Scripps Networks Interactive's CEO Discusses Q3 2011 Results - Earnings Call Transcript

Nov. 3.11 | About: Scripps Networks (SNI)

Scripps Networks Interactive (NYSE:SNI)

Q3 2011 Earnings Call

November 03, 2011 10:00 am ET

Executives

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

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

Lori A. Hickok - Executive Vice President of Finance

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

John Lansing - President of Scripps Networks LLC

Analysts

Barry L. Lucas - Gabelli & Company, Inc.

Tuna N. Amobi - S&P Equity Research

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

Benjamin Swinburne - Morgan Stanley, Research Division

Jessica Reif Cohen - BofA Merrill Lynch, Research Division

David Bank - RBC Capital Markets, LLC, Research Division

Brian Karimzad - Goldman Sachs Group Inc., Research Division

David Carl Joyce - Miller Tabak + Co., LLC, Research Division

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

John Janedis - UBS Investment Bank, Research Division

Marla S. Backer - Hudson Square Research, Inc.

Jason B. Bazinet - Citigroup Inc, Research Division

Eric O. Handler - MKM Partners LLC, Research Division

Thomas W. Eagan - Collins Stewart LLC, Research Division

Lance W. Vitanza - CRT Capital Group LLC, Research Division

Anthony J. DiClemente - Barclays Capital, Research Division

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

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

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Scripps Networks Interactive Third Quarter Earnings Report. [Operator Instructions] As a reminder, today's call is being recorded. Now that being said, I'll turn the conference now to the Senior Vice President, Investor Relations, Mr. Mark Kroeger. Please go ahead, sir.

Mark W. Kroeger

Thank you, John. And good morning, all, and thanks for joining us. We'll start the conference call today with comments from Ken Lowe, our Chairman and President and CEO; and Joe NeCastro, Chief Financial and Administrative Officer. Our prepared remarks should take about 15 minutes, then we'll open it up for questions. Also on the call is 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. Additionally, on the page under the microphone icon, you will find our third quarter earnings presentation materials that we’ll be referring to 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.

Our discussion this morning will contain certain forward-looking statements. Actual results may differ from those predicted, and some of the factors that may cause results to differ are set forth in our publicly filed documents, including our Form 10-K.

And with that, I'll turn it over to Ken.

Kenneth W. Lowe

All right, Mark. Thank you very much. Good morning to everyone. As always, we appreciate your interest in SNI. Scripps Networks Interactive had a very productive third quarter. And as we indicated during our Analyst Day event in New York a couple of weeks ago, we're right on track to finish another very solid year of growth just as we anticipated.

The company's ongoing success is directly attributable to the strong connections that we're making with media consumers. Our brand of lifestyle content delivered a highly engaged fans via an ever-expanding array of media platforms that delivers tremendous value for advertisers and our distribution partners as well. By focusing undeterred on the home, food and travel content categories, we are clearly differentiating Scripps Networks Interactive from the competition.

Our television networks and interactive content businesses are effective marketing platforms, because they aggregate uniquely targeted and valuable audiences. Nowhere is that more evident than at HGTV, one of our flagships, and the network, really, where it all started for us 17 years ago.

HGTV ranks as the #1 destination for upscale women. Let me repeat that. The #1 destination for upscale women, outpacing all other ad-supported pay-TV networks. That is a remarkable data point, and one of the many reasons why HGTV is a must-buy for an impressive list of national advertisers.

The story is pretty much the same, if not stronger, over at Food Network. There should be no doubt that Food Network is in command of the content genre in its status as a top 10 paid TV brand. It's white-hot. The third quarter, this year and last tie as the most watched quarters in the network's history. Food aggregated its largest September primetime audience ever this year. And we just finished our best October ever, including a record-breaking premiere last Sunday night of Next Iron Chef. The show ranked #2 in its time slot on ad-supported cable networks. Again, remarkable data points for any network. Let alone one that's focused on a tightly defined but extremely lucrative content category.

Great programming franchises like Chopped, The Great Food Truck Race, Restaurant: Impossible and Diners, Drive-ins and Dives are really proving their worth for us. The results? Well, they speak for themselves. Consumer interest in food as a television genre is as strong as ever, and Food Network's claim as its undisputed champion is truly unchallenged.

In fact, Food Network is proving to be a valuable calling card across the globe. Wherever we introduce the brand, be it in the United Kingdom, South Africa or Asia, the response from media consumers has been swift and sure. It's no anomaly that Food Network rapidly rises to the top as a leading lifestyle network in new international markets. A stellar reputation, the quality of the programming and our brand-building expertise are proving to be the forces to be reckoned with. In fact, we expect to lend some of that expertise to the new UKTV partnership that we've entered into with BBC Worldwide.

We're also concentrating on the promise of Travel Channel. We're deep into the creative process of uniquely defining travel as a content genre, much the same as we've done in the home and food categories. And we have a great brand and foundation on which to build. Some of television's most recognizable personalities and programming franchises can be found on Travel Channel. Anthony Bourdain, Andrew Zimmern, Adam Richman and the Ghost Adventures ensemble, all are mainstays that have sustained the momentum.

But we're raising the bar in 2012 with more than a dozen successful series returning to the schedule and a promising slate of new shows with titles like Hotel: Impossible and Vacation Crashers. That's right. We're drawing from the success that we created with our Crasher franchise on HGTV in the DIY Network, and Food is very popular at Restaurant: Impossible theme, and we're applying those concepts to Travel. We know it will work. Our creative thinking caps are on, and we have high expectations for Travel Channel's future as a leading multi-platform lifestyle brand.

Our aspirations, though, are really not limited to our 3 fully distributed television networks. Cooking Channel and DIY Network are entrenched and growing as valuable flanker brands in the food at home categories, commanding attractive advertising CPMs, thanks to the engaged premium-tier audiences that we're aggregating. Our home and food category websites are building on the lead that they've established in their respective content categories, each generating millions of page views and unique visitors a month that we are effectively monetizing, I might add.

Now the profile for both the HGTV and Food Network brands is rapidly expanding through literally millions of consumer touch points that we've created with retailers, manufacturers and other business partners, who are anxious to leverage the power of our brands.

Now just a couple of highlights from the third quarter include the very promising launch of HGTV magazine with our partner, Hearst, and the debut of 4 Food Network branded wines. We called the brand Entwine. And from day one, it ranked #45 out of 2,000 branded wine sales in the United States. Very impressive numbers. Expect more product -- branded product announcements in the months ahead.

So all in all, a lot of positive momentum at Scripps Networks Interactive. Just to recap, Food Network finished the third quarter on a very, very high note, and the positive audience trends have carried decisively over into the fourth quarter. HGTV ranks solidly at the top among upscale women as it's building rating momentum as well into the fourth quarter.

We're expanding the programming schedule and talent base at Travel Channel. We're launching and expanding exciting new branded products and services. We completed the UKTV transaction, taking a significant step forward in our international development efforts. And finally, we returned capital to our shareholders through the stock repurchase plan that we initiated, as promised.

So as always, we do appreciate your interest in the company. On behalf of the entire senior management team, let me assure you that we're committed to creating long-term value at Scripps Networks Interactive. With that, let me turn it over to Joe for the financial review. Joe?

Joseph G. NeCastro

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

Starting with our consolidated view. Total revenue was up 8% of solid online and on-air advertising growth, as well as improved affiliate fee revenues. Our small but growing international businesses also contributed, as did higher revenues from our branded product partnerships.

Total segment profit was relatively flat, reflecting the timing of our planned increases in programming and related marketing initiatives. As we made clear throughout the year, we fully expected segment profit growth for the third quarter to reflect the timing of those activities, and more on that later. That said, it's worth pointing out that total segment profit is up a very strong 18% year-to-date.

Turning back to the third quarter, net income from continuing operations attributable to SNI grew about 7% to $0.65 per share. Looking at the key revenue drivers for the quarter, we finished as expected, with advertising sales growing around 9% versus last year's blowout quarter.

Affiliate fee revenues were up about 6%, which is where we've been pacing all year long. Ad revenue from our websites was up a very healthy 15% for the period. Advertising revenue growth was very much in line with our expectations. Our networks benefited during the quarter from the strength of the ad marketplace. With scatter-versus-scatter pricing still up in the low- and mid-teens year-over-year and up high 20s over last year's broadcast upfront.

The healthy marketplace has continued in the fourth quarter, with scatter-versus-scatter pricing running up in the high single digits and scattered it to 2011 broadcast running up in the high teens.

Keep in mind that in a strong pricing environment, we tend to commit a higher percentage of our inventory in our 2 upfront marketplaces, as it's been the case now for 2 successful broadcast upfronts, including the most recent. We still leave ourselves ample inventory, though, to take advantage of premium scatter pricing, should it materialize, as it has throughout this year.

As for advertising categories, our top 3, food, consumer package goods and retail, have been consistently strong, as have auto and financial. As we've said on numerous occasions, we expect the advertising growth rate to accelerate in the fourth quarter, driven largely by the improved upfront pricing that's layered into that period.

Looking ahead to 2012, it's still a little too early to tell. What I can tell you, though, is that at this point in the process, it's looking like upfront cancellations are going to be at a minimum. Based on current trends, I'd have to say we're still quite optimistic and upbeat about advertising in 2012.

Turning to the distribution side of our business. Affiliate fee revenue grew about 6% in the third quarter. As a reminder, we expected affiliate fee growth to moderate at this level for the full year due to the timing of our renewals and the meaningful but more modest step-ups that are baked into our current agreements. We expect affiliate fee revenue to grow at an accelerated pace in 2012, when a significant portion of our distribution base moves to the higher market rate we've established for Food Network.

On the digital front, this important piece of our business is growing at a healthy double-digit rate. Advertising revenue from our network-branded websites and other interactive content businesses grew at a very solid 15% during the third quarter.

Our websites and mobile applications generated $25 million in revenue, driven by increased traffic and ad delivery during the 3-month period.

Now let's take a more detailed look at our primary operating segment, Lifestyle Media. As I mentioned earlier, our planned increases in programming amortization and marketing expense are reflected in the third quarter segment profit, which at $236 million is up slightly from the prior year period. Margins, while still quite strong, were down slightly to about 48% versus 50% last year.

The 24% increase in programming expense was the biggest contributor to the slight decrease in margins, as we continue to build on our competitive position in the marketplace. As you know, we generally intend to program opposite the broadcasters. That means we began airing a full slate of new shows and series across all our networks, starting late in the second quarter and continuing through the third. The increase in program amortization related to the show launches is reflected in our third quarter results, plus we wrote off the cost of some shows that weren't quite drawing the audiences we were expecting.

We have planned our program expenses being lumpy this year, with the biggest increase coming in the third quarter. Looking forward, we don't expect fourth quarter programming cost to grow at the same pace. We're still expecting growth in programming cost for the full year to be in the 6% to 9% range, which is consistent with our guidance all along.

Similarly, we expect marketing expenses to moderate significantly in the fourth quarter. The 25% increase in the third quarter was tied to our programming initiatives, plus timing played a key role. Some of the marketing and promotional spending we did in the fourth quarter 2010 moved to the third quarter of this year. Non-programming costs are on track to be flat to down 2% for the full year, as we've guided. So in sum, we expect margins to return to the higher level in the fourth quarter and for the full year.

Moving on to our International businesses. Closing the UKTV transaction was the biggest news for the quarter. Ken, John and I recently attended our first meeting as members of the UKTV board and are actively engaging with our new partners at BBC Worldwide.

Our initial conversations have confirmed that there's plenty of opportunity, especially in the lifestyle content area, to add value to the partnership. UKTV is a solid business with lots of upside, and we're looking forward to a long and beneficial relationship with our new partners.

Meanwhile, our other U.K. venture, Food Network U.K., continues to deliver strong results and is consistently ranking as the second-most popular lifestyle channel in the market, just behind UKTV's Home Network. Food Network U.K. has consistently outpaced its primary competition, 11 out of the past 12 weeks, in terms of total day ratings. The primary competition, incidentally, is the Good Food Channel, another UKTV brand.

During the quarter, we launched our first series produced for the U.K., Andy Bates' Street Feasts. It's already been a consistent top 4 or 5 show on the channel. We've also just launched our second series, Spice King of India, which was the sixth-highest-rated show the day it premiered.

We've also been active in other parts of the world. In September, we launched Food Network in Ireland, and at the beginning of October, we launched in Portugal. Plus Food Network South Africa continues to perform well, ranking as the #2 lifestyle channel, which is pretty remarkable when you consider we've only been up and running for 9 months. Finally, we're preparing to launch Food Network Asia and Indonesia, that takes Food Network to 5 countries in Asia in just about a year's time.

Now switching channels, looking at our EPS analysis, the $0.65 per share from continuing operations that we reported is up about 7% from last year. Our third quarter results included some favorable tax adjustments that possibly affected EPS by $0.09 a share. And related to the UKTV transaction, we recognize the loss of about $25 million or about $0.10 per share, resulting from the settlement of foreign currency forward contracts. We executed these contracts in order to hedge our exposure between signing and closing the UKTV deal, but the rate went against us just as we closed transaction on September 30 when we settled the contract.

Last year's third quarter also included a tax adjustment and some Travel Channel transition costs. Excluding all these items, our third quarter 2011 income from continuing operations would have been $0.66 per share compared with $0.59 per share for 2010.

Turning now to the balance sheet, let me add a few comments about our current cash position. During the third quarter, we repurchased 2.4 million shares for about $100 million. There's $600 million remaining under the current authorization, and we expect to be active in the market during the fourth quarter. As I previously stated, we completed the UKTV transaction, which included buying Virgin Media's 50% equity interest in the partnership for GBP 239 million and acquiring the outstanding preferred stock and debt of the partnership for another GBP 100 million. The net impact of these 2 items was to reduce our cash balance by $428 million and to increase our short-term debt by $100 million.

We also have a note receivable in the amount of $134 million, which represents the debt due from UKTV. During the third quarter, we generated $180 million in cash from continuing operating activities, and we ended the quarter with $315 million in cash.

And finally, as noted in our press release, we are reiterating our previously provided 2011 guidance, except for the tax rate. We're updating our full year effective tax rate guidance down to a range of 27% to 29% to reflect tax adjustments in discrete items. As is our custom, we will provide 2012 guidance for the fourth quarter 2011 earnings call in early February.

Operator, that's it for our prepared remarks. Thanks for your attention, everyone, and we're willing to take questions.

Question-and-Answer Session

Operator

[Operator Instructions] And first, we'll go to the line of Anthony DiClemente with Barclays Capital.

Anthony J. DiClemente - Barclays Capital, Research Division

I just wanted to ask about the UKTV deal, just for the model. Joe, can you just give us any -- these FX contracts, and I just want to get an idea of model impact for the fourth quarter and 2012, and then I have a follow-up.

Joseph G. NeCastro

Yes. Anthony, those contracts were just related to the transaction itself. We were trying to hedge our cash outlay for the period between signing and closing, given all the volatility. Those have been settled, and there's nothing going forward to worry about.

Anthony J. DiClemente - Barclays Capital, Research Division

Okay. And then I also noticed that you raised about $100 million of debt during the quarter, Joe. I'm just wondering if that was just taking advantage of the environment out there. And then I wanted to ask about your plans for capital and use of capital going forward, how you look at the balance sheet, is it potentially financed, that Tribune buy-in for international expansion, and any color on the buyback? Any additional color would be helpful.

Joseph G. NeCastro

Yes, sure, Anthony. Look, the sort of happy coincidence of the $100 million in debt in this environment was really just bad, based from the timing of the UKTV transaction. We are, as you might expect, looking at the market right now and thinking longer term. And certainly considering the items that you mentioned in your question there, as longer term uses of capital and given the environment, we'd love to take advantage of it. So without predicting what we might or might not do, we certainly are keenly aware of the opportunity out there for us. In terms of the buyback program, we will complete this program on a timely basis. And at that moment, we'll look -- again, look forward at our upcoming requirements and go back to the board with our proposal. We plan to be in the market actively over the next quarter or 2 with our current authorization.

Operator

We'll go to Jessica Reif-Cohen with Bank of America Merrill Lynch.

Jessica Reif Cohen - BofA Merrill Lynch, Research Division

I have 2 separate questions. Just going back to the advertising comments that you made, when are the cancellations of the options? When do they have to be exercised? You seemed confident that things would be pretty normal. I'm just wondering, have advertisers told you, or has anyone exercised?

John Lansing

This is John, Jessica. The number of options to be exercised is very, very minimal. In fact, it's really at a level that's normal. And so the way it works is they have a 60-day period to notify us, prior to the quarter, and that period is this week. It has just passed. And so we expect a minimal impact going into the first quarter.

Jessica Reif Cohen - BofA Merrill Lynch, Research Division

Okay. Great. And then a separate topic, completely separate. How much of a priority -- how much of a priority is it for you guys, to go out to make any SPOD deals in 2012?

John Lansing

Well, we're working with our affiliate partners right now and looking at SPOD deals that are tied into ongoing affiliate negotiations where we would derive value, if you will, through renewals of our current affiliate agreements. And so, to that extent and to the extent those are -- they can be monetized through those affiliate agreements, and we'll continue to talk our affiliate partners to do that.

Operator

And we'll go to Jon Janedis with UBS.

John Janedis - UBS Investment Bank, Research Division

Can you help us think about the reacceleration of the ad growth into the fourth quarter. I know you mentioned the stronger upfront, but the scatter-over-scatter commentary also suggests moderated pricing. And so I think maybe there is a bit of an offset there? And so, I'm just wondering what the implied 12% or so ad growth in 4Q, is that a 3- or 4-point improvement from the third quarter solely from ratings as Food, and maybe how does the softness to Travel and HGTV play into it?

John Lansing

Yes, John, I'll take that. So the upfront that was recently completed that led us into the fourth quarter, our group, our sales team once again was at the top of the market with CPM growth, very high singles. And so that's the #1 driver of our acceleration into the fourth quarter. Then on top of that, as you recall last time we were together on the phone on our last earnings call, Food Network was having some challenges in terms of ratings, and thankfully, August, September and now October have seen, as Ken noted earlier, a rapid improvement in Food Network ratings. And that has continued and will continue into the fourth quarter. So that will also be a driver. And then we're also seeing sequential improvement week-to-week with HGTV's ratings. And we've launched some marketing support and some new series premieres into October and November. And so I'm confident HGTV's ratings will also be a driver. And Travel as well. Travel had a challenging quarter. It was up against its best third quarter ever in 2010. So the comp was difficult. And interestingly, it was really one series on Travel that really had the greatest impact. And that series, unfortunately, had a more rapid decline than we anticipated. If you normalize the third quarter ratings for Travel and took the Man v. Food series out of both quarters, it's actually a flat quarter. And so with the new programming coming on Travel and the addition of actually a new vehicle for Anthony Bourdain as well with some marketing support, we also anticipate growth there as well. So it's a combination of the pricing improvement, the relatively strong marketplace and the improving environment of ratings.

John Janedis - UBS Investment Bank, Research Division

Okay. And then John, also, can you talk about your marketing and promotion then in more detail? I know you've called it out in the past, but with that increased run rate in program investment you guys have talked about, does the marketing expense also stay elevated relative to trend on an annual basis? And where are you spending the bulk of that money, is that in other competing cable networks or is it something else?

John Lansing

It's in on some cable networks and other as well, particularly in the home category, where we take advantage of digital opportunities, as well, to reach audiences. We had a run rate in the third quarter that was accelerated to support the program launches in the third and the fourth, and then it will normalize coming into the fourth quarter somewhat, and for the full year be slightly higher than it was a year ago. But the third quarter was the majority of the growth in marketing, and expenditures was during the third quarter. And I think that's part and parcel why we're seeing the comparative growth in Food and in HGTV, because it was invested both in Food and HGTV.

Operator

Our next question is from Bryan Karimzad with Goldman Sachs.

Brian Karimzad - Goldman Sachs Group Inc., Research Division

Just to follow up a bit on the HGTV side of things, and that's the one where you grew 4% this quarter. And theoretically, you need to get that up to double digits in the fourth quarter. One question on that is in the upfront, do you tend to sell some of these new series that are launching at a higher price than some of the stuff that it's replacing, and that mix is driving some of it? And maybe you can give us a sense of what kind of guarantees you gave on those versus what they were replacing. And then I have a follow-up for Joe.

Kenneth W. Lowe

Sure, Brian. When we go into the upfront or into any marketplace, we're selling impressions against time periods. It's rare that we would sell impressions against a specific series. Although the new series and the special events, such as Dream Home or Design Star, The Next Food Network Star, they certainly are the selling point that allows us to drive our CPMs higher and to operate at the top of the market. In terms of what those guarantees are, I really won't go into that, obviously. But as you look at the fourth quarter and think about HGTV, I have a great deal of confidence, going into November as we are, and into December, that we'll see the kind of success of -- a succession of growth week to week that we were able to do with Food Network coming out of July last summer. And should we pull that forward and bring that kind of ratings success, then I think the double-digit growth is definitely there.

Brian Karimzad - Goldman Sachs Group Inc., Research Division

Okay. That's helpful. And then Joe, I think you alluded on the buyback, I mean, with the $600 million left in the authorization, you seem to insinuate you want to get that done within a couple of quarters. Is that a correct interpretation?

John Lansing

It's probably too early to say that it's a couple of quarters. But we certainly are going to be active. And given the levels, we get more interested as things, if and when, things move a little weaker. So no, I wouldn't commit to a specific timing on that, but certainly, we're going to be active over the next couple of quarters.

Operator

And we'll go to Ben Swinburne with Morgan Stanley.

Benjamin Swinburne - Morgan Stanley, Research Division

Joe, if I could ask, I don't know if you have a couple of numbers you'd be willing to share. But I was wondering how much the programming write-off was this quarter, you guys cited in the release?

Joseph G. NeCastro

Yes, it was about $13 million in the quarter.

Benjamin Swinburne - Morgan Stanley, Research Division

Okay. And was that why minority interest expense declined year-over-year, which I think included cooking this year and not last year, a part of why?

Lori A. Hickok

Not -- well, I mean, there's a lot of things going on there. I mean, that would be a piece, obviously, the ratings and different things. But also keep in mind that we had some adjustments based on -- that would be a big piece, but there's other things going on there.

John Lansing

Right. It's not it exclusively.

Lori A. Hickok

It's not it exclusively.

Benjamin Swinburne - Morgan Stanley, Research Division

Okay. And so it sounds like in the fourth quarter and beyond, minority interest expense should get back to sort of the normal kind of growth that the underlying operating income of those networks is throwing off.

Lori A. Hickok

Yes.

Benjamin Swinburne - Morgan Stanley, Research Division

And then I don't know, if you'd be willing to quantify last year's Q4 reserve, just as we think about -- I don't know, either in basis points or in dollars, as we think about the growth in the fourth quarter, sort of how much that factors into the acceleration?

Kenneth W. Lowe

No. That shouldn't be a factor year-over-year, Ben.

Benjamin Swinburne - Morgan Stanley, Research Division

Okay. And then I have 2 more. I just wanted to ask about the Niels feed, the household declines in sort of on the affiliate fee side, the affiliate revenue side in the press release. I think this is the first time we've seen that level across your networks. I know those are Nielsen numbers, so they really actually have nothing to do with your revenue. But I just thought if you had any comment, if that was like an adjustment they're making, or something that we should be looking at.

John Lansing

Yes, Ben. This is John. It's just an empirical statistical variance that we didn't anticipate. So we thought it was worth noting that the TV penetration estimates reflected a slight decline on the number of U.S. households that receive TV signals. Nielsen adjusted their penetration numbers down from about 99% of TV households to about 97%, but the impact for us is more like about 1% and fairly de minimis.

Benjamin Swinburne - Morgan Stanley, Research Division

Okay. So the actual impact for you, guys, is about a 1% decline.

John Lansing

Right.

Benjamin Swinburne - Morgan Stanley, Research Division

Okay. And then the year-to-date, just looking at the cash flow statement, your investment in programming is up, I think it's about 30%. It's $375-odd million, 9 months in. I know the amortization of that asset varies a lot as we look forward. But what should we be thinking about amortization of programming cost growth into '12, given the spend? I know there's seasonality in that spend. Any comments there would be helpful.

Lori A. Hickok

It's -- well, what you should -- because of amortization, and primarily because of Travel, you should expect it to accelerate somewhat. But obviously, it evens out, it will be probably high-single digits next year.

Operator

And next, we'll go to Alexia Quadrani with JPMorgan.

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

Just 2 questions. First, I guess, John, could you give us any comments on the calendar upfront. Is it shaping up in line with the normal upfront in terms of pricing?

John Lansing

It's still a little early on the calendar upfront, but I think the signals we're receiving and the message on the options being as positive as it is points to a positive direction for the calendar upfront. And we see the marketplace, the strength in the marketplace is there in the advertising side, and we don't anticipate that that's going to change.

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

And on a broader question about the affiliate agreement. I think you guys mentioned at the investor day your intention of lining up the travel deals with some of your other renewals down the road. Will Food Network and HGTV also be aligned after sort of this renewal you're going through right now on the food side? Or will they still be somewhat staggered longer term?

John Lansing

Well, it's absolutely our intention to make those agreements coterminous, and that's what we're working towards right now.

Operator

We'll go to Doug Mitchelson with Deutsche Bank.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

I hope you didn't adjust this in your prepared remarks, but did the make goods you experienced in 4Q last year, is that going to influence growth comparisons as we get into 4Q this year? Any math behind that, that you can share? In other words, you used inventory in 4Q last year to deliver make goods, right?

Lori A. Hickok

We usually will use inventory for make goods at a normal level. So I really wouldn't think of that as impacting year-over-year. Obviously, we manage that and are very comfortable with the levels.

Kenneth W. Lowe

Right. And our growth rate in the fourth quarter is not dependent on the reduction in any kind of make goods.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

I guess that just averages into your blended, high-single-digit, scatter-over-scatter commentary anyways, right?

Kenneth W. Lowe

That's right.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

I'm also curious on Ben's question regarding the 1% decline in paid subs. I think Discovery is saying that they're up slightly, call it, 20, 30 basis points in paid subs for a fully distributed networks year-over-year, and I think Turner's down 20% or 30%. To the extent that you're down 1%, I mean, I know this is sort of rounding errors we're talking about, but did you lose any particular distributors? Or is it just, we're talking about rounding errors here?

John Lansing

No, it's a minor rounding error, having to do with the overall TV household universe in the United States. It wasn't relative to a distributor or any group of distributors.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

And then lastly and maybe this is -- it gets a little bit esoteric, but I'm just trying to understand the philosophy around the commentary, I think at the end of the Analyst Day, where you said that we should expect, I think, flattish margins looking forward over time, if that was -- if that's the incorrect comment, you can obviously let me know. But is that philosophy of spending and marketing and programming in line with revenue over a long period of time based on what you think you need to spend to stay competitive and maintain sort of your existing success in ratings level? Or is that based on a spending level that you think is going to drive growth in the categories?

Kenneth W. Lowe

Doug, I think I handled that question at the Analyst Day, and the answer has been consistent, as I've said all along. We really don't drive the company based on the margins. We're very comfortable and pleased with where they are. But we've always looked at the business over time from a standpoint of truly investing in the content and marketing side, and nothing is really going to change. I think when you look at our margins, and admittedly, some of the best, if not the best, in the cable network business, all we were implying is, going forward, don't expect to see margin expansion when we have opportunities to invest in content, which is obviously proving to be a great investment, as we see these additional distribution platforms open up for us, and marketing. But we've always been very prudent in how we invest in our marketing and how we use it. So I think, in general, that was the tone of the answer.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Good. And I'm sure you understand the source of the question. We're seeing the spending now, and we're all trying to gauge your ratings performance against the dollar amounts of incremental spending and whether or not the spending is actually worthwhile. And of course, it's too early to tell, but it's sort of an open interesting question, so...

Kenneth W. Lowe

I would say, Doug, that advertising works. So yes -- but no, sometimes it gets a little lumpy, and we've had this before, where we see opportunities to invest as I said. And maybe as John talked about some of the shows that are now, not only proving their worth on the Food Network, but maybe even just some stacking, rescheduling things that we alluded to at the Analyst Day. It just gives us opportunities. And when those are there, we're going to invest and take advantage of it. But going forward, it's going to be business as usual. You are not going to see these wild swings or anything out of the ordinary for us. We're pretty predictable when it comes to that. And I think our model from a standpoint, Doug, of the categories we're in and our programming expenses historically have been pretty consistent. But every once in a while, we'll take advantage to invest.

Operator

Our next question is from David Bank with RBC Capital Markets.

David Bank - RBC Capital Markets, LLC, Research Division

So you've given us some real good directionality around ratings that we need to apply to specific ad revenue numbers. Can you get a little bit more specific with respect to the ratings numbers that -- I don't know what's most relevant, but you do, if you look at the right demo and the right day part, what you did in 3Q for HG Food and Channel -- for HG Food and Travel, where you are sort of season to date that's going to drive the improvement in the next quarter and where you think you need to be. Could you give us just maybe a little bit more kind of quantitative perspective on those levels?

Kenneth W. Lowe

Well, the -- it's a great question. There's a third dimension besides the ratings and the marketplace, and that's the quality of our audience as well, David. And as a result, when we go into the marketplace and we have a story of growth on Food Network, of improvement in HGTV, improvement on Travel, and then the quality of our audience is at the top of the heap, driving higher CPMs, and it's really our ad sales team's core competency to maximize the revenue around that, also through special events and special programming and through our convergence opportunities with our world-class websites in the home and food and travel categories. And so I can't quantify it by way of giving you an equation, other than to say that our confidence in our growth is driven by both our ability to drive the audience further and to converge that audience with both digital and linear, and to have the quality of the audience that allows us to have top-of-market CPMs and a strong market. So if we believe the market is strong, then our confidence is high that we can meet the numbers that we're projecting.

David Bank - RBC Capital Markets, LLC, Research Division

Okay. I guess I would have just one follow-up, then, which should be if you look at -- I know you addressed the kind of make-good question for fourth quarter. But if you look at the make-good obligations for the current year, was there any disproportionate holdback that kind of need to be -- needed to be trued up in the third quarter? Did that have any disproportionate impact?

John Lansing

No. The make-good question is really one that -- there's actually a plus side to having a little bit of underdelivery, because then we know we're maximizing our pricing and not leaving any money on the table. So we're not really all that concerned about some make-good. And we manage it well, and we have inventories set aside to manage it. So it really -- one way to think about it is it helps us maximize our pricing. Go ahead, Joe.

Joseph G. NeCastro

Just mechanically, there's nothing in the sort of world of make-goods that has had a material effect on the trending you're seeing. It's a constant factor in what we do, really on our business, the way all media companies, in fact, run their businesses. So there's nothing really that's been unusual in the shape of the numbers over this period.

Kenneth W. Lowe

Yes, David. This is Ken. Just a little follow up on John's answer and what we also talked about somewhat at Analyst Day. Competition has never been stronger in the cable network business. It goes without saying. Everybody has raised their game. And that's great for the business, and cable networks have flourished overall. But to be in these lucrative categories that we're in and to have the best competition ever thrown against us, and even ratings for sports has increased over the past couple of years, as you know, and have Food Network delivering the numbers, the best months we've had in the history of this network, 18 years old, not only it withstood a lot of competition that's been thrown against us, especially in this genre, but we're rising to the occasion with new shows, new ways to promote. As John alluded to, we're seeing some upward trends in home and garden ratings. So these are just great lucrative categories right now and a great place to be in the cable programming business.

Operator

And we'll go to Jason Bazinet with Citi.

Jason B. Bazinet - Citigroup Inc, Research Division

If I can just ask one last question on the decline in the subscriber numbers that's been alluded to. Am I right that while it doesn't affect your affiliate fees, it does have a bearing, ultimately, on ad revenues if those trends continue?

John Lansing

Yes. You're right, because we sell total impressions and not a percentage of impressions. And to the extent that if it were to be more severe or to continue, then it would be an issue. I just don't anticipate that that's the case. I think it's a onetime adjustment by Nielsen. And it has to do, perhaps, speculating now, but largely maybe the housing situation in the U.S. and just an overexpectation of what the total U.S. universe would be, coming out of the crisis. But I think it was mostly a onetime adjustment, and minor at that.

Jason B. Bazinet - Citigroup Inc, Research Division

I see, an occupied housing issue, understood.

Operator

And we'll go to Michael Morris with Davenport.

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

Two topics. One, just to go back to a question, I think John Janedis presented on your guidance earlier, if I hold kind of the trends and affiliates and other revenues constant, it seems like your -- to hit the low end of your full year revenue guidance you need to do about 13% ad growth in the fourth quarter. Is that -- am I incorrect on that number? Is that what you're expecting, that or better? Or is there something else, one of this other revenue categories that's going to contribute?

Kenneth W. Lowe

Well, you know that we don't predict ad results by quarter. You are in the right neighborhood.

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

Okay. Great. And then over on the affiliate deal, specifically for Travel, and you addressed this as well. There's sort of a 2-step process for Travel. Two things. First of all, there's some concern that maybe you felt you're in a weaker position, given some softness in travel ratings, going into the sort of first round of these negotiations. Is that impacting the decision to kind of put this all together? Or what's the advantage of having it together? And then, also, I believe that you may have had a change in your leadership in terms of who's negotiating some of these deals for you. Was that the case on your side? And if so, what's going on there, and how should we think about that going forward?

John Lansing

I know the travel strategy going forward is really not unlike that with Food. It's just the fact that we have less time to prepare the network for a major rate adjustment. If you think back, Foods really had 4 years, leading up to the '09 -- 5 years, leading up to the '09 rate reset. And it literally takes 2, 3, sometimes 4 years to have the network in a position to drive the most potential leverage, and therefore, higher rates in the reset possible. I'd like to say it was easy -- as easy as acquiring travel one year and taking a year to spruce it up, and then all of a sudden it's worth a whole lot more money. But it just takes a little bit more work than that, Michael. And so it's not a sense of it being in a weaker position. I think it's in a very strong position. In fact, its starting point is stronger than where Food was, pre-'09. And I have great deal of faith in the management team at Travel, and they're definitely on the right track after a year. And so it's just an acknowledgment that the process will allow us to take a slightly different approach but, hopefully, end up in the same place. As far as leadership for our affiliate group, we're very pleased to have brought over Henry Ahn from NBC Universal, where he was the lead negotiator for all of the NBC Universal cable properties. He's off to a great start, doing a terrific job. And it was just the natural progression of succession here that had -- there was no -- nothing notable in the succession other than it was time for us to look into the marketplace and find the very best possible candidate we could find. And I believe we did.

Operator

Our next question is from Michael Nathanson with Nomura.

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

I have a bunch. Let me start with affiliations for a second. This quarter, to be clear, you didn't have the contra-revenue amortization of incentives, did you this quarter, that you had in the previous 4 quarters?

Joseph G. NeCastro

Yes. There is some in there, Mike.

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

So the same level as -- because last year -- you had $3 million this quarter, I believe.

Joseph G. NeCastro

I don't remember disclosing that specifically, but there's not been a material change in the amortization against these.

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

Okay. That's one. Talking about Nielsen's negative 1% cut to subscribers, it's kind of a healing fire in a movie house. So let me ask you, in terms of your own subscriber counts and what you are paid for, what is -- when we look at your 5.5% affiliate fee growth, what's your underlying quarterly change in your base of paying subscribers?

Lori A. Hickok

I'll answer. Obviously, there's a slight decline. What we're seeing is migration from probably what you would say lower paying subs into higher-paying subs as they go to telcos. What we are seeing is some migration into Verizon and AT&T in our results. So we do see some of the housing impact and the economy impacting that, but still not a material impact on our results.

Lance W. Vitanza - CRT Capital Group LLC, Research Division

Okay. And as far as this Nielsen change, this is across the industry, and you guys are just the first people to actually put it in a press release, because everyone else has the same issue.

Kenneth W. Lowe

That's absolutely correct. And we, obviously given the fact that we're sort of one-business company, give a little more granularity to some of the things, and we have always reported subscriber numbers, Nielsen numbers. And rather than stop doing that, we just thought we would give you the state-of-the-art there.

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

Okay. Cool. And then on the advertising answer, everyone's trying to build their models using every data point you gave them on advertising data. But isn't the trend from 3Q to 4Q simply a function of -- you sold -- you said you sold more inventory this upfront versus last year's upfront. And so can you just walk us through the third quarter, what percentage of the inventory is usually upfront-based, or replaced inventory versus 4Q. So how big is that delta away from 3Q to 4Q, especially this year?

Kenneth W. Lowe

Well, I looked at it, I don't think we want to get into the exact mechanics of that. But it is fair to say that, as the year progresses, less upfront inventory matters, right? Because it's sort of diminishing as the year progresses. There's more in that first quarter, which is the fourth calendar quarter, and that reduces over time until you have the smallest amount in the third quarter and then you start again. So there's always a step-up from the third to the fourth. I think the bigger impact -- well, there's several impacts, there's also pricing because you have a new round of pricing. And then rating is obviously affecting it, we have a pretty strong ratings story going into the quarter now in our 2 biggest networks. So all of those things add up.

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

And this is a question that you will never probably never get again, but it's about DIY. There was a real deceleration of revenue this quarter, and you guys have been running 20% growth or so for the past 6 quarters. What happened under the new DIY that caused that deceleration? It's small numbers, but it's just -- it's weird that it came in so much.

John Lansing

It really is just timing. DIY is fortunate to be used as a free preview on the DISH Network, as they use it to drive their digital-tier subs, and the pre-preview is in the opposite -- was in the fourth quarter last year and -- I mean the third quarter last year and is in the fourth quarter this year. So just missing. And what's interesting about that is that when DIY is given a free preview on DISH to their entire base of subscribers, it routinely improves its ratings performance by 20% to 30% and drives that revenue accordingly.

Operator

And we'll go to Eric Handler with MKM Partners.

Eric O. Handler - MKM Partners LLC, Research Division

Just one quick question on Travel Channel. Obviously, a significant deceleration in revenue, and would suggest advertising was down a little bit. Was that more a function of the difficult comparisons from last year that you alluded to? Or is there the increased make-goods or how -- help us reconcile that?

Kenneth W. Lowe

Eric, no, it really simply was a very tough August in terms of ratings relative to the one series I mentioned earlier, Man v. Food. Which it's really unusual for one series to have that much of an impact on one network. But in this particular case, that series made up for 27% of all primetime impressions in the third quarter of 2010. And then it just softened so quickly as a series and delivered only 16% of the impressions the following year in the same month. And so if you normalize Travel's third quarter and take that series out of both quarters, it was a flat quarter. But unfortunately, that had an impact on our delivery and, therefore, had an impact on our revenue. But I believe that's a onetime-only case. And we're well on the way to replacing what was, in effect, a network that was driven by one series to what will be more like a Scripps Network, where there'll be a base of several successful series and not relying on one particular series.

Operator

And we'll go to Tom Eagan with Collins Stewart.

Thomas W. Eagan - Collins Stewart LLC, Research Division

We've been hearing from the scripted networks about viewer fatigue and the potential for a negative impact from subscription -- SVOD on linear ratings. I wonder if you could give us your thoughts on what you're seeing on programming that's also aired on different networks. So for example, is Man v. Food on Travel and Food Network?

Kenneth W. Lowe

No. No, we have very little of that. Here and there, we'll use some programming from one network on another to help drive an audience, if it makes sense. But we pay very close attention to the premiers, this goes to any investment in programming we talked a bit earlier to make sure we keep a fresh flow of programming, both into new series and new premiers of existing series. And this is really the art of the game, is to keep it fresh. But our numbers would suggest to us that you look at food and where it was in June and July and where it is today, you look at HGTV and its progressive improvement over the last several weeks coming out of September, and even Travel which is having some success. That as long as we keep the programming fresh, creative, and we support it, both cross-marketing and cross-channel marketing and outside marketing, then we can keep it growing.

Thomas W. Eagan - Collins Stewart LLC, Research Division

Okay. Great. And then I have a follow-up on the partnership of the U.K. With the use of cash of about $400 million, could you give us a little bit of detail on the expectations and the timing for any sort of your share of the profits?

Joseph G. NeCastro

Sure, Tom. This is Joe. First of all, that was sort of the initial financing we're looking at in recapitalizing the business in the U.K. market. And we'll likely have a dividend come back to the partners based on the new financing, so that our net cash-in will be somewhat reduced. And then going forward, there will be periodic distributions of profits on a normal basis. It's a very profitable operation. And like cable network businesses here, it throws off a fair amount of cash as a result. And so we do expect a steady stream of dividends out of the business.

Operator

Our next question is from Tuna Amobi with Standard & Poor's.

Tuna N. Amobi - S&P Equity Research

I have a few as well. Just first on affiliate fee renewals, as you enter this round of negotiations, is there any reason to believe that the CAGR on affiliate fees would not revert to a 33 -- 30-plus percent, say, by '13 or '14? Is there any reason why that shouldn't occur? Or are we getting ahead of ourselves here?

Joseph G. NeCastro

Tuna, this is Joe. I think you're probably getting a little ahead of yourself. We would -- we will provide guidance, obviously, in February. I think 33% increase in affiliate fees going forward is probably a bit aggressive, and we're very optimistic about our renewals but maybe not that optimistic. And the fact is that the renewal at the end of 2011 is only -- well, it's a significant piece of Food Network distribution. If you look at it as a percentage of the total, it's not significant enough to drive from a 6% to a 33%. I do think the combination of that renewal and then Travel renewal that's coming up at the end of '12 and '13 will provide, sort of longer term, will provide a nice lift. But it's too early to say what that, going forward, growth rate will be.

Tuna N. Amobi - S&P Equity Research

Okay. If I can shift gears to digital revenues here. Thank you very much for providing -- still providing a breakout of digital revenues, and most of your peers actually have stopped doing that, so it seems like a dying breed. If I can follow on, on that and ask you with regard to website and mobile advertising to get a little bit more color on the profile of these advertisers. I know the number is still relatively small, but what percent of these deals are kind of carried through from the upfront? And what kind of advertisers are buying these? Are they pretty much the same kinds of upfront advertisers? Or you kind of using that to reach a different kind of audience? Any color on that would be helpful.

John Lansing

Sure, this is John. It's a great question. It's actually a mix, as you might suggest -- or you might expect, pardon me. The major advertisers are all looking for digital components to their advertising packages. And so what we can do is create for them a 360-degree advertising package, both digital and linear. But more interestingly, as the new business that our group was able to develop, bringing advertisers through the endemics into the fold via the digital opportunities, both mobile and online, allows a new advertiser to get involved with our brands. Usually it's an endemic, a smaller endemic advertiser. And then that helps us step that advertiser up over time and grow their commitment. There are several major on-air advertisers we have today in the endemic category that began as new, small new business accounts through the digital doorway, and it continues to work that way.

Tuna N. Amobi - S&P Equity Research

Okay. That's helpful. And lastly on -- I thought it was interesting that you mentioned that the Food U.K.'s main competitor is UKTV Food. And I know you have high hopes for Food U.K. So along those lines, in your Board meeting that you attended, I wonder if you kind of talked about areas of possible collaboration between the 2. I presume you're reaching out to the same constituency. Did you -- are there any potential for it to cannibalize both markets? Any kind of collaboration plans or whatnot would be helpful.

John Lansing

Sure. Tuna, you're getting a little deep in the weeds here. Clearly, there is a competitive situation in the U.K., where we own 100% of one network and 50% of another, and it would certainly be reasonable to assume that that's a topic of some conversation between the partners. But it's really too early to say -- I'm sorry, to comment on ways we might collaborate. So I think we'll leave that for future.

Tuna N. Amobi - S&P Equity Research

Are you concerned about any potential cannibalization of Food U.K., though? Is that part of your concern at this point?

Kenneth W. Lowe

Look, it's a very large market. Look at the U.S. market, there's plenty of appetite for lifestyle programming that touches on our centers around Food. So it's not an issue at this time. I think, rather, we look at it as an opportunity, to figure out something much bigger there.

Operator

That will be from Barry Lucas with Gabelli & Co.

Barry L. Lucas - Gabelli & Company, Inc.

John, I'd like to go beat that dead horse of Travel one more time. You said x Man v. Food, Travel was roughly flat in the quarter. But you've had some help in the past replacing the direct responses. You've got -- you've taken control of the sales efforts, post the transaction. So is the easy stuff done now? And now we're looking at the sort of the -- sort of the Scripps formula, but it's really the heavy lifting of getting the programming right, and getting advertisers and subscribers to really watch it.

Kenneth W. Lowe

Yes, Barry. It's Ken. I mean you're touching on it somewhat. You've been with us a long time, and you'll recall Food in the early days, when we acquired that network, and it seems like there's always heavy lifting in the business. But I think in this particular case, when we took it over, there just weren't a lot of things in the cupboard we can draw from. I think our folks did an incredible job of playing on the hits that were there, and in some cases expanding on them, like we're doing with the new Anthony Bourdain series. But yes, turning around a cable network to a certain degree, one that's fully distributed, is a task that it takes a little while. You know we're patient, and you know that we like to build over time, invest over time for the long range, and I think that's just what you're experiencing now. Having said that, I do want to follow up on what John said. We have some really exciting things that we're looking at. Development, it takes a while, and we've been at it a while, but I am of the opinion that you will see things starting to click in first, second quarter of '12, and we'll grow from there. But it's not a hockey stick. It's going to take a while to build the kind of base that we took with Home and Garden and Food. But having said that, boy, what a great lucrative category to be in, and to partner up with Home and Food. So it's like that 24-hour race, Barry, that you do in your Porsche. It's going to take a while as opposed to a 2-hour lapper, if you will.

Operator

And we'll go to David Joyce with Miller Tabak.

David Carl Joyce - Miller Tabak + Co., LLC, Research Division

I just was wondering if you could provide some more color on the path to profitability for some of your other international efforts outside of the U.K.?

Joseph G. NeCastro

Sure, David. This is Joe. Wouldn't surprise you to know that we spend a fair amount of time looking at that, especially at this time of year when we do our strat planning and our budgeting. And I'd say, without disclosing exactly when we expect them to be profitable, that the operations will be profitable in the near-term horizon, and are sort of following a course, as we expected. After some upfront investment, as we widen out distribution in both footprints, there are certain markets that have, I'd say, very healthy ad business potential for us. And so we expect that if we just sort of continue this level of rollouts, we'll be nicely profitable in a couple of years out.

Operator

Our final question will come from Marla Backer with Hudson Square.

Marla S. Backer - Hudson Square Research, Inc.

I have a couple of questions. One is just to clarify, part of the reason that you saw the ratings slip on Man v. Food, was that because you sort of tweaked the theme of the show a little bit and created Man v. Food Nation? Is that the primary reason for the decline?

Kenneth W. Lowe

Marla, I can't say for sure what the decline may have been. It was already declining in the prior format. But I can tell you the decision to tweak it was driven mostly by the concerns for the -- for Adam, and the format was very hard on him. And he came to us and we had a conversation about how we could keep the format going without it continuing to be such a heavy health concern for him, and we were obviously willing to do that. But I think it, just like a lot of series in television, there's a certain arc, and I think the arc of that particular format is just by nature 2 to 3 years, and it's not unlike many series.

Marla S. Backer - Hudson Square Research, Inc.

Right. Just sort of played itself out. Then on UKTV, I guess I just would like to understand what would be the motivation if you were to sell some of your 50% stake back to BBC, what would you expect to get in return, other than, obviously, capital?

Joseph G. NeCastro

Yes, Marla, this is Joe. The primary reason we would return equity to our partner there is in exchange for the contribution of digital rights into the business. There's a long history of the partnership over there. But where it ended up was in a situation where the business had the linear rights to the programming, but not the digital rights. And so our view is that those rights have value to the business. And overall, UKTV will be more valuable as a result of the contribution of those rights, and we're willing to exchange equity for the grant of those rights into the business.

Marla S. Backer - Hudson Square Research, Inc.

The last question is, I'm sure you've looked at the -- you paid attention to the Discovery-Netflix deal, and I think one interesting aspect of it is that it's for older content, at least 18 months old, and interestingly, to be monetize that. Would there be a similar opportunity, do you think, for Scripps content, or because you use some of the content on the flanker channels, does that sort of preclude using some of your "library content" on Netflix or other platforms?

Kenneth W. Lowe

No, Marla, not at all. As a matter of fact, I think if you look at these emerging distribution platforms, it's a great time to be in the targeted content business, when you own a library such as ours, which is very rich and robust. So we see lots of opportunities for these additional distribution platforms. And we are constantly in discussions along those lines, and you'll be hearing something down the road, I'm sure.

Mark W. Kroeger

All right. Thank you, everybody. This is Mark. And operator, you can read the instructions. Mike and I will be available for you for the rest of the afternoon. We'll see you later.

Operator

Thank you. And ladies and gentlemen, this conference is available for replay. It starts today at 12:30 p.m. Eastern. It will last until November 17 at midnight. You may access the replay at any time by dialing (800) 475-6701 or (320) 365-3844. The access code is 219947. That does conclude your conference for today. Thank you for your participation. You may now disconnect.

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