our Form 10-K.

With that, I'll turn it over to Ken.

Ken Lowe

Thank you, Mark and good morning everyone. Thank you for joining. Ass always, we truly appreciate your interest in Scripps Networks Interactive. The second quarter and first half of the year were outstanding for the company and its shareholders by just about every measure.

Here are the headlines: Industry-leading ad revenue growth; exceptionally strong growth in affiliate fee revenues; solid viewership at all our networks, including the new Cooking Channel, and very encouraging performance at Travel Channel, which is now pretty much integrated, and I'm happy to report, exceeding our expectations.

All these factors contributed to the positive operating results that we reported this morning. We're right on track for an excellent 2010, and prospects for 2011 are looking very good as well. With the tremendous popularity of the Food Network, steady viewership at HGTV and growing appeal of the Travel Channel, we've been able to take full advantage of the current ad recovery.

The strength of the current scatter marketplace drove ad sales higher during the quarter and contributed to the decisive success that we had in this year's upfront. We finished the upfront at or near the top of cable and pricing, and we grew total volume sold well beyond last year's level. Provided the economy holds, the strong upfront bodes well for ad sales in the coming year.

As for our affiliate fee revenues, the strong growth in the second quarter and first half of the year is directly attributable to the improved carriage agreements that we negotiated for Food Network and HGTV at the end of 2009. Our new distribution contracts reflect the value that we've created at our networks, and importantly, layer in a dependable source of revenue growth for years to come. So all-in-all, very positive operating results for the second quarter and first half.

There were other highlights during the quarter as well, not the least of which was the large and initial success of the Cooking Channel. Our newest brand really surged out of the box with its debut, Memorial Day weekend, and has continued to gain momentum, both in terms of viewership and it's acceptance as a valuable advertising platform.

Compared with Fine Living, Cooking Channel viewership among adults 25-54 is up anywhere from 30% to 100% depending on the day-part. Cooking resonated with our advertisers from the day we started selling it. And as for programming, well, we've succeeded in differentiating the Cooking Channel from its sister network by filling out the schedule with a healthy mix of new and archive shows. And we're featuring fresh new talent and we're giving the network a unique look and feel. I hope you've had a chance to see it.

We've also succeeded in converting all of Fine Living's 58 million households to the Cooking Channel brand, which makes Cooking, the most widely distributed launch of a new network in the history of cable and satellite television. No small accomplishment there I should say. And we're very encouraged by Cooking Channel's performance in the early going, especially considering the modest investment we made to bring this brand quickly to market.

Now the news is equally as good at the Travel Channel. For the most part, the network has been fully integrated, which puts us in an excellent position to market the brand in the upfront. We quickly and successfully expanded Travel's advertising base by really putting together a top notch ad sales team by leveraging our relationships and actively cross-promoting the brand across all of our networks. Now that's resulted in a higher percentage of top tier advertisers in a broader range of categories. So our success is evident both on screen and in our operating results.

On the programming front, viewership of Travel Channel grew solidly during the second quarter, thanks to the standouts like Man v. Food with Adam Richman, and Anthony Bourdain's, No Reservations. Speaking of Anthony, we have some very good news about him during the quarter. We signed a new talent agreement, which means you'll be seeing Anthony on the Travel Channel for some time to come. We think that's very good news for us, for Anthony, and certainly for his many, many fans. And there's more; Laureen Ong's been busy building her team and molding a programming and marketing strategy that's destined to transform the Travel Channel brand and build audiences. You'll start seeing some of their handiwork in the months to come, so stay tuned there.

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