Scripps to Keep Its Assets Intact

Apr 18, 2005  •  Post A Comment

E.W. Scripps Co. CEO Kenneth Lowe said last week it is unlikely that anytime soon the company will spin off its fast-growing cable business and join the growing list of media corporations that are separating their assets.

Describing it as something that is “not on our radar screen,” Mr. Lowe said the key motivations behind spinning off Scripps Networks-such as the equity that would be created and could be used to acquire other cable networks-are not at a point now where the company would begin making such a move.

In the past several weeks a number of large media companies have either announced or hinted at the possibility of spinning some of their businesses off into separate companies.

John Malone’s Liberty Media began the trend by announcing a plan to combine its 50 percent stake in Discovery Communications with its wholly owned media services company Ascent Media to create Discovery Holdings Co., a company Mr. Malone plans to take public. Then Sumner Redstone announced that his company Viacom was exploring the possibility of splitting its businesses into two separately traded companies-one that would hold Viacom’s cable and film assets and another that would hold the broadcasting and publishing assets. Meanwhile, Time Warner is exploring the possibility of spinning off its cable business and combining it with assets from Adelphia Communications, the bankrupt cable operator that it is close to acquiring.

With Scripps Networks continuing to post strong growth, Wall Street bankers likely are champing at the bit to help the parent company join the emerging trend among media companies of disintegrating to unlock value. A case especially could be made for Scripps Networks, which has increasingly become the main engine of growth for the overall company, which not too many years ago was a company that owned newspapers and television stations.

Credit Suisse First Boston media analyst William Drewry said as much in a recent research note: “Scripps is clearly a media/entertainment company now, given the majority cash flow generation from [the] cable nets.”

It was a point illustrated again with last week’s first-quarter results, in which the company’s operating revenue jumped 14 percent to $585 million. Net income was generally flat at $70 million versus $70.5 million a year ago, when Scripps recorded a one-time after-tax gain on investments of $9.5 million.

Driving most of the results were the cable channels, which include Food Network, Home & Garden Television, DIY-Do It Yourself, Fine Living and Great American Country. Scripps Networks reported a 30 percent surge in segment profit to $80.9 million, while advertising revenue leaped 30 percent to $160 million. Affiliate fee revenue jumped 24 percent to $42 million.

Though Home & Garden Television recorded some ratings weakness during the quarter, Scripps officials said they are confident a new crop of programming introduced in March will all but erase earlier weakness, and that the earlier ratings troubles won’t affect the channel’s upfront sales.

Meanwhile, Scripps’ television retailing business Shop at Home posted a 38 percent rise in revenue to $102 million as the company continued rolling out its e-commerce strategy of leveraging off of Scripps Networks channels. The company said Shop at Home is making investments in merchandising, information technology, marketing and programming.

The company’s 10 television stations suffered from the lack of political advertising in the quarter, booking a 6 percent decline in revenue to $16.3 million. However, the absence of the $4.2 million in political advertising booked in 2004 was partially offset by gains in local and national advertising, which rose 1 percent and 4 percent, respectively.