Scripps Breaks Mold With GAC

Sep 12, 2005  •  Post A Comment

When E.W. Scripps Co. announced last fall that it would pay $140 million cash to acquire Great American Country, a small cable network whose specialty was country music videos, more than a few people scratched their heads.

Scripps already owned four cable networks that helped the company carve out a niche for itself as a leading programmer of home- and lifestyle-oriented content. Two of its channels-Home & Garden Television and Food Network-were highly popular and nearly fully distributed. The others-Fine Living and DIY: Do It Yourself Network-were two of the fastest-growing digital cable networks in the industry.

With the purchase of GAC, there was concern in some camps that Scripps was veering too far afield by getting into the music video business. What’s more, the company, whose expertise was in home decorating and cooking, would have to break into the clubby world of country music, where relationships are essential to getting deals done. And perhaps the most daunting task it confronted: Scripps would find itself competing head-to-head with one of the cable industry’s most formidable players, MTV Networks, whose Country Music Television network is carried in more than twice as many homes as GAC.

But raising those challenges missed the logic behind the purchase-and more important, missed the point behind a strategy at E.W. Scripps Co. that has helped transform the Cincinnati-based company from a newspaper publisher into a cable-programming powerhouse.

“GAC has a highly targeted, passionate audience, and the target demo for that audience is very similar [to that of Scripps’ other channels], women 25 to 54, and that’s a great cross-promotional platform,” said John Lansing, president of Scripps Networks, the Scripps unit that manages the company’s cable properties. “It’s an audience that in terms of our programming lines up very well psychographically and demographically. It’s made up to a large extent by fans who would watch our other channels.”

Mr. Lansing and others at Scripps say the words “passionate audience” are what drove them to buy GAC and what has driven a series of decisions that led to Scripps Networks’ strong growth.

The company in 2003 took control of Shop at Home Network to capitalize on viewers’ interest in buying products they have seen on the four core channels, and it did the same thing this past spring when it acquired online shopping-comparison Web site Shopzilla.com.

At its core, company officials said, Scripps is first and foremost a content company focused on building brands around its content. Also important is delivering that content in formats that are in step with how consumers want that information.

Programming Pioneer

A look at Scripps’ history proves the point. Founded in the late 1870s, Scripps was one of the first companies in the country to enter the radio business. By the late 1940s it bought its first television station. More recently Scripps was one of the first cable programmers outside of the sports and news categories to own most of its content-a characteristic that has reaped huge dividends as the company presses forward with plans to deliver content on the Internet and perhaps on mobile phones.

“It has always been in our DNA to step up to the next emerging platform to serve the end user,” said Scripps CEO Kenneth Lowe, a 25-year veteran of the company who started in Scripps’ radio division 1980 and did stints in the broadcasting and cable units before he was named CEO in 2000. “We are a content company. We’re in the business of going where the consumers want to go.”

The company’s foray into cable programming dates to the 1980s, when Mr. Lowe started thinking about how he could marry his love of home building and architecture with what he saw as the changing demographics of the so-called MTV generation. He said he realized that youngsters who watched MTV were getting older and soon would be looking to buy homes. That led to the launch of HGTV in 1994.

By nearly any measure, Scripps’ venture into the cable programming business has paid huge dividends. Both HGTV and Food Network, which became part of Scripps Networks in 1997, were available at the end of the second quarter in 89 million homes and 88 million homes, respectively. Meanwhile, its emerging networks have shown significant growth over the years. DIY reaches around 34 million households, up from 29 million a year ago, and Fine Living is in 28 million homes, up from 23 million a year ago. GAC has around 38 million subscribers versus 27 million a year ago. Shop at Home reached 53 million homes, compared with a year-earlier figure of 49 million.

The growth in the cable networks’ distribution has translated into significant financial growth for the company as well. In the second quarter Scripps saw its overall revenue jump 15 percent to $627 million, while net income rose 13 percent to $97.6 million. Scripps Networks was the main driver of the company’s growth during the period, posting a 27 percent jump in revenue and a 41 percent surge in segment profit, thanks to double-digit growth in advertising and affiliate-fee revenue.

As Credit Suisse First Boston analyst William Drewry pointed out in a research report on the company: “Scripps is clearly a media/entertainment company now given the majority cash flow generation from cable nets.”

What has separated Scripps from others that ventured into the cable programming space was that almost straight out of the gate, Mr. Lowe insisted that Scripps own its content. The Internet was just emerging at the time, but Mr. Lowe presciently predicted it could one day become a new medium by which consumers get information. If the company didn’t own the content it broadcasted, it couldn’t take full advantage of that new medium, he reasoned.

To ensure Scripps wasn’t caught flat-footed, Mr. Lowe led the charge in finding a production facility the company could buy and use to create its programming. Scripps settled on Cinetel Productions of Knoxville, Tenn., which would ultimately serve as the headquarters of the Scripps Networks division.

By owning its content, Scripps was able to move more quickly into the video-on-demand space, engendering a lot of good will among cable operators who have seen VOD as a key component in their fight against satellite operators. It has also been able to leverage that content for a series of themed broadband channels that rely heavily on streaming video.

Both have turned out to play significant roles in carriage discussions that Scripps Networks has with cable operators, said John Baird, Scripps Networks’ executive VP of affiliate sales, especially as distributors begin paying for channels such as Food Network, which until a year and a half ago was distributed for free.

“We own more than 20,000 hours of content, and that allows us to enter the VOD category,” said Mr. Baird, adding that his team is also holding talks with distributors about how Scripps Networks can work with them on building robust broadband sites. “We don’t use VOD or broadband as sticks [when negotiating with cable operators]; we use them as carrots. We say to them, ‘Look at these value-added services. What can we do to help you?'”

Mr. Lansing said the kinds of conversations Mr. Baird is having speaks to Scripps’ push to be about more than just a collection of linear channels.

“As we see audiences going more and more to the Internet, we see an opportunity to build new revenue streams,” he said. “If HGTV is a niche channel on a cable platform, on a broadband platform we envision more finely tuned segments for that brand, a gardening broadband channel under the HGTV brand, or a kitchen and bath design channel under the HGTV brand.”

Targeted Approach

Indeed, Mr. Lansing said he spends a lot of time thinking about the Scripps Networks brands, especially as he looks to continue Scripps Networks’ strong growth.

“For me it’s about keeping distinctive focuses for each of our brands and not allowing them to bleed into one
another, or soften that sharp, targeted programming that is the value proposition of our lifestyle brands,” he said. “Once any company confuses the audience about what the distinctiveness is of the channel, it begins the decline of the value proposition to the advertiser and the viewer, and once it’s dissolved it’s hard to re-create it.”

But while the company has had a fair amount of success, it has taken a few hits. Last fall HGTV suffered a double-digit ratings decline that caught Scripps Networks executives and Wall Street by surprise. Burton Jablin, president of HGTV, attributed the decline to a confluence of events, ranging from the strength of ABC’s “Desperate Housewives,” which siphoned off viewers from HGTV’s strongest time period, Sunday at 9 p.m., to a decision by the HGTV officials to delay the launch of new programming in the fourth quarter to avoid competing with a flood of premieres on other networks.

Since that hiccup, Mr. Jablin said, the network has regained its focus, launching a series of new shows in the first quarter with an eye toward not only luring back females 25 to 49 but also attracting men with programming that appeals to couples. The result has been a lowering of the channel’s median age, and a tip in the balance slightly away from being a channel mainly for women.

Amid those efforts, the one move the channel didn’t make was to try to develop a hit show that would drive up ratings.

“We have purposefully avoided the development of a hit mentality that permeates television,” he said. “If you are truly building a relationship with an audience, you’ve got to nurture that constantly with an infusion of fresh programming.”

It’s too soon to tell how that will play out with GAC. However, in addition to the subscriber gains, the channel has struck a deal with the Grand Ole Opry to be its exclusive broadcaster, and with the Academy of Country Music Awards to rebroadcast this year’s awards show.

Scripps Networks as a rule also tends to shy away from using big-name stars to host its programs, relying instead on people who are deemed qualified instructors, many of whom have teaching backgrounds. It’s a move the company said allows the networks to have more stable ratings performance.

“That was a deliberate call,” Mr. Lowe said. “I didn’t want a personality to emerge, because the problem is that a personality can define the network. I learned in radio that you play the hits, you don’t play the artists, because artists come and go. You tilt the station too much to individual artists and you might have short-term success. But as they cool, where are you? The stars of these networks are the shows.”

Keeping the shows as the stars is probably helped by many of Scripps Networks’ decision-makers being based in Knoxville. (The exceptions are Food Network, which is based in New York; Fine Living, which operates out of Los Angeles; and GAC, which moved its headquarters recently to Nashville to be in the center of the country music scene.)

Scripps officials say that while some potential employees might balk at the notion of moving out of entertainment hubs such as New York or Los Angeles, Scripps Networks hasn’t suffered by being located in Knoxville. Plus, from a strategic and programming point of view, being based in Knoxville could be a benefit.

“We did not want the distractions of New York or Los Angeles,” Mr. Lowe said. “We were a start-up going after people in Middle America.”

And as he sees it, they still are.