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Scripps Networks Interactive (NYSE:SNI)

Q3 2013 Earnings Call

November 07, 2013 10:00 am ET

Executives

Mark W. Kroeger - Chief Communications Officer and Executive Vice President

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

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

Burton Jablin - President of The Scripps Networks Operating Division

Lori A. Hickok - Executive Vice President of Finance

Analysts

David Bank - RBC Capital Markets, LLC, Research Division

John Janedis - UBS Investment Bank, Research Division

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

Michael Nathanson - MoffettNathanson LLC

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Todd Juenger - Sanford C. Bernstein & Co., LLC., Research Division

Jessica Reif Cohen - BofA Merrill Lynch, Research Division

Amy Yong - Macquarie Research

David Carl Joyce - ISI Group Inc., Research Division

Michael C. Morris - Guggenheim Securities, LLC, Research Division

Jason B. Bazinet - Citigroup Inc, Research Division

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

Benjamin E. Mogil - Stifel, Nicolaus & Co., Inc., Research Division

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

Barry L. Lucas - Gabelli & Company, Inc.

Matthew J. Harrigan - Wunderlich Securities Inc., Research Division

Tuna N. Amobi - S&P Capital IQ Equity Research

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Scripps Networks Interactive Third Quarter 2013 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Executive Vice President, Chief Communications Officer, Mark Kroeger. Please go ahead.

Mark W. Kroeger

Thank you, Moses, 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, Chief Financial Officer and Administrative Officer. Our prepared remarks should take about 20 minutes, then we'll open it up for questions. Also on the call this morning and joining us for the first time is Burton Jablin, President of the Scripps Networks 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 third 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. [Operator Instructions]

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. Thank you, Mark, and good morning, everyone. As always, we appreciate your interest in Scripps Networks Interactive.

Now before I get into quarterly results, I'd like to introduce Burton Jablin as President of Scripps Networks, first time joining us on the call. Burton has been the guiding force behind the success of our home category networks, and I look to him to bring the same creativity, motivation and leadership to his expanded role.

We're coming off a very good quarter driven by our ability to attract and engage upscale audience, with our unique lifestyle content. And that's a critical focus for us, because American consumers spent $3.9 trillion on home, food and travel every year. And Scripps Networks Interactive is helping to shape the attitudes that drive those purchases.

Our brands engage more than 170 million consumers every month across our lifestyle television networks, industry-leading websites and mobile apps. Lifestyle content inspires in viewers the same passion and loyalty as, say, sports programming does, and along with the same expectation for immediacy. Our networks comprise the #1 cable group for live viewing. According to Nielsen, 94% of our viewing is live, and that's a staggering number. And it's important to advertisers because our viewers pay attention, they watch the commercials and then they act on what they see. They represent the highest discretionary spending in all of cable. And for the 8th year in a row, I'm delighted to say that HGTV was the #1 cable network for upscale women.

At Scripps, we learn a great deal about buyer behavior and interests from millions who connect with us on social media. But actually, we go way beyond that with our own online focus group called Under One Roof, which aggregates 15,000 consumers recruited specifically for their attitudes and behaviors within our lifestyle categories. So as a result, we can tell packaged-good companies what appeals to food enthusiasts; we can gauge the effect of Travel Channel shows on actual travelers to see which destinations spark the most interest; or we can tell home-related companies what paint colors people are most curious about, and on and on and on.

Our television networks and interactive content businesses are must-buys for advertisers and must-carries for content distributors. For example, a June beta-research study found that, out more than 200 cable channels, Food Network was one of viewers' top 5 favorites. And in that same study, 20% of adults also said they would switch pay-TV providers if their provider dropped the Food Network. Now that is loyalty. Those distinctly unique attributes are what set Scripps Networks apart from its peers.

Now let me briefly talk to you about some network-specific trends, and then I'm going to turn it over to Joe to discuss financials. In home category, we have continued to see the strong viewership trends that we've experienced all year. Shows like Property Brothers and Love It Or List It on HGTV, both hit series ratings highs during the quarter and some new programs are extending the success of our programming pipeline. At DIY Network, Holmes Makes it Right was the highest-rated telecast ever from the network. And based on the popularity of established and new programming, we believe HGTV and DIY Network are poised for further growth.

Food Network has grown into a cultural icon and a highly recognized brand. Now some of you may have seen us ringing the opening bell at the New York Stock Exchange a couple of weeks ago in celebration of the 20th anniversary of the Food Network. Food Network finished the quarter as the 12th ranked network in cable, led by several notable new program successes like Alton Brown's Cutthroat Kitchen, Rachael vs. Guy: Kids Cook-Off and the returning Great Food Truck Race.

And we have a number of popular seasonal specials coming up too, along with 6 new prime time launches. One of those, Guy Fieri's Grocery Games has already premiered to very strong numbers. Meanwhile, the Cooking Channel new programs like Donut Showdown and Restaurant Takeover gross some very strong audience growth. We expect those positive trends to continue with 6 new premieres in the fourth quarter versus only 4 last year.

Now both Food Network and Cooking Channel continue to help shape America's conversation about food every day. Over at Travel Channel, we're seeing our programming resonate with viewers. Even though Travel Channel skews slightly more male than our other networks, we've experienced minimal impact from the start of the football season. We finished the quarter on a strong note, with new season premieres of viewer favorites like Hotel Impossible and Bizarre Foods America. And in the weeks ahead, we'll bring on 7 new series and 8 new specials in prime time to further drive audience growth.

At Great American Country, our country lifestyle format is really gaining traction. Successful shows like Farm Kings and Celebrity Motor Homes are drawing new viewers to the network. Great American Country is evolving through a celebration of the best America has to offer, so stay tuned to that network.

Turning to international. Our programming is seen in more than 200 countries around the globe. We've seen significantly increased viewership for Travel Channel in the U.K. And we've also expanded the network's reach with our prime time Freeview launch, adding 23 million new subs. Food Network is growing in Eastern Europe and in South Africa. And as you know, we successfully completed the Asian Food Network (sic) [Channel] acquisition during the second quarter with the integration with the existing business virtually complete. Now the team is moving quickly to expand AFC throughout Asia and exploring a number of opportunities in Eastern Europe and Latin America with Food Network and Travel Channel to further enhance our footprint.

So there you have it. Scripps Networks Interactive continues to grow, led by the global popularity of all of our lifestyle networks and driven by pure leading operating results. We're committed to creating value for our shareholders over the long term, a commitment that's borne out in the company's successful track record.

So with all of that with, let me now turn it over to Joe to discuss the financial results. Joe?

Joseph G. NeCastro

Thanks, Ken. Good morning, everyone. I'm going to touch on some of the third quarter highlights and provide some color on what drove our positive results, then we'll open it up for your questions.

Starting with the consolidated view, total revenue was up 9% on both advertising and affiliate fee revenue growth. Total segment profit was up 4.4%, which reflects revenue growth, partially offset by the expected higher programming expenses, along with international and digital investments. Net income attributable to SNI was $0.87 per share, up 12% compared with last year.

Now looking at the key revenue drivers, advertising was up 8.7% and affiliate fees were up 9% versus last year. Advertising revenue growth was driven by the strength of the scatter market. Scatter-versus-scatter CPM pricing across the networks was up in the mid- to high-single digits year-over-year and up in the midteens to high teens over the broadcast upfront, which was very consistent with the second quarter.

As for advertising categories, our top 5 were food, retail, auto, financial and consumer packaged goods. So far in the fourth quarter, the scatter advertising market continues to be healthy. Year-over-year, scatter-versus-scatter price growth is running in the mid-single digits and in the midteens over the 2013 broadcast upfront.

Affiliate revenue grew 9% in the third quarter, driven by a number of factors, including annual escalators in our affiliate agreements, a reduction in launch fee amortization, the Amazon online distribution agreement that we announced at the beginning of the year, and our Asian Food Channel acquisition.

Looking at our network performance just in the U.S., revenues were up 7.8% on the strong advertising and affiliate fee growth. Our on-air television advertising revenues were up 9.2%, driven by the strong pricing increases I previously mentioned. Now, however, this growth was partially offset by a decrease in digital advertising. Total lifestyle segment advertising increased 7.5%.

To be sure, we did not have soft year-over-year comps like some of our peers. In the third quarter of last year, our advertising revenue was up a healthy 10%, with minimal impact from the Olympics. The decline in digital advertising marked a temporary pause in the 15th consecutive quarters of growth experienced by our lifestyle category leading websites. Driving this temporary pause in our quarterly growth was the planned reorganization of our digital sales group. We reorganized the group to better take advantage of the growth in mobile, digital video advertising, and our uLive video distribution network and website. This new sales organization should better allow us to maximize our peer-leading websites, as well as our unique advertising-supported uLive video platform. With this new organization, we expect to quickly resume our quarterly growth trajectory.

Now turning to affiliate fees. Revenues were up 8.9%, which were positively impacted by the reduction in launch fee amortization and the Amazon digital distribution deal. Lifestyle media segment expenses were up 8.9% on higher expected programming cost. As a result, segment profit was up 6.7% from the prior-year period.

Our international businesses generated $20 million of revenue and that was included in our third quarter consolidated results. This was up considerably from the prior year, primarily due to the Asian Food Channel acquisition. We also generated $15 million of equity in earnings of affiliates, up from $11 million last year, with our international partnerships in Canada and United Kingdom contributing about half of the growth.

Turning to the balance sheet. We repurchased 46,000 shares of our own stock during the third quarter at an average price of $68.33 a share for total expenditure of $3.1 million. As you no doubt noticed, we took a step back from our buyback program in the third quarter. As we've indicated in the past, we actively evaluate our repurchase program relative to our other investment opportunities, and none of those materialized in the quarter. We'll continue to be deliberate in our capital deployment and return of capital to generate positive shareholder returns. And as you know, we look at this on a quarterly basis.

We ended the third quarter with $557 million in cash, including the $225 million we generated in free cash flow during the third quarter. And with that, operator, we're ready for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question, it comes from the line of David Bank with RBC Capital Markets.

David Bank - RBC Capital Markets, LLC, Research Division

I guess, 2 questions. The first is, you said that you sort of didn't see the opportunity in the quarter for the buyback. So I guess the question is really, what defines the opportunity? What -- like is there a price at which you find it compelling? Or what are the parameters around that decision-making process? And then second, I think when you really started launching the digital initiatives, particularly, CityEats and uLive, I think you talked about how if you didn't see proof of concept in these initiatives and how they were moving toward the level that you wanted, you might become less enthusiastic about them over time. And so, I guess, I wonder like where are you with those operations in terms of profitability? Can you talk about that?

Joseph G. NeCastro

Yes. David, this is Joe. I'll take both of those and then maybe we'll get some color on uLive from Burton. The opportunity comment in the script was meant to highlight alternative opportunities to the buyback program. We continue to believe our stock is a great investment opportunity for us. We were looking at some alternatives in the quarter, it's no secret. And we were not -- we ended up not pulling the trigger on the alternatives. So that accounts for the pause in the program. It has nothing to do with our view of the attractiveness of the stock. And as you know, we look at that on a quarterly basis with the board, and we'll do it again this quarter. We have a meeting next week. So I don't think you should read anything into -- about our view on the price or the current price or where it's been, where it's going. We continue to believe it's a great investment opportunity for us. Secondly, on the digital initiatives, I think you're exactly right, and we do have that same discipline as we think about both of the initiatives you mentioned. With respect to CityEats, I'd say it's fair to -- that we've concluded that the path forward there would involve a partnership either with respect to distribution and/or local marketing for us. So you'll see us moderate spending there. I think that's in line with our discipline around these sorts of investments. And I think that -- so I'd look for improvement there. With respect to uLive, I'll let Burton comment.

Burton Jablin

Well, on uLive, let's remember it launched only in June. That was a soft launch. The hard launch was really just about a month ago. Since then, we're seeing nice audience growth, nice growth in the viewing of our digital video content. Of course, that's the goal of uLive, more digital video views. And so right now, we're feeling good about it.

Operator

And our next question comes from the line of John Janedis with UBS.

John Janedis - UBS Investment Bank, Research Division

With some of the ratings choppiness in Food, how should we think about the fourth quarter? Will you possibly up marketing? Could there be some content write-offs? And from what you see today, could on-air advertising grow in the high singles, in the lifestyle segment, given the comp to last year?

Kenneth W. Lowe

John, are you talking about Q4?

John Janedis - UBS Investment Bank, Research Division

Yes.

Kenneth W. Lowe

Okay. Well, I'll let Burton take -- Burton, why don't you go ahead and take the Food ratings?

Burton Jablin

Yes, we're going to see sort of normal write-offs. That's not really something that's changed all that much. In terms of marketing, we have marketing going on in the fourth quarter. New programming coming on in the fourth quarter that we'll put some of that marketing behind. We've already launched one show in the fourth quarter to great success, Guy's Grocery Games on Sunday night. And so we're feeling pretty good about what's rolling out in this quarter.

Kenneth W. Lowe

Lori?

Lori A. Hickok

And I can echo what Burt said. As far as the write-offs, it's customary that we look at those things, nothing unusual there. It's really part of our year-end and quarterly process. As far as the revenue and the rates, again -- Food is a strong demand by advertisers. The pricing -- they'll continue to benefit from the pricing and the ratings and sales mix, so we're feeling really, really good, generally, about what we can do with that asset and what we can do in Q4.

John Janedis - UBS Investment Bank, Research Division

Okay, maybe a related question then. Burton, we're in option season, can you share what you're seeing there? Any categories that standout? How does the calendar upfront look? And actually, are you sold out at this point on Food for Q4?

Burton Jablin

Well, options are about as expected, no big change there. And managing inventory about the same as usual at Food Network. And what was the third part of that question?

Kenneth W. Lowe

Sold out for the quarter?

Burton Jablin

Yes. Well, we're managing that.

Lori A. Hickok

Yes. We're managing. It's very strong. I mean, it gets back to the demand for Food, and so they're still -- we continue to sell. But the demand is so strong that they're probably closing in on what they can do there as far as the pipeline.

Burton Jablin

Yes, I mean we're, what, halfway through the fourth quarter at this point.

Lori A. Hickok

Yes.

John Janedis - UBS Investment Bank, Research Division

And then calendar upfront, anything yet?

Burton Jablin

Nothing to report there yet. They're still in the process of closing that out.

Operator

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

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

Can you give us an update on how we should think about the Food Network ratings versus the upfront commitments that you guys made? Obviously, the ratings look a little bit soft, but would it be fair to say, not weak enough that you would create a make-good situation? And then just my follow-up question is beside the well-discussed sort of potential buy-in of the rest of Food Network or Travel, could you maybe give us some color on what your priorities would be for further investments or acquisition activity?

Burton Jablin

I'll take the first part of that. Right now, we're looking at, as I said earlier, rolling out programming and marketing in the fourth quarter that we think will do what they need to in terms of ratings. We're seeing sequential declines in our year-over-year comparisons and so we feel good that we're moving in the right direction there. And so in terms of meeting our estimates, we're feeling okay, about that.

Joseph G. NeCastro

Yes. Alexia, I'll talk about investments for a minute. I think as you highlighted, our top priority would be, at the right price, to bring in the minority interests of both the Food Network and the Travel Channel. Beyond that, our next highest priority is the appropriate return of capital to shareholders. And beyond that, we're also looking at opportunities around the globe for investments where they're appropriate. We -- to be fair on that last point, we don't see anything of any significant size. One of the big assets that we all thought would be available in the next few years did come to market and was traded. Beyond that, though, we're looking at smaller investments in a number of markets, some of which we think are very attractive. As you know, some of these take time and we'll be patient about it. But if we're going to deploy capital, it will be likely in some attractive international investments.

Operator

Next we'll go to the line of Michael Nathanson with MoffetNathanson.

Michael Nathanson - MoffettNathanson LLC

I have 2, maybe for Ken, but we'll see who he'll hand them off to. First is on Travel, change leadership of Travel. And I wonder what kind of changes should we expect, as viewers, to see on the air? So what was the direction you want to see versus what you're getting? And then secondly, just on the restructuring in digital, did you just -- was there a -- I mean, how did you go to market previously in digital? Was it part of your TV sales team? And did you just not, basically, have people in the market in the third quarter and then fourth quarter to reverse that? So just more color on what, actually, did you restructure and how did that actually affect the ad sale in the process?

Kenneth W. Lowe

Michael, let me jump on the digital, then I will let Burton handle the leadership question at Travel. No, we were very much in the marketplace, obviously. If you go back to late '90s, and we talk about this from time to time, we were one of the first cable network groups to set up a digital sales organization. And what's been interesting, it's given us a front-row seat to watch the changes that are going on, which have been pretty interesting over the past 12 to 18 months, specifically. And I think Joe alluded to this, as it has come to mobile, and it has come to other opportunities. And as these opportunities have presented themselves, I think we try to be agile enough to switch up and change a little bit and now under Beth Lawrence's leadership, we're extremely excited about the direction we're going and the opportunities in front of us, coupled with the launch of uLive, which was a directly -- a direct result of not only what we saw in our own research, but what was coming back from the marketplace as an opportunity. Jeff Meyer, who headed up digital ad sales for all those years, moved over to lead and is leading the uLive organization, and Beth Lawrence came in, in his place. So there was probably a little bit of a transition bump that maybe we should have anticipated better. But, overall, I think the answer is about the future. We feel really good how we're positioned right now, how we're selling, and we do have a separate sales force, obviously, that works hand in glove with Steve Gigliotti's total ad group. But right now, I feel very positive about it. Burton?

Burton Jablin

And on Travel Channel, what you're going to see there, really, is a tighter focus in terms of what we think will drive the brand identity there. And that's really an attempt to create programming, some of which is already on the air, that really is about adventure seeking, curiosity about the world, intrigue, some degree of mystery about experiences. And I'm working directly with the team there now. It's a great team that Laureen Ong put in place as she very successfully made the transition of Travel Channel into the Scripps Networks family. They are focused on creating this much tighter brand identity at Travel Channel. We still consider it our biggest growth opportunity, and I feel confident in their ability to pull it off.

Operator

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

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

So we're ending one TV season, starting a new one. Can you just walk me through the ad sales process in terms of how you bundle the networks and over what time periods you sell? So specifically, I seem to remember you indicating that each of the channels are sold individually, so one channel can't make up for another. And I also think that you sell across the entire season, right? So in the upfront, if ratings are better or worse in one quarter, they could be offset in another. And, I guess, the reason I asked the question is I'm looking at the Food revenue growth of only 2% in 3Q. And I'm wondering if sort of since it was the end of the TV season, you had to true-up with delivery for the year for just that network because they're not bundled, and that's why the revenue growth was only 2% as we start the new TV season and we start fresh. So I don't see how any of that made any sense, but I appreciate any comments.

Lori A. Hickok

Yes. Doug, I can address the last part of that. You're absolutely right. We do sell from a TV season, so we can make good from quarter-to-quarter within that. However, that had no impact on why Q3 was what Q3 was. But it is the advantage that we do sell it from quarter-to-quarter. Then we do sell, I would think you're pretty familiar, there's a broadcast upfront, which we sell and make estimates and that we're making those upfront. Then there's the broadcast calendar. And then we do the scatter and DR markets. So those are really the marketplaces in which we play. And we work closely with our category leaders in setting estimates and thinking what our impressions and our inventory is.

Burton Jablin

And I would add, there's also cooperation among the sales teams in the various categories as need be respecting [ph] clients, and that happens routinely.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

So if I repeat that back, if I had that right, so the Food Network, sort of revenue growing 2% year-over-year in 3Q was really sort of just related 3Q items?

Lori A. Hickok

Just Q3 results. It's not because we were having to make good on things that we didn't make good in Q1, whether we go back to Q1 or Q2. It's not -- there's no true up and we just stop and we write checks.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

And separately, the season's done so you start 4Q with a fresh slate and a fresh upfront sales base and new CPM's, right?

Lori A. Hickok

Absolutely.

Operator

Next, we go to the line of Todd Juenger with Sanford Bernstein.

Todd Juenger - Sanford C. Bernstein & Co., LLC., Research Division

Just a quick look at programming investment. We've heard about priorities at the Food Channel and a little bit about Travel. Lots of initiatives out there. As we think about the budgets that you put in place for -- to support all those initiatives, is there any reason we should think there could be any change in the pace of year-over-year dollar investments to support all those initiatives either -- in either direction, higher or lower? And then just a quick -- I've got somewhat related follow-up on Travel. As we watch Travel and we know your ambitions there to grow that, is it -- what sort of ratings progress should we be looking for? Or do you need to see, to sort of be on plan for where you want to take that thing? Or is that not a metric we should look at? I'm assuming that's one we should look at.

Lori A. Hickok

I'll take the first part of that question on the programming investment. One, is you know we're in the budget season, so as far as any comments and what we're looking at, as far as next year, we'll defer that to February. However, I wouldn't be expecting a major shift one way or the other as far as our cash spend, which is the balance sheet. We're pretty much moderating. We're looking at a certain amount of hours, and we have a pace and a plan for that. So we really have our procurement process around that, what we're putting on the air. But I don't expect it to drop off significantly. And again, keep in mind that we do have an investment in Travel, which does impact our year-over-year growth. We're continuing to invest in that, and we have always said that we are not going to manage margins, that we will do the right thing to grow those ratings. So we are focused on what we're doing at Travel. We would expect continued investment there. And of course, we're looking at Food and what we can do there. But again, I'm not looking -- and we'll tell you more in February.

Burton Jablin

And, I guess, what I would say on the ratings is Travel is a long-term opportunity for us, just as it took quite a while for us to build the HGTV into the powerhouse it is today and the same with Food Network. We expect Travel Channel to be a powerhouse. But we're going to do it the right way, where we build an audience that connects with the brand that delivers high-quality consumers that we sell the premium in the ad sales marketplace. That's more important to us than any quick fixes.

Operator

And our next question comes from the line of Jessica Reif Cohen with Bank of America.

Jessica Reif Cohen - BofA Merrill Lynch, Research Division

I'm going to move to the smaller networks. Did you guys see revenue was down, like, almost 6% in the quarter, but it had been up double digits in first and second? Just curious why such a strong reversal?

Burton Jablin

I can start in on that, and then Lori can chime in. Part of it is we are changing the focus on what we're doing at GAC. And we're making it more of a lifestyle network, and as we do that, we might see some shifting in the way that we're conducting our advertising sales. But we feel good about the new lifestyle focus, and we'll begin to see that play itself out, we think, very positively. Lori?

Lori A. Hickok

And just to make sure, Jessica, I understood your question, because GAC is the only one with negative results. I thought you referred to all of the networks. Actually, DIY and Cooking Channel are doing quite well, double-digit growth. I want to make sure I didn't misunderstand your initial question.

Jessica Reif Cohen - BofA Merrill Lynch, Research Division

No, that was GAC.

Lori A. Hickok

Okay, okay.

Lori A. Hickok

And then -- I'm sorry, was there anything else on that or?

Lori A. Hickok

-

No. That was it.

Jessica Reif Cohen - BofA Merrill Lynch, Research Division

And then the second thing, I just -- you mentioned in the prepared comments that Asian Food Channel has been, I guess, restructured or it's kind of where you want it to be. Can you give us a little bit more color on how big that can -- how meaningful that can be? And maybe just some of the key international markets -- would you talk about progress that you made?

Joseph G. NeCastro

Sure. First, with AFC, I think, it's probably premature to say exactly how big it can be. It is -- it was, obviously, one single channel distributed in a number of markets. As you know, we put one of our most promising executives over there to help us get that channel distributed, but also turn that into a suite of 3 channels in the region. And there's a lot of work being done on getting distribution, not just for AFC, but also for Food Network Asia and also -- and for Travel Channel International, which has some Asian distribution, early days there. So lots of work going on there. We think there's great potential for the 3-networks suite and maybe more down the road, if we have a chance to launch, maybe, a more general lifestyle network as well. And the markets in Southeast Asia, I think you can probably rattle them off as easily as I can. We're very well penetrated in Malaysia, but there's great opportunity in a number of other markets there as well. And so I think we look forward to reporting progress in Asia on the quarterly calls as we go forward. With respect to other markets, there's a fair amount of activity, discussions and a launch plan underway in Latin America. It's premature to give you any dimensions on that just yet, but very excited about the receptivity of distributors there to some of our food content. So we look forward to good things there. And then, of course, we're going to continue to work very hard in Europe and Eastern Europe to build penetration, especially, on Travel but also on the Food Network there. So I think we have not changed focus in terms of our priority markets and our willingness to invest. And we are, as always, looking at a combination of acquisitions, organic launches and maybe joint ventures as well.

Jessica Reif Cohen - BofA Merrill Lynch, Research Division

Can I have just one quick follow up on everybody's earlier questions. So given what you said about -- and this a capital returns question. But given what you said about strategic opportunities, it does seem like Q4 should be back to more of a normalized buy back. I'm just wondering, will there be a catch-up period as well?

Joseph G. NeCastro

I appreciate the question. I don't want to get ahead of our board on that, so stay tuned, but I would expect us to get back in the market.

Operator

And next, we'll go to the line of Amy Yong with Macquarie.

Amy Yong - Macquarie Research

My question is, actually, on HGTV. We've seen kind of double-digit growth for a few quarters at that network. Can you just comment about how sustainable that is, and whether or not we can actually see an acceleration in growth? And how much of the strength is actually just being housing-driven versus programming?

Burton Jablin

Well, this is Burton. Certainly, the housing market helps create greater positive point of view in the part of consumers about their homes and the whole housing market, so we believe there is a benefit. But I wouldn't want to overstate it because during the housing downturn, you may recall, HGTV's ratings didn't go down. They just remained flat. So that's part of it. But I think the main part is that the programming team and -- under the President of the Home category, Kathleen Finch, has put on some really strong shows. It gets down to what TV is all about. And in terms of the advertising revenue, what we've said, viewers [ph] forever, at Scripps Networks is true. The audience at HGTV is one of the best, if not the best in the television industry: upscale, educated, lots of money to spend and advertisers are willing to pay for that.

Operator

Next, we'll go to line of David Joyce with ISI Group.

David Carl Joyce - ISI Group Inc., Research Division

Is there anything structural that could prevent Cooking or DIY from reaching Food or HGTV-like scale in time? Or is it just the matter of taking some near-time and, particular, corporate focus like you're doing now with the Travel Channel?

Burton Jablin

When you say scale, do you mean in terms of distribution or ratings or both?

David Carl Joyce - ISI Group Inc., Research Division

Just the distribution, the size of the revenue, ad and affiliates, sure.

Burton Jablin

Well, in terms of distribution, we are on tiers, as you know. And we grow all those networks as quickly as those tiers grow out. We always work with our distributors to do what we can to help support efforts to have people sign up for those tiers because, obviously, we want as many people viewing those networks as our distribution partners do as well. But that is a confining aspect of the growth potential in terms of distribution. In terms of ratings, as we've seen from recent successes like Holmes Makes it Right, and most recently, in the fourth quarter, Vanilla Ice Goes Amish, a show I hope you've all seen. It's quite a good show actually, did phenomenally in the ratings. It was the highest-rated original show that DIY Network has ever put on. And so, really, we see that there is upside on those networks, but we have to be realistic about them in terms of the distribution. That does create something of a limit.

Operator

Next question comes from the line of Michael Morris with Guggenheim Securities.

Michael C. Morris - Guggenheim Securities, LLC, Research Division

Two topics. First, Ken, your comments about the passion of viewers for lifestyle brands being equivalent to sports. I thought that was interesting and the first time I heard it. Could you share a bit more of what you're seeing -- what the data showed on the sports side, as well as lifestyle? Like did -- are you talking about the beta test and the 20% number? And was that the same as what you saw for sports? I'd love just some more detail or color on that passion comment. And then, secondly, I'm interested if you'll speak at all about your decision to not make an investment in Chellomedia, given your international objectives and commitment to growing there. It seemed like maybe it was a good fit. Was it the assets? Was it price? Why did you pass on that?

Kenneth W. Lowe

Okay, I'll let Joe take the second question, Mike. On the first question, yes, let me be clear. No, the comment I made about the passion relative to our lifestyle content versus sports did not come out of the beta research. And if I misstated that, I apologize. That would have been incorrect. It's more our internal research, Mike. And in some ways, I mean, this is nothing new. We've seen this almost from day one, since we launched HGTV. The word that constantly, pretty much the female viewers have used is, "I'm addicted to your programming." And the parallel is very much like what you see in sports teams and personalities and really connecting to them, following them on social media. We see that with our personalities, but more importantly, I think we see it with the passion that people have for the category. For example, Burton alluded to earlier, you are very passionate about your home, you're passionate about your cooking, you're passionate about what you eat, how you eat it, and the same is true with travel. There's a real passion connection there, and that's why we have that really high engagement. That's why when you hear things like 94% of our viewing is live, that's how we liken it to sports viewing, because it is here and now that people want to see it as opposed to DVR and watch it later. So there's a lot of connectors there, and it serves us well. And it has certainly served us well in the advertising community where we're recognized for that passion and that engagement. So I hope that helps. I will say there are some females that don't necessarily like to be compared to males' passions when it comes to sports, when it comes to the home and food categories, but I'll leave that for another time. Joe, do you want to take the second part of that?

Joseph G. NeCastro

Sure. Mike, on Chello, I think it's hard to say there's exactly one reason or one specific reason. It's always the combination of factors. Clearly, we were not there on the value that it ultimately traded for. We could have been had the asset been stronger for us. And again, without making a comment as to whether or not the asset was great or not so great, it was a large collection of things, some of which were much more attractive than others. When you put it all together, we could not get to the value that they were looking for.

Operator

And the next question comes from the line of Jason Bazinet with Citi.

Jason B. Bazinet - Citigroup Inc, Research Division

I just had a question on the Travel Channel. I think it was a couple of years ago, you guys talked about maybe having shorter-term renewals on your affiliate deals for Travel with the hope of investing some money, getting new programming, having the ratings go up and then going back and renegotiating. Are you still pursuing that sort of short-term strategy with the hope of near-term lift? Because I think I heard you describe earlier in the call that you sort of see the Travel opportunity maybe as a bit longer in duration than, at least, I was thinking about a few years ago.

Joseph G. NeCastro

Yes, let me grab that. This is Joe. In fact, we did that. And if you looked at where our Travel aspirations were a year ago and where they are now, we ended up pushing out a lot of those as a part of other renewals that we had underway. So any time we were at the table with any of our distributors, that was obviously part of the conversation. We essentially pushed out those deadlines to give us a chance to make the programming investments and see ratings improvements.

Jason B. Bazinet - Citigroup Inc, Research Division

So everything is sort of coterminous now?

Joseph G. NeCastro

When you say it's all coterminous, but we did push them out a year or 2.

Operator

Our next question comes from the line of Laura Martin with Needham Capital.

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

Yes, a couple of things. One is -- one of the things we heard yesterday is that the market -- Les believes that the market is going to be at C7 this year and by this year's upfront. And, I guess, the question is if 94% of your viewing is live, what kind of lift do you guys get in the first 3 days? And does moving to C7 affect you much less than the rest of the -- your competitors?

Kenneth W. Lowe

Laura, it's Ken. I pretty much tend to agree with Les on C7 as far as timing. We'll see. I mean, there's still some things to work out there. But specifically, your question, obviously, with that much viewing done live, C7 probably won't give us as much lift as you're seeing kind of across all networks. But I would say this, I think over the longer term there could be some possibilities because what we're seeing -- and Burton and I were just talking about this before the call, and this is a general statement. On Sunday nights, there's so much viewing that we're seeing a heavy DVR usage. So I think it's good for the industry, by the way, that we're moving to C7 for sure. But short term, we don't see a huge lift for us, to be honest with you.

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

Okay, very helpful. And then on SVOD, one of the things that came out of the Time Warner -- the Time Warner guys said that they were going to do $350 million this year of SVOD at flat. And then the Les said his was higher, so I think his was about $500 million of SVOD, equally split between Netflix, Hulu and Amazon. And he is growing -- he's up a lot. And what's new about him is he's selling new content into that, so $50 million to Netflix, 4 seasons in Dexter. So we're adding to the library product. My question for you guys is when you think about your SVOD deals, can you size it for us and/or tell us what you think the upside is there? Or is this a case, again, where the live -- the nature of your programming is inherently different, so you guys can't quite benefit as much from SVOD upside, as some of these other deep library companies?

Joseph G. NeCastro

Laura, I love it when you answer your own questions? I do think we have taken a different move, a different view. As you know, we were slower to the market. We were sobered by some of the effect we had seen on ratings when some of the -- when some of our peers put what we thought was too much content up, too quickly. So we did start slowly. We did the Amazon deal this year. We're actively considering increasing the size of that deal, but again, with some discipline around it. We don't believe that we have exactly the kind of programming that works for -- as a hit on Netflix. We think it's good library content. It'll attract an audience. We're getting good traction, Amazon results, but you're not going to see us go all in with a Netflix deal.

Operator

Next, we go to the line of Ben Mogil with Stifel.

Benjamin E. Mogil - Stifel, Nicolaus & Co., Inc., Research Division

A couple of them have been asked already. So I just wanted to talk to you about the ad trends that you're seeing in the quarter. Are you seeing 4Q on the spot, sort of decelerate a little bit? And is there anything we should be reading into that one way or another?

Burton Jablin

Well, as Joe mentioned earlier, we're seeing fourth quarter scatter year-to-year comparisons up, mid single digits. Fourth quarter scatter compared to upfront, up midteens. That seems pretty healthy at this point.

Benjamin E. Mogil - Stifel, Nicolaus & Co., Inc., Research Division

Okay, and then sort of following on Laura's question with SVOD. I know in the beginning you were, obviously, sort of not hesitant, but in the beginning you sort of did a smaller deal just to get a better sense of how this thing kind of rolled off -- rolled out from the live side. With the live ratings as strong as they are, as you go forward do you feel that you can have an expanded SVOD platform and still keep those great live ratings?

Kenneth W. Lowe

Yes, I think it's a little early, Ben, for us. If you remember the last quarterly call, I commented about that we were pretty pleased with what we found out in the Amazon deal to this point. But again, to echo what Joe said, we are being cautious about it. But I think the general answer is yes. But we'd like to have a little more research and a little bit more experience under our belt.

Operator

Our next question comes from the line of Alan Gould with Evercore.

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

I just want to follow up on the scatter-versus-scatter. I noticed that the 4Q went to mid-single digits from the 3Q mid- to high-single digits. So just wondering if the deceleration is due to ratings? Is that you or is that whole industry? And then second question and more longer term is Food ratings. So Food ratings have been down for each month for about the last year or so. So I guess the good news is that comps were getting easier, but I was wondering, what's causing that and what gives us confidence that, that could -- we'll see a turn there?

Burton Jablin

On the first one, there was some softness last year in fourth quarter, so this does not seem to be a big surprise in what we're seeing in fourth quarter compared to third on scatter. In terms of Food Network, we've seen rating slumps before at all of our networks, and I would imagine, we're in good company with other peers out there in that regard. And so, really, it's a matter of programming through it. And as I look at what shows have come on to the third quarter that have been very successful, we named some of them earlier -- Rachael vs. Guy's: Kids Cook-Off, Cutthroat Kitchen, in particular, Great Food Truck Race -- and the ratings of those can draw. Those are certainly every bit as high as what we were seeing a year ago with hits on Food Network. Same is true for Guy's Grocery Games in the third quarter -- I'm sorry, the fourth quarter. And we just put on a new show called Restaurant Express this past Sunday, so we've got hopes for that one too. And there's more coming in the fourth quarter. There's been increased competition in the food space over the last year. We are adjusting to that, and it's all about programming our way out of it. And I'm confident we can do that.

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

Was there, typically, a lag from when these new shows come on until they build an audience, I would assume?

Burton Jablin

It depends, and that's a good question. With some shows, we need to be patient, allow it to find its audience. We're doing that with a few of them, but some of them do very well right a way. A couple of them that I named, Cutthroat Kitchen, Guy's Grocery Games, very strong right out of box. And so what we'll do there is, of course, get more of them on the air.

Operator

Now we go to the line of Barry Lucas with Gabelli & Company.

Barry L. Lucas - Gabelli & Company, Inc.

Not to beat the Food issue to death here, but you've got a sequential decline in revenues, and I'm just wondering how much of that was, again, related to the ratings softness? Or did, somehow, Food suffer disproportionately on the digital advertising side?

Burton Jablin

It didn't suffer disproportionately. That wasn't the issue. In terms of television ratings, we certainly need to see those grow. And as I just said in answer to the last question, I think we're on track to do that.

Barry L. Lucas - Gabelli & Company, Inc.

Okay. Second item, and our favorite topic is Tribune and the Food Network stake. They've got a lot stuff on their plate, potential separation of the newspaper business and a $3 billion acquisition. Wouldn't that argue for them to be a little bit more eager to come to the table, particularly with that the local TV deal?

Joseph G. NeCastro

Gary, this is Joe. I love that there's a new way to ask that question, every time. I would have to agree with the way you're thinking about it, but it's really too early to say that I've seen anything that would indicate that.

Barry L. Lucas - Gabelli & Company, Inc.

Okay. Let me put on my conspiracy theory hat and the ratings in Food -- and some people might, if they were cynical, say you're sandbagging the numbers.

Burton Jablin

Don't tell that to the programming and marketing teams there. They're in the battle every day to grow the ratings, and that's what they're there to do.

Joseph G. NeCastro

Let's be clear. We do everything we can to maximize the value of all of our networks. There are 69% of the owners of that network that we would rather have very happy than try and submarine the price on 31%.

Operator

Our next question comes from the line of Matthew Harrigan with Wunderlich Securities.

Matthew J. Harrigan - Wunderlich Securities Inc., Research Division

The other thing that's interesting in the measurability is your demographics, obviously, and the deal that you're doing with Rentrak on the granularity and the set-top box data. And I know you're about as sophisticated as anybody on the advertising intermesh on the demographics in the homes, but can you talk about the upside there and what you might be using that data for?

Burton Jablin

Well, part of it is to try to look at demographics as it relates to purchasing. If you can make those links, obviously, that's kind of a Holy Grail in terms of unlocking even greater value from the wonderful audience that we already have. I think it's just part of an effort to get more and more data which, as we all know in this world, is critical to making sure that you can get the greatest value out of your audiences.

Operator

Now we go to the line of Tuna Amobi with S&P Capital IQ.

Tuna N. Amobi - S&P Capital IQ Equity Research

First question, so Ken, I think you guys have this very interesting, what I might call, self-supporting syndication model, in that you are able to effectively monetize a lot of these shows as opposed to kind of licensing them out, much like your peers. So I guess, I'm trying to understand how you make those kinds of trade-off decisions as you go through these renewals, and where you see those kinds of -- for lack of a better word, monetization gap, between third-party license and self-syndicated shows, where you see the biggest opportunity in terms of which networks or even which shows? That would be helpful and if you can enlighten me on the thought process for that.

Kenneth W. Lowe

Well, I think, Tuna, if you go back to how these networks were put together, that was the idea from the get go and that is a 24/7 brand. And I think, quite honestly, that's why we have the high amount of live viewing that we do, because people tend to turn these networks on and leave them on, especially if you're into the category. So we've never really looked at the syndication model per se, like broadcast does where first run might be on network, and second could be on a cable network. And now that model, if you go back to Laura's question, I think is evolving and changing as well through SVOD. But for us, it really is about monetization because, to your point -- and this also goes back to the earlier question. Our ability to monetize on the advertising side with the audience we target and the demographics and psychographics we deliver, really give us more value on our own than we can get in the syndication market, assuming there would be much of a market for that type of programming. So yes, you're right. We are our own self-syndicators. It works very well. I don't see that radically changing. It's more about downloading video, in particular, projects, particular types of cooking, things like that, that we see in the digital world is where there could be some incremental revenue. Does that help answer your question? I guess it did.

Operator

At this time, there are no further questions in queue. Ladies and gentlemen, this conference will be available for replay after today -- after 12:15 p.m. today. You may access the AT&T teleconference replay system at anytime by dialing 1 (800) 475-6701 and entering the access code 305254. International participants dial (320) 365-3844. That does conclude your conference for today. Thank you for your participation and for using AT&T Executive TeleConference. You may now disconnect.

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