A&E: A quiet moneymaker

Nov 26, 2001  •  Post A Comment

The top executives at A&E Networks, including Nickolas Davatzes; Dan Davids, executive VP/general manager, A&E Network; and Ron Schneier, executive VP, sales & marketing, A&E Television Networks; have all been at the channel for more than 10 years. In many respects, the team that founded A&E stayed together, a phenomenon that may be unique in the cable business.
Both Whitney Goit and Mr. Davatzes are extremely low-key, not seeking or getting much personal publicity (this profile, instigated by EM, being a notable exception). Mr. Goit says that’s partly by design. “Our culture at A&E, and this is natural for both Nick and I, is that we decided a long time ago to take a low-key approach. The things we told our customers were simple and straight-no grandstanding and all that stuff. We try to build a relationship on trust-and under-promise a little bit.” Not the stuff dreams and big careers are usually made of, but the company Mr. Goit and Mr. Davatzes built is now worth about $7.5 billion.
Richard Read, senior media entertainment analyst with Credit Lyonnais Securities, is a fan.
“[A&E Networks] has done a good job in terms of growing their core service, which has steadily expanded in the U.S. They also created The History Channel, which has been extremely successful, and they’ve launched the digital network Biography. We think their outlook is extremely good. History will continue to grow, being, along with the A&E channel, a core cash source for this company. However, we think this year, like everyone else, they are going to be impacted [negatively] by the advertising market.”
The big question for all basic cable services is where does the ad market go next year. “I think that in 2002 you could see reasonably flat [earnings] due to industrywide concerns,” Mr. Read says. “But we think growth will resume in 2003 and beyond. According to my estimates, A&E is somewhere in the neighborhood of $510 million to $520 million in total revenues. Two hundred million of that would come from The History Channel. Biography is a marginal contributor at this point. International is also fairly minor.”
But Mr. Read says A&E Networks has solid carriage growth at all channels. “They have good product-that’s the strongest asset they have,” he says. “They have a nice niche. Their [content] is good, factual stuff that is also politically correct and makes the MSOs look good to carry it. They have a good track record, they have capitalized well, and they are using a measured, intelligent expansion strategy.”