E.W. Scripps Co.’s $140 million purchase last week of country music channel Great American Country might play directly to the company’s strategy of building niche cable networks, but it won’t come without a little pain to the bottom line in the short term.
Scripps Networks, the unit that manages Scripps’ cable networks, estimates its segment profit will fall by $5 million to $10 million in 2005 as a result of the purchase of the channel.
What’s more, it could be as many as three years, by some estimates, before GAC contributes to the division’s bottom line. That could impact Scripps’ overall growth for the next couple of years, as Scripps Networks has been the major driver of the company’s strong growth the past several quarters.
But all of that might not be such a bad thing in the longer term. William Drewry, an analyst at Credit Suisse First Boston, said that because GAC is expected to generate $12 million in revenue for fiscal 2004, there are signs the channel might have been “undermanaged” by its former owner, Jones Media Networks.
With Scripps Networks as owner, he said, “We believe there is opportunity for [Scripps] to scale in a more significant way over time.”
Indeed, Scripps Networks officials said last Thursday they have big plans for the network, which they see as a complement to the other channels under the Scripps Networks umbrella, which include Food Network, HGTV, DIY-Do It Yourself and Fine Living.
“We think GAC is a good fit,” Scripps Networks Chairman Frank Gardner said Thursday during the company’s conference call to discuss third-quarter results. He noted that country music has a “proven popularity” that is consistent with the lifestyle themes of Scripps Networks’ other channels.
While Scripps executives refused to provide specifics, they said they want to expand carriage of the channel, which is presently at 34 million households with distribution on satellite and cable, and have plans to incorporate more lifestyle-like programming on the channel, such as celebrity kitchens and the like.
Scripps plans to issue $140 million in short-term debt to finance the deal, which is expected to close in late November.
Separately, continued strength of its cable networks, along with robust political advertising spending at its television stations, helped E. W. Scripps Co. post profit and revenue gains Thursday.
The company, which in addition to Scripps Networks also owns 10 TV stations, reported a 7 percent increase in third-quarter profit to $55.6 million, or 34 cents a share, compared with a year-earlier profit of $51.9 million, or 32 cents a share. The per-share figures reflect a 2-for-1 stock split conducted in September.
Overall revenue rose 14 percent to $500 million.