In Depth

Scripps Networks Profit Falls; Affiliate Fees Partially Offset Ad Drop

Strong affiliate-fee growth from cable operators in the first quarter partly offset a drop in advertising sales at Scripps Networks Interactive, home of channels including HGTV and Food Network.

The company’s net income fell to $60.1 million, or 37 cents per share, from $66.5 million, or 41 cents, in the year ago quarter.

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Revenue fell 7% to $361 million.

The company’s biggest segment—Lifestyle Media, which holds the cable channels and their associated Web Sites—reported that revenue was flat from a year ago. Affiliate fees jumped 17% because of increased rates and expanding distribution.

Ad revenue fell 4.6%.

Operating revenue rose 1.7% at HGTV, while Food Network had a 2.5% decline in operating revenue. Food Network has higher programming costs and generates higher ratings, but it was not able to fully monetize the new viewers because of the soft ad market.

Revenue at Fine Living Network fell 6.7% to $11.7 million, while Great American Country weighed in with a 6.1% increase to $6.1 million.

When asked whether there were any plans to re-format GAC, Ken Lowe, CEO of Scripps Networks Interactive, said that wasn’t going to happen at this time.

“We’re pleased with the progress we’ve made,” he said. “They’ve really done a great job getting themselves embedded in the Nashville community.”

The company said it is seeing improvements in the ad market, but expects ad revenues to fall in the second quarter as well.

John Lansing, president of Scripps Networks, said the ad market has been “modestly improving throughout the first quarter” and that improvement continues into the second quarter.

Mr. Lansing added that cancellations of upfront orders in the third quarter were trending better than in the second quarter, when they hit 14%.

“It looks to me like Q2 will be the worst quarter for cancellations,” he said.

CFO Joe NeCastro said that while Scripps remains interested in buying the 31% stake in Food Network owned by Tribune, “it looks increasingly like a transaction will not be completed in this calendar year.”

(Editor: Baumann)