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Scripps Networks Interactive, Inc. (NYSE:SNI)

March 05, 2013 11:10 am ET

Executives

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

Analysts

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

So we are on the clock, so we'll get started. Okay? Let me just flip over. Ken, Joe, thank you, from Scripps Networks. Thank you, guys, very much for coming today. I think where we want to start is just from a high level, Ken, how do you think about driving value at Scripps Networks?

Kenneth W. Lowe

Well first off, good morning, everyone, and Doug, thank you, as always, for inviting us. Joe and I are delighted to be here, always have enjoyed talking about talking how we are driving value and continuing to create value for our shareholders. We just came off a very successful year. And I think our priorities in driving value remain the same. And that's just continuing to deliver. And if you look at our 18th consecutive year of growth, Doug, which is something we're very proud off, we have delivered on our promise. We delivered on our promise to, most importantly, I think our viewers and our consumers, by continuing to create compelling product that's engaging for them, that informs, inspires and entertains them. We've delivered on our promise for our advertising partners from day 1. We deliver a compelling audience that is highly engaged does use their products, buy their products. And that relationship is critically important, I think, going forward into some of the challenges we're talking about a little bit this morning. We've delivered on our promise to our distribution partners, we've created these iconic brands that work on their multiple platforms, as they roll them out. We're a great partner in the local advertising market. And most importantly, I think, we've delivered on our promise to shareholders in creating and returning value. So overall, a very solid company that is in 3 categories that we see a lot of growth for a long time. Our websites, our apps, our mobile applications are all very compelling, we think. And there's always room to grow there. And then of course, if you look at the future, we think we're set up very nicely for what lies ahead both from an interactive standpoint and being able to monetize our brands on different platforms.

Question-and-Answer Session

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

So why don't we take that back to 2013 and talk about what you're working on this year to drive growth, and I think, Ken, Joe, you both might have comments along those lines.

Kenneth W. Lowe

Yes. And I'll ask Joe to jump in a little bit on some of the international digital strategy. Really, first and foremost, and I think everybody in this room has heard what -- our priority continues to be a strategic priority for '13 is to invest in programming. It's our lifeblood, Doug, I mean -- the old saying there's only one way to coast and that's downhill, well, we're not coasting competition continues to get better, there's overall more investment in programming. And as some of you heard on our quarterly call, that's something we're going to be doing this year, very smartly, very prudently because there's a lot of stabilities, power brands and we want to sustain them. The good news is, I think, if you take out the increased investment overall for the Travel Channel in '13, which is one of our top priorities, if not our top priority, then the advertising spend on Home & Garden and Food at about 700 to 800 hours a year -- 750 to 800 hours a year, is still mid to high single-digit from a growth standpoint. So overall, it's investing in programming, and that serves us well, not only with our advertising community, our consumers but for our distribution partners as well. Travel, at the end of the day, is pretty much our top priority, that's where you'll see us focusing a lot of our attention on. And don't be surprised if the end of '13 that Travel is not the highest percentage of growth among all of our networks for '13. And you'll also see us continue to invest in international and digital. Joe, do you want to touch on that?

Joseph G. NeCastro

Yes. Sure. Two other execution priorities for '13. Certainly, international ranks very high among the things we're going to be working on. And, suffice it to say, we think we had a very good year in 2012, a great year of execution at UKTV, one of the fastest growing -- actually, the fastest growing group of commercial networks in the U.K. market, led by an outstanding management team. And then also the acquisition and integration of Travel Channel International, both are the -- sort of the big highlights for 2012. We hope to continue the momentum along both of those into '13, as well as continuing to execute on our wholly-owned networks in the U.K. and in other markets where we're measured, again Food Network U.K. the leading lifestyle channel now in the U.K. television market. So in 2012, we expect to keep -- continue to build on that as well. And we're going to continue the good work of building on the international business through any means necessary. We've -- you've probably heard us talk about our strategy, our targeted geographies and the way we're going to go about it. But we're going to work very hard. We're building a little bit of infrastructure this year so that we have a platform to grow from. And that's -- that whole area, obviously, a major focus for us in 2013. And on the digital front, many, many initiatives that you could lump under the heading of digital, all the way from our owned and operated sites, continuing to execute there, build a robust advertising business. Also working with our distribution partners on TV Everywhere, working with some nontraditional partners on SVOD deals. And then -- and lastly, some homegrown initiatives that we continue to work on. So lots of energy around digital. We believe in the digital future of our company, in our industry and obviously a priority for 2013 as well.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

I think we'll walk through each of those in a little bit more detail. As you guys know, I didn't want to dive first into help the pay TV system here in the United States. Ken, some folks who worry the pay TV bundle is getting a little too expensive. We don't have growth in overall subscribers any more, content's moving online, fragmentation. How do you think about the overall pay TV ecosystem and the environment for Scripps?

Kenneth W. Lowe

Well, for us, look I, I tell you it continues to be very healthy, very robust. There's no question, Doug, there's some headwinds on pricing, overall, of the bundle and we're seeing and hearing that everyday. That's the concern for the entire industry for both programmers and distributors alike. Obviously, there's only so much SNI can do to address that. What we focus on is being good strategic partners with our distributors. As I mentioned earlier, we're great partners when it comes to local ad sales. And we're also great partners in TV Everywhere, about 60% of our distribution base we have deals done with TV Everywhere. We think, long term, this is going to be something compelling. As you know, Doug, we're about 70% advertising. So as we look at Nielsen, moving more aggressively to measure beyond just the television screen on other devices. We think there's a real partnership opportunity between the content guys and the distribution partners on the TV Everywhere model, if there's advertising money that we already, in many instances between national, local businesses, have a partnership. And we want to continue that. There's some areas that we just -- we don't have any control over. And what's really driving this, a lot, is sports and retransmission consent fees that have kind of really bulked up. I think you're going to continue to see probably more surcharges for regional sports and some sports in general. But overall, the help is very good. I mean it's hard for the consumer to understand why they're paying what they're paying for a bundle when they don't understand the counter to that is it actually will be more expensive in an ala carte world. So it's just something I think we're going to have to do a better job both on the content side and the distribution side of explaining to consumers. And over the long term, I think a lot of this will be addressed by our distribution partners because it's really in their hands. I have to say at the end of the day, a lot of programmers probably say this, but I passionately believe it. We're a great value. We -- if you look at our sub-fees, if you look at the partnership opportunity on local ad sales that we bring and then as I mentioned earlier, Doug, some of the other areas that our core to businesses are growing together and we have compelling brands and compelling products. So this is not something that's going to go away. We're going to have to address it both on the content side and the distribution side. And I would hope that over time, there's some things that mitigate some of the concerns that the consumers have. There's no question this is an issue, it's that's going to be here for a while.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Yes. It might not be any fun. But you guys would do well in an ala carte world relative to the pricing. One question that comes up is whether we'll have an online MVPD? An over-the-top provider of bundle of networks form. Would you guys license your networks to an over-the-top provider?

Kenneth W. Lowe

Well, Doug, we'll certainly wouldn't be the first in line to do something like that. And as you know, we've been rather slow on the draw when it comes to distributing our content to folks like Amazon, Netflix, et cetera. We just announced an Amazon deal several days ago. We've been a little slow to market because we wanted to take our time, we wanted to see, in some cases, how other networks that were putting content, were streaming content, were going to be doing. So we'll be cautious in this. I think, we'll watch as the industry moves and there's a very important economic model at stake here that we don't want to be at the head of the pack on. I think, over time, we all saw the NBC/Comcast announcement last week. Some of this will come to play, it might come to play through our distribution partners. And as I mentioned, TV Everywhere right now is front and center for us. So right now that's our focus.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

When you think about the trend towards on-demand viewing, when I think about viewing adverts for Food, HGTV, folks turn the channel on, sometimes it stays on for hours. You guys have talked at length about length of viewing that implies passion for the folks who use your channels. Is the shift towards on-demand good or bad for Scripps?

Kenneth W. Lowe

It's actually -- it's not bad. It's not necessarily great for us because we have so much live viewing. To your point, Doug, a lot of people leave us on a lot. We don't pick up that much generally with C3 and C7, about 90% of our overall viewing is done on a live basis. Now part of that I think is just usage and it's top of mind and we have a lot of informative and, in some cases, how-to or how-to-do projects like cooking and things like that. So top of mind, you watch it -- on demand we think can actually be very good for us as well. So what our experience level has been thus far is, as I said, around 90% of our programming viewed live, which means that there's not as much on demand as some of the other networks. On the other hand, when we do see on-demand usage, the engagement is extremely high, and by that I mean, if it's on-demand where you're watching with commercials integrated. We have some of the highest percentage of engagement with audiences in our commercials. So long term, it's just something that probably the general audience is going to be doing more of. There seems to be more and more people, both DVR and TiVo and taping and pulling down product -- pulling down viewing to do it in their own time, but it's not going to have a major impact on us one way or the other, I think.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

All right. Let's talk about each of the networks and the business lines. HGTV flattish in 2011, 2012 viewership, maybe down slightly, now strong growth. So can you walk us through your programming strategy and what's driving the improvement recently?

Kenneth W. Lowe

Yes. HGTV has been rather flattish for the last couple of years, Doug, and many of you in this room have heard me say the housing market downturn did not help HGTV at all. I mean, it was kind of a pall, if you will, or for -- enjoying your home when you see the value of it going down month after month. There's no question that the improvement in the housing market, I think, has helped the overall viewership of HGTV. Having said that, I don't want to take away anything away from Burton Jablin and Kathleen Finch and the creative team there because they've really addressed the -- not only the rebound in the housing market, but kind of, I think, where the general public is right now with some new shows that have really resonated with the audience. We took the Property Brothers, put them in Austin, Texas and started really making those guys kind of rock stars and they've become that. They're really iconic personalities now in the network. So there's a lot of thought, energy and effort going into improving the overall programming of the network. Some of the marketing we've done in the past year has been a little bit out of what we've done in the past south, southwest, comic cons and things that you wouldn't normally think the HGTV is a brand that would be associated with. So you roll all of that up, you get a healthy housing market, some new and improved programming, and we're seeing some of the strongest ratings we've ever seen at HGTV. I would also add, Doug, that this is the seventh consecutive year that HGTV has been the top rated-cable network in upscale women 25 to 54. So even during that period where we weren't growing, or the housing market was rather stagnant, the network is still delivering the best audience, arguably, among advertisers in upscale women. So it's a strong, strong brand, it has, in my opinion, weathered some of the storm of the housing market and it's coming back stronger than ever. We're seeing some of the best numbers we've ever seen on that network in its 19 year history.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

I'm always trying to figure out how much growth there is left and how big the target market might be. And it's always a very difficult sort of question to answer, I'm sure. But when you think about developing HGTV further, is the network fully programmed? Are you programming as much of prime time and as much of day time as you would expect? And what is your research telling you about the size of the potential viewership marketplace for HGTV?

Kenneth W. Lowe

Yes. It's a great question, Doug. We get it a lot. And maybe, on any given night HGTV can be a top 10 cable network. And in some cases, all but -- 2 Saturday nights ago, adults 25-54 in prime time, HGTV beat NBC. So it depends sometimes -- that answer depends on the programming. It depends on what the competition is doing. Because some nights, we get incredible competition, not just from broadcast but from cable networks as well. So I think there's still grow room, quite honestly, for the network. The other thing you have to understand about us is we're programmed 24/7. When you come to HGTV, when you come to the Food Network, you get that consistent programming 24/7. It's why we monetize as well as we do because we're able to sell an environment that's consistent. But also it gives us an ability to stay on point, stay on brand, stay on content and maximize, in my opinion, the entire inventory. And it also gives us a chance to try different programming throughout the day part. So HGTV, I think there's still grow room there. You heard me say, it's about 750, 800 hours a year. That doesn't seem we're moving that needle doesn't seem to change much. And also quite frankly we've invested sometimes more money into programming and not moved the needle necessarily despite added production costs or location shooting. So overall, a very solid brand. I just got some numbers from Canada, HGTV in Canada finished the year the fourth-rated network in Canada. And a little bit of different -- competitive setup there. But it just tells you there's still some grow room for this brand, in my opinion.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

So a question, sort of jump all either of you, how well monetized are these improved ratings for HGTV? We always think about there's a lag impact, and is there a metric like a CPM differential that you can give us to lend us a hand?

Joseph G. NeCastro

No, I can't do that. However, I will tell you that I do feel like we're, in the case of HGTV, because we've been on a sustained growth spurt here. We don't feel like there's any money left on the table in terms of being able to monetize those eyeballs. And our ad sales team does about as good a job as can be done in getting the most out of our advertisers and delivering the most value by getting the most from them as well.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

So why don't we shift over to Food? Food has been a little more of a roller coaster with regard to viewership levels the last couple of years. Can you walk us through the programming strategy around Food and what you see for that channel right now?

Kenneth W. Lowe

Sure, Doug. Food did have a little bit of a soft fourth quarter, no question. Was an unusual quarter for us, a combination of Sandy, the Presidential election. And oddly enough, sports. Sports, especially football, tends to have an impact on Food's viewership. We're seeing some encouraging signs in January and going into February. And I think, first quarter will show some improvement overall ratings. We made a few changes in programming. But again the consistency of the brand that I mentioned with HGTV, we experience the same with the Food Network. This in is quarter in, quarter out a very consistent brand. We've got some new shows coming online. So I'm very confident about Brooke Johnson and her team's ability to keep Food Network growing to the pace. Having said that -- about the soft fourth quarter, Doug, we finished 2012 with the highest rated viewership in the history of the Food Network. So you see these ups and downs in ratings, that's not unusual. We've experienced these before. But I think the softness in the fourth quarter was exacerbated by the fact that we had such a strong first 3 quarters on the Food Network. But as I said, we're seeing a little bounce back now. And I think as we're sitting here, next year we're going to talk about '13 was another record-breaking year for viewership on the Food Network.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

When you think -- when you sort of go back and look at a stretch where you invested heavily in Food, it worked, it brought viewers, then you had a little bit of a pause, now it's coming back. Does that suggest that some of the programming you're putting on is bringing in non-core viewers who don't stay that long? Or you just see ebbs and flows with normal viewers?

Kenneth W. Lowe

It's ebbs and flows. There's no one answer in these situations, Doug. There never is. I will say, we've seen more competition in the Food genre than I think we've ever seen, and that continues to be because it's been such a popular area to program in. But having said, no, there's not a real correlation to -- we're investing just as much, if not more, I guess more this year, Joe, than we ever have in the Food Network. And again, Doug, the competition is -- across-the-board is better. Everybody has stepped up their game. Everybody is really stepping up on programming and investing more and that means we have to do the same, which we are. But no there's not a real correlation. Sometimes that depends on what the competition is putting on, what time of year it is, believe it or not, these networks, both our networks can get seasonal ratings and pick up as well. Springtime, for example, is a good time. People are out fixing up their homes. Spring is bringing new opportunities to get outside your home and fix up. We'll usually see an uptick in ratings in the spring for HGTV conversely. Fall season is great is for Food as you're getting into the holiday season, Thanksgiving and around Christmas time. So there's seasonality, usually a lot of different reasons for those up and down, rate -- ratings for us.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Some more question, is Food fully programmed at this point? Do you have the hours on Food that you think is a sustainable level?

Joseph G. NeCastro

Yes I think we do. We don't have a steady budget for both Food and HG in terms of number of new hours. Every year we're sort of in the 700 to 800 new hours a year. And as Ken said, it's about what you do those hours rather than how many of those hours there are. And sometimes, year in and year out, you may have some higher cost hours depending on scheduling and whether or not you're doing special events and tent pole events. But generally speaking, we're fully programmed.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Is competition changing the cost curve per hour for these networks?

Joseph G. NeCastro

Yes and no. I think in the short run, absolutely I think over the long run this is a cycle like sort of like ratings in some sense. There -- certain types of programming become very popular, there's competition for those formats, those producers that will change and shift over time. It'll be moved to different types of programming. So we don't see this as a tree that continues to grow to the sky. It will come and go.

Kenneth W. Lowe

Yes. And I think, Doug, just to add to what Joe said, there is consistency with our networks we don't see the spikes, if you will, in expenses that you might get in sports programming or areas that are not as easily contained as our networks. And we have been doing this for 18 years and what we found I alluded to a little earlier, sometimes just increasing costs in the programming itself, whether it's production costs, adding more people on the set or whatever, does not necessarily drive ratings. So it's a consistent formula that works pretty well for us. And to Joe's point, I think over time, it kind of settles into a level that's fairly predictable for us. And I think that's where our model has always been fairly predictable when you look at our programming costs.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Travel Channel? What kind of opportunity?

Kenneth W. Lowe

Travel Channel, good news here. I mean, we have been saying for a couple of years now as we acquired this that we're taking the Scripps playbook. We're doing some of the same things with that brand. That we did with Home & Garden and Food, and I'm very pleased to say, we're starting to see some real progress there. For example, we finished first quarter -- we'll finish first quarter, I think, on our projections with overall viewership up a high single, low double-digit increases year-over-year. As I mentioned earlier, Doug, I think when the year's done, you'll see Travel be, from a percentage standpoint, the top network in our group, as far as overall increase in revenue and overall increase in growth. We like where we are in Travel. We've got some new shows coming online there that I think are going to bode very well. And we're finally kind of getting in our groove. It takes a little while whether you're remodeling the network, refurbishing the network or starting from scratch, to get in rhythm. And that was the case with HGTV. It was certainly the case with Food when we bought it in '97. It took us about 4, almost 5 years to get that network where we really felt that we get a handle on it. And all that's starting to come together with Travel. It's our top growth priority for the year and the fact now that Joe has gone out and bought Travel Channel International. And we've got now some programming going back and forth, some opportunities we think could enhance us domestically here. We're very bullish on the Travel Channel for 2013.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

And how should we think about ultimate monetization if you're successful building the Travel Channel up? What's -- first, what -- how would you define the Travel Channel? Who are the competitors, what market is it in and then how big would you hope it could be?

Kenneth W. Lowe

Yes. I'll talk about our competitors and Joe can talk about the monetization. Really, there's not a head-to-head competitor, quite a few channels that we would say are -- we're in our wheel house whether it's some of the stuff Nat Geo does, some of the stuff that Discovery does across some of their brands. But generally, there's not a head-to-head competitor especially, Doug, how we view the future and where we're going to take that brand. So there's competition for everybody up and down the dial. But as far as a pure travel related channel, there's nothing really out there. From a monetization standpoint, Joe, you want to touch on that?

Joseph G. NeCastro

There's no reason it doesn't have the same potential as the other 2 big networks. It's fully distributed, it does not monetize as well. No secret, it's about the number of eyeballs we deliver to advertisers. The demos are very attractive demo. It's a little more male than the other 2, it may not as be as rich a vein, but there's no reason to believe it can't get very close to the other big networks over time, and that's certainly our objective for it.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

And you're talking about revenue, probably, and margin?

Kenneth W. Lowe

Right. Yes.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

So why don't we shift over to a little smaller network, GAC in the Lifestyle portfolio, does that network fit well? Is it a candidate for re-branding? Is there another nature genre out there that you might pursue?

Kenneth W. Lowe

Yes. Actually I'm rather excited about where we're moving with GAC. For a while, it -- we've been rather dependent on country music videos. And we finally, I think in the last year, have decided what we need to do is move a little bit more away from videos. That's going to become a tougher and tougher thing to align [ph] from a content standpoint. And we have defined the format as Living Country. And really it's about the heartland of America, Doug. Where we were very early on with HGTV and Food was a little bit more programmed to the middle America states. And as the networks became more sophisticated, it became more popular, we kind of moved away a little bit from some of the roots of the programming early on, and quite frankly, it's left a little bit of a void. So we see an opportunity with more longer form programming on GAC, shows that are resonating very well and doing great as the show Farm Kings, which involves this family that lives on a farm. It's a reality-based show that has scored very well. Day Jobs which is all about celebrities going out and going back to the job that they got started with and on and on and on. So I think the tone of the country, the mood of the country is ripe for this type of programming. We've been out talking to advertisers about it. And they're really responding well. So you'll hear more about it in our upfront presentation and kind of the refurbishing, if you will, of GAC.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

How should we think about international growth and balance against investments?

Joseph G. NeCastro

Well, you should think about it very positively. I think we have a number of opportunities as a company and certainly where as we're positioned right now, one of the things as Ken and I, a couple years ago after the spin, thought about a strategic direction where the growth will come from, it was obviously international, had to be a major initiative for us. We had -- we under indexed dramatically against the peer group -- our new peer group, which was all -- was Fox and Discovery and Viacom, even Turner Networks had, had large international businesses. And so we've spent a lot of time thinking about and staffing, and as you know, it's a big priority for us. Has been since the spin and will continue to be until we build a significant portion of our business from international. As we think about other investment opportunities, we certainly believe that there -- on the digital front there are things that we can do. There are ways to extend the brand beyond the screen, and you have seen us do that in magazines very effectively. So anywhere that we can bring the brand to life and to satisfy consumer needs, it all starts with our consumer and our customer, our viewer and anywhere we can meet them and we think we can invest profitably, we will certainly do that.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

I think we talked, if I remember correctly, last year, about potentially in a few years, international contributing 20-plus percent of sort of EBITDA to the company. So now it would be 2 years away, is that still a track that makes sense to you?

Joseph G. NeCastro

I think so. The thing about international is that it's a number of significant opportunities and some organic growth as well. So we work on both fronts. I'd say, obviously, the format of those comes in lumps and there's no reason to believe that even if half of what we work on comes to fruition, we certainly will be in that ballpark easily. If the organic growth continues and gathers more momentum, that certainly would be additive as well. So, no, I think that's still realistic.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

And I think if I had this right, Discovery acquired the Food Network in India and we thought that would be a perfect fit for you guys.

Kenneth W. Lowe

Sure.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

So when you think about M&A internally, what's the screen? What's the filter?

Joseph G. NeCastro

We're familiar with that, we know the asset. India is a -- for Discovery, is a much, much shorter pipe. They have a wide distribution and they have, I don't know, 7 or 8 networks already there. So for them to acquire another network and add internal infrastructure that already exists is, as I said, it's a very, matter of course for them, I think that makes sense. You shouldn't be surprised to see us enter India in the lifestyle space as well in the not-too-distant future because it's an attractive market. But for us, it's a -- will be major step forward, and it would come on the heels of us building some infrastructure in Asia that we are working on right now. So obviously, a very interesting, intriguing market. The landscape is littered with the bones of media companies have gone in unprepared. And we intend not to be one of those companies.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Online. You've outlined, I think to some extent, what the investment level might be for things like online and international for this particular year. When you look at the progress you're making with things like CityEats and your other digital strategies, I guess, sort of where are the mile posts? And how do we know that it's tracking as good as you would hope?

Joseph G. NeCastro

Maybe Ken will answer the report card part of that. But I'll tell you, I think it's important to back off a little bit and think about digital strategies. We have conversations at -- back at the ranch about how almost everything has a digital element to it or you can even define an entire company, in a digital framework if you want. We started a ways back with these owned and operated sites putting compelling content on and selling advertising against it. And that's formed a very stable core business for us. We do more -- $120 million or more a year in revenue. It's a nice business for us. But if you roll that forward and try and again to continue to connect with customers through new formats, there's a, obviously, a mobile element to this. VOD used to be thought of a sort of a digital expression. SVOD as well is another outlet for our content. And then of course, you mentioned the 2 sort of internally funded launches that we've been working on. And you have to characterize those as measured investments in spaces that make sense for us, and we'll be disciplined about those. I mean we have -- we feel there's good promise in both. If we don't feel like they're right for us down the road, we won't do them. But certainly right now we're feeling positive about the direction of both of those, and all of our other initiatives. So we have a lot of -- we think of this as a big picture, a big pool to play in. And we're going to make our bets where we think they're appropriate.

Kenneth W. Lowe

Yes. And, Doug, I think we've got a long track record, as Joe alluded to. We started the digital stand-alone digital ad sales team actually around 2000, headed up by Jeff Meyer and it's given us a lot of experience. And we're selling now a lot of integrated advertising, not only our networks, our websites, but also our magazine partnerships with Hearst, with both Home Garden and Food. So we're getting a lot of insights into where advertising dollars in the future I think may be moving. And you will see us continue to invest in digital businesses going forward where it makes sense, especially with line and brand extensions from our power brands.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

So -- I mean, one thing investors are always going to try and balance is everyone wants stock buybacks, return of capital, high degree of visibility, accretive versus -- like CityEats. So if you have an investor, you sit down with him and say, "CityEats, are we edging a little bit away from non-core with that type of business investments, does that make sense for you guys to pursue that business?" what would you say?

Joseph G. NeCastro

Well, I would the following: one is Food is our core, all right? It's at the heart of everything that we do. And if you look at all the trends around food and eating and families and dining, there's much more dining out than ever, and all of the demographics argue that restaurants are, to quote some [indiscernible] "Restaurants are the new recipes in many ways." So whether CityEats is the right approach to the Food Network becoming an authority in restaurants or not, the Food Network should become the -- an authority in restaurants with great utility for all of our users and our customers. Again it may be that, that will evolve over time and morph into something else, but it does -- it makes a lot of sense for us to be around the restaurant business in a meaningful way. And so that's my response, I do think there's content play, there's an advertising play, there could be a transaction play as well in that restaurant space and it's something that we feel compelled to make sure that we understand and invest in if it's appropriate.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

I've got a few more questions I want to get through. But why don't we just pause for a second and see if the audience have any questions. We'll start in the back.

Unknown Analyst

One pedestrian question and then one kind of theoretical question. How much of your EBITDA now comes from international?

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

You said EBITDA, Bob?

Unknown Analyst

Yes.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

How much is your EBITDA for international?

Kenneth W. Lowe

It is a very small portion at this point, the EBITDA -- on an EBITDA basis, it's around a breakeven business. Most of the cash flow that comes in comes below the line through equity earnings.

Unknown Analyst

So in 2 years you hope to get 20% from international? Or is that too optimistic?

Joseph G. NeCastro

I think the quote was that 20% of the value, overall, in cash will not necessarily be EBITDA.

Unknown Analyst

Okay. And the second question, given your Food Network and given your -- the home guide, the question is would you guys consider -- and I know you're not going to say you'll do it, but would you consider doing some type of real estate guide like Zillow or some type of restaurant guide like similar to Zak's or whatever is out there?

Kenneth W. Lowe

Sure. Yes. Well going back to just a question along the lines of CityEats, we're always exploring partnerships where it makes sense. Probably a good example is we decided, a while back we didn't want to get in the magazine business, but we knew our brands would translate very well in the magazine business. So we went out and got a great partner in Hearst and that's turned out to be a great partnership for both of these. Specifically to your point, we're having some conversations with the Zillow folks and have had for a while. And in cases like that and in cases as they got -- that sometimes more to be -- have gotten through partnerships and stand-alone businesses on our part. And to Joe's point is we're investing in some of these internally in homegrown businesses. We look and say, "Gee, maybe we pick a partner and we can grow this beyond just our core and our business." So I think you'll probably see more partnerships in our future. We're pretty good at it. We've been very good partners for the folks at the Tribune. We think we're good partners for the folks at Cox with Travel. And sometimes partnerships allow us to take our brand and move it into other areas that we would have no intention, probably a good example is the Bassett Furniture, last year, launched an HGTV line of furniture. That's doing very well. Sherwin-Williams has an HGTV line of paint. There's a line of food wine that we do with the Wente Vineyards called the Entwine. And I could go on and on. And Kohl's has a whole line of products in their department stores that are food related. So we see the opportunity to license our brand, to partner with our brands, to move our brands beyond just our core businesses as some real opportunities. So you're going to see more that I think in the near term.

Unknown Analyst

You all talked earlier about your hesitancy and measured approach to the over-the-top opportunity, and you also talked about assessing your digital scorecard, so to speak, and assessing the value of your content across new media. And I'm just curious in terms of how you all think about the metrics with the new media. Nielsen's been the lingua franca in standard media for a long time. And I'm just curious whether alternative metrics are employed by you all and how relevant that is for your sales team, your ad sales teams, particularly, or for the industry generally.

Kenneth W. Lowe

Yes. Well, Joe and I can both tag team on that a little bit. I think, first, you have to start with the fact that we own practically all our content. And that puts us in somewhat of a unique position because we have the ability to move it across other platforms rather easily. The only thing that constrains us, of course, is our partnership agreements with our current distribution partners. As I mentioned earlier, about 70% of our revenue does come from advertising. We think the advertiser is a partner for the future because of the unique brands that we have and the ways that we can gauge consumers. So when we start looking at, putting our content on other platforms, I think we start, first and foremost, with since we own it, is that the best possible use, is the best possible monetization of that content when it has an advertiser component? And by the way, you may move into a different platform, it's not 60s and 30s, it's a rolling up front. It's a package around it. So working with the advertisers, as we move to these different platforms, we think is really, really important because we want to go back to our advertising partners and say, "Hey we're doing this together, we're trying new platforms, we're trying new ways." Because just to monetize it purely for the creative content is a little bit different model that Joe looks at, and quite frankly, that's what we looked at in the Amazon deal. You want to add to that?

Joseph G. NeCastro

The only thing I would add is that we don't -- we're not discovering new metrics to use. It's about viewership and engagement, just like we think about all other products. But the reason that I'd say, and Ken describes us as cautious, was that we want to make sure it's incremental, that it's additive to everything else we do. If all we're doing is taking eyeballs from one screen and bringing them to another, and in fact risking the model that we know and love and can measure and can monetize, that doesn't feel like a win for us, even though we can brag about great online products. So the reason we were a little bit slow to come to market with the Amazon deal we announced last week was -- had to with that. I think as we get some confidence that it is additive, you'll see us do more and hopefully that's a -- that would be a win-win for us.

Kenneth W. Lowe

But I also want to imply that we're not conscious of the fact that we've got to be where the consumer is going to be. Wherever he or she is, we want to be there, we want to be there before they get there, and we want to be there so they can start using our content in new ways and new -- so I don't think we'll, in any way, shape or form be less aggressive in this area. But again I think for the reasons we just said, we've taken a little bit more a wait-and-see approach, and I think it served us well thus far.

Unknown Analyst

I just -- listening to the presentation, you guys seem a little bit more upbeat or maybe I'm reading too much into it than you did on the conference call when you announced your earnings. Am I reading too much into it? Or am I asking an improper question or the right question? Or whatever you want to say?

Kenneth W. Lowe

I'll have to go back and listen to the call now. No -- look I started this company so I've always been bullish about it. I think we're in a really great position. I mean when you look at a lot of what we're talking about today, some of the headwinds that we're talking about unbundling, I see all these opportunities. When we own the content, when we have this engaged audience, and I think probably the fact that I'm encouraged a little bit by the ad market is solid and what we're seeing overall going into '13, I don't know if our tone is any different. Joe, were you having a bad day or something?

Joseph G. NeCastro

I might have been on cold medicine or something, I'm not sure.

Kenneth W. Lowe

But no, look, I am bullish on this year. I'm bullish on these brands and I'm very bullish on Travel's upside. I like what I'm seeing on the international side, I like a lot of the feedback we're getting from our advertisers. So these are great brands. It's a great company. I feel very good about it.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

So you've diversified, basically, with traditional Travel, investing in international, talked about the growth potential there, the investments in Internet, which either work or go away, either way, there's a positive contribution to margin EBITDA. Does all these argue especially in a slow and straight environment that you should actually have a little bit more dead on this organization than you might have been able to have 3 years ago, 5 years ago?

Joseph G. NeCastro

Yes. I think that's fair. And absent the couple of transactions that we know are in the offing, I think we worked sort of more systematically toward that. I'd love to believe that we can put leverage on this balance sheet through a strategic transaction, either buying in one of the stubs or both of the stubs that are out there. I think that's the right use of capital and the right way to enhance returns to have more leverage. But we're focused on that, our board is focused on that. And we're going to proceed through that. With any luck, if those will both come to fruition on the next couple of years, at least we know whether or not we're going to do them or not, and then I think we'll address that. But we're aware of it and the board is, certainly. We just happened to be in this funny moment in time where we want to proceed a little more deliberately.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

I know you suggested on the last conference call that, at least with regards to the Tribune and the Food minority, there really wasn't any discussions taking place right now. Is that sort of the state of the world?

Joseph G. NeCastro

Nothing's really changed. Again, I know what you know. I read the papers we are not having any direct engagements. So it certainly appears to be outside their focus on their newspaper business, and what to do with it. And then I fully expect that we'll have a dialogue with them either later this year, certainly if that -- as they move through that process.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Any final thoughts, Ken and Joe?

Kenneth W. Lowe

Well just to underscore, I think, the great thing about our businesses is we're not just cable networks. We're brands, we're iconic brands and that gives us an opportunity to do and be involved in a lot of things we touched on today. So Bob teed it up for me. I'm very, very bullish about where the company is and where we're going and our ability to continue to create shareholder value for what will soon be our 19th consecutive year.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Thanks so much for joining us, gentlemen.

Kenneth W. Lowe

Thank you.

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