scripps networks interactive (sni) earnings report: q4 2015 … · scripps networks interactive...
Post on 07-Jun-2020
10 Views
Preview:
TRANSCRIPT
CompanyName:ScrippsNetworksInteract iveIncCompanyTicker:SNISector:ServicesIndustry:Media
EventDescription:Q42015EarningsCallMarketCapasofEventDate:7.09BPriceasofEventDate:58.04
©2014TheStreet,Inc.Al l R ightsReserved Page1of21
ScrippsNetworksInteractive(SNI)EarningsReport:Q42015ConferenceCallTranscriptThefollowingScrippsNetworksInteractiveconferencecalltookplaceonFebruary23,2016,10:00AMET.Thisisatranscriptofthatearningscall:
CompanyPart icipants
DylanJones;ScrippsNetworksInteractive;ChiefCommunicationsOfficerKenLowe;ScrippsNetworksInteractive;Chairman,President,CEOBurtonJablin;ScrippsNetworksInteractive;COOLoriHickok;ScrippsNetworksInteractive;CFOJimSamples;ScrippsNetworksInteractive;President-International
OtherPart icipants
DougMitchelson;UBS;AnalystMichaelNathanson;MoffettNathanson;AnalystVasilyKarasyov;CLSA;AnalystDavidJoyce;EvercoreISI;AnalystToddJuenger;SanfordBernstein;AnalystAmyYong;Macquarie;AnalystAlexiaQuadrani;JPMorgan;AnalystMichaelMorris;Guggenheim;AnalystRyanFiftal;MorganStanley;AnalystBenMogil;Stifel;AnalystLauraMartin;Needham;AnalystEricHandler;MKMPartners;Analyst
MANAGEMENTDISCUSSIONSECTION
Operator :
WelcometoScrippsNetworksInteractivefourth-quarterearningscall.
(OperatorInstructions)
Asareminder,thisconferenceisbeingrecorded.
NowI'dliketoturntheconferenceovertoDylanJones,ChiefCommunicationsOfficer.Pleasegoahead.
DylanJones (ChiefCommunicationsOfficer):
Thanks,Operator.Goodmorning,everyone.
OnthecallwithusthismorningisKenLowe,ourChairman,PresidentandCEO;BurtonJablin,ChiefOperatingOfficer;LoriHickok,ChiefFinancialOfficer;andJimSamples,PresidentofInternational.
Wewillstarttheconferencecallwithpreparedremarksthatshouldtakeabout20minutes.Thenwewillopenitupforquestions.Letmeremindyou,ifyouprefertolisteninviatheInternet,gotoourwebsite,clickontheInvestorbuttonandfindthemicrophoneicononthelandingpage.
CompanyName:ScrippsNetworksInteract iveIncCompanyTicker:SNISector:ServicesIndustry:Media
EventDescription:Q42015EarningsCallMarketCapasofEventDate:7.09BPriceasofEventDate:58.04
©2014TheStreet,Inc.Al l R ightsReserved Page2of21
Additionally,underthemicrophoneiconyouwillfindthefourth-quarterearningspresentationmaterialswewillbereferencingduringthepreparedremarksportionofourcall.Anaudioarchivewillbeavailableonthesitelatertoday,andwewillleaveittherefortwoweekssoyoucanaccessitatyourconvenience.
DuringtheQ&Athismorning,pleaselimityourselftoonequestionandonefollow-up,sothatwecanaccommodateasmanypeopleastimeallows.
Letmeremindyouthatourdiscussionthismorningwillcontaincertainforward-lookingstatements.Actualresultsmaydifferfromthosepredicted.Someofthefactorsthatmaycauseresultstodifferaresetforthinourpublicly-fileddocuments,includingourForm10-K.
Withthat,IwillturnitovertoKen.
KenLowe (Chairman,President,CEO):
Allright.Thankyou,Dylan.Goodmorning,everyone.Wearehappythatyouareabletobewithustoday.Whatayear.2015wasamilestoneyearforScrippsNetworksInteractive.Revenueswereup13%,hitting$3billionforthefirsttime.Advertisingrevenueswereup14%,exceeding$2billionforthefirsttime.
Adjustedsegmentprofitsup13%to$1.3billion;adjustedearningspershareup25%to$4.94.AndwecompletedthelargestacquisitionintheCompany'shistory,successfullytransformingourinternationalbusinessthroughtheacquisitionofTVN.SoquiteayearindeedfortheCompany,andI'djustliketosaythankstoallthededicatedemployeesthathelpedmakethispossible.
Youknow,wehaveaprettysimplebusinessphilosophy.Wefortifyandprotectourcorebrands.Weextendourreachbycreatingnewconnectionswithconsumers.Andfinally,wegenerateandextractvaluefromeachofthoseconnections,whetheritbeonatelevisionscreen,amobiledeviceoreventhepagesofamagazine.Andwearedoingthataroundtheworld.
WithTVN,theleadingmultiplatformmediacompanyinPoland,ourCompanyfirmlyestablisheditselfinoneofEurope'smostvibranteconomiesandcreatedaplatformforfuturegrowthinthisdesirableregion.
HereintheUnitedStates,ourtelevisionnetworksenjoyedanotherstrongyear.Weonceagainoutperformedourpeergroupaswecontinuedtoattracttheupscaleengagedaudiencescovetedbyouradvertisers.AsyouwillhearfromBurtonshortly,ournetworkscontinuetobeanessentialelementinthemediaplansofbrandsandagencieseverywhere.
Wearemeetingthechallengespresentedbychangingmediaconsumptionhabits.We'vebroadenedourhorizonsandwe'vemadeourvaluedcontentavailableonagrowingarrayofdeliveryplatforms,includingtelevision,tabletsandmobile,tomeetclearconsumerdemand.WearemakingsmartstrategicbusinessmovesthatfurtherpositiontheCompanytotakeadvantageoftheevolvingmedialandscape.
WeconsolidatedallofourUStelevisioncontentdevelopmentunderanewChiefContentandBrandOfficer,KathleenFinch,whoisdoingafantasticjob.It'samovethatreallymakesiteasiertotaptheexpertiseandtalentpreviouslyseparatedbybrand.Ithasreallymadeusamorecohesiveandholisticorganization.
Atthesametime,weareexpandingbeyondtraditionaldistributionplatformsandgeneratingmoreon-demandandshort-formcontentspecifictotheplatformonwhichit'sconsumed.OurrecentlaunchoftheScrippsLifestyleStudiosreflectsourprogressinthisarea.
Wemadepositivestridesin2015,toletconsumersaccessourcontentontheirdeliveryplatformofchoice,andthey'verespondedbyvisitingourwebsitesandmobileappsinever-increasingnumbers.
CompanyName:ScrippsNetworksInteract iveIncCompanyTicker:SNISector:ServicesIndustry:Media
EventDescription:Q42015EarningsCallMarketCapasofEventDate:7.09BPriceasofEventDate:58.04
©2014TheStreet,Inc.Al l R ightsReserved Page3of21
In2015,weexperiencedstrongrevenuegrowthinadvertisingsalesandcontentdistribution.WeunitedthoseunderasingleChiefRevenueOfficer,SteveGigliotti,whoistaskedwithmaximizingalltheCompany'smonetizationstreams.
Wecompletedacompanywidecostanalysisandtakenecessarystepstobringcostsinlinewithprojectedrevenue.Ithasmadeusleanerandithasreallyenhancedourabilitytomovequicklywhenopportunitiesarise.
Advertiserswanttoworkwithus,anddistributorsconsiderourchannelsasthekindofmust-carrybrandstheirconsumersdemand.Soinsummary,2015wastrulyatransformationalyearforourCompany.
Overthelast20years,wehaveestablishedpowerfulbrandsthatconnectdeeplywithconsumersacrosstheworld.Wearegrowingrevenuesaswemonetizeaudiencesonallplatforms.Thesolid,consistentperformancethatourCompanyexhibitsquarterafterquarter,yearafteryear,validatestheeffortsofourincrediblytalentedteamsaroundtheworldaswebuildvalueforallofourshareholders.
SoIwanttothankyouagainforyourinterestinScrippsNetworksInteractive,andnowletmeturnitovertoBurtonwhohasdetailsonourstrongfourth-quarterresults.Burton.
BurtonJablin (COO):
Thanks,Kenandgoodmorning,everyone.Theyear2015endedstrong,andthatstrengthhascontinuedintotheearlypartof2016.Herearejustafewhighlights.In2015,bothHGTVandCookingChannelrecordedtheirbestyearsever.HGTVwasoneofonlythreetop10cablenetworkstogrowitsratingsin2015.Itcompleteditsninthconsecutiveyearasthenumberonenetworkforupscalewomen,andforthesecondyearinarowwasnumberonewithwomen25to54onweekends.That'satimeperiodthatreallyservesasasecondprimetimesalesopportunityforus.
FoodNetworkandTravelChannelexperiencedstronggrowthinthefourthquarterandsofarthisyear,allsixofournetworksareseeingratingsgrowth.
OnHGTV,somenewershowsemergedashugehits.FixerUpper,aseriesaboutremodelinghomesinWaco,Texas,hasbecomeoneofthebiggestshowsinthenetwork'shistory.It'sjustoneexampleofhowHGTVtapsintotheheartlandofAmerica.
NewseasonsofFliporFlop,HawaiiLife,andPropertyBrothersHomeontheRanchdeliveredhighaudiences,asdidHouseHunters,ofcourse,ourperennialfranchisethatwecontinuetoexpandtogreateffect.
AtFoodNetwork,we'veturnedthecorneronaudiencegrowth,especiallyamongyoungerviewers.Millennial-appealinghitslikeCutthroatKitchen,CampCutthroat,andWorstCooksCelebritydrove5%year-over-yeargrowthinthevaluableadults25to34agegroup.
Family-friendlyserieslikeHalloweenBakingChampionship,RachelRay'sKidsCook-Offencouragedco-viewingbythewholefamilyandincreasedyoungerviewersbydoubledigits.The11thseasonofFoodNetwork'sStarscored15%higherratings,becomingoneofthesummer'sbiggestsuccessstories.Duringfourthquarter,FoodNetworks'overallviewershipwasup5%over2014.Thenetworkfinishedinthetop10inwomen25to54,andjustoutsidethetop10amongadults.
TravelChannelalsoshowedverypositivemovement,assomeofthenewshowswe'vebeentellingyouaboutcontinuedtogaintraction.Overall,TravelChannelviewershipwasupanimpressive5%forthequarter,andthenetworkhasmaintaineditspositiveperformanceintothenewyear.
KeycontributorsincludedExpeditionUnknown,BizarreFoods,andBoozeTraveler.Andwehaveaslate
CompanyName:ScrippsNetworksInteract iveIncCompanyTicker:SNISector:ServicesIndustry:Media
EventDescription:Q42015EarningsCallMarketCapasofEventDate:7.09BPriceasofEventDate:58.04
©2014TheStreet,Inc.Al l R ightsReserved Page4of21
ofnewshowsinthepipelinethatweareconfidentwillhelpcontinuethegrowthtrend.
Latelastyear,webegantomovesomeTravelChanneloperationstoourKnoxvilleheadquarters,andweexpecttogainadditionalcreativesynergiesasthatmoveplaysoutoverthenextfewquarters.
RatingsatCookingChannelcontinuedtoimproveinthefourthquarter,maintaininghealthygrowththroughouttheyear.CookingChannelfinished2015withitssixthstraightyearofaudiencegrowth.Forthefourthquarter,viewershipsoared13%torecordlevelsforadultsandwomenages25to54.
Moreover,thequarterwastheyoungesteverforprimetime,thankstostronggrowthinadults25to54.RatingsgrowthresultedfromsuccessfuloriginalshowslikeUniqueEatsandSugarShowdown.
DIYNetworkhadastrong2015,themostwatchedyeareverforadults18plus,andthesecond-highestyearforadults25to54,drivenbyshowslikeRehabAtticandBarnwoodBuilders.AndGreatAmericanCountryexperienceditsmostupscaleyearyet,aswecontinueitssuccessfulconversiontolifestyleprogramming.
Nowwetalkalotabouttelevisionaudiences,andlineartelevisionisthrivingatScrippsNetworksInteractive.WealsobenefitfromthegrowingawarenessofTVEverywhere.UsageofourWatchappsincreasednearly300%inJanuaryversusayearearlier.ConnecteddevicessuchasRoku,AppleTVandAmazonFireTValreadycomprisemorethanone-thirdofourtotalTVEverywherereach.
Weareworkingdiligentlytoensurethatweattractthenextgenerationofviewersandconsumers.Wehaveseensignificantprogressonourtelevisionnetworksandonover-the-topservices,butwemustalsocreatecontentthatispurposelydesignedforalternativeformats.
Attheendof2015,welaunchedScrippsLifestyleStudios.It'sadedicatededitorialteamthatcreatescontentspecifictotheplatformonwhichit'sconsumed.ItcouldbeFacebook,AppleNews,Snapchatoranyofthemanyplatformsthatemergeeveryday,aswellasourowndigitalproperties.Anditletsustakeadvantageofkeyaudiencesandadvertisingopportunitieswhilealsoreachingdigitalnatives.
AnearlyexamplefeaturedChefBobbyFlayandhisdaughterSophiestarringinaseriesofcookingvideosthatairedonSnapchat.Thisapproachtocontentgenerationgivesusgreateragilitytotakeadvantageofadvertisingopportunities.Weareabletointegrateadvertisersintoauthenticstorytelling.Thishelpsclientsreachhigh-valueaudiencesonthedigitalplatformstheylove,andtranslatesthatengagementintodeeperconnectionandtransactions.
Iwanttoexpandalittlenowonourinternationalprogress.TVNGroupclosed2015withastrong22%shareoftheadults16to49televisionaudienceinPoland,anditsspringseasonhasopenedwithstrongnumbers.TheprogramsMasterChefJuniorandthenewdramaseries,SecondChance,scoredthebestseasonpremiereratingssince2013acrossallTVchannelsinPoland.
TVNcontinuestoshineinitsover-the-topstrategy.Morethan1.7millionpeoplehaveregisteredwithaTVNplayer,makingitoneofthetopfivedistributionplatformsinthecountry.WecontinuetoviewTVNasagreatassetfortheengagedaudiencesitsnetworksaggregate.WealsoseegoodopportunitytoleverageTVNasalaunchpadforexpandingScripps'presenceinthisimportantregion.
NowwhileTVNprovidedtheyear'sbiginternationalheadline,theCompanyexperiencedsubstantialgrowthinotherpartsoftheworldaswell.FoodNetwork,ourmostwidelydistributedglobalbrand,isnowavailableinmorethan150countries.ItisthetoplifestylechannelintheUK,andhasseensubstantialsuccessinSoutheastAsiaandmorerecentlyinLatinAmericaandAustralia.
TravelChannel,oursecondmostdistributedbrand,isviewedinmorethan130countriesacrossEurope,theMiddleEast,AfricaandtheAsia-Pacificregion.
CompanyName:ScrippsNetworksInteract iveIncCompanyTicker:SNISector:ServicesIndustry:Media
EventDescription:Q42015EarningsCallMarketCapasofEventDate:7.09BPriceasofEventDate:58.04
©2014TheStreet,Inc.Al l R ightsReserved Page5of21
HGTVdebutedontheinternationalscenejustaboutayearago.ItisalreadythenumberonelifestylechannelinSingapore,andisgrowingrapidlyinMalaysiaandthePhilippines.Additionally,ourinternationalonlybrands,AsianFoodChannelandFineLivingNetwork,enjoyedstronggrowthin2015.AsianFoodChannelallowsustodeveloplocally-producedshowsspecifictoAsianmarkets,whilewithFineLivingNetworkwecanshowcasethebestofourcontentfromthehome,foodandtravelcategoriesonasinglenetworkinmarketswherethatapproachworksbest.
FromKnoxvilletoNewYork,toWarsawandSingapore,onTVscreens,tabletsandsmartphones,weareconnectingwithmillionsofconsumersworldwideeveryday,everyway.Andwearetakingadvantageofnewwaystomonetizethecloserelationshipswedevelop.That'sourgoal,that'sourcommitment.
Andnow,I'llturnitovertoLoriwhowillreviewfinancialperformance.
LoriHickok(CFO):
Thanks,Burton,andgoodmorning,everyone.Sinceyouhaveseenourstrongresults,IwillhighlighttheconsolidatednumbersthatKenmentioned,discussoursegmentperformance,provideguidanceandthenopenitupforQ&A.
2015wasagreatyearforScrippsNetworksInteractive.Revenueincreasedanimpressive13%,surpassing$3billionforthefirsttime.Drivingthisgrowthwasastrongadvertisingmarketforourlifestylebrands,growthinaffiliatefees,andasignificantexpansionofourinternationalbusinessthroughTVN.
Thisstrongrevenuegrowth,coupledwithfocusedcostcontrolhelpedinpartbyour2014announcedrestructuringandearlyretirementeffort,translatedtoa13%growthinadjustedsegmentprofitandadjustedEPSgrowthof25%comparedwiththeprioryear.
Forthefourthquarter,totalCompanyrevenuewasup27%.ContributingtothisgrowthwastheinclusionofTVNandstrongadvertisinggrowthandaffiliatefeeincreases,primarilyattheUSNetworkssegment,whichI'lldiscussinmoredetaillater.
Totaladjustedsegmentprofitincreased19%,drivenbystrongrevenuegrowth,partiallyoffsetbyincreasesincostofservices,primarilyprogrammingexpense.AlsocontributingtotheexpensegrowthwereinternationalincreasesrelatedtotheinclusionofTVN.
AdjustednetincomeattributabletoSNIwas$1.35perdilutedshare,up35%duetotheoperatingimprovementsnotedpreviously.WehadagreatquarteratourUSNetworkssegment.Revenuesincreased8%,drivenbystrongadvertisingdemandforourlifestylenetworks,aswellascontinuedaffiliatefeegrowth.
Fortheadvertisingrevenue,improvedscatterpricingcoupledwithCPMpriceincreasesfromthe2015/2016upfrontandcalendarupfrontmarkets,drovean8%year-over-yearincreaseinthefourthquarter.Scatter-versus-scatterCPMpricingwasuphighsingletolowdoubledigitsyear-over-year,anduphighteenstolow-20%soverthebroadcastupfront.
Ourtopfiveadvertisingcategoriesduringthequarterwerefood,retail,consumerpackagedgoods,autoandpharmaceutical.Thesecategoriesarefairlyconsistentwithpriorperiodsexceptpharma,whichwasstrongerthannormalinthefourthquarter.
Thisstrongadvertisingmarkethascontinuedintothefirstquarter,withscatter-versus-scatterCPMpricinguphighsingletolowdoubledigitsyear-over-year,andupteenstolow-20%soverthenewbroadcastupfront.
Foraffiliatefees,contributingtothe5%growthwerecontractualrateescalatorswithourtraditional
CompanyName:ScrippsNetworksInteract iveIncCompanyTicker:SNISector:ServicesIndustry:Media
EventDescription:Q42015EarningsCallMarketCapasofEventDate:7.09BPriceasofEventDate:58.04
©2014TheStreet,Inc.Al l R ightsReserved Page6of21
distributionpartners,incrementaldistributionincreasesthatwenegotiatedinsomerecentrenewalsforbothDIYNetworkandCookingChannel,andnewdistributionsrelatedtobroadbandproviders.
Lookingatouradjustedsegmentprofit,andasBurtonmentionedforthefourthquarterof2015,ournetworksrealizedpositiveratingsmomentumthathavecontinuedinto2016.Helpingtodrivethisperformancewasthedecisiontoshiftprogrammingpremierestothefourthquarter,whichalsoallowedustotakeadvantageofarobustadvertisingmarket.However,thisrecordamountofnewprogrammingalsodroveanincreaseinprogrammingexpenseforthequarter.
Additionally,andasindicatedonpreviouscalls,wefocusondevelopingprogrammingthemesfortheTravelChanneltodevelopastrongnetworkidentity.We'vereevaluatedourprogramminglibraryandelectedtowriteoffalargerthannormalamountofTravelChannelprogramminginthefourthquarter.Asaresultofthesedecisions,ouradjustedsegmentprofitwasdown1%forthequarter.
However,webelievethelonger-termtrendwillbeacontinueddecelerationintherateofprogrammingexpensegrowth,consistentwithwhatwe'veseenoverthepastcoupleofyears.
Ourinternationalrevenuesof$163millionincreasedsignificantlyduetotheconsolidationofTVN,coupledwithgrowthinourexistinginternationalbusiness.TVNrevenueswereup7%inlocalcurrencycomparedtothesamequarterayearago,whilerevenuesfromourexistingoperationswereup17%onanorganicbasis.
Internationalsegmentprofitwasahealthy$36millioncomparedwithalossof$8millioninthefourthquarterof2014.This$44millionimprovementisprimarilyduetotheinclusionofTVN,aswearestillinvestinginourexistinginternationallifestylenetworks.
Inadditiontoourconsolidatedresults,wehavesignificantinternationaloperationsreportedinourequityearnings.Intotal,ourequityandearningsofaffiliateswas$11million,downcomparedwiththeprior-yearfourthquarter,primarilyduetotransaction-relatedaccountingadjustmentsandseasonalityrelatedtotheTVNminorityinvestmentsweacquired.
Onthebalancesheet,Iwanttotouchonacoupleofitems.Asyouhaveseen,reflectingtheconfidencemanagementhasinthebusinesstocontinuetogeneratestrongoperatingfreecashflow,wehaveincreasedourdividendforthesixthconsecutiveyearto$1pershareannually.
Withinourcapitalallocationpriorities,wearefocusedonusingoperatingcashflowtofundorganicgrowth,reduceourleverageandinvestinM&A,bothintheUSandinternationally.Weendedthefourthquarteratapproximately3.2timesgrossleverage,andwerecentlynotifiedCoxCommunicationofourintenttopurchasetheir35%stakeinTravelChannel.Thisnotificationstartedthevaluationprocessforthetransaction,andweexpectthetransactionwillbecompletedbytheendofthefirstquarter.
Finally,andbeforeweopenitupforquestions,wewillprovideourfull-year2016guidance.AllguidanceisbasedontotalCompanyresults.Asaresultofthestrongdemandforournetworksfromviewersandadvertisers,alongwithanincreasingcontributionfrominternational,weexpectrevenuegrowthofapproximately12%.
WebelievetherevenueincreasewillbedrivenprimarilybyafullyearofTVNresultsandgrowthinadvertisingrevenue.Weexpectforthefirsthalfof2016,theCompanywillrealizeahighergrowthratedueinparttoeasieradvertisingcompsattheUSNetworkssegment,andbecauseTVNresultswerenotincludedinthefirsthalfof2015.
WeexpectthethirdquarterwillbeimpactedbytheOlympicsandtoalesserextentthepresidentialelection.Soitshouldbetheslowestgrowthquarteroftheyear.Thengrowthshouldaccelerate
CompanyName:ScrippsNetworksInteract iveIncCompanyTicker:SNISector:ServicesIndustry:Media
EventDescription:Q42015EarningsCallMarketCapasofEventDate:7.09BPriceasofEventDate:58.04
©2014TheStreet,Inc.Al l R ightsReserved Page7of21
somewhatforthefourthquarterof2016.
Weexpectadjustedsegmentprofittoincreaseapproximately7%.AdjustedsegmentprofitexcludesTVNtransactionintegrationcosts,restructuringandreorganizationcostsfor2015and2016.Impactingthe2016segmentprofitgrowthwillbealargerproportionateshareofinternationalrevenueswhichhaveaninherentlylowersegmentprofitprofilecomparedtoourUSnetworks,achangeinourprogramamortizationpolicyandestimationratesforcertainprogrammingacrossthenetworks,andthelikelyimpactfromaonetimerateequalizationprocessduetotheexpectedrenewalofcertaindistributoragreementsthatarebeingconsolidated.
Afterthisinitialperiod,weexpecttorealizemid-to-highsingledigitannualizedpricingincreasespersubscriber.Thesethreeitemsimpactourestimatedadjustedsegmentprofitgrowthby500to600basispoints.
Weexpectdepreciationandamortizationexpensetobe$120millionto$125million.Thisestimateexcludes$52millionofTVNpurchasepriceadjustments.Wewillalsoexcludepurchasepriceadjustmentsfromouradjustedearningspersharecalculation.Weexpectinterestexpensetobeapproximately$135million,andlastly,ourtaxrateshouldbe30%to32%fortheyear.
Withthat,wearereadyforyourquestions.
QUESTIONS&ANSWERS
Operator :
(OperatorInstructions)
DougMitchelson,UBS.
DougMitchelson (Analyst-UBS):
Great,thankssomuch.Imean,Ithinkacouplethingspopout.
One,withadvertisingbeingthisstrong,canyoujustgiveusasenseof,ifyouwould,howthecalendarupfrontsortofendedupintermsofrateorvolume,andwhatyouarethinkingasyouheadintothisyear'supfront?
Itwashelpfulgettingthecadencearoundhowyouthinkadvertisingflowsfortheyear,butaswejustthinkaboutthesetupgoingforwardwithyourratingsdoingabitbetter.
Andthenanydetailsthatyouhaveonthechangeinprogrammingamortization,therationale,andwhatyouchangedfromandtowouldbehelpful.Andthenifyouwouldn'tmindmethrowingathirdinthere;justanythingintermsofnewentrantsintodistributionthatyouwouldcommentonatthispoint.Itseemslikethere'salotofconversationsgoingonthatbythemiddleoftheyear,wemighthavesomenewentrantslaunch.
Doyouthinkyouwillbeavailableonanynewplatformsorbundlesatlaunch,oristhatsomethingthat'sstilluncertainatthispoint?Thankyou.
BurtonJablin (COO):
Great,Doug.Wewilltackleallthree.ThisisBurtontostartontheadsales,andthenwewillgotoLoriandthenKenfortheothers.Thecalendar,upfrontwasverystrongforus.Withscatterpricingwhereitis,Ithinkadvertiserswanttogettheirmoneydownandtrytonotplayinthatscattermarketiftheycanavoiditbecausepricingissohigh.
CompanyName:ScrippsNetworksInteract iveIncCompanyTicker:SNISector:ServicesIndustry:Media
EventDescription:Q42015EarningsCallMarketCapasofEventDate:7.09BPriceasofEventDate:58.04
©2014TheStreet,Inc.Al l R ightsReserved Page8of21
Butcalendarisalwaysstrongforusbecauseespeciallyonthehomeside,it'swhereendemicsinthehomecategoryreallyputtheirmoneydown.That'sthewaytheirbuyingcalendarworks,andsoweareseeingthatcontinuedstrength.Weareveryhappywithit.
AndIhavetosaygoingintotheupfront,wearefeelinggood.Ratingsatallsixofournetworksareup.That'sagreatpositiontobeinaswetoutthestrengthofourbrandsandthequalityofouraudience.Wearestillupscale.We'vegotagreatstory.
Infact,ouradsalesgroupismeetingthisweekfortheirnationalsalesmeeting.Iwaswiththemyesterday;Iwillbewiththemthisafternoon.Theyareasupbeatastheycanbe,givenwherewearewithournetworksandwheretheyareinthemarketplace.
LoriHickok(CFO):
Yes,Doug.AndI'lltackletheprogramamortizationquestion.Asitshouldbenosurprisewhenweperiodicallylookathowweareestimatingouramortization,howitmatcheswithrevenue,andhowshowsarebeingpremiered.Andasaresult,weareacceleratingouramortizationinthefirstyearforcertainnetworks,andit'shavingaone-timeadjustmentaswechangethepolicy.
Sowhatyouwillseeisanimpactwhenyouseeourcostofsalesnumbersinthegrowthrateprobably,callit,from1pointto2pointsimpactfortheyear,dependingonwhentheshowispremiered.So,again,wegetpast2016,itwillbenolongeranimpact.SoI'dcallitanon-cashamortizationimpact.
Sohopefully,thathelpsyoualittlebit,butwecontinuetolookatthesethings.Andagain,IthinkwiththecollapseofthenetworksallunderKathleen'sleadership,wemightcontinuetorelookathowweareusingprogrammingandhowthatmightimpact.Sowewillkeepyouintune.Butonanongoingbasis,ourinvestmentisstillmoderatingfromacashbasis.So,again,ifyoulookatthedollarsgoingoutthedoors,wearestillmoderating.
Ifwegobackintime,wewereprobablyaswebroughtintravel,weweremoreatthehighteens.We'vemoderatedthattothelowteens,andnowweareinthe--Iwouldcallwearecloselyandwithoutthisadjustmentprobablyinthehighsingledigitzone,whichiswhatwe'vebeenstrivingtodooverthelastcoupleofyears.
DougMitchelson (Analyst-UBS):
Andmaybe,Lori,itwouldbehelpfulinthesenseifthisissortofneworiginalprogramming,aretheybeingamortizednowsortofoveratwo-yearperiodratherthanathree-yearperiod?Ifyoucangiveusasenseofjusthowmuchisamortizedinthefirstyearversuswhatitwasprior.
LoriHickok(CFO):
Yes,andagain,it'sonanetworkbynetwork,soIcan'tgiveyouablanketanswer.ButIwouldsayforcertainofourbiggernetworks,whatwearedoingis--thelifeisthesame,butweareadvertisingmoreinthefirstyear.Sowhat'swithhappeningasthatfirstyearthat'sbeingamortized,youaregoingtoseeabiggerchunk.
Soforthepremieresin2016forcertainnetworks,someofourlargerones,theyaregoingtotakeabiggerproportionofthatamortizationinyearone,whichtheywillgetthebenefitinyeartwo,threeandfour.So,again,anytimewemakechangesintheamortization,ittakesometimetofunnelthrough.Andthat'swhyIpointbacktothecashinvestment,becausethat'sabetterindicatorofwhatwearespendingandwhatyouwillseeovertime.
KenLowe (Chairman,President,CEO):
CompanyName:ScrippsNetworksInteract iveIncCompanyTicker:SNISector:ServicesIndustry:Media
EventDescription:Q42015EarningsCallMarketCapasofEventDate:7.09BPriceasofEventDate:58.04
©2014TheStreet,Inc.Al l R ightsReserved Page9of21
Doug,sinceyouwereabletoslidethatthirdquestioninonpotentialnewentrantsregardingdistribution.Insteadofspeculatingonit,Ithinkthebestwaytoanswerthatquestionisuptothispoint,we'vebeenincludedineachandeveryso-calledskinnybundleorgoingbacktoDISH'sSling,whichinsomewaysstartedsomeofthealternativedistributiondeliverysystems,weareacrosstheboard.
Andyouheardmesayinmycomments,wearemust-have.SoIthinkit'ssafetosaythatanyalternativedistributionplatformsgoingforward,ahighlikelihoodthatwewillbeinthose,butatthispointthat'sprettyspeculativeastowhotheywillbeandwheretheywillbeandwhentheywilllaunch.Butweshouldbethere.
DougMitchelson (Analyst-UBS):
Allright.Thankssomuch.
Operator :
MichaelNathanson,MoffettNathanson.
MichaelNathanson (Analyst-MoffettNathanson):
Thankyou.Justaquickfollow-uponDoug'ssecondquestiononamortization,andoneforBurton.
Lori,whenyoulookattherelationshipbetweencashspendingonprogrammingandyourprogramamortization,thisyearit'sabout12%greater.Socashspendwas12%greaterthantheamortlevel.
SoIwonderjustlookingatitthatway,dowethinkitlookslikemid-highsingledigitsnextyearinthatrelationship,becauseit'sbeencomingdowneveryyear?Soisthattherightwaytothinkaboutthebalancebetweencashspendingandamortization?
LoriHickok(CFO):
SowhatIwouldsay,includingtheimpactofthisamortizationyou'dprobablyseethatmoderatingdownfromwhatyouareseeing.Sowe're,again,dependingonthetimingofpremieresandwhatweareplanning,whichalwayschangesthroughouttheyear,Iwouldsaywearehoveringrightaroundthat10%rangeandmakingthewaydowntolikethe8%to10%range.
So,again,saywewereatthe10%to12%ayearago;nowweare9%to10%withthisimpactinthere.So,again,wearecontinuingtomoderate.
MichaelNathanson (Analyst-MoffettNathanson):
Okay.AndthenBurton,let'sgototravelforasecond.YouguysrecentlynamedCourtneyWhitetobetheHeadofProgrammingatTravel.AndIknowthatsinceyou'veacquiredTravel,there'sbeenalotofchangesinthevisions.
Iwonderwhat'sthevisionnow?What'sCourtney'svision?AndthenwhatkindofprogrammingexpensegrowthdoyouexpectatTraveldistinctly,giventhereboot?
BurtonJablin (COO):
Programexpenseshouldcontinueverymuchalongthelinesthatwehavealwayssaid.Wehadinvestedmore,asLorijustsaidafewmomentsago.Thepercentagegrowththerewashigher,butthat'sbeenmoderating.Weexpectthatmoderationtocontinue.
AndthereasonisthateventhoughCourtneyisnewtocomingintoTravel,whatwe'velearnedaboutthetravelaudienceandtravelprogrammingoverthelast18monthsiswhatweintended.Youmayrecall
CompanyName:ScrippsNetworksInteract iveIncCompanyTicker:SNISector:ServicesIndustry:Media
EventDescription:Q42015EarningsCallMarketCapasofEventDate:7.09BPriceasofEventDate:58.04
©2014TheStreet,Inc.Al l R ightsReserved Page10of21
overthelastseveralquarters,we'vebeensayingthatwearegoingtoputalotofprogrammingon,newprogramminginthefourthquarter.Wedid.Welearnedalotaboutwhatweputon.
AsalwaysinTV,someworked,somedidn't.Sonowwehavebetterdirectiongoingforward.Courtney,she'sgotalonghistorywithus,10years;alonghistoryinthebusinessbeforethat.Sheisveryadeptatarticulatingaveryclearrationaleforwhyprogramsneedtobeontheair.Soshehasverycraftilydividedsortofwhat'sworkingontravelintoseveralgroupsofkindsofshows,andwe'regoingtobepursuingthosebecausewe'veseenthattheywork.
You'llseealotofadventurequestshowsintheguiseofExpeditionUnknown.WelikeseeingpersonalitieslikeAndrewZimmernandotherslikeinBoozeTravelerandBizarreFoodsgoingoutandexploringtheworld.You'llseemoreofthat.
Youwillseemorepairsofpeopletraveling,becausewelikedynamicsbetweenthem.Andwe'regoingtobringalittledoseofcelebritytothenetworkaswell.WehavegotQueenLatifahwithanewshow.ShewillstartoffinSouthAmerica.Andthenwe'vegotothercelebritiescomingon,too.
SoalotofwhatwelearnedfromthecurrentprogrammingatTravelthat'sworking,whatCourtneylearnedatHGTV,wearegoingtobringtobear.AndIhavetotellyou,sheismovingforwardataveryfastpacetomakeallthiswork.
LoriHickok(CFO):
AndMichael,IjustwanttoclarifywhenIhavebeentalkingaboutthat,that'sbeenUSnetworks.You'vegottokeepinmindwearebringingininternational,andwhenyouarelookingatthebalancesheet,you'vegotthesix-monthimpactofTVN.SoIjustwanttomakesurethatthat'sclear.
MichaelNathanson (Analyst-MoffettNathanson):
Okay,thanks.
Operator :
VasilyKarasyov,CLSA.
VasilyKarasyov(Analyst-CLSA):
Thankyou,goodmorning.Aquickfollow-upontheguidance.Canyoupleasetelluswhentherateequalizationwillstartimpactingthegrowthrateandwhenwillitlapit?
Andthenonadvertising,itusedtobethecasethatcablenetworksarguedthattheiradvertisingpricingisonlyafractionofwhatbroadcastnetworksgetforsimilarprogramming.SoIwaswonderingifyoucouldgiveusanideawhereyouareinthatrelationshipinpricing.Andifyoucanever--ifthereisstillaheadroomforyoutocatchupwiththat,andwhat'sdrivingthisdiscount.
LoriHickok(CFO):
Yes,onyourfirstquestiononthetimingoftherateequalization,wearereallygoingtostaysomewhatsilentonthat.Thisisjustourestimatedimpactfortheyearaswearestillnegotiatingthat.Ithinkyouarequitefamiliarwithallofthemergersgoingon,butweexpectthattohaveanimpactthroughouttheyear.Andthatwhenwegettonextyear,thisisaonetimeanddone,andwewillstarttoseethosemid-to-highsingle-digitpricingincreases.
Sowereallylookatthisasaone-timeitem,2016,andthenwearebacktonormalratesofgrowthnextyear.
CompanyName:ScrippsNetworksInteract iveIncCompanyTicker:SNISector:ServicesIndustry:Media
EventDescription:Q42015EarningsCallMarketCapasofEventDate:7.09BPriceasofEventDate:58.04
©2014TheStreet,Inc.Al l R ightsReserved Page11of21
BurtonJablin (COO):
Vasily,thisisBurton.Thanksforthatquestionbecauseitgivesmeachanceonbehalfofouradsalesteamtosaythereisstillagapinpricing,andweareworkingveryhardtocloseit.Butwethinkwehavesometremendousadvantagestobeabletodothat.Thequalityofouraudienceisunmatchedintelevision--highincome,highlyeducated--withagreatpreponderancetobuytheproductsthattheyseeadvertisedonournetworks.Thatisindisputableandbasedonoutsideresearch,notourownresearch,andweareatthetopinthoseattributes.
Moreover,asdatabecomesmoreofacommodityinthesellingofadvertising,wearegoingtoexcel.Purchasingdata,ouraudiencesbuystuff.Theyhavethemoney;theyhavedisposableincome;theygooutandbuythings.Youareseeingpricingincreases,asLoripointedout,inourscatter.Wethinkwearegoingtocontinuetoclosethatgap,andwethinkwehavealotofheadroomtodosobecauseofthequalityofourcontent,thenatureofourenvironmentinwhichtheadsrun,andmostimportantlythequalityofthataudience.
VasilyKarasyov(Analyst-CLSA):
Thankyou.
Operator :
DavidJoyce,EvercoreISI.
DavidJoyce (Analyst-EvercoreISI):
Iwaswonderingifyoucouldprovidesomemorecolorontheseasonalityofyourvariousinternationalbusinesses,particularlyTVN,bothontheadvertisingprogrammingexpenses,howthatshouldphasethroughouttheyear;andthenanythingweshouldthinkaboutintermsofaffiliatedealscomingup.Thankyou.
BurtonJablin (COO):
Intermsofseasonality,IthinkparticularlyrelatedtoTVN,you'llseenotunlikeUSnetworksthattherewillbeincreasedprogrammingspend,typicallyinthefallandleadingintofourthquarterwhennewpremieresareontheair,aswellasinthefirstquarterwhenwepremiereourspringseasons.Soyou'llseesomeseasonalitythere.
Obviously,TVNasagrouphas12channels,andsoamongthethematicchannelslessseasonalitymoretypicalofcablenetworks.
Operator :
DavidJuenger,SanfordBernstein.
T oddJuenger (Analyst-SanfordBernstein):
ThisisToddJuenger,IguessDavid'sbrother.(laughter)Listen,onequickoneonguidance,andthenletmeexplorealittlebitontheprogrammingside.SoIknowyouaregivingguidanceonaconsolidatedbasisnow,andthat'sfine.JustdeducingwhatthatmeansforUSdomestic.
Ithinkit'sprettyclearthatifweweretothinkaboutwhatUSdomesticadvertisinggrowthrateisembeddedintheguidanceyougave,itseemslikeitmightbethesameormaybeaslightaccelerationfromthisyear,maybethehigherendofmid-singles.Ifyoucouldcommentonthatinanyway,Ithinkitwouldbehelpful.
CompanyName:ScrippsNetworksInteract iveIncCompanyTicker:SNISector:ServicesIndustry:Media
EventDescription:Q42015EarningsCallMarketCapasofEventDate:7.09BPriceasofEventDate:58.04
©2014TheStreet,Inc.Al l R ightsReserved Page12of21
Andthenkindofrelatedtothat,anybodywhowantstojustopineonthetheoryhere.Wehavebeenobservingwhenweseeyourratingsgoup,whichisrareinthisworld,itseemstobetiedverycloselytowhenyouputnewepisodesofyourkeyprogramsontheair,whichisgreatnewsbecauseitshowswhenyouhaveahitshowandyouputanewepisodeon,peoplewatchit.
Italsobegsthequestionofhow--areyoumoredependentthaneverbeforeonhavingtohavenewepisodes,andwhatdoesitmeanforrateofcontinuedspendandinvestment?Istheworlddifferentnow,doyouthink,thanitwasacoupleyearsagoandhowsensitivetheaudienceistonewprogrammingversusthelifespanofrerunsofthose?Thankyou.
KenLowe (Chairman,President,CEO):
Thosearegoodquestions.Youarealsosmarterthanyourbrother.Goahead,Lori.
LoriHickok(CFO):
IwillgiveyoualittlecoloronthetotalCompanyrevenueguidance.Andyes,ontheUSNetworks,weareseeingaccelerationyear-over-year,whichwouldnotbesurprisingonthegrowthratecomingoutofthefourthquarter.Again,wesawstrongpricingcomingoutoftheupfrontversusourpeerset.We'vegotgreatdemandwithimpressions.
So,again,Ithinkit'sthestoryofpricingandjustlikeyouareseeing,weareseeingstrongscatter.Weareseeingthecalendarwasverystrong;optionsareatnormallevels.Sowearefeelingagainthatit'sgoingtobeaverygoodyear.It'sgoingtobebetterthanlastyear,butunlikelastyearwhichIthinkwetalkedalotaboutthataccelerationthroughouttheyearwherewestartedoutslow.
It'sthefirsthalfwethinkisgoingtobeverystrong,duetosomeofthethingsIsaidinmypreparedcommentsisthatitwassofterinthefirsthalf,sowegotpricingplusourimpressionsareallup.Soallverygood,andweareseeingalittlemorestrengththerethanwedidlastyear.
BurtonJablin (COO):
Todd,onprogramming,youandIcouldprobablyhaveanhour-longdiscussionaboutthat,becauseitsuchanuancequestion.Ingeneral,though,Iwouldsayyourpremiseisrightthattelevisionaudiencesingeneralhavelesstoleranceforreruns.Andthat'swhyyouareseeingalotofwhat'sgoingoninthetelevisionindustryoverall.
Itisalsowhywerespondedmanyyearsago,infact,whenJimSampleswasrunningHGTVtothatbyputtingintoproduction300and400episodesayearofHouseHunters.Averyreasonablypricedshowforus,drivesalotofviewing.Wedecidedthat'sworththeinvestmentinoriginalcontent.
Itbecomesmorenuance,though,becauseeachnetworkisalittledifferentinourmix.Andevenwithinanetwork,differentkindsofshowsaredifferentwhenitcomestorepeatability.CompetitionshowslikeaFoodNetworkStar,theydon'trepeatverywell.Soovertime,I'msureyouhaveobservedyou'veseenusdofewerandfewerbigstunttypeshows.
HGTV,infact,isbackingoffalotonthat;FoodNetworkisscalingthemdownalittlebit.Theydon'trepeataswell.Theyaregreatwhentheyrun,buttheydon'trepeataswell.
Ontheotherhand,ashowlikeFixerUpperwhichisfarandawayrightnowthenumberoneshowonHGTV,theteamthereissogoodatunderstandingwhenaudiencesarewatchingthenetworkoncertainnightsthattheyrealizedthatFixerUpperonTuesdaynightwasgettinganaudience.ButFixerUpperrerunsonWednesday--onThursdaynight,rather--couldgetadifferentaudiencethathadn'tseenit.Sureenough,theyputitononThursdaynight,weactuallypromotedit.Thefirsttimewe'veever
CompanyName:ScrippsNetworksInteract iveIncCompanyTicker:SNISector:ServicesIndustry:Media
EventDescription:Q42015EarningsCallMarketCapasofEventDate:7.09BPriceasofEventDate:58.04
©2014TheStreet,Inc.Al l R ightsReserved Page13of21
promotedrepeatsofashow,andtheratingswerenearly100%aswhattheywereonTuesdaynight.
Sotherearewaysforustoutilizereruns,recognizingthewayaudiencesviewindifferentpatternsonournetworks.Soyes,youwillseemoreoriginalprogramming,althoughasLorisaid,wearenotgoingtogocrazyonourprogrambudgets.Wethinkwehavetherightnumberofhoursandwecanmakethemixwork.
T oddJuenger (Analyst-SanfordBernstein):
Iwilldefinitelytakeyouuponthathour-longconversation.It'samaintopic.Thankyouverymuch.
Operator :
AmyYong,Macquarie.
AmyYong (Analyst-Macquarie):
Thanks.Iwaswonderingifyoucouldtalkalittlebitaboutyourcapitalallocationpriorities.Iguessonaslide,there'samentiononM&A.Onjusthighlevel,canyoutalkaboutyourappetitefortraditionalanddigitalassets,Iguessparticularlyonthedomesticfront,andwhattypesofcharacteristicsyouarelookingfor?
Andthensecondly,howmightthebuy-inortheCoxtransactionimpactyourguidanceorleverage?Thankyou.
LoriHickok(CFO):
Okay.Well,asIsaidearlier,Ithinkwhenwelookatourcapitalallocationpriorities,it'sstartingwithjustorganicgrowthwhichisembeddedintheguidancewegaveyou;howdowecontinuetogrowinternational.Wearefocusedondelevering.
OntheM&Aside,wearelookingonthedigitalfrontforopportunisticmoretuck-ins,Iwouldsay,thanoutrightbigthings.Again,inthishighvaluation,thosevaluationsmaycomedown,buttheyarenotasactionable.
Andthenontheinternationalfront,wejustdidthebigTVNtransactionandJimandhisteamarefocusedonmakingthatworkassuccessfullyaspossible,takingthebenefitofthat.Andagain,there'snotalotofbiginternationalopportunitiesthatcomeonthehorizon.
So,ofcourse,anythingthatcomeswewilltakealook,keepinginmindthatwehave--thatwearetryingtodeleversothatwecantakeadvantageofthoseopportunitieswhentheycome.
Again,ourpriorityisoninvestingourcashflowsforthingsthatgenerategrowthandcashflow.So,again,we'vealwaysgot6to12monthwindowthatwearelooking.Alsoonthetravel,that'salreadyembeddedinourdeleveringplan.Wethinkwecaningestthatandreallytakecareofthat,sowecontinuetodelever.That'sourfocus.Wethinkwe'llbeingreatshapeaswecontinuethroughouttheyearandwhenweroundout2016.
AmyYong (Analyst-Macquarie):
Perfect,thankyou.
Operator :
AlexiaQuadrani,JPMorgan.
CompanyName:ScrippsNetworksInteract iveIncCompanyTicker:SNISector:ServicesIndustry:Media
EventDescription:Q42015EarningsCallMarketCapasofEventDate:7.09BPriceasofEventDate:58.04
©2014TheStreet,Inc.Al l R ightsReserved Page14of21
AlexiaQuadrani(Analyst-JPMorgan):
Thankyou.Ifyoucanjustpleaseremindus,Iguess,whereweareinthecycleofaffiliaterenewals,sortofwhatpercentageareleftandsortofwhen.Anddoyouthinkthereisfurtheropportunityaheadfor,Iguess,moredistributionlikewejustsawonthesmallernetworkstosortofcombatmaybetheoverallindustryshrinkage?
LoriHickok(CFO):
Ontherenewalcycle,Ithinkwe'vetalkedthatweareinanewrenewalcyclethatstartedin2014.Itwasatwo-tothree-yearprocess.Butasyouknow,whatyouexpecttodoandhowthosenegotiationsgochangeovertime;dateschange,rightsthatpeoplewantaredifferent.
ButIthinkwe'vegotayearwithsomenegotiationsandthenitwillmoderateoverthenextfewyears,andthenagainwewillhitanotherrenewalcycle.SoIwouldsayweareprobablyroundingthecurveonthisrenewalcycleandreadytomaybebemoremoderateforthenextcoupleofyears.
AlexiaQuadrani(Analyst-JPMorgan):
Andintermsofdistribution?
KenLowe (Chairman,President,CEO):
Alexia,Ithinkifyoulook--ifyouthinkofmyremarksthismorning,whatwearedoingasacompanyistransformingtoacertaindegreetodifferentplatforms.Sowhiletheoveralltraditionaldistributionmodelthatweallhaveadmiredfor20yearshascomeundersomescrutinyinthelastyearorsoasfarasgrowthandstagnation,wearefindingnewwaystoreachconsumersindifferentplatformsanddifferentpackages.AndIthinkDougupfrontmentionedmaybesomenewentrantscomingon.
Soifyoulookatourtotalbusinessoperationdomesticallyandyourealizewearehavingprobablyin21yearssomeofourbestratingsyearsever,it'sbecauseweareattractingneweraudiencesandgrowingstill,eventhoughsomeofthedistributionasIsaidhaswanedabitonthetraditionalplatforms.Butasweseeopportunitiesonalternativedistributionplatforms,wearegoingforthem.
ImentionedtheScrippsLifestyleStudiosthatwe'vecreatedtodomoreshort-formprogramming.Weareverymuchabouttakingourcontentandourcategoriesandcontinuingtogrowit,butnowondifferentdistributionplatforms.Andwe'rehavingenormoussuccessontheTVEverywheremodelasfarastakeratesandSVODingeneral.
Sowethinkthefutureforusisabrightone,butwe'regoingtohavetobemorecreativeandingeniousinhowwedoreachfutureconsumersontheirplatformofchoice,ifyouwill.
AlexiaQuadrani(Analyst-JPMorgan):
Andjustafollow-upifImight.Ithinkyoudidspeakaboutthebuy-infortherestoftraveland,ofcourse,thefocusoninternationalgrowthaswell.Wouldit(inaudible)thatpossibly,IguessFoodNetwork--therestoftheFoodNetworkbuy-inisstillonthehorizon,albeitprobablynotnear-term?
KenLowe (Chairman,President,CEO):
Yes,Alexia,we'vebeenansweringthisquestionalongtime.It'ssomewhereonthehorizon,it'soutthere.Butlook,it'sabrokenrecord;you'veheardussayitmanytimes.Attherightpriceandattherightmultiple,itmakesallthesenseintheworld,justlikebringingintherestoftraveldoes.Andifthatopportunityeverpresentsitself,wewillbeprepared.
CompanyName:ScrippsNetworksInteract iveIncCompanyTicker:SNISector:ServicesIndustry:Media
EventDescription:Q42015EarningsCallMarketCapasofEventDate:7.09BPriceasofEventDate:58.04
©2014TheStreet,Inc.Al l R ightsReserved Page15of21
AlexiaQuadrani(Analyst-JPMorgan):
Thankyouverymuch.
Operator :
MichaelMorris,Guggenheim.
MichaelMorris (Analyst-Guggenheim):
Twotopics.First,ontherateequalizationprocess,justafollow-upthere.Theimpactthatyouareanticipatinginthecomingyear,isthatonlyrelatedtothemajorconsolidationthatwesawoverthelastyear?Andthere'sanothermajorconsolidation,distributionconsolidation,inthemarketplacerightnow.
Wouldyouanticipateasimilarimpactfromthatconsolidationaswell,oristheresomethinguniqueaboutthatthatwouldn'thavethesametypeofimpact?
Andthenmysecondquestion,youspokeacoupletimesaboutcontentbeingspecificallydesignedforotherplatforms.Auniqueapproach,itseemslikeotherplatformswouldbemorecompetitive.Itseemsperhapsaneasierplaceforathird-partytocomeinandtrytomaybetakesomesharefromyou.
Socanyoutalkstrategicallywhyyouarebetterpositionedtocreatethat?Whatareyoudoingthatisuniquethatmaybesomebody,anewentrantcomingintothespace,couldn'tdo?Thanks.
KenLowe (Chairman,President,CEO):
Michael,whydon'twegowiththesecondpartofthatquestionfirst?Burton,goahead.
BurtonJablin (COO):
Sure.Youareright,therearenotasmanybarrierstoentryonotherplatforms,althoughitdoesdependontheplatform.Ourbasicpositioniswedon'tautomaticallywinonotherplatformsthewaywedointelevision.Wehavetobeincrediblycompetitive.Wehavetolookatwhatcompetitorsaredoing.Wehavetounderstandaudiences,particularlyyoungeraudienceswhomaynotinsomecasesbeasfamiliarwithourTVbrands.
AlthoughI'dpointoutwetoldyoutodaythatmillennialaudiencesactuallyaregrowingonourTVnetworks,sowedoattractthemthere.Sothewaywetalkaboutitinternally,strategically,isweareinthesamebusinesswewereintelevisionwhenitcomestonewplatforms.Wecreategreatcontent,weattractdesirableaudiences.It'sbrandedcontentinmanycases,andwe'vegottocompetejustasaggressivelyonnewplatformsaswedidonTV.
Noguaranteethatwewillwin,butwehavealonghistoryofsuccessofknowingaudiencesinourcategories,ofstickingtoourcategories,ofresearchingourcategoriesandknowingadvertisersinourcategories.SoIhavetosaywebetonourselvestodowellinthoseenvironments.Maybenoteveryone,butthepreponderanceIthinkwilldoverywell.
KenLowe (Chairman,President,CEO):
AndifImightadd,thisgoesbothways.YouheardmementionKathleenFinch'snameearlier.OneofthethingsthatKathleenandherteamaredoingnowinlookingatnewtalent,we'llgoouttoasocialmedia,we'llgoouttotheYouTubes.Wewillactuallyrecruittalentbecausetheirultimategoalistobeonournetworks,andyouwillseemoreofthatinthefuture.
Wehavealreadylookedatsomeoftheprogramminglineupsthat'scomingupIguessinthenextfew
CompanyName:ScrippsNetworksInteract iveIncCompanyTicker:SNISector:ServicesIndustry:Media
EventDescription:Q42015EarningsCallMarketCapasofEventDate:7.09BPriceasofEventDate:58.04
©2014TheStreet,Inc.Al l R ightsReserved Page16of21
months,Burton,wherewearetappingintosomeofthistalent.Soit'snotjustforustotrytocreatecontentforthoseplatforms.Wefindoutwhat'sworking,andinsomeareaswherewecanrecruitthetalent,bringthemintoourCompany.Wecanenhancethattalentbyofferingthemlargerplatformsanddifferentsocialmediaoutletstoexpandtheirpersonality,theirbrand,theirtalentaswell.
Sofar,we'vehadaprettygoodsuccessratewiththeoneswe'verecruitedin.Soit'salittlebitofatwo-waystreet.Thisisnewterritoryforusinsomeways,butprettyexciting.
Lori,areyougoingtotakethesecondpartofthequestion?
LoriHickok(CFO):
Yes,Michael.Trytogiveyousomehelponyourequalizationquestion,becausewereallydon'ttalkaboutthespecificnegotiationsandwheretheyare.ButIthinkmaybethiswillhelpyougettowhereyouarebytriangulatingwhatI'msaying.
One,youheardfromanearlierquestionthatweareroundingthebendonourlastgrouping,largegroupingofaffiliaterenewals;notmuchinthehorizonpast2014forsometime--andthatwe,ofcourse,areestimatingthatthereisgoingtobeanimpactfromtheseconsolidationsthatarehappening.Andthat'sembeddedinthat500to600basispoint,whichincludestheotherthingswherewe'vegotanincreasingamountofinternationalinthefirstsixmonths,aswellastheprogramamortization.
Sothereisanimpactthere.ButIwouldliketostressagainit'saone-timeitem,andthenwhenwegetto2017again,wearelookingformid-tohighsingledigits.Sowereallyjusthavetogetthroughthisyear.We'vetriedtogiveyouenoughcolorbasedonwhatweareseeingandwhatisinourpipelinetohelpyouworkonyourmodelsfor2016.
MichaelMorris (Analyst-Guggenheim):
Okay,that'sgreat.Justtobeclear,though,itincludesbothcompletedconsolidationsandanypotentialfromcontemplatedconsolidationsinthemarketplacerightnow;iswhatisembeddedinyouroutlookforthe2016andthensortofthe2017dynamic?
LoriHickok(CFO):
Again,thewayIwouldanswerthatisthisisourlastyearofprobablyabigroundofnegotiations,anditcalmsdownconsiderablyafterthisyear.Soyoucoulddeducethat.
KenLowe (Chairman,President,CEO):
Qualified.
MichaelMorris (Analyst-Guggenheim):
Allright,thankyou.
Operator :
RyanFiftal,MorganStanley.
RyanFif tal(Analyst-MorganStanley):
Great,thankyou.TwoifImay.One,youmentionedIthinkitwasa300%increaseintheuseofTVEverywhereapps.Canyoutalkaboutwhatwasdrivingthatkindofstepfunctionincrease?Andthenmorebroadly,canyoutalkalittleabouttherelativemonetizationofviewersonyourTVEverywhereappsversusyourlinearnetworks?
CompanyName:ScrippsNetworksInteract iveIncCompanyTicker:SNISector:ServicesIndustry:Media
EventDescription:Q42015EarningsCallMarketCapasofEventDate:7.09BPriceasofEventDate:58.04
©2014TheStreet,Inc.Al l R ightsReserved Page17of21
Andthensecond,IjusthadaclarificationforLori.Youmentionedaftertherateequalizationyouexpecttoreturntomid-to-highsingle-digitgrowth.Isthatacommentonrateorrevenue?Thanks.
BurtonJablin (COO):
Well,letmetackleTVEverywherefirst.Lastsummer,andIbelievewe'vetalkedaboutthisoncalls,westartedaggressivelypromotingourTVEverywhereWatchapps,primarilyonourthreebignetworks:HGTV,FoodNetworkandTravelChannel.WebegantoseesignificantdownloadsofourownWatchappsatthatpoint,andtheyaregrowingbytensofthousandsofadditionaldownloadseachmonth.
TheRoku,AmazonFire,andAppleTVappsareconnecteddevices,soyouwatchthroughatelevision.Thosehaveaverylargeexistingbasealready,sothegoaltherewastomaketheexistingusersofthosedevicesawarethatourappswerenowavailable.Theybecameavailabletowardtheendoflastyear,andweareseeinghugedownloadsofthoseappsoverthefirstthreemonthsthatthey'vebeenavailable.
Theviewing,ofcourse,isanothermatter.Onceyouhavetheapps,youthenhavetoview.Sotheviewershipwearepushingaggressivelyonairaswell.Sowehaveatwo-parpromotionmessageonTV.Oneisgettheapp.Thesecondisnowyoucanwatchyourfavoriteprogramsanytime,anywhere,anydevice,ifyouhavetheapp.Andthat'sbothliveviewinganddelayedviewing.
Soitreallyisaverycoordinatedpromotionalefforttotrytogetviewerstounderstandyoucanwatchusnowmoreoften,anywhere,anytime,onanydevice.AndIhavetosayit'searlydays,butweareseeingitwork.
Onmonetization,thesearestillsmallnumbersagainsttheoveralllineartelevisionuniverse.Somonetizationwillcome.Wehavetostartgettingthehabitintherenow.Itcomesinacoupleofways.Ofcourse,inC3wecanmonetizeallthoseconnecteddevicesrightawaybecauseNielsenmeasuresanythingthatcomesthroughaTV.
Theappsthatpeopleareviewingontheirpadsorphones,C3willbealittlebitofawaittomonetizeuntilNielsengetsthemeasurementinorderandwesignupforthatadditionalmeasurementproduct.However,oninsertionafterC3,that'sallmonetizeable.Now,again,that'ssmallrightnow,butweseethatasapotentialgrowthareafortheinsertiondynamicandinsertionofads.
Sowearegettingthehabitsinplacenowforviewing,butweexpecttoseemonetizationgrowastimegoeson.
JimSamples (President-International):
Ryan,thisisJimSamples.IwouldjustaddatTVNinPoland,weareseeingtremendousresponsetoournonlinearofferingthere.Wehave1.7millionregisteredusersalreadyfortheTVNplayer.AndbecauseTVNproducesandownsmuchofitscontent,wehavealotofflexibilitybothtoputthatcontentoutthereandtomonetizeitthroughtheiradsaleshouse.Soit'saterrificmarketforustoexploreandtounderstandthedynamicsofuserbehavioroffofthetelevision.
LoriHickok(CFO):
Andthen,Ryan,onyourquestionaboutwasthatpercentagearateorarevenuenumber;itisapricing.Andthen,ofcourse,you'dhavetofactorinyourpointofviewonwhatyouthinkisgoingtohappenonthesubscribergrowthornot.Butagain,Iwouldremindyouthatofcoursewe'vebeenverysuccessfulingettingintothoseskinnybundlesandreallykeepingournumbersmorewholethanmaybesomeofourothercompetitors.
RyanFif tal(Analyst-MorganStanley):
CompanyName:ScrippsNetworksInteract iveIncCompanyTicker:SNISector:ServicesIndustry:Media
EventDescription:Q42015EarningsCallMarketCapasofEventDate:7.09BPriceasofEventDate:58.04
©2014TheStreet,Inc.Al l R ightsReserved Page18of21
Okay,that'sveryhelpful.Thankyou.
Operator :
BenMogil,Stifel.
BenMogil(Analyst-Stifel):
Thanksfortakingthequestion.OntheCoxdeal,canyouremindusagain,isitanarbitration;isitjustsortof--whatthemechanismaroundthebuyoutis,ifyouwill?
LoriHickok(CFO):
Thereisaprocess;thereisaprescribedprocessandvaluation.Itisatypicalonewherewegetavalue,theygetavalue.Andiftheyarewithinacertainamount,youarefine;ifnot,thereisathird.Soit'saveryorderlyprocess.
BenMogil(Analyst-Stifel):
Andjustsortoftiedtothataswell,arethereanycostsavingsweshouldexpectnowthatyoutakeitallinandmaybedon'thavesomegovernanceorduplicativecostsfromthere?
LoriHickok(CFO):
Notthatwouldbeofanymaterialnature.
BenMogil(Analyst-Stifel):
Okay.Thankyouverymuch.
Operator :
LauraMartin,Needham.
LauraMart in (Analyst-Needham):
Greatnumbers,congratulations.
KenLowe (Chairman,President,CEO):
Thankyou.
LauraMart in (Analyst-Needham):
SoIwanttogobacktoyouwereoneofthefew,asyousaid,allsixofyourchannelsareupinratings.Andyouhighlightedsomeoftheseyoungerdemos,whichwearestillfightingoverwhetherkidswatchTV.SowhatIamreallyinterestedinishowmuchofyourdigitalexperimentationdoyouthinkisdrivingthosenumbers?Ortorefertoapriorquestion,isitjustthatyouaredoingmoreepisodesonline?
Isit90%becauseofwhatyouaredoingontheairisdrivingtheseratingshigher,ordoyouthinksomeofthesedigitalinitiativesthatyou'vehadinplaceforyearsareactually--weareseeingitintheNielsennumbersonyourchannels?Iamveryinterestedinthat.
Andthentwoothers;Lori,oneforyou.Canyouremindustheimpactofpoliticalinyourfourthquarterhistorically,sowecanbuildthatintoourfourth-quartermodel?InoticedyoucalledoutOlympicsasbeinganegativeinthethirdquarter,butremindushowpoliticalaffectsyouguys.
CompanyName:ScrippsNetworksInteract iveIncCompanyTicker:SNISector:ServicesIndustry:Media
EventDescription:Q42015EarningsCallMarketCapasofEventDate:7.09BPriceasofEventDate:58.04
©2014TheStreet,Inc.Al l R ightsReserved Page19of21
AndthenC7versusC3,wearehearingalotofpeoplesaytheythinkthisupfront,theycanmovetoC7.IsthatagoalofyoursordoyouprefertostayatC3,orareyoupushingforC7inthisupfront?
KenLowe (Chairman,President,CEO):
Laura,letmetakeaswingatthefirstquestion,whichisagoodone,andthenI'llpassitontoBurton.Ithinkit'sboth.Ithinkit'sboththeareasthatwe'vemovedintoindigital,whatwearefinding.Wewillcallitexperimentationbecauseitisalittlebit.Thisworks,maybethisdoesn'twork,putmoreemphasishere.
ButIalsothinkitunderscoresthefactthatmillennialswatchtelevisionandaregoingtocontinuetowatchtelevision.Muchofitforus,Laura,hastodowith25to34-year-oldsgrowingintothecategories.Oncetheystarttobecomeinterestedinthedesignoftheirapartmentortheircondo,oriftheyarefortunateenoughtheirhome.Foodsimilarly,onceyoustartpreparingmeals,onceitbecomesalittlebitmoreofafamilyenvironment,thenourcontentjustnaturallyclicksin
Sowhatwe'veseenisnotonlytheincreasesinratingsoverall,buttheincreasesasyoumentionedinmillennials.Butalotofithastodowithtraditionaltelevisionwatching.
Now,noquestiontheyareusingmobileindifferentways,theyareusingotherplatformsindifferentways.Andweareexperimentingoverthereandwearealsousingtheinvestmentsthatwe'vemadeinTastemade,Refinery29,toseehowthosetakeratesare,howmillennialsarerespondingthere.SoIdon'tknowifyou'dagreewiththat,Burton,butIthinkit'samixtureofboth.
BurtonJablin (COO):
Correct,Iagree.Wellsaid.
KenLowe (Chairman,President,CEO):
Okay,allright.
LoriHickok(CFO):
Andthenonyourpoliticalquestion,Laura,reallyit'stwoparts.One,it'smoreaboutviewershipduringthe--andagain,it'snotasbigastheOlympics.Butbasically,whenthereisdebategoingonandyougetclosetotheelection,weexpecttheremaybesomeimpactonournetworks'viewership,probablymoreHGTVthanothers.
Andthen,again,ontherevenueside,again,that'smoreofalocalplaythananationalplay.That'swhyyouseeusuallyabigliftonthebroadcastplayersversusus.Butiftheregetstobelotsofdemandandtheycan'tgetalltheirlocal,thenyoumightseealittlespilloverintous.Butreally,again,it'smoreofaviewershipandimpactonourtopline,andthat'swhywe'vegotjustalittlebitofahedge,forlackofabetterword,builtintoourplanfor2016.
BurtonJablin (COO):
Yes,andIshouldjustreiterate--it'sBurton--wedon'ttakepoliticaladvertisingnationally.Youmayseepoliticaladsonournetworks,butthoseareinlocalinsertions.Butwe'vekeptournetworkspoliticsfreeforagoodreason.
C3versusC7,Iwasjusttalkingtoouradsalesteamacoupleweeksagoatourstrategymeetingonthatquestion.No,we'renotexpectingabigmovetoC7forus.Remember,ahugepercentage,anywhereupwardsof90%oftheviewingofournetworks,islive.Andadvertiserslikethatbecausetheycanmakesuretheirmessagesareappearingwhentheyintendthemto.
CompanyName:ScrippsNetworksInteract iveIncCompanyTicker:SNISector:ServicesIndustry:Media
EventDescription:Q42015EarningsCallMarketCapasofEventDate:7.09BPriceasofEventDate:58.04
©2014TheStreet,Inc.Al l R ightsReserved Page20of21
Sowewillnotexpecttosee,forusanyway,ashiftbigshifttoC7inthecomingupfront.
LauraMart in (Analyst-Needham):
That'shelpful.CanyoufollowuponSnapchatspecifically?WhatsortofviewhaveyoulearnedfromyourSnapchatexperimentationontheDiscoverplatform,andwhatsurprisedyouthere?
BurtonJablin (COO):
Ithasbeenagreatlearningexperienceand,infact,itwassortoftheinitialimpetusforformingtheScrippsLifestyleStudios.Andwhatwelearnedwasthatwereallydohavetoproducecontentinadifferentwayforthatparticularformat;notjusttalkingaboutverticalversushorizontalshotvideo,butthewaythevideoiscreated.
Sowehavegonetoschoolveryquickly.WeworkverycloselywiththeSnapchatteam.Theyareverygoodpartnersinhelpingusunderstandthataudience,andwewanttoworktogethertodoabetterjobinattractingaudiencesthere.
Sowehavegonetoschool.Wehavereorientedsomeofourcreationofcontenttobemuchquickerinproducingalotofshort-formvideoinourofficeswithaphoneandusingourstafftodoit,andit'sreallypaidoff.Oh,andwe'reactuallydoingalittleexperimentwithSnapchatcominguplaterthisweekattheSouthBeachFoodFestival.YouwillbeabletoseelivefeedsfromtheSouthBeachFoodFestivalthatwearedoinginpartnershipwithSnapchat,andwe'rekindofexcitedaboutthat,too.
Operator :
EricHandler,MKMPartners.
EricHandler (Analyst-MKMPartners):
Yes,thanksforfittingmeinthere.Twoquickquestionsforyou.First,lookingatyourinternationalsetofnetworks,thesegmentprofitmarginforthatlineitem,I'mjustcuriouswhat'sthenormalizedmarginthatyoucanlookatgoingforwardfromthisbusinessline?Andthensecondly,wheredoyouthinkitcantrendoverthenextcoupleyears?
Andthenasafollow-uptothat,whenyoulookatyourcorporateexpenseline,shouldwethinkofthataslikeastableexpenseitemnowontheEBITDAline,orhowshouldwebelookingatthatline?
LoriHickok(CFO):
Okay,Eric,justacouplethingsandI'llletJimchimein.OntheInternationalNetworks,Ithinkwehavetogooutayearortwotoprobablygiveyouwhatwearestrivingfor,becausewearecontinuingtoinvest.SoIthink,again,wearestrivingtogetclosertothose30%marginsovertime,maybegettingto25%beforethat.
SoI'dlookatmilestonesand,again,youcouldlookatTVNwhenweacquireditandlookatwhatkindofmarginitwasdoingwhich,ofcourse,it'sgoingtoproportionatelycontributemorethantheotherthingsthataregrowing.Butitisstillaninvestmentstorybut,ofcourse,wethinkwearegoingtoseemargingrowthoverthecomingyears.Butwearegoingtobalancethatwithinvestments.
Idon'tknow,Jim,ifyouwanttoaddanything.
JimSamples (President-International):
Andifyoulookatsortofthelasttwoquartersof2014,Ithinkyouwillgetafeelforthescaleofwherewe
CompanyName:ScrippsNetworksInteract iveIncCompanyTicker:SNISector:ServicesIndustry:Media
EventDescription:Q42015EarningsCallMarketCapasofEventDate:7.09BPriceasofEventDate:58.04
©2014TheStreet,Inc.Al l R ightsReserved Page21of21
areinvestingbeyondTVN,andthosenetworksthatwe'vebeenlaunchingaroundtheworld.
Obviously,verydifferentfinancialprofilesfromthenetworksthatwelaunchfromscratchversusthosemorematurenetworksthatwehaveacquired.Butverygoodprogressandrevenuegrowthinthosenetworksthatwe'velaunchedasthedistributionsincreaseandaswe'vebroughtadvertisersonboard.
LoriHickok(CFO):
Andthenregardingyourquestionon,iscorporatestable;well,Ihopewearestable.Butcorporate,Iwouldsaythosecostsareaprettygoodindicatorofwherewearegoing.
Ofcourse,aswehavetriedtodooverthelastcoupleofyears,wecontinuetolookathowwecanbemoreefficientandoperate,includingonthecorporatelines.Butaswe'vebecomemoreglobal,we'veaddedstaffandfunctionstosupportthat.
ButIthinkifyoulookatwhatwehaveintheplanandevenifwearesubstitutingcertaincostsforothersaswegrow,Ithinkyoucanusethatasyourproxy.
DylanJones (ChiefCommunicationsOfficer):
Thanks,everyone.Asareminder,MikeGallentinewillbeavailableforfollow-upcallsthroughtherestoftheday.I'llnowhanditbacktotheoperatorforreplayinformation.
Operator :
(OperatorInstructions)
Thatdoesconcludeourconferencefortoday.
Allrightsreserved(c)2014TheStreet,Inc.
Pleasefeelfreetoquoteupto200wordspertranscript.Anyquoteshouldbeaccompaniedby"ProvidedbyTheStreet"andalinktothecompletetranscriptandwww.thestreet.com.Anyotheruseormethodofdistributionisstrictlyprohibited.
THEINFORMATIONCONTAINEDINEACHWRITTENORAUDIOTRANSCRIPT(the"TRANSCRIPT")ISAREPRODUCTIONOFAPARTICULARCOMPANY'SCONFERENCECALL,CONFERENCEPRESENTATIONOROTHERAUDIOPRESENTATION.THETRANSCRIPTSAREPROVIDED"ASIS"AND"ASAVAILABLE"ANDTHESTREETISNOTRESPONSIBLEINANYWAYNORDOESITMAKEANYREPRESENTATIONORWARRANTYREGARDINGTHEACCURACYORCOMPLETENESSOFTHETRANSCRIPTSASPRODUCED,NORTHESUBSTANCEOFAPARTICULARCOMPANY'SINFORMATION.
THETRANSCRIPTSAREPROVIDEDFORINFORMATIONALPURPOSESONLY.THESTREETISNOTPROVIDINGANYINVESTMENTADVICEORENDORSINGANYPARTICULARCOMPANY.
top related