How Scripps Is Writing a Winning Script

How Scripps Is Writing a Winning Script

Scripps Networks Interactive was ahead of its time in anticipating that cable television viewers would flock to a network that stressed lifestyle programming. That was the key to Scripps becoming a successful enterprise in the crowded cable-television industry. Its management recognized how to differentiate itself from the pack.

Scripps Networks was created in 2008 with the spinoff of the E.W. Scripps Co. After rolling out HGTV in 1994, Scripps evolved into lifestyle media, introducing programming for television, books, magazines, digital-satellite radio, and additional media categories.

The Knoxville, Tenn.-based media company has gained an enviable reputation as a lifestyle-television destination for viewers, owing to such assets as the Food Network, HGTV, the Travel Channel, DIY Network, the Cooking Channel, and Great American Country (GAC).

Investors naturally fret over whether Scripps can continue to come up with winners. Shareholders also worry whether the financial trends in the cable industry will be accommodating enough for SNI's ahead-of-the-curve programs.

So far, so good.

Scripps' shares have gained 27% on a year-to-date basis and 24% during the past 12 months, compared with the S&P 500's record of gaining 15% year to date and 16% over the last 12 months. After faltering late in 2012, Scripps has rewarded investors.

Recently, Scripps' second-quarter performance topped Wall Street's projections for revenue, segment profits, and adjusted earnings per share ($1.08, which surpassed the general consensus of $1.05).

Plus, Scripps' advertising and fee growth came in ahead of projections as a result of the continuing strength in the scatter market. The company, sensing that its programming will have an international appeal, pressed foreign development by scooping up the Asian Food Channel and further examining expansion prospects abroad.

The company's move to increase its presence overseas underscores both the power of its niche brands and a desire to capitalize on fast-growing markets outside of the United States. This is exactly the kind of aggressive activity that Wall Street analysts like to observe.

Barclays, for instance, approves of the strategy. In a recent report to investors, the company pointed out: "Given the positive outlook on both ads and affiliate fees, we now expect a 2013E EPS of $3.72 (compared to $3.69 prior), and are increasing our price target to $76, which represents a 2014E P/E of 18.3x (compared to 17.1x prior). We nonetheless reiterate our EW as we look for clarity around strategy to reverse ratings trends at Food Network."

Scripps is also highly competitive with its counterparts when it comes to measuring advertising progress. Its advertising results were robust in the second quarter, advancing about 10% against the consensus of 9.5%, with the scatter pricing moving up to the range of high single digits during the three-month period.

For the third quarter, scatter pricing is in the mid-to-high single digits year over year and gaining mid-teens to low-20s over the upfront points, too, Barclays noted, while increasing its advertising revenue projection for 2013 to 9.5% from 9%, underlining the encouraging developments in the advertising landscape.

Scripps seems to be uniquely positioned to capitalize on the cable-television ecosystem movement -- particularly in the United States -- to gravitate toward a lighter form of broadcasting fare. Niche channels, such as the entities forming Scripps' arsenal, present viewers with an opportunity to cut right through the clutter of the universe of cable offerings.

Perhaps the level of success for Scripps in the coming years will hinge on its ability to profit abroad from its programming mix. In the United States, its channels are fixtures -- who among us doesn't follow the Food Channel?

Scripps' international entities formed roughly $16 million of revenue in the second quarter, thanks largely to the Asian Food Channel acquisition as well as the enlarged distribution of Food and Travel. Scripps continues to eye ways of achieving growth throughout Europe and Asia.

I have often wondered if -- or, more to the point, exactly how much --Scripps benefits from being based in Knoxville, far from the bright lights of the New York media capital and the glare of Wall Street. Plenty of creative minds prosper when they don't have to subject themselves to the cauldron of New York on a daily basis, and they have time to develop ideas at a more unhurried pace.

All in all, Scripps is writing a good script.

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