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Scripps Networks Interactive (NYSE:SNI)

Q4 2012 Earnings Call

February 07, 2013 10:00 am ET

Executives

Mark W. Kroeger - Senior Vice President of Corporate Communications and Investor Relations

Kenneth W. Lowe - Chairman, Chief Executive Officer, President and Chairman of Executive Committee

Joseph G. NeCastro - Chief Administrative Officer, Chief Financial Officer and Principal Accounting Officer

John F. Lansing - President of Scripps Networks Llc

Lori A. Hickok - Executive Vice President of Finance

Analysts

John Janedis - UBS Investment Bank, Research Division

Anthony J. DiClemente - Barclays Capital, Research Division

Alexia S. Quadrani - JP Morgan Chase & Co, Research Division

David Bank - RBC Capital Markets, LLC, Research Division

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Laura A. Martin - Needham & Company, LLC, Research Division

Michael C. Morris - Davenport & Company, LLC, Research Division

Michael Nathanson - Nomura Securities Co. Ltd., Research Division

Amy Yong - Macquarie Research

Jason B. Bazinet - Citigroup Inc, Research Division

Benjamin Swinburne - Morgan Stanley, Research Division

Barry L. Lucas - Gabelli & Company, Inc.

Alan S. Gould - Evercore Partners Inc., Research Division

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the fourth quarter 2012 earnings call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Mr. Mark Kroeger, SVP of Investor Relations. Please go ahead.

Mark W. Kroeger

Thank you, Kara, and good morning, all, and thanks for joining us. We'll start the conference call today with comments from Ken Lowe, our Chairman, President and CEO; and Joe NeCastro, our Chief Financial & Administrative Officer. Our prepared remarks should take about 20 minutes and then we'll open it up for questions. Also on the call this morning is John Lansing, President of the Scripps Network Operating Division; and Lori Hickok, Executive Vice President of Finance. Let me remind you, if you prefer to listen in via the Internet, go to our website, click on the Investor button and find the microphone icon on the landing page. Additionally, on the page under the microphone icon you'll find our fourth quarter earnings presentation materials that we'll be referencing during the prepared remarks portion of our call. An audio archive will be available on the site later today and we'll leave it there for 2 weeks so you can access it at your convenience. During the Q&A this morning, it would be helpful if you would please limit yourselves to one question and one follow-up. Let me remind you that our discussion this morning will contain certain forward-looking statements. Actual results may differ from those predicted. And some of the factors that may cause results to differ are set forth in our publicly filed documents, including our Form 10-K. And with that, I'll turn it over to Ken.

Kenneth W. Lowe

All right, Mark. Thank you and good morning to all. As always, we appreciate your interest in Scripps Networks Interactive. This is a company that delivers on its promises. We deliver on our promises to media consumers to entertain, inform and inspire. We deliver on our promise to advertisers, to provide powerful marketing platforms that engage their most valued customers at the highest level. We deliver on our promise to distributors to build and sustain iconic lifestyle television brands that just about everybody demands. And we deliver on our promise to create value for our shareholders by staying true to a formula for our success that's proven, time and time again, to be remarkably durable. It's a very consistent message.

Our television networks, our websites and our apps are leaders in their respective content categories because of our determination to stay on brand. Our determination to stay focused on consumer interest in all things home, in all things food and in all things travel. It's what sets Scripps Networks Interactive lifestyle brands apart from the competition and that's why our U.S. Lifestyle Media segment just completed its 18th consecutive year of growth. Let me say that again. 18 consecutive years of unprecedented growth that started with an idea for a single niche cable network. An idea that's evolved into a still growing Lifestyle Media business with more than $2 billion in total annual revenues and, for the first time in our history, more than $1 billion in segment profits. That $1 billion plus in segment profits is a very important milestone for us. We're very proud of it because it points directly to the long-term value we've created for our shareholders. And we're proud of it because we know the growth story does not end there.

HGTV, Food Network and Travel Channel are growing media franchises because they are clear leaders in their ability to aggregate quality audiences and influence consumer purchasing decisions in the home, food and travel categories. Likewise, DIY Network and Cooking Channel, our flanker brands in the home and food categories, and Great American Country's evolving Living Country format appeal to passionate and engaged audiences that our advertisers value. So let me share the highlights, by network, of just how we performed during the fourth quarter, plus I'll provide a glimpse of some coming attractions as well.

At Travel Channel. We rolled into our fifth consecutive month of year-over-year audience gains, and February is off to a great start as well. It registered a high single-digit audience increases across all day parts and demos, and I'm happy to report that the good news continued right through the month of January with strong double-digit year-over-year growth in our prime time audience. Clearly, in the investment that we're making and lifestyle quality programming at Travel Channel is getting results. And we're building on the momentum we've created with continuing series like Mysteries at the Museum, and we're finding new fans with some of our recent additions which include Baggage Battles, Dangerous Grounds and Airport 24/7: Miami.

In 2013, our programming investment to define the network and genre continues. For example, taking another page from our successful playbook and in the spirit of HGTV's Dream Home, we rolled out the trip of a lifetime sweepstakes 2 weeks ago. Now, the winning travelers would jet away on their own fabulous trip of a lifetime worth about $100,000. So stay tuned to the Travel Channel, much more exciting things to come there.

Now, the news is even better at HGTV. For the seventh consecutive year, our original flagship network ranked #1 in attracting upscale women viewers. That's a remarkable track record and explains in large part why HGTV drives growth to the company, year in and year out. Viewership at HGTV grew consistently through the fourth quarter with the audience among all adults and women aged 25 to 54 in the low-to-mid single digits. The momentum, by the way, continued into January with viewership up strong double digits in just about across the board day parts and demos. And helping drive the audience growth are some of our newer shows, including Love It or List It and Buying and Selling. Also, from what we can tell, the popularity of House Hunters and House Hunters International simply knows no bounds.

To keep the momentum going into 2013, we have some strong returning series, including new series of the successful Property Brothers franchise and Income Property. Now, we've already had some exciting premieres during the first quarter, including Hawaii Life which is similar to House Hunters but with a definite tropical twist. And the popular Kitchen Cousins are back for a new show, Cousins on Call, and this time our popular duo is surprising homeowners with dramatic renovations that will make their dreams come true.

Plus in 2013, we'll continue to generate strong viewer and advertiser demand with our quarterly tent pole events, including Dream Home, which is the largest sweepstakes on all of television. We're creating tons of momentum at HGTV and we're off to a great start in 2013.

At Food Network this year, we're celebrating an important anniversary. 20 years of defining a wildly popular television genre and shaping the nation's, and now the world's, conversation about food. The anniversary celebration follows an outstanding 2012. Food Network finished the year ranked ninth among all ad-supported cable networks. It was the most-watched year ever for the network despite the softness we began experiencing in the fourth quarter. Now, that's a testament to just how strong the audience growth was through most of the year. We're already seeing some very positive audience trends around some new seasons of popular series, Restaurant Impossible and Restaurant Stakeout are back driving good numbers and Diners, Drive-ins and Dives is still a fan favorite.

We've also created some momentum in the early going this year with the return of Rachel Versus Guy, and we have high hopes for new seasons of Worst Cooks in America and Chef Wanted with Anne Burrell. In other words, Food Network is an iconic power brand and, make no mistake, a force to be reckoned with.

At Cooking Channel and DIY Network, the growth story continued unabated during the fourth quarter, both ended 2012 on a very strong note and are continuing to set ratings records. In fact, for both networks, 2012 was the highest-rated, most-watched year ever. Both benefited from a balance of archived content from their respective motherships and a fair allotment of original shows that give each network a unique personality of its own.

Now, this year on DIY Network, in addition to strips of Holmes on Homes, watch for new episodes of Rescue My Renovation, Garage Gold and, of course, the ever popular Crashers series.

On Cooking Channel, Not My Mama's Meals with Bobby Dean, Mo Rocca's My Grandmothers Ravioli and some new shows like Food Hospital and Taste in Translation with Aarti Sequeira will fill out the schedule. So look for some more good things from DIY Network and Cooking Channel in 2013.

And likewise at GAC 2013 promises to be an eventful year as we move the network with a more clearly defined Living Country lifestyle format. We're anchoring the network's emerging identity on last year's success of Farm Kings and Kimberly's Simply Southern cooking. Both original titles return to the network this year. We'll also be dipping into our archives for relevant shows to add depth to the schedule, as well as maintaining our important relationship with Nashville. We know that many of GAC's fans live country through song. So the network will still be home to the Academy of Country Music awards, the popular Top 20 Country Countdown and hit country music videos. We're making progress at GAC, positioning it for growth throughout the year.

And finally, our International business continues to evolve and grow. It hasn't been a year yet, since we acquired Travel Channel International but yet, we worked with the team in London to create a brand-new identity and on-air look and feel. And that includes migrating a good representation of our U.S. content to the global network. Shows like Bert the Conqueror, Vegas Stripped, Off Limits, Bizarre Foods and World's Greatest Motorcycle Rides are injecting new life into the channel and introducing media consumers around the world to the quality and engaging nature of our travel content.

Another positive development during 2012 was Food Network's continued and growing dominance as the leading lifestyle television network in the United Kingdom. Audience favorites there include Guy Fieri's Diners, Drive-Ins and Dives, Man v. Food, Nigella's Kitchen and Everyday Italian, just to name a few. We also launched Food Network in Poland, Malaysia and the Philippines during the fourth quarter, as we continue to expand distribution into new world markets.

And finally, our equity investments in the U.K. and Canada had a very positive year. UKTV and its suite of 10 general entertainment and lifestyle networks had its best performance since its launch 20 years ago. They finished the year as the fastest-growing commercial TV network group in the U.K. with their audience up 10% from the prior year. And in Canada, HGTV and Food Network are firmly entrenched as a top 5 and a top 10 network, respectively.

So there you have it. 18 years of consecutive growth, strong fourth quarter operating results. We're delighting and engaging audiences in the U.S. and across the globe with our brand of lifestyle content. Advertisers highly value the [indiscernible] audiences that we aggregate and deliver, and our long track record of growing and creating shareholder value continues. So with that, let me turn it over to Joe NeCastro to discuss the financial results. Joe?

Joseph G. NeCastro

Thanks, Ken. Good morning, everyone. I'm going to touch on some of the fourth quarter highlights and provide some color on what drove our positive results. Then after a word or 2 on guidance, we'll open it up for Q&A.

Looking at the quarter and starting with a consolidated view, total revenue was up 9.2% on advertising and affiliate fee revenue growth. Total segment profit was up 3.3% which reflects the revenue growth coupled with a higher programming support cost and investment spending that were reflected in our annual guidance for 2012, and that we've noted on previous earnings calls. For the fourth quarter, income from continuing operations attributable to SNI was $2.02 per share compared with $0.84 in the fourth quarter last year. The current period, however, includes a favorable tax adjustment of about $202 million or $1.33 per share, which was partially offset by asset impairment charges of about $22 million or $0.15 a share. Tax adjustment in the fourth quarter 2012 reflects the reversal of income tax valuation allowances that were recorded as a result of the sales of Shopzilla and uSwitch. The asset impairment charges are a result of our annual impairment test for goodwill and relate primarily to a technology investment we made last year.

Prior year fourth quarter included favorable tax adjustments of $10.5 million or $0.07 a share. Excluding those discrete items for the fourth quarter 2012, income from continuing operations was $0.84 per share, while the fourth quarter 2011 was $0.77. EPS also reflects the effects of our share buyback program over the past 12 months.

2012 was another positive year with peer-leading results. Revenue was up 11% driven by 9% growth in the advertising revenue and 18% growth in affiliate fee revenue. Strong growth in advertising revenue reflects the highly desirable audience that we aggregate for our advertisers. It also reflects the success of our strategy to create relevant programming focused on the valuable home, food and travel consumer categories. These attributes resulted in industry-leading CPM increases in the 2011 and 2012 upfront and the very healthy scatter market that we experienced for most of 2012.

A strong increase in affiliate fee revenue in 2012 reflects the success we had in negotiating more favorable carriage fees for Food Network in prior years. A significant portion of Food Network's distribution base moved onto that new rate card in 2012. Our growing international distribution also contributed to the growth in affiliate fee revenues. Segment profit increased 6.5% in 2012 which reflects the ongoing investments in programming and various other growth initiatives and support costs.

Earnings per share attributable to SNI were $4.44 compared with $2.86 for 2011. This reflects the increased segment profit, the positive effects of our share repurchase program and the adjustment that I've previously mentioned.

Looking at the key revenue drivers for the quarter, we finished with advertising sales up 5.1% versus last year. Affiliate fee revenues increased 18%. Advertising revenue for our domestic Lifestyle Media segment was up 4.3% with international accounting for the remainder. As for U.S. advertising trends, fourth quarter scatter versus scatter pricing was up in the mid-single digits year-over-year and up in the mid-teens over the broadcast upfront. These metrics were a little lower than they had been running for most of 2012. For the first 3 quarters of 2012, scatter versus scatter pricing was running up in the high-single digits over the prior year. Also the fourth quarter 2012 was the first quarter of the new upfront agreements. If you recall that we characterized current upfront CPM increases as being in the high-single-digit range. That compares with the low-double-digit increases in the prior year.

As for advertising categories, our top 5 were food, retail, consumer packaged goods, natural and auto. These top 5 were pretty consistent for us all year long. One month into the first quarter, scatter advertising market continues to be healthy. Year-over-year, scatter versus scatter pricing growth is continuing to run in the mid-single digits and up in the mid-teens over the 2012 broadcast upfront. The upfront CPM increases we realized through the first 3 quarters of 2012 will be in the high-single digits. Turning to the distribution side of our business, affiliate fee revenue for our networks in the U.S. increased 15%, which is roughly how it's paced throughout the year. International Operations accounted for the remainder of the growth, primarily due to the Travel Channel International acquisition in the second quarter. As we previously stated, we don't have any sizable agreements coming up for renewal in the immediate future, so we expect a much more modest growth rate in distribution revenue for 2013.

Now, let's take a look at how our networks did in the U.S. during the fourth quarter. Revenues were up 6.8% on the advertising and affiliate fee growth I mentioned previously. Total segment costs were up 11% on higher programming and support costs, as we've discussed throughout 2012. As a result, segment profit was up 2.4% from the prior year period.

Turning to our International business, we generated $20 million of revenue that was included in our fourth quarter consolidated results, which was up considerably from prior year, again, primarily due to the Travel Channel International acquisition. The largest component of our international revenue is from distribution fees and our program licensing business with advertising comprising the remainder. We also generated $15 million of equity and earnings of affiliates with the majority coming from our international partnerships in Canada and UKTV in the United Kingdom.

During the fourth quarter, we repurchased 1.7 million shares of our own stock at an average price of $58.58 per share for a total expenditure of around $100 million. We ended the fourth quarter with $438 million in cash, including $181 million we generated from continuing operating activities in the fourth quarter.

Now, looking at guidance. For 2013, we expect total revenue to increase 7% to 9%. This increase reflects expected advertising revenue and affiliate fee revenue growth in the mid- to high-single digits. Cost of services, of which programming expenses are the majority, are expected to increase 12% to 14% as we continue to invest on original content to drive viewership at all of the networks. Selling, general and administrative expenses are expected to increase 7% to 9%. SG&A expenses include investments that we're making in digital and international initiatives to drive future growth. Now, if you exclude the digital and international initiatives, the increase in SG&A is expected to be well under 5% for the year.

Other items we've offered guidance on today are as follows: depreciation and amortization will be $115 million to $125 million; interest expense is expected to be between $50 million and $55 million; our effective tax rate should be between 28% and 30%; noncontrolling share of net income will be between 175 million and 185 million. Capital expenditures are expected to be between $65 million and $70 million. With that, operator, we are ready to take questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of John Janedis with UBS.

John Janedis - UBS Investment Bank, Research Division

This is the first time, Ken, your growth at the big 3 networks has more or less converged in the fourth quarter. Would that new affiliate, do you know [ph], this year, is this a sign that they'll move closer together going forward? And maybe to what extent did ratings impact the ad growth or was it more of the upfront and scatter pricing you guys talked about?

Kenneth W. Lowe

I'll let John address the advertising piece of that. John, over the 18 years, as I mentioned, 18 consecutive years of growth, we've experienced some ups and downs in ratings from time to time. Probably the most recent example is the housing industry and we shuffled the lineup at HGTV. But no, I don't necessarily think it means that they're getting closer together. One sometimes succeeds, in the case of HGTV and Food a little more than the other. But I think the word I use in the script, the consistency, and the fact that these networks constantly deliver with upscale female viewers and engaged audience, to me, it's just a matter of month-to-month and quarter-to-quarter ratings fluctuations that happen from time to time, and John can talk a little bit more about how we're seeing positive indicators on the Food Network. Fourth quarter was really unusual quarter in the sense that there's not only political, but we had a lot of impact of sports, there was the impact of Sandy. So we kind of walled that off and said look, we aren't happy with those results. Let's do what we always to do. Get back to the workshop and think a little bit about some different ways to do some of the series. But I'm very confident about Food in 2013. And John, you want to comment on John's question about the scatter market in advertising?

John F. Lansing

Sure. John, the pricing differential from the scatter, as Joe mentioned, the first 3 quarters of the year, the scatter was healthier by a few points. And then the change in the upfront pricing from the prior year's upfront to the new upfront also came down from low doubles to high singles. And that across the board, had the most significant impact on, obviously, ad sales revenue. There was some impact based on a softness on Food's ratings, to Ken's point. But on a happier note, we saw HGTV and Travel Channel really begin to gain a great deal of momentum in the quarter which is carried through into this year as well. In fact, just building on Ken's point, HGTV finished the year as the #1 network among all cable networks for upscale women, 25 to 54. That's the mark of the brand that we're building at HGTV and we're confident Food will continue their momentum as well.

John Janedis - UBS Investment Bank, Research Division

John, just related to Joe's comments about the top 5 categories, were they all up during the quarter?

Joseph G. NeCastro

I have to check, John. I can't remember. But I think, I can't think of any of them that were down to be honest with you. I think they're all up in the quarter.

Kenneth W. Lowe

We'll check, John, and get back with you.

Operator

The next question comes from the line of Anthony DiClemente with Barclays.

Anthony J. DiClemente - Barclays Capital, Research Division

So it seems like, based on all your comments about the guidance, Joe, that it implies an acceleration in the advertising growth rate from here, meaning from what you just reported for the fourth quarter. So I'm just trying understand the puts and takes around that. I mean, does that sort of suggest that you had make goods or audience deficiencies that hindered you in the fourth quarter that should go away from here, i.e. you don't have a great deal of make good carryovers coming into the first and/or second quarter? And so, are you just assuming that there's this sequential growth rate for Food ad revenue assuming ratings normalize? How should I think about that kind of implied acceleration in ad revenue?

Joseph G. NeCastro

Yes, look, I think you're right. If you do the math, it certainly would lend itself to the analysis you just gave us. I do think with respect to the fourth quarter, certainly there was underperformance at Food and that will be made up. But we also overperformed at HGTV and somewhat at -- we're right on at Travel. So for the company as a whole, we don't -- we're not particularly concerned about where we stand with respect to where we are with advertisers. We're sort of "in the leather," as we say around here, where we, more or less, always are. So that wouldn't be the primary driver. I think it's still a ratings story and it's the sort of overall market growth story, more than anything.

Anthony J. DiClemente - Barclays Capital, Research Division

Okay. And just a quick follow-up, maybe this is for John. Given the network -- the 3 big networks that you have, when you do have ADUs at Food, are you able to kind of satisfy -- to what extent are you able to satisfy those deficiencies on your other networks that -- so if you have HGTV ratings up and Food Network's down, can you kind of -- can you work that to your advantage in the spot market?

John F. Lansing

Anthony, on occasion, we'll do that on a advertiser-by-advertiser basis. But generally, it's sequestered to the network where the under-delivery occurred.

Operator

The next question comes from the line of Alexia Quadrani with JPMorgan.

Alexia S. Quadrani - JP Morgan Chase & Co, Research Division

Could you give us a sense of how much you think International can contribute to affiliate distribution growth in '13? I know you circled that acquisition kind of earlier in the year. And then second, growth at Cooking Channel really has been a standout, really some amazing growth there. I guess based on what you're seeing from advertisers and ratings, do you think that growth can continue?

Kenneth W. Lowe

Let me handle International question first, Alexia. It's hard to quantify at this point. It certainly will have a positive effect on the overall growth rate, but we'll have a full year versus full year. So I think you're looking at a couple of percentage points on the year in terms of the improvement related to International. John's going to handle the question on Cooking Channel.

John F. Lansing

Alexia, Cooking Channel had a -- well, had its best year ever, as a 3-year-old network. The fourth quarter was the highest quarter in the history of Cooking Channel, and December was the highest month in the history of Cooking Channel. So it's clearly on a roll. But what's interesting is that's really all of a piece in terms of the Food category and the programming on Cooking Channel, much of it in fact, up to 1/3 of it is programming from Food Network. And then some of the programs being developed is on an original basis on Cooking Channel then feed up in to Food Network. So the way these 2 networks work together, the strength of Cooking, not only is positive on its own, but it's helping to drive further growth on Food. Your question, will cooking continue to grow? It has and it will, in my view, because the ability to cross promote cooking on Food and on the Food digital properties really gives us a great advantage in the digital cable marketplace.

Alexia S. Quadrani - JP Morgan Chase & Co, Research Division

And John, you guys have all done a great job on Food and that food category in face of intense competition. Whenever you've seen softness in ratings, you seem to fix it and come right back. Is the competitive environment any different now with both food programming on prime time broadcasts or is it more of the same?

John F. Lansing

It's more of the same. And as I've said in the past there will always be one-off competitive programs on broadcast in other cable networks. But there will not be, in my view, another 24/7 Food Network or Cooking Channel. One of the key reasons we developed Cooking Channel was to stave off competition on a 24/7 basis and allows us to provide an environment that competes, I think, against one-off programs that, frankly, come and go. The competition, I think, they benefit to some extent but the programs have a short life span, typically.

Operator

And our question will come from the line of David Bank with RBC Capital Markets.

David Bank - RBC Capital Markets, LLC, Research Division

Mark, I have one question in 2 unrelated parts. The first one is, could you give a little more clarity around the actual ratings performance? So if you look at the 3 flagships for Food, for HG and for Travel, kind of key ratings metrics and key demos for 1Q and -- for 1Q to date and for 4Q, so we could see what happened and what the sequential change is. Then second, could you give a little bit more clarity around what the cash programming expense will be for 2013? And I guess, generally, what the run rate is for longer-term programming expense. Because for some of us, I think, this number was a little bit higher than we might've been expecting and just trying to think about a normalized run rate.

John F. Lansing

You want me to start with the ratings? So why don't we start with Food. Q4 was a challenge, for sure. To Ken's point, we have one of our networks, Food Network, is really much more reliant on East Coast urban audiences. So the impact of having upwards of 10 million people without electricity for 2 weeks had a definite impact on Food and they climbed out of that. And sequentially, from November to December they had growth in those months. And then from December to January there was a slight bit of growth but we're seeing February off to a very strong start. So we're seeing sequential improvement, and if you sort of market it from Hurricane Sandy forward, we're seeing sequential improvement on Food, although we still have a ways to go. HGTV completed its highest rated year in the history of the network in the fourth quarter and it has charged into the first quarter now, and has sequentially grown from November, December, January, now into February with significant double-digit growth, which we're very pleased to see. And that's also the story at Travel Channel which has just, as Ken mentioned in the prepared remarks, has just registered its fifth straight month of sequential growth, it's double-digit growth. In fact, it's over 20% growth year-over-year in January. And as I look at February, I don't see that slowing down. So it's all a story of sequential growth. In the case of food, they're coming out of a bit of a hole following Hurricane Sandy, and they're moving out of that hole in terms of HGTV and Travel. They're both in the double-digit territory now, month-over-month over the last 4 to 5 months.

Joseph G. NeCastro

And David, let me talk about cash programming expense [ph]. Let me start with sort of the big picture comment. As we've said all along, our highest priority is what viewers see on the screen and we will continue to invest in programming as it's necessary. And the ongoing story of Travel Channel, as we continue to build that network. And we're going to spend a little bit more on Food Network in the year ahead as well. I think if you look at the rest of the guidance we gave, it's pretty clear that we're going to put our resources on the screen. We've got a very low increase planned for SG&A for the year. And even the investment spending we're doing is very modest, even relative to the prior year. So it's all about sort of "all hands on deck" and; putting the best programming we can on the screen and driving ratings going forward. That said, you saw pretty decent acceleration in cash spend in the prior year which is driving the amortization increase you see this year. As what we think about cash spending for the year, I guess all I'm willing to say at this point is that the increase -- there will be an increase in cash spend year-on-year, but it'll be lower than the amortization increase you're seeing. And that should bode well for the year ahead.

Operator

Your next question comes from the line of Doug Mitchelson with Deutsche Bank.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

A couple of questions. Ken, first, can you outline which distribution deals include TV Everywhere rights? And whether you see an opportunity to open up distribution deals early in exchange for TV Everywhere rights?

Joseph G. NeCastro

Yes. I think, Doug, I'm just checking, some of our contracts, whether or not we've announced TV Everywhere, I'm not sure. If I can go check. I'm allowed contractually [indiscernible]. John is shaking his shaking his head. So, yes, I think we can. John?

John F. Lansing

I'd be happy to do that, Doug. We had a really strong year in terms of renewals, including Comcast DirecTV, Time Warner Cable, Cablevision and AT&T, all in 2012 with TV Everywhere deals. We're still in negotiations right now with one other, and to your question, can we open up a deal in order to move on TV Everywhere, that's, in fact, what we did, with a couple of these so that we can move quickly. It's our intention to work with the distribution industry to create this value proposition for our consumers and we're proud to be one of the leaders in the industry on the programming side to do that.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

So then when we think about affiliate revenue in '13 and it's still slowing because some of those deals were done midyear, we shouldn't think about sort of 2012 was an annual -- 2013's the new base. So some of that might bleed into 1Q, 2Q growth?

Kenneth W. Lowe

No, it's going to moderate into '13 coming out of '12 after these renewals.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Okay. The second area for the calendar upfront was pricing consistent with a high single-digit pricing, pricing you saw for the traditional seasonal upfront.

Kenneth W. Lowe

Calendar pricing was consistent with high singles, a little higher than the mid-singles in the scatter. Volume was strong in the calendar upfront I'm told from our ad sales group and that bodes well. One of the positive signs for our particular company is that the housing economy is beginning to perk up and the category that's beginning to show up on our top 5 categories in the first quarter and in the calendar upfront, is the Home Improvement category.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

And then last question, any thoughts on the buyback pace? Anything you're willing to share as we think about 2013 capital deployment?

Joseph G. NeCastro

I expected that question earlier. Look, we will be -- we'll remain active and opportunistic somewhat. I think we're committed at continuing the program. I'm not willing to talk about pacing on the call but expect us to keep going.

Operator

Your next question comes from the line of Laura Martin with Needham & Company.

Laura A. Martin - Needham & Company, LLC, Research Division

So Ken, I would love -- you guys have been really great about moving your brands onto the digital platforms. And I would love to hear about -- on the digital side, could you size it in anyway, economically, for us? What it's adding to growth off of your core businesses, the size as a percent of revenue and specifically focused on mobile? I know you guys have gotten really aggressive mobile adoption, but I guess I'm still wondering, have you seen any money in that? And do you think there will be? And on Netflix, you're one of the last holdouts, of not moving onto the Netflix platform, even Time Warner has moved there with its serialized dramas, so are you talking to Netflix and Amazon? And could you talk about the upside from those, if you think that's a legitimate way to distribute some of your product?

Kenneth W. Lowe

Let's just start with the digital piece of it because it plays a little bit back to Doug's question about TV Everywhere. You're right. We have, for a long time, really, I think, exploited digital growth for us. It started with websites and, of course, it's moved on from there. I think the important thing is, we've been able to attract a certain degree of revenue because of our power brands and the engagement of the audience to keep these viewers, not only engaged on TV but onto our websites, the apps that we've launched in 2012, as a matter of fact, John may have to help me, but I remember the In The Kitchen app was the most successful in the culinary world, and then in the Travel Channel, No Reservations was the most successful app launched there, as we move more to an iPad and a mobile strategy. And you will continue to do see us evolve to that. I think, Laura, again, it's what you know. Some of the digital revenue that we all hoped would probably continue to grow at a pace that we saw 3 or 4 years ago has slowed down a little bit, especially on some of the display. That gives us an opportunity to transition to some of these other business models, if you will, in our categories and I don't need to tell you how lucrative the home, food and travel categories are. So it's going to continue to be a big part of our business. As you see, we continue to invest in that area and we will. We think it's a big of the future. If holding [ph] TV Everywhere and what we hope will be quality measurement at some point, and we do believe that that will happen in the not-too-distant future, I think it bodes well for, not only our business model, but continuing to take out more than our fair share in the advertising world and our genres across multiple platforms.

Laura A. Martin - Needham & Company, LLC, Research Division

Netflix?

Kenneth W. Lowe

Go ahead and talk about Netflix, Amazon, et cetera.

John F. Lansing

Yes so, Laura, it's John. We are, in fact, talking with everybody and being judicious about it. We're weighing, frankly, as we have been, all along the upside of the incremental revenue against any downside it might create in terms of ratings competition for the incumbent business model, if you will. But I'm confident that we'll have some announcements coming in the next few months as to some of those distribution deals as the discussions have advanced very well.

Operator

And the next question comes from the line of Michael Morris with Davenport.

Michael C. Morris - Davenport & Company, LLC, Research Division

First question on programming investment and the return on that investment. And I guess the question is number one, how much stronger are ratings for a new original show on your more mature networks, Food and HG versus, let's say, a repeat in the same time slot? I'm curious if you have any data there. Second, when you look at some of the softness at Food in the fourth quarter, is this a problem that you think you can solve or address with higher or incremental programming spend in the coming year at that network specifically and is that in that guidance? And then just over on corporate and other, obviously, the losses have been a bit bigger there as you've invested in a couple of items, including International. What's the -- how should we be thinking about that into 2013 and beyond,with respect to when we're going to see some more revenue there or when you have kind of inflection points on the investment decision?

John F. Lansing

Michael, let me start off and then Lori, I think, will talk about the investment side. On your programming question, you're exactly right, investment in new original programming has a direct benefit to an improvement to ratings and, therefore, to ad revenue. A great example of that was a year ago, in February, the team at HGTV determined that, it would make some sense to invest in having an original episode of House Hunters and House Hunters International every night of the week throughout the year of 2012 and the immediate benefit of that to the network is what we're reaping today, as it created, not only a ratings success story for that time period as it was stripped across the entire week, but also a stronger promotional platform to launch a new series on top of that successful existing series, which the network did during all 3 quarters of the year and into this quarter. So now we have upwards of 20% ratings growth off that programming and investment decision a year ago. To your question about Food, we keep thinking of the fourth quarter as a "soft quarter." It's still probably, if I think about the fourth highest quarter in the network's history, if not the third. So it's still a network that is a top 10 network. It fell out of the top 10 for one quarter. It's going to fight its way back, and the only way to do that, frankly, is to do what HGTV did and that's invest in new original programming for existing franchises and then launch new franchises off that growing base of audience.

Kenneth W. Lowe

Michael, if I could just add to John's comments. We still have the most efficient programming cost in the industry with excellent margins. I think when you see percentage increases, sometimes there's forgetfulness that everybody's kind of raised their game in the cable network business over the last couple of years. And when you have the power brands that we have and the connections to our viewers on all these platforms, we have to invest and will continue to invest, not only stay on our game but keep these networks in the positions that they're in. I mean, when we say we're #1 with women, 25 to 54, and we have these incredible environments that advertisers cherish, that's something to invest in and that's what we're going to continue to do and it's been our business model from Day 1. So Joe, you want to swing...

Joseph G. NeCastro

Yes, Mike, let's do a quick swing through the investment portfolio, if you will. Just to be clear, we're talking about at least 3 different initiatives. The international spending and then, of course, these 2 digital investments we've been talking about for a little better than a year now. I'd say, obviously, I'd take those separately. On the international front we feel like we're getting very good traction but it's a difficult business to predict because, as you know, we're in sort of a development phase there and we're looking at different transactions and relationships, and some organic launches as well. What we've got in the guidance is continuation of our rollout internationally and we're going to be as aggressive as possible there to distribute these brands globally on a prudent but a fast timeline, if we can. With respect to the digital businesses, they are 2 very different business models and I think it'd be fair to say, as we look around this table, we've spent more than our share time thinking about the spending pace that's appropriate for those opportunities and trying to measure the traction that they're getting and spend sort of commensurate with the opportunities as we see them growing. If we didn't believe in them, we would be telling you on this call that we're not pursuing them anymore. We do. We think they're good investments and we're going to continue to pursue them as long they continue to get the kind of traction we expect. So your question had more to do with what we think the inflection point is on those. I'd say those are sort of developing business plans. We would expect to spend or be in a deficit on those 2 business for at least a couple more years, as we build them. But again, we're not going to spend unless we see that there is traction and that we're hitting our milestones. So I think, if anything, we're going to be very, very careful about the spending level that we put behind those 2. So it'd be difficult for me to tell you the exact inflection point, but I would expect probably 1 to 2 years out, we'll start to see an effect on the top line. Now, let me just end by saying that the all-in investment next year in those 3 is up not even 10% from the current year's. So while we are continuing and we believe in them, we're being very careful about how much resource we commit to them.

Michael C. Morris - Davenport & Company, LLC, Research Division

That's very helpful. if I could, you spoke about House Hunters, in particular. Do you have a sense, kind of back of the envelope, what the ratings or the audience for a new episode of House Hunters looks like relative to a repeat?

Kenneth W. Lowe

Yes, we'll get that you because that's a fact we can look up. But it's measurable. It matters.

Operator

And the next line, we go to Michael Nathanson with Nomura.

Michael Nathanson - Nomura Securities Co. Ltd., Research Division

I have 2. One would be for Ken, one would be for Joe. Ken, you've been a programmer a long time and you guys built some great businesses. And I just wonder, if you look at the volatility at Food or even HG over the years, what does that say to you about kind of the need to continue to invest in content? I mean, do you think there's just -- whether it's reason [ph] side or more competition? Maybe you guess fatigue of repeats? But what does that say to you about kind of the overall tone of the business? Because everyone's got volatility so as a programmer, do you think we're just at a heightened state now of going forward of just spending on program? And I then have one on SG&A for Joe, we're done.

Kenneth W. Lowe

It's a good question, Michael. I mean, you and I have talked about this in the past. I think we are seeing a bit redundant, there's no question that the really good years of cable networks over the past 2 or 3 years, where we've seen these incredible increase in ratings across the board, to the point that the gap between broadcast networks and cable now is closed in many cases. In many nights, cable networks will outpoint shows on broadcast networks. So the game has gone up, ratings have gone up, revenues have gone up. And what we saw, for example, in the fourth quarter was not just some audience softening at Food. But some of the other major cable networks were losing the audience as well , back and forth. And we saw some swapping in numbers as you saw with the broadcast networks. I think, we're just in a different period. It's a little more competitive. You're probably going to see more audience shifting going forward. That's just something we're all going to have live with. Again, what I like about our models, Michael, is the consistency of always having these brands, always going to a home brand, always going to a food brand, always going to a travel brand, and day in and day out, if you've not got the top 3 hits up and down the cable dial, you have the consistency and, of course, we sell across all day parts which is critically important as well when you have these power brands. So unfortunately, as I said earlier, in 18 years, we've seen fluctuations. We're going to continue to see fluctuations. We will continue to invest in programming and marketing. And as I mentioned, we have the most efficient cost and, to me, it's not an ever-increasing number that just continues to go up and up and up. There is a point of investment for the sake in investing and investing in quality shows. And sometimes, we all make the mistake of investing in shows that don't work. Again, nothing new there. But there's really no place to hide now for cable networks because we're front and center on any given night. Just the other night Food had a spectacular night. And when you have those and you can -- and it was followed up I think the next night, John, by HDTV. So yes, it's a different time, Michael but it's still a great time to be in this business and we couldn't be more pleased to have the brands that we're involved in and the investment that, as I said, is still some of the most economically priced programming in the business.

Michael Nathanson - Nomura Securities Co. Ltd., Research Division

And can I just ask a follow on, on that one, on SG&A to, Joe or to John. Even yourself Ken. When you see everyone doing, all your competitors, they're spending money on programming and they're committed to that. But they're also killing their SG&A line. If you look at the average guys who have reported the past week or 2, people are spending 0% to 2% increases on SG&A. You guys don't do that, you mentioned marketing. What's the philosophy on how much can you control SG&A aside from marketing? Is that something maybe there will be a step down going forward in SG&A spending?

Joseph G. NeCastro

Yes. Mike, look, I think part of that is that -- marketing spend is included in the SG&A line and that number is, in many ways, used to support the programming investment. So it is true that in years, when you're launching new shows, you sort of want to make sure that you've got adequate marketing support for them as well. Look, our philosophy is no different than any of our peer group. We don't really want to spend money on anything that doesn't show up on the screen. And so I think you're going to see us, while we've guided to sub-5% growth in those areas, I do think it'll be closer to the peers, ultimately. We just are not ready to bang the drum and say, we'll be at 0% to 2%. I would say that, that's certainly our objective is to hold those costs flat over time which, obviously, is a real cut. And we're working on that. So I would stay tuned on the SG&A line. We're very focused on that and I think you will see results that are better than the guidance on that.

Operator

We next go to the line of a Amy Yong with Macquarie.

Amy Yong - Macquarie Research

Can you just talk about why the ratings at HGTV are a little bit more stable than Food? Is it, again, competition-specific to a food genre or it's just that HGTV programming resonates a little bit better? And then can you also explain the success between Cooking versus Food then?

Kenneth W. Lowe

Sure, Amy. Happy to do that. HGTV is on a roll. There's no question about it. As you look back over the last few years, HGTV has been relatively flat during a period that Food was growing double-digit year-over-year. So HGTV is roughly a 14th ranked network while Food still remains a Top 10 network. HGTV's success today is very similar to the success Food had over the last couple of years and we're happy to see that. I think Food has a little bit of a quirk, in terms of the comparison to HGTV, because it's a little more urban, a little more East than West Coast. HGTV's a little bit more C and B county, Middle America, in many cases. So the audience composition is different. HGTV's a little older. It's a little more skewed towards women. More 75:25 women to men, Food is a little bit more 60:40. So there are differences in the audiences, that would explain some of the differences in the ratings. But overall, both networks have had their periods of growth and periods of dips and periods of just steady, steady-state. And if I were to define where both networks are today, I'd say HGTV's on its best growth spurt in the last several years based on this investment in programming and the management of the brand, the marketing of the brand and the scheduling as well. Food Network, I have seen this pattern before with Food Network that they've had one quarter dip and then come out of it on several occasions and they're already showing signs of doing that. And then the Cooking Channel, we think of Cooking Channel as sort of our indie studio, if you will, where we can be more experimental. And people that run Cooking Channel for us are all of a team with the Food Network team, they aren't separate teams, it's the same programming team. And it really gives them a place to try new concepts, try new talent and then see what works on either channel. So we really don't -- in the way we manage Cooking Channel, it's really manages part of a food initiative, not as a separate entity.

Operator

Next, we go to the line of Jason Bazinet with Citi.

Jason B. Bazinet - Citigroup Inc, Research Division

I know there have been a lot of questions on programming but if I can just ask one sort of on the same topic, because I think everyone sort of focused on the same issue. If I just went back to 2009 and compared either on your amount of GAAP expenses on programming or the cash outlays on programming through 2012, and those numbers sort of CAGR-ed at 14% and 30%, respectively. And if I just take a broad measure of your ratings, sort of all shows, all day parts, all demos, they seem flattish, nominally, over that same time period. And so, my question is, is that the wrong way to look at it? You don't really measure the efficacy of your investment in terms of ratings? Or is it just -- is it the new table stakes for the industry? You just have to spend more or embed in there were there just a lot of misses that sort of lead you to believe that you can get the same sort of ratings with less spending or different spending?

Kenneth W. Lowe

Yes, I'm not sure you can take that out of context. I mean, if you look at the industry, in general, and you factor in sports rights of some of these other channels and the CAGR would scare you to death. So I think what I said earlier, that we've all had to raise our game a little bit and I think that's resulted in much stronger ratings across the board for cable networks and, in some cases, I don't want to stay -- staying in place or trying to look at it sequentially from -- if you're spending this much then ratings should be going up this much. It's just not the way it works. It's your share of advertising. It's how the other guys are faring. We go through these periods where competition shows, for example, there's a flurry of competition shows. Idol leads to The Voice leads to dah-dah-dah-dah-dah. Some of the extreme programming, the phase we're going through right now. And that will attract audiences for a while. But to get it, the risk of being redundant, the consistency of our brands, the consistency of people knowing what they get when they come to our brands and, in some cases, yes, you invest a little bit more in production, in talent, but over time, I come back to our -- look at our model now, look at efficiency, just from the standpoint of however you want to measure it. Against total revenue, against total expenses. We've got some of the best programming cost in the business and we're going to continue to invest. It's our lifeblood and it's how we build these businesses and it's what you're seeing in 2013 and I'm very comfortable that the people we have at these networks are just the best in the business. We'll continue to deliver strong ratings across the board.

Operator

Next, we go to the line of Ben Swinburne with Morgan Stanley.

Benjamin Swinburne - Morgan Stanley, Research Division

I have 2 questions on -- guidance-related questions. Joe, you gave us some good detail on the SG&A pieces but I'm a little confused. I think you said the new initiative spending would be about, up about 10%. And that the non-new initiatives would be up about 5%. The think the new initiatives last year, I think it's sort [ph] of $30 million number and maybe I'm thinking -- maybe this is apples and oranges, but that math doesn't work. So maybe I'm thinking about the wrong dollar amount associated with these.

Joseph G. NeCastro

Yes, let me -- I can provide some clarity there. It's just math. The impact that we talked about last year, that $30 million is the sort of profit impact. It also happens to be the expense impact because there wasn't any revenue associated with it. Or very little revenue associated with it. This year, there's a fair amount of revenue in there, so the expense impact is much higher but the net profit impact is the plus, actually plus less than10%. That's the number that I was quoting.

Benjamin Swinburne - Morgan Stanley, Research Division

And then you guys had mentioned earlier, you expect to have an announcement on digital, whether it's Netflix or Amazon, TBD some point this year. Is that factored into your revenue guidance or how should we think about that?

Joseph G. NeCastro

It is factored in.

Benjamin Swinburne - Morgan Stanley, Research Division

And then lastly, maybe for John, you'd mentioned I think on the Comcast-TV Everywhere deal that one of the things you were waiting for and expecting was for Nielsen to measure streaming consumption better. And that was really important. And I think you thought it was coming early in 2013. Can you just update on whether that's happening and whether you're satisfied in sort of the capture and of all the viewing that's happening on your networks, it's obviously a big industry seem [ph] these days?

John F. Lansing

Ben, it's a point very well taken and it's a concern of ours, frankly. We were told to expect measurement for streaming services by the first quarter of '13 and here we are, we're staying in close contact with Nielsen. It's a -- I understand it's a complex problem for them to solve but we understand that it still is expected to be available by the end of this year and we'll be watching closely to make sure that, that's the case.

Operator

We will be taking the last line from Alan Gould but right now we go to the line of Barry Lucas with Gabelli and Company.

Barry L. Lucas - Gabelli & Company, Inc.

One or 2 more little quick ones, if I may. John, you say you're still in a hole, a ratings hole on Food. So am I to take from that, that Food ratings are still down year-on-year?

John F. Lansing

They are down year-on-year in January, yes.

Barry L. Lucas - Gabelli & Company, Inc.

Okay. And when you said -- you talked a little bit about the strength of the calendar upfront being up mid-high single in terms of CPMs and good volumes, so even though that's a relatively small part of the ad business that you sell in the course of the year, I'm taking from that, that there should be a positive bias in terms of 1Q, 2Q ad revenue performance out of that?

John F. Lansing

It is. To your point, it's a small piece, and as we weigh all the pieces, there's the new broadcast upfront pricing, the scatter which is, as Joe said, still mid-singles. We have some high hopes that the scatter will improve going forward. But I'd say right now, we're in about the right place in terms of expectations for the quarter.

Barry L. Lucas - Gabelli & Company, Inc.

And last one quick one for Joe and give you a chance to not answer again but Tribune now solidly out of bankruptcy for more than a month. Any update at all you can provide as to whether or not you're talking with them and what the prospects for closing out the interest would be?

Joseph G. NeCastro

Barry, I'm happy not to answer that question again. You know every bit as much as we know. That's all I'll say at this point.

Operator

We go to the last question from the line of Alan Gould with Evercore Partners.

Alan S. Gould - Evercore Partners Inc., Research Division

Two programming questions. First, if one excludes -- if you exclude the Travel Channel, is your increase in programming cost mostly more hours, more original hours at these networks or is it more a higher cost per hour for the programming?

John F. Lansing

Alan, just real quickly. It really is more related to cost per hour than it is to number of hours.

Alan S. Gould - Evercore Partners Inc., Research Division

And lastly, your program payments on the cash flow statement have been higher than your amortization of your program assets on the income statement for 2 years running. 2011 was a $91 million discrepancy, 2012 $136 million discrepancy. Can you explain how this happens and doesn't it have to then flow through to the income statement?

Lori A. Hickok

Yes, it absolutely does flow through to the income statement, it's the timing. It's just a matter of your spending ahead of, how you amortize. We amortize that over a period of time depending on the type of show.

Alan S. Gould - Evercore Partners Inc., Research Division

I'm just wondering why the last 2 years the discrepancy grew so much larger than it had been in the prior few years.

Lori A. Hickok

Well, you have Travel, which you mentioned, that to be one piece, it's Travel. And then just more hours and cost of programming going up. It's just a matter of the investment you heard Ken and John speaking about -- throughout the call today. Just investing in the screen and in our programming.

Mark W. Kroeger

Thank you, everyone. We'll be -- Mike and I will be available for the rest of the day if you have any questions. Cara, you're free to give replay instructions.

Operator

Ladies and gentlemen, this conference will be made available for replay today after 12:30 p.m. through February 21, 2013 at midnight. You may access the AT&T teleconference replay system at any time by dialing 1-800-475-6701, enter the access code 279208. International participants, please dial (320)365-3844. Access code 279208. That does complete our conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.

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