In Depth

Cable Nets, Web Presence Bolstered by Scripps Split

Unit Freed From Company’s Troubled Stations and Newspapers

With this week’s splitting up of E.W. Scripps, HGTV, Food Network and Scripps’ other cable properties will be free of their old-media cousins.

“I think this will allow our management team to be more focused on where we’re going to take the company,” said Ken Lowe, who took the old newspaper company into cable, and who will be CEO of the new company Scripps Networks Interactive.

med

SNI comprises Scripps Networks, which will own the company’s lifestyle cable networks—HGTV, Food Network, DIY, Fine Living and Great American Country—as well as sn_digital. That division oversees those networks’ Web extensions as well as other Web sites, including shopping comparison site Shopzilla and uSwitch, which helps consumers compare prices on home services and utilities.

The cable networks are seeing ratings results from an increase in spending on programming on HGTV and Food Network. With those networks as the foundation, SNI is looking to dominate the shelter and food categories on as many platforms as possible.

small

Ken Lowe CEO of Scripps Networks Interactive

The other new company created in the split, a “new” Scripps, will own Scripps’ newspapers and television station assets.

Looking for ways to fix the broadcast and publishing businesses had been occupying much of Mr. Lowe’s time. The needs of the stations and papers also affected how much capital could be spent on cable projects, he said. With the split, he’ll be freed up to look for future business opportunities for the cable networks.

“This will allow me to get back into the creative process, something I’ve missed for the past several years,” Mr. Lowe said.

Going forward, SNI will be concentrating mainly on the core subject areas of food and shelter, looking to create revenues by creating new platforms, forming new partnerships and expanding overseas.

No huge acquisitions are planned.

“There will be smaller bolt-on, very synergistic acquisitions,” Mr. Lowe said, certainly none exceeding $100 million; even topping $50 million was unlikely, he said.

“A recent example is recipezaar.com,” a Web site that fits snugly with FoodNetwork.com. “So you’ll see those types of acquisitions, especially in food and shelter.”

Mr. Lowe said he’s not interested in buying a cable network.

“There’s just so few of them that come onto the market,” he said. “I think it’s more about organic growth and looking more to the broadband and interactive side, where we think we can create some real value.”

One possible exception to the small acquisition rule could come up if debt-laden Tribune Co. is ready to sell its 31% stake in Food Network.

“If and when that opportunity presents itself, at a fair value to our shareholders, then that would be something that would be at the top of our list,” Mr. Lowe said. “But barring that, we’ll continue to focus on smaller acquisitions.”

SNI is in strong financial shape to be able to pursue those plans.

“They’re going to have a ton of cash flow,” said Ed Atorino, analyst at Benchmark Co.
Mr. Atorino said the theory behind the split is that the total value of Scripps’ assets was being penalized because of the devaluation of the stations and newspapers. But since the split was announced, the stock price hasn’t really moved.

small

John Lansing President of Scripps Networks

“So far, it hasn’t had any real impact,” he said.

But he said the Scripps cable networks are very strong and, despite having spent a lot for some Internet properties that haven’t grown much, “This is a real jewel. It’s a great company.”

Mr. Lowe said one of his first moves after the split will be to thank the employees for the value they have created. That value should be more closely reflected in stock that employees own, either through stock grants, options or by buying stock at a discount provided by the company.

“The employees will see a much closer relationship to the value that they’re creating that will end up in the stock price and, subsequently, hopefully in their pockets,” Mr. Lowe said.

The backbone of the company is the Scripps Networks division, headed by John Lansing, who joined the company through its broadcast division before moving to cable.

“We just keep rocking here,” Mr. Lansing said, pointing to second-quarter double-digit growth and dropping median viewer ages at HGTV and Food.

Food had flattened out last year, but the company made a significant investment in new programming. It found new hosts, including Guy Fieri, and new shows like “Diners, Drive-Ins and Dives,” now Food’s top-rated prime-time show.

small

Cooking With Gas Guy Fieri, on set of his Food Network show, "Guy's Big Bite."

“Our whole thing is to keep doing what we’re doing and create new growth engines within Scripps Networks, which we’re busy doing right now,” Mr. Lansing said.

Some of those engines are being bought, like Recipezaar.com. Others are being created, like Frontdoor, a real estate site backed by HGTV.

“It has the best real estate content of any online listing service today, and it’s rapidly growing in terms of usage,” Mr. Lansing said. “That HGTV brand really gives it credibility, and we can also promote it effortlessly within our programming on HGTV.”

The company also is looking to expand its brands, as it has with its Food Network-branded cooking products sold at Kohl’s stores.

“We’re in a really interesting conversation on the HGTV side with the National Home Furniture Association about a branding relationship to help them create more consumer confidence in buying furniture,” Mr. Lansing said. There also are talks to create a brand-based experience with a major theme-park operator, he said.

After the separation, SNI plans to continue to have business relationships with the Scripps newspapers and stations concerning promotion and retransmission consent.

While SNI is a new company, Mr. Lowe plans to keep intact the 137 years of Scripps tradition.
“In starting the cable networks in 1984, we very much adhered to what had historically been the principles of separation of church and state [separating content from advertising], which of course came out of our newspaper division,” he said.

In today’s ad market, Scripps has had to make adjustments as advertisers become more insistent that their products be integrated into programming.

“We’re having to adapt, and we’re just making sure when we do enhancements or products or commercials, that they’re done in a way that is very clear to the audience that we’re not blurring the line,” Mr. Lowe said. “We also believe very much in the intelligence and sophistication of the audience.”