Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Scripps Networks Interactive (NYSE:SNI)

Q2 2010 Earnings Call

August 9, 2010 10:00 am ET

Executives

Mark Kroeger - SVP, IR

Ken Lowe - Chairman, President and CEO

Joe NeCastro - CFO

John Lansing - President, Scripps Networks Operating Division

Lori Hickok - EVP Finance

Analysts

Alexia Quadrani - JPMorgan

Eric Handler - MKM Partners

Anthony DiClemente - Barclays Capital

Tom Eagan - Collins Stewart

Brian Karimzad - Goldman Sachs

Doug Mitchelson - Deutsche Bank

Matthew Harrigan - Wunderlich Securities

Barry Lucas - Gabelli & Company

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the second quarter earnings report. (Operator Instructions) I would now like to turn the conference over to our host, Mr. Mark Kroeger, Senior Vice President of Investor Relations.

Mark Kroeger

Thank you, Kay, and good morning all, and thanks for joining us. We'll start the conference call today with comments from Ken Lowe, our Chairman, President and CEO; and Joe NeCastro, our Chief Financial Officer. Our prepared remarks should take about 15 or so minutes, then we'll open it up for questions. Also on the call are John Lansing, 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 Investor Relations and find the microphone icon on the landing page. An audio archive of today's conference call will be available on the website later today, and we'll leave it there for a couple of weeks, so you can access it at your convenience.

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.

With that, I'll turn it over to Ken.

Ken Lowe

Thank you, Mark and good morning everyone. Thank you for joining. Ass always, we truly appreciate your interest in Scripps Networks Interactive. The second quarter and first half of the year were outstanding for the company and its shareholders by just about every measure.

Here are the headlines: Industry-leading ad revenue growth; exceptionally strong growth in affiliate fee revenues; solid viewership at all our networks, including the new Cooking Channel, and very encouraging performance at Travel Channel, which is now pretty much integrated, and I'm happy to report, exceeding our expectations.

All these factors contributed to the positive operating results that we reported this morning. We're right on track for an excellent 2010, and prospects for 2011 are looking very good as well. With the tremendous popularity of the Food Network, steady viewership at HGTV and growing appeal of the Travel Channel, we've been able to take full advantage of the current ad recovery.

The strength of the current scatter marketplace drove ad sales higher during the quarter and contributed to the decisive success that we had in this year's upfront. We finished the upfront at or near the top of cable and pricing, and we grew total volume sold well beyond last year's level. Provided the economy holds, the strong upfront bodes well for ad sales in the coming year.

As for our affiliate fee revenues, the strong growth in the second quarter and first half of the year is directly attributable to the improved carriage agreements that we negotiated for Food Network and HGTV at the end of 2009. Our new distribution contracts reflect the value that we've created at our networks, and importantly, layer in a dependable source of revenue growth for years to come. So all-in-all, very positive operating results for the second quarter and first half.

There were other highlights during the quarter as well, not the least of which was the large and initial success of the Cooking Channel. Our newest brand really surged out of the box with its debut, Memorial Day weekend, and has continued to gain momentum, both in terms of viewership and it's acceptance as a valuable advertising platform.

Compared with Fine Living, Cooking Channel viewership among adults 25-54 is up anywhere from 30% to 100% depending on the day-part. Cooking resonated with our advertisers from the day we started selling it. And as for programming, well, we've succeeded in differentiating the Cooking Channel from its sister network by filling out the schedule with a healthy mix of new and archive shows. And we're featuring fresh new talent and we're giving the network a unique look and feel. I hope you've had a chance to see it.

We've also succeeded in converting all of Fine Living's 58 million households to the Cooking Channel brand, which makes Cooking, the most widely distributed launch of a new network in the history of cable and satellite television. No small accomplishment there I should say. And we're very encouraged by Cooking Channel's performance in the early going, especially considering the modest investment we made to bring this brand quickly to market.

Now the news is equally as good at the Travel Channel. For the most part, the network has been fully integrated, which puts us in an excellent position to market the brand in the upfront. We quickly and successfully expanded Travel's advertising base by really putting together a top notch ad sales team by leveraging our relationships and actively cross-promoting the brand across all of our networks. Now that's resulted in a higher percentage of top tier advertisers in a broader range of categories. So our success is evident both on screen and in our operating results.

On the programming front, viewership of Travel Channel grew solidly during the second quarter, thanks to the standouts like Man v. Food with Adam Richman, and Anthony Bourdain's, No Reservations. Speaking of Anthony, we have some very good news about him during the quarter. We signed a new talent agreement, which means you'll be seeing Anthony on the Travel Channel for some time to come. We think that's very good news for us, for Anthony, and certainly for his many, many fans. And there's more; Laureen Ong's been busy building her team and molding a programming and marketing strategy that's destined to transform the Travel Channel brand and build audiences. You'll start seeing some of their handiwork in the months to come, so stay tuned there.

Food Network meanwhile continue on a roll. Food now ranks consistently among the top-ten most watched networks in cable among adults 25-54. For example, during one week in June, Food Network made it into the top five on the strength of the season premiere of The Next Food Network Star. It was the highest rated premiere of a new series in the network's history, and it helped to successfully launch a couple of new shows like Cupcake Wars and (inaudible), both of which have been doing very, very well, making good on our promise to be a leading source of entertaining and informative content for food fanatics everywhere.

Food Network Cooking Channel, the Food Network Magazine and our growing portfolio of interactive businesses, give us a stable of desirable content platforms in the food category. Internationally, Food Network is proving to be a hit in the U.K. where we reach about 10 million viewers via Sky. And since its launch last November, Food Network has rapidly become a formidable competitor to food channels that have been established in the U.K. market for a number of years. We're really creating a whole new cadre of Food Network fans.

A word about the Food Network Magazine. Circulation has reached about 1.3 million. And perhaps more importantly, it's now profitable. Now that's a full two years ahead of when we expected it to be in the black. That's really a testament to the power of the Food Network brand and the intense consumer interest in food as a content category.

We have software partners at Hurst who have done a fantastic job of establishing Food Network Magazine as a new staple. At HGTV second quarter viewership among adults 25-54 moved up three notches in the ranking from 16th to 13th. The improvement came on the strength of Design Star which proved its worth once again by lifting overall viewership of the network and serving really as a great lead-in to new shows.

Color Splash: Miami, which we scheduled to follow Design Star on Sunday nights, has also done very well. Holmes on Homes, House Hunters and House Hunters International also continued to deliver solid audiences. Also in the home category, weekend ratings at DIY Network grew solidly during the second quarter, especially among men who tune in to watch shows like Cool Tools, Man Caves and Garage Mahal.

For DIY, weekends are prime time, and adult men 25-54 is the demographic advertiser's value during those day-parts. Online, our Lifestyle Media websites continue to be leaders in their respective content categories, aggregating large and growing communities of users. Our websites and growing list of interactive mobile applications deliver useful information and solution-based content that makes them desirable destinations.

At HGTV.com we've been focusing on creating innovative online tools and applications using designer portfolio and Rate My Space. As a result, we've seen substantial growth in some user metrics. For all our home category sites combined for example, page views in June were up 38% compared with the prior year.

In addition the free HGTV to-go application we created for the iPad and iPhone generated 14,000 downloads on each device in the first two weeks after it was launched in June. Our objective is to deliver our brand of lifestyle content via whatever interactive platform consumers choose.

And finally at Shopzilla our efforts to competitively reposition the business are really beginning to bear some fruit. The all-important metric of direct leads to merchants continue to grow during the second quarter, which tells us that we've made some progress differentiating the brand from other online comparison shopping businesses and improving the online shopping experience for consumers.

Put it all together, and you have a media company that's really hitting on all cylinders led by industry-leading ad and affiliate revenue growth, solid viewership at all our brands which actively engage upscale audiences in the lucrative home, food and travel content categories, our growing international presence, and positive signs that we're turning the corner at our online comparison shopping businesses.

Scripps Networks Interactive is well positioned for growth and is committed for continuing to create value for our shareholders.

With that, let me now turn it over to Joe.

Joe NeCastro

Thanks, Ken, and good morning everyone. I'm sure you've all seen the press release by now this morning, so I won't go over the second quarter results in detail. Instead, I'll hit on some of the highlights and provide a little more color on some of the dynamics that drove the quarter.

First, on advertising. The continuing recovery in advertising has had its obvious positive effect. The scatter marketplace continued to be very strong during the three-month period as it has been for most of the year so far. Scatter versus scatter pricing continues to be up in the mid to high teens over 2009, and scatter versus last year is up as much as 25% to 30%.

As I'm sure you know, the strength in scatter found its way into this year's upfront for both broadcast and cable. For Scripps Networks, that translated into solid growth in CPM pricing, and had 30% increase in volume compared to last year.

Given the strength of the market, we committed a bit more inventory than last year, which puts up upfront sell-out rate at just north of 50% across all our brands. We went into the upfront with lots of momentum including growth in viewership at all our networks, high expectations and considerable buzz around the launch of the Cooking Channel and a clear opportunity to expand the advertising base at the Travel Channel.

As far as we can determine, once all is said and done, we came out of the upfront at or near the top of our competitive set once again. As a result, the outlook for advertising for the balance of the year and for most of 2011 looks positive provided the economy continues to improve.

The only negative for advertising in the second quarter has since turned positive, the growth rate for digital advertising slowed to about 3%, which we take to be a continuing effect of the housing downturn on our home related websites. The good news is that we've seen a marked improvement in digital ad sales during the past six weeks.

Turning to our full year revenues, the exceptionally strong growth is largely a function of the new contract negotiated for Food Network and HGTV. Growth and distribution in all of our networks also contributed however. Remembering that our new contracts provided for a significant step up in rates in the first year for a significant portion of our distribution base, particularly for Food Network. Growth and affiliate revenues while meaningful for the balance of the contracts will moderate from current year's outsized increases starting in 2011.

One other highlight from the income statement worth noting is the strong improvement in equity earnings from affiliates. 43% growth rate reflects the improved advertising market in Canada and a growing contribution from Food Network Magazine, which as Ken noted as profitable ahead of schedule.

Excluding the impact of the Travel Channel acquisition, our consolidated margins expanded by about 170 basis points during the quarter. The margin improved despite our need to restore marketing budget this year to support all of brands. Our programming costs have also been higher due to some seasonally heavy write downs relative to last year. And accelerated amortization costs that were related to our Cooking Channel re-branding and launch.

We expect programming expenses to moderate for the balance of the year, now that the re-branding is complete. Programming costs are still expected to fall within the range we provided previously. Non-programming costs including the restoring marketing budgets were higher during the second quarter and first half of the year, but we expect those expenses to moderate during the back half as well. As a result, we now expect full-year non-programming costs to fall closer to the lower end of our guidance.

As for the Travel Channel integration, we're pretty much complete. Through the first half of the year, we've incurred about $24 million in one-time transition costs, mostly which were related to the termination of operating agreements that the network had with Discovery.

We still have a little more work to do, so some additional transition costs will fall in the back half of the year. We still expect the one-time integration cost to finish the year to the lower end of our $30 million to $40 million guidance range.

The good news is that Travel Channel's results year-to-date are exceeding our expectations and the acquisition will be decidedly accretive this year; both the segment profit and earning per share.

Finally, as we noted in the press release, our net income of $0.63 included a tax benefit in discontinued operations and the one-time transition cost for Travel. Our adjusted net-income was $0.59 per share after backing on both of those items.

Our balance sheet continues to be strong, we finished the quarter with $331 million in cash and the $844 million in long term debt we incurred last year to complete the acquisition of our controlling interest in the travel channel; that debt has a five year term so we won't have any obligations other than interest payments for the next four plus year.

In the near term, we will be using our cash for the continued development of our network brands and related businesses and to support our international expansion efforts. Our preference is to create value for shareholders by strengthening our competitive position as a leader in lifestyle programming and content.

With that operator, we're ready to take any questions.

Question-and-Answer Session

Operator

(Operator Instructions) And we do have a question from the line of Alexia Quadrani with JPMorgan.

Alexia Quadrani - JPMorgan

On the detail you gave on the scatter market, I assume that was for the second quarter. Could you tell us how it's trending so far in Q3?

John Lansing

The marketplace for the third quarter is really looking very similar to what we have seen in the first and the second quarters. We are continuing to see strength and demand that was fanning a very strong upfront marketplace. And so, we're continuing to see rates, CPM growth in the mid-teens, scatter versus scatter.

Alexia Quadrani - JPMorgan

Any color you can give us on the verticals in that market?

John Lansing

Yes, I can just tell you, it's really the same story probably from the last conference call. The top six categories, they had for categories for us. Number one, Food; second, CPG; third, Retail; fourth, Home Improvement followed by Automotive and Financial.

Alexia Quadrani - JPMorgan

And just on the Travel Channel, sounds like you guys are making some great inroads there. I know one of the big differentiators of Travel versus your Legacy Networks, did they have a lot more direct response advertising. Could you give us an update, I know it hasn't been a very long period of time yet, but how that is trending versus how it has historically and where do you think the percentage of direct response advertising can get to maybe by yearend?

John Lansing

Sure. When we took over selling the network, the direct response represented upwards of 30% of the inventories sold. And of course, for our big networks, that percentage tends to range between 5% and 8%. Our ad sales team has done a fantastic job replacing a great deal of that (ER) with the spot business. And as a result, we're seeing excellent growth on the ad side for Travel.

Probably the best indicator, Alexia, is the upfront negotiations for Travel where our team succeeded in adding 30 new advertisers to the network from the year before and increased the volume in the upfront up to 60% over the last year.

Alexia Quadrani - JPMorgan

And then just one last question on the affiliate revenues. Joe, I think you mentioned the growth obviously will moderate near two after the initial step-up, particularly a third, could you just give us some color or range of where you think that growth should be, is it high single digit, low double digit in terms of where it will moderate to next year?

Joe NeCastro

It's probably too early to give that kind of guidance on the out-years. I think what we'll try to do is, at the end of the year, when we set our guidance ranges for next year, we'll give you some flavor. But I think it's fair to say, it's not going to be just a CPI, it'll be a little bit more favorable than that.

Operator

The next question comes from the line of Eric Handler, MKM Partners.

Eric Handler - MKM Partners

I think I might have missed this, but on HGTV, the ad revenues stream really decelerated quite a bit quarter-over-quarter. Can you give a reason for that? And then secondly, in terms of international business, what's the appetite now for deals among some of the partners that you've been talking with?

John Lansing

We're seeing HGTV holding up at a mid-singles in terms of ad growth year-over-year. I think that's really holding steady with where we began the year and we expect it probably will finish up about there fairly steadily.

Joe NeCastro

On international, it's fair to say that we've been really gratified with how much interest there is in our categories and our content and our brand. Once we announced that we were not going to go any further with NDTV in India, I think within the next week we received probably a dozen calls from potential partners there. And we have since spent some time on the ground there. And we're trying to narrow the field down and select the best one. That's obviously just one market, but a very important one for us.

The content continues to do well in Europe as we continue to expand our footprint there. So we don't see any kind of dampening for demand for your businesses or content or brands.

Operator

Question comes from the line of Anthony DiClemente, Barclays Capital.

Anthony DiClemente - Barclays Capital

I have two questions. One question is, I know that this may be a long way off, but I know you have another 25% of your Food Network distribution that expires at the end of next year. Correct me if I am mistaken on that. I just wonder if your inactive talks to possibly renew that contract any earlier than the end of next year. Just given that you've locked in so much of the other portion distribution, and then the other part of that question would be if you were to lock it in earlier or if you were to wait till the end of next year, would the terms look a lot like the terms that you've already agreed upon with the other distributors?

John Lansing

You are correct. We have 25% of the distribution up for negotiation at the end of 2011. It is a bit early and of course we would be pleased in order to get it done early and we would look for every opportunity to do that and we will continue so. But at this point, we have not had a chance or an opportunity to negotiate that any earlier. The terms however, that we'll negotiate will look very much like, if not exactly alike in terms of the economic terms of our other deals, because we'll be negotiating these very same rate card that was negotiated for the other 75% of the distribution at the end of 2009.

Anthony DiClemente - Barclays Capital

I just thought may be if you could update us on the Food Network minority stake and any possibilities, how we should think about the possibilities that you could buy that stake in at any point if there are any updates in terms of your conversations or thoughts on that possibility?

Joe NeCastro

This probably marks the 30th consecutive quarter we've talked about the potential for buying anything. But you probably all saw the news with respect to the bankruptcy proceeding. And the fact that another hearing, which was set for late this month has been postponed until early or mid October. We are very patient obviously, but I would say if I were thinking about this, obviously nothing will happen this year. And I think the first time we would every really be having a meaningful dialogue about it will probably be mid next year. So we continue to be interested at a fair price we would love to do it. We are engaged with the Tribune Company over other issues on a daily basis. We have quarterly calls with them. They know we're interested, I think their attention is on, and I think rightly so exiting from bankruptcy as soon as they can.

Anthony DiClemente - Barclays Capital

So if nothing will happen this year, I guess it begs the question of what else could you possibly do is with your cash in the balance sheet presuming that you had in saving some ammunition for that possibility. I mean is there any chance in lieu of that that you guys might consider returning capital to shareholders, or is it a situation where you'd just like to maintain as much flexibility as possible in case this comes up?

Ken Lowe

I think we're going to try and walk a little bit of a (payroll) between us. As we have said repeatedly, we like the flexibility that a strong balance gives us. So we're not likely to drain all of our flexibility in an attempt to cash to shareholders. That said, we understand that we're not in business to hold on to cash, and we won't. The debt that we have cannot be repaid just by its very terms. So it's not like we're going to service that debt or payroll back.

So all I can all tell you is that it's actively considered by the Board. We look very closely at our projections for how much cash we're going to earn by yearend and by over the next year. And it's under active consideration, but there have been no decisions yet.

Operator

Our next question comes from the line of Tom Eagan, Collins Stewart.

Tom Eagan - Collins Stewart

I guess looking back at your recent affiliate renewal negotiations, what is that you hear, if anything, from the operators about they're being so much constrained by having to pay retrans fees to all of the broadcasters?

John Lansing

Of course, the issue is (re-up) for the distributors in terms of extra demands for cash from broadcasters. But for us, the arguments are very simple on in that it's just a quotient of the audience that we deliver compared with the percentage of the revenue pie that we take out. And even though we were successful in drastically improving our position, it's still fair to say that our bigger networks could still have room for further growth in the future based on the audience that we deliver on a nightly basis. And that will continue to be the case.

I think any network that is not necessary delivering the audience or the high-quality audience as we are may face greater pressure because of the demands coming from the retrans side of the pie. But as long as HGTV and Food Network, Travel, DIY, Cooking Channel and GAC are delivering the audience they're delivering, I think we stand in good stead to continue to our grow our share of the pie.

Tom Eagan - Collins Stewart

And you mentioned that you had a sizeable step-up this year with it moderating sequentially after that. Was that more your idea or their idea or what made you come to that kind of process?

Ken Lowe

Well, the step-up that we had was obviously very big. And so in terms of moderating thereafter, anything below that would be moderating. So it really was just an agreement in the various negotiations as to the length of the term and how long the various contracts may last. But you almost have to moderate the term 'moderate' because of the high degree the step-up was in the first year.

Tom Eagan - Collins Stewart

And then just lastly, is any other assets on the balance sheet from the Fine Living program?

Lori Hickok

No. Basically we have some assets, but we've basically transferred what we could use to the program, and that's the part of what you saw with some of the seasonal write-off we discussed.

Operator

Next question comes from the line of Brian Karimzad, Goldman Sachs.

Brian Karimzad - Goldman Sachs

Just to get back to HGTV for a second, the reported revenue growth there was 12% in the first quarter and it's decel to 6% that was just quite out earlier. If the advertising revenue growth was consistent in both quarters, can you give us some color then on what decelerated and whether any one-time maybe affiliate revenue benefits there in the first quarter? Do you feel that would be helpful?

Ken Lowe

The difference in the second quarter was we had some rating softness in April and May that resulted in some advertising liability that we're now recovering after a positive recovery in June and into July we're seeing with the introduction of Design Star and new programming this summer. So we're back on a stronger footing in terms of ratings than we were in the early part of the second quarter.

Brian Karimzad - Goldman Sachs

And then on the talent side, I know you renewed with Anthony Bourdain of Travel. Paula Deen, I think her contract was up at the end of May, and my sense is that it wasn't renewed with the Network. I know she is one of many spices that make up the rub of the Food Network flavor there. But if you can give us a sense of how you're managing risk with the talent and your general approach there?

Ken Lowe

Yes, not to comment specifically on the Paula Deen negotiation. It's still an open question in fact. But what Brooke Johnson and her team at Food Network do so well is they bring in new talent, develop new talent actually even to the Next Food Network Star which literally creates stars for the networks, including one of the network's biggest stars today, Guy Fieri, which was the winner of that contest. And they manage the talent development really well.

And as they grow in popularity and other bigger opportunities come along, we work with them as best we can to make sure that we can both prosper. And we've seen that with Rachel Ray. We've seen that with Guy Fieri. We've seen that with Paula Deen. And we'll continue to see that. And so our strategy is to make the Food Network a great place to develop talent and a great place for successful talent to want to stay for as long as it's good for both the parties.

Brian Karimzad - Goldman Sachs

On the seasonal program write-down, was there any disproportionate amount in HGTV? I know you had a number of new series launches. It doesn't sound like the commentary on how those have gone as robust as what food or it just hasn't rolled out yet?

Joe NeCastro

I think the color there is that we will review programming as it makes sense. Typically we'll do it at the end of the year. But as we go along, sometimes we'll find that certain things aren't working and don't have the life we thought. You're right in your suspicions that it was heavy with HGTV, and the correlation with that and the ratings office that John talked about is not an accident. So that's really the nut of the story.

Operator

The next question comes from the line of Doug Mitchelson, Deutsche Bank.

Doug Mitchelson - Deutsche Bank

On the HGTV comments, not to get too much of relief here, but you said mid-single digits in 2Q and continuing here, that was a cash advertising? It's just so that makers are seeing their reported numbers. Is that what you're trying to imply with the made goods being earned back?

Ken Lowe

Yes, that's exactly what we meant.

Doug Mitchelson - Deutsche Bank

I know your upfront was strong enough that its success was evident and you talked about that. I was still hoping you could broaden the discussion a bit more there. Did you change the mix of advertisers at all this year? Was it broad-based strength in all categories, including all improvement? Were you able to move any new advertisers in? I guess I'm thinking of the core networks since you've already discussed Travel.

Ken Lowe

Sure. Well, re-branding of Fine Living to Cooking Channel was a great opportunity in the upfront to bring in some significant new dollars. In fact, our sales teams were successful in bringing nine advertisers in at $1 million or more for the new network Cooking Channel, and that was only 30 days after its launch. So that was part of the success story. And the volume growth on Cooking in the upfront over Fine Living is nearly 90%.

Of course, Travel Channel I discussed earlier, but it allowed us to bring in a number of really solid advertisers that otherwise were not representing on Travel Channel. The CPG category particularly was under-represented on Travel Channel. And we were able to bring a significant amount of that to bear.

And then the strength overall of DIY and HGTV in the home category, we perceive to be a slowly improving home category overall, albeit somewhat bumpy is, we still see the major advertisers betting on the future there again, and we're benefiting from that as well. So all-in-all, our growth, I think Joe mentioned in his commentary, in volume in this year's upfront was 30%. The cable marketplace overall grew 18%.

And we were able to create that volume growth, almost entirely new business, new advertisers and rating points. We took a very slightly bit more of inventory into the marketplace of 2% to 3%, but mostly the volume growth is tied to ratings and the expansion of advertisers into some of our newer products like Travel and Cooking.

Doug Mitchelson - Deutsche Bank

And then lastly, I'm not sure how easy this is going to be to answer, but Ken, you mentioned your team plans to transform the Travel brand. That's a pretty strong statement. Any color you want to give us there? Is there a big hole in lifestyle entertainment programming where you can reposition the brand? What transformation are you suggesting?

Ken Lowe

I think it's really out of our playbook relative to what we'd done in the past with our other cable networks, more importantly HGTV and Food. And I don't think 'transform' is too big a word. I mean if you look back at when we acquired the Food Network for example, there was really a transformation there in not only expanding the number of personalities which John just eluded to, it very much has become a personality-driven network, but building around those personalities to launch other shows.

So, really encouraged in these early days with Laureen Ong and her team and the opportunities we see. And quite frankly, they were some of the opportunities that we saw back when we went after the Travel Channel.

So as we say in the business, stayed tuned, I think you'll be delightfully surprised at what that network is going to be looking like in the coming days. And by the way, it's not belittling in any way shape or form the success that they're already having with quite a few shows and personalities. But we're very excited about that one, Doug.

Operator

The next question comes from the line of Matthew Harrigan, Wunderlich Securities.

Matthew Harrigan - Wunderlich Securities

Two questions here. First of all, you had a whole algorithm for advertising. It's probably going to change over the few years either from the broadband, linear TV integration. Can you talk about your approach there, and what would make you feel that you would be a relative, you know, where?

And then secondly, particularly with respect to Travel, can you talk about over-indexing that you're seeing on the HDTV side, because I think you've mentioned that before, it's something that's a perspective boon for Travel in particular on a relative basis?

John Lansing

Sure, Matthew, happy to do that. Let's start with the advertising question. Great question, and which we think about a lot here. Of course, when you think about our digital assets, HGTV.com, foodnetwork.com, those are two of the leading websites in the world in the home and food categories.

And our approach, in advertising in upwards of 20% to 30% of our business is a complete full circle of linear transforming to non-linear digital advertising that completes the circle, completes the loop if you will for the advertiser to bring an audience from the point of inspiration on TV to the point of action online or to take action online, including in some cases, right down to the transaction in terms of the marketplace section of HGTV.com.

But it's an evolving puzzle, it gets more interesting everyday. We're introducing some interesting iPad and iPhone apps, and will be in the fall be introducing a paid subscription app for iPad through network, and experimenting and driving revenue through the subscription side of the business as well.

But we think we have a distinctive advantage with these categories. The way we think about it is that the degree to which we focus and focus on our consumers within these categories and understand where our consumers are headed and how they're using various devices and how they're using our information for the betterment in the home and food categories, then we can stay a step ahead of them by focusing intently on consumer behavior within our categories. To us, that's actually our core competency as a business, and we pay a lot of attention to it.

In terms of Travel over-indexing on high-def, it's something that we came to understand after acquiring the network. I think obviously, it's such a well-produced network in so many ways, and the visual effects of series like No Reservations with Anthony Bourdain as an example I think just helps drive the HD usage. And we've seen an expansion of HD for us on DIRECTV recently to improve our overall percentage of HD as a result.

Operator

And the next question comes from the line of Barry Lucas, Gabelli & Company.

Barry Lucas - Gabelli & Company

Couple of real quick ones for John. John, maybe go to the extent you can and talk a little bit more about pricing, not just the upfront, but how did you position Travel since you added new advertisers you're cross-selling, and that seems to smack a little bit sometimes of discounting? So what's the philosophy or how do you approach trying to broaden the advertising base of Travel versus rest of the group?

John Lansing

Sure, Barry, happy to do that. And certainly not discounting at all, our goal with Travel is really three pronged, improve the ratings, improve the pricing and as a result drive the topline as best we can. The team at Travel is doing a very good job in the interim as they're developing their further programming strategy.

To Ken's point of driving rating today, we saw 26% growth in primetime 25, 54 adult impressions coming out of July. So it's one of the fastest growing networks today based on our ability to cross-promote the network and Laureen Ong and her team driving success there everyday.

And then our ad sales team is doing what they do with HGTV and Food and we're selling something beyond just the access to commercial pods. But rather we're selling a relationship with the category. Similarly, we do that with Food and HGTV and our ad sales teams are developing specific advertising products that fit well in the Travel category that are attractive to the vertical advertises that we have the reputation for really delivering for them.

And then Travel also is working on developing its website so that we can complete that 360 experience as we do in the Home and Food category to really help support our CPMs. And create, in essence, at the end of the day create a much more highly qualified audience, more up scale, younger and more intentional about buying products within the network itself.

Barry Lucas - Gabelli & Company

One more if I may for Joe. Given the experience in history with the Indian market, what gives you any degree of confidence that you can bring something successfully to a conclusion there, Joe?

Joe NeCastro

We certainly learned a lot. We've been looking at that market for, I don't know the better part of two years while we tried to reach a deal that was acceptable with the folks there with our first party.

And I think we learned enough that we're much more realistic about the shape of the landscape, which by the way has evolved significantly during those two years, we do think that you can sort of see an inflection point there in terms of expansion of digital cable. And I think once that happens, then people who are on the ground they will benefit from sort of a rising tide. I think the most important thing for us to do is to get our programming there get the brand known there and get the distribution as soon as possible. With a good partner who brings some complementary skills to ours. So it's hard to say exactly what the item is, but it gives me great confidence.

But market dynamics there are very promising and I think the future is very bright and it's just some very large English-speaking market with a rising middle class that I think is going to have quite as appetite for Lifestyle Programming.

Operator

(Operator Instructions) There are no further questions in the queue at this time.

Mark Kroeger

Thank you. This is Mark. I'll be available for the rest of the day, thank you for joining us and I'll talk you later.

Operator

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T Executive Teleconference service. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Scripps Networks Interactive Q2 2010 Earnings Call Transcript
This Transcript
All Transcripts