03 August 2012

Investor's Business Daily

 

Viewers who want to remodel their living room, prepare spaghetti Bolognese or find the best beach in the Caribbean tune in to one of Scripps Networks' cable networks.

Scripps Networks Interactive's (SNI) cable stations, HGTV, the Food Network and Travel Channel, draw lifestyle-oriented viewers who want to be entertained and learn something.

While advertising and affiliate fees generate the bulk of its revenue, creating branded products aligned with its shows is building revenue that could rise in the future. Knoxville, Tenn.-based Scripps Networks has been adept at devising ancillary revenue through partnerships in an array of businesses including furniture, paint and flooring.

"They've been extending their brand into other consumer areas such as magazines and wine. They cater to particular advertisers in food and cooking channels," said David Joyce, a New York-based media analyst at Miller Tabak. The company's 2011 annual report noted, "Audience engagement with our brands extends beyond television. In 2011, we leveraged our power brands to create important new revenue streams."

While the ancillary revenue is currently modest, it has upside for growth, Joyce says. While these "blue sky opportunities" haven't been incorporated into his revenue model, he expects 10% of its revenue will stem from ancillary revenue in the future.

These partnerships serve three purposes, says Ron Feinbaum, the SVP for consumer products at HGTV: 1. Producing licensing revenue, 2. Incremental ad revenue and 3. Luring more eyeballs and viewers to the network.

Another goal is to showcase HGTV or Food Network as experts in their field to help consumers. "How can we make some of their life decisions easier and reduce their angst" Feinbaum said. Deciding on which paint to buy among the hundreds of brands for sale or what sofa to choose can be daunting.

E.W. Scripps Co., which began in 1878, split into two companies in October 2007: E.W. Scripps Co. (SSP), which owns 13 newspapers and 19 TV stations, and Scripps Networks Interactive, known for cable stations. Thirty-six percent of the revenue at Scripps Networks comes from Food Network, 35% from HGTV, 13% Travel Channel, and 9% combined from DIY home improvement network, Cooking Channel and Great American Country network or GAC. The rest comes from other businesses.

Its cable stations have been flourishing. For example, HGTV (formerly known as Home and Garden Television) finished as the highest-rated cable network for upscale women attracting about 1 million households a night based on shows such as HGTV Design Star and House Hunters International. To capitalize on its popularity, Scripps partnered with the Hearst Corporation to create HGTV and Food Network magazines.

Why partner with Hearst Feinbaum said, "We're not experts in circulation, distribution or writing for magazines." The partnership is a 50-50 joint venture. Some stories are inspired by its cable shows. But most articles explore new food and home design topics. "The partnership builds the HGTV brand, just like Oprah did with her magazine," Miller Tabak's Joyce said.

Pulling In Manufacturers

Scripps Networks also developed HGTV brands with leading manufacturers. Its HGTV Home Flooring is sold by Shaw Industries, which is owned by Berkshire Hathaway (BRKA), its HGTV Home paints are produced by Sherwin-Williams (SHW), and Bassett Furniture (BSET) sells HGTV's furniture.

Moreover, it has over 1,000 Food Network licensing deals with Kohl's (KSS) department stores that sell an array of kitchen products including pots, pans, knives and blenders. And its partnership with Wente Vineyards yields a branded wine.

Since Food Network's "In the Kitchen" proved popular, Scripps created an app for the show. It has attracted 450,000 paid downloads, making it the highest ranking paid culinary app in the iTunes catalog.

All these partnerships are based on Scripps Networks' credibility with viewers. "The consumer assumes that the network and the stars on the channel have all done their home work. It's about trusting their research," Joyce said.

There is a trap that arises when cable networks promote branded products. If Scripps starts producing shows designed to sell something and not focus on the quality of its content, those partnerships could dilute its brand, Joyce says.

Fein

baum says the network keeps product integration on its shows to a minimum. "We try to avoid coming across as self-serving or pitching our own wares," he said.

Its cable stations appeal to a cross section of consumers. Travel Channel skews to the more affluent, HGTV to female viewers, who make most buying decisions and DIY to men who like home repair.

The only Scripps Networks cable channel that has floundered has been GAC or Great American Country. It used to show country music videos but Scripps has been reinventing it.

"We're not just doing these deals for synergy in marketing. Five or 10 years down the road, this could be a meaningful part of the company's revenue stream," Feinbaum said.

 

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