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Scripps Networks Interactive (NYSE:SNI)

Q1 2012 Earnings Call

May 03, 2012 10:00 am ET

Executives

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

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

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

Lori A. Hickok - Executive Vice President of Finance

John F. Lansing - President of Scripps Networks LLC

Analysts

Anthony J. DiClemente - Barclays Capital, Research Division

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

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

Eric O. Handler - MKM Partners LLC, Research Division

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

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

John Janedis - UBS Investment Bank, Research Division

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

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

Benjamin Swinburne - Morgan Stanley, Research Division

David Bank - RBC Capital Markets, LLC, Research Division

Vasily Karasyov - Susquehanna Financial Group, LLLP, Research Division

Frank Poerio

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

Michael Corty - Morningstar Inc., Research Division

Tuna N. Amobi - S&P Equity Research

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the first quarter 2012 earnings call. [Operator Instructions] As a reminder, this conference is being recorded. I'd now like to turn the conference over to our host, Senior Vice President of Investor Relations and Corporate Communications, Mr. Mark Kroeger. Please go ahead, sir.

Mark W. Kroeger

Thank you, Dave, and good morning, all, and thanks for joining us. We'll start the conference call today with comments from Ken Lowe, our Chairman, President and CEO; and Joe NeCastro, Chief Financial and Administrative Officer. Our prepared remarks should take about 20 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'll find our first 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, and good morning, all. As always, we really appreciate your interest in Scripps Networks Interactive. We just completed a terrific quarter. Double-digit growth in advertising revenue, double-digit growth in affiliate fee revenue, double-digit growth in advertising sales on our interactive platforms and double-digit growth in earnings from our key partnerships and the list goes on. All driven by the remarkable power of our lifestyle brands to engage consumers in the deeply meaningful content categories of home, food and travel. Fans incorporate our brands literally into their daily lives, we influence the foods they eat, the homes they live in and the places they travel to, and we're reaching those media consumers around the world by the millions across multiple platforms, television, via the Internet, mobile apps and our successful magazines. That high level of engagement is rare for television networks and that's why our brands are must buys for advertisers and must carries for our distribution partners.

Our brands are really ubiquitous, authoritative and consumers rely on us for valuable information and inspiration. We're all about lifestyle, it's what we do, and based on our consistently strong operating results, I'd say we do it pretty well.

Our investment in quality, original programming and our commitment to stay on brand is clearly delivering a return and creating value for our shareholders. We've introduced more new series, specials and episodes of breakout hits across all of our networks and the results have been outstanding. Let's review how we're performing by content category, starting with food.

We just delivered the highest rated quarter in Food Network's history with prime time viewing, among adults 25-54, up a very solid 13%. Food ranked ninth among all ad-supported cable networks in the demo and better yet, it ranked fifth for attracting women viewers in the same age group.

Fan favorites like Diners, Drive-Ins & Dives, Chopped, Iron Chef America, Restaurant: Impossible, proved their enduring popularity and some of our newer shows performed equally as well, if not better. We got off to a very good start in January with the success of Rachael vs. Guy: Celebrity Cook-Off, followed by the third successful season of Worst Cooks in America, and we think we found another breakout hit with Restaurant Stakeout featuring New York Restaurateur Willie Degel.

Now Willie's no-nonsense and a bit unorthodox approach to fixing troubled restaurants is really proving to make some good and fascinating television. Trust me, he is no wallflower, but it's a great show, I hope you get a chance to check it out. Restaurant Stakeout.

The second quarter at Food Network promises to be just as a strong as the first. In fact, we finished our best April ever. We're already having great success with Chopped All-Stars on Sunday nights and in just a few weeks, Food Network Star returns, this time with a surprising new twist, you'll have to tune in to find out what it is. All are powerful programming franchises that stand up very well in the face of some pretty intense competition.

Now while the TV network is breaking records, it's worth noting that Food Network Magazine is hitting new heights as well. The magazine's advertising based rose to 1.6 million copies during the first quarter, making it the top-ranked culinary title for newsstand sales and the sixth ranked magazine overall. That's pretty remarkable and a powerful testimony to the marketing power of the Food Network brand.

Also in the Food category, Cooking Channel was setting records of its own with adult 25 to 54 viewership up 23%, making it the highest-rated quarter for the network since its rebranding and launch, just a couple of years ago.

Two new shows, Not My Mama's Meals with Bobby Deen, that's Paula Deen's son, by the way, and Symon's Suppers with Michael Symon, helped drive the audience numbers at Cooking Channel during the period.

Now at HGTV, House Hunters, House Hunters International and Holmes Inspection are proving their durability as fan favorites, plus some of our newer shows like Love It Or List It, Million Dollar Rooms and Property Brothers, are really gaining traction. HDTV finished the first quarter very strong with its best-rated March ever in prime time viewership. HGTV ranked 15th in the adult 25-54 demo for the 3-month period, and the top 10 among women 25-54.

As for upscale women viewers, HGTV continues to rank #1. HGTV is a remarkably stable network that maintains an excellent competitive position relative to its peers, and we plan to build on that strength with some new shows including Celebrities at Home, White Room Challenge, Design Star and My Yard Goes Disney, by the way, it will also return during the second quarter, so a really good programming slate at HGTV.

And by the way, not to be outdone, HGTV's magazine is proving to be an early success with an advertising base of about 500,000 copies. We, along with our partners at Hearst Publishing, have greenlighted 3 more issues for 2012. Other promising HGTV brand extensions include the successful debut this spring of the HGTV HOME plant collection and a licensing partnership with Bassett for the HGTV HOME furniture collection. The furniture line will be available in about 400 retail outlets around Labor Day.

At DIY Network, our other television network in the Home category, we really had a great quarter. Prime time audience grew by 24% year-over-year, thanks to the popularity of The Vanilla Ice Project and the new Bronson Pinchot Project, just to name a couple of our standout shows. Lots of positive momentum in the Home category, and very encouraging.

On our Travel Channel, Andrew Zimmern's Bizarre Foods America, and Ghost Adventures continue to carry the freight during the first quarter, building momentum for the return of Anthony Bourdain's No Reservations. As you know, we're working to redefine the network and the travel and lifestyle genre for television.

We know from our experience at Food Network and HGTV, that finding 1 or 2 significant series or discovering another iconic personality, really make all the difference. What we're striving to create is a clearly defined foundation for the brand, a cohesive voice for the network and in the process, aggregate a highly targeted audience. Does that sound familiar? Well, it should, because it's right out of our Scripps playbook. So we've intensified our efforts to create original travel programming that's really engaging and uniquely all our own. Now one approach is to try formats that are working in our other categories, and that's really the idea behind Hotel Impossible, which premiered April 16. It's been performing well. Baggage Battles is another show that we have high hopes for, it's a great premise, if you ever wonder what happens to lost or unclaimed airline luggage, well, check it out, the show premiered April 11, so far so good. Audience response to the show has been very positive.

GAC rounds out our portfolio of television networks, the news here is that we've been under a bit of construction as we work to define a country living lifestyle format and wean ourselves away from the all music video format.

On interactive platforms, our lifestyle digital businesses continue to flourish, averaging nearly 26 million unique visitors and 440 million page views a month. And our food and home websites are among the top sites in their respective genres based on the tremendous amount of traffic that each generates.

Food Network's In The Kitchen app, and Travel Channel's Layover app, by the way, have been the top paid downloads in the food and travel categories on the iTunes Store.

And we continue to engage fans on popular social networks. On Facebook, HGTV and Food Network each have more than 2 million Likes and Food Network has more than 1 million followers on Twitter. Suffice it to say, that consumers and advertisers are well aware of the reach, popularity and utility of our digital platforms.

Internationally, well we're prudently building our businesses one logical, deliberate and measured step at a time. This week, we completed our acquisition of Travel Channel's international cousin, making us the globe's leading creator of travel programming and content for television and interactive platforms. Travel Channel International is a perfect fit, distributing content in 20 languages and 91 countries across Europe, Africa, the Middle East and Asia-Pacific. Our plan is to build on the powerful Travel Channel brand that we now own and manage across the globe. Our strong first quarter results also reflect the positive momentum created by our UKTV partnership, which increased its market share by about 7% during the first quarter compared with the same period last year. Looking ahead, we're discussing some interesting opportunities with our partners to add value to UKTV's home and food category networks.

So overall, I'd say that things are going pretty well for Scripps Networks Interactive and its shareholders. Nearly all of the key trends and measures are moving in the right direction and it looks like 2012 will be another positive year.

Now I'm going to turn the call over to Joe, who'll go over our financial results. Joe?

Joseph G. NeCastro

Thanks, Ken, good morning, everyone. I'm going to touch on some of the first quarter highlights and provide some color on what drove our positive results, then we can open it up for Q&A.

Starting with our consolidated view. Total revenue was up 11% on strong advertising and affiliate fee revenue growth. Total segment profit was up 5%, which reflects the expected higher programming costs, international spending and startup costs related to the digital growth initiatives we previously mentioned.

As a result, for the first quarter, income from continuing operations attributable to SNI grew about 24% to $0.73 a share. Earnings per share were positively affected by the 5.5 million shares of stock we repurchased during the first quarter at a cost of around $250 million. Over the past 9 months, we've repurchased 16.8 million shares of stock for $750 million.

Looking at the key revenue drivers for the quarter, we finished with a stronger-than-expected advertising sales, up 10% versus last year. We also had better-than-expected affiliate fee revenues, which were up about 16% compared with the first quarter last year. Our networks benefited from the strength of the ad marketplace, with first quarter scatter versus scatter pricing up in the high single digits year-over-year, and up high teens to mid-20s over the broadcast upfront. Both of these were a little stronger than we anticipated at the beginning of the year.

As for advertising categories, our top 5 were food, consumer packaged goods, financial, retail and auto. In the second quarter of 2012, the advertising market continues to show signs of strength, although a little cooler than what we realized in the first quarter of 2012.

Scatter versus scatter pricing is running in the mid-single digits and scatter to 2011 broadcast is up in the midteens to low 20s. And the general tone among advertisers continues to be quite positive.

We've also started the next upfront process with presentations in 8 cities around the country. While it's too early to know what the CPM increases will be, I can say we've seen increased interest in the presentations from the advertising community. This year, we've set attendance records at almost every upfront presentation. In fact, in New York City, we had more than 1,000 agency reps in attendance, up from around 800 the year before. So based on all these current trends, we're pretty optimistic about advertising in 2012.

Turning to the distribution side of our business. Affiliate fee revenue grew about 16% in the first quarter, increase is attributable to the renewal of about 25% of Food Network's distribution base at the end of 2011. With this renewal, 100% of the network's distribution is now on the improved rate structure we established at the end of 2009. Scheduled rate increases in the distribution agreements for all of our networks also contributed to the growth in the first quarter.

Now let's take a look at our Domestic Operating Segment, Lifestyle Media. Revenues there were up 12% on the strong advertising and affiliate fee growth I mentioned earlier. Total segment costs were up about 15% during the quarter, segment profit was up 8% from the prior year period. Driving the segment costs, program amortization was up about 23%. We continue to expect amortization cost growth to be in a similar range for the balance of the first half of 2012 with the second half expense growth running at a much lower rate, in the mid-single digits.

Non-programming expenses increased 10%, compared with the prior-year first quarter. This growth was partly attributable to employee costs as we have increased headcount to support our new business initiatives.

Moving to our international initiatives, Ken mentioned the big highlight, our purchase of Travel Channel International. This will be wholly-owned, so their future activities will be consolidated into our operating results. Like our other consolidated international operations, results will be reported within the corporate revenue and expense lines on the income statement. Also, while we haven't provided any deal metrics, I can say Travel Channel International is expected to be EBITDA positive in 2012, but it will be immaterial to the total. In the first quarter of 2012, we generated about $6.6 million of international revenue that was included in our consolidated results. We also generated about $14 million of equity in earnings of affiliates and a little over half of that was from our international partnerships.

Also related to our international operations, we generated $7 million of foreign exchange gains and interest income from our note with UKTV partnership, both of which are recorded as miscellaneous income on the P&L.

While these figures affect different parts of the P&L in total, our international operations and partnerships are generating a growing amount of income for us. As I indicated earlier, during the first quarter, we repurchased 5.5 million shares of our own stock for about $250 million. And as of the end of the quarter, we had $250 million remaining under our -- the current authorization. We ended the first quarter with $646 million in cash, including $203 million we generated from continuing operating activities in the quarter.

And finally, today, the company is reaffirming its previously issued full year guidance. And with that, we are ready to turn it over for questions. Moderator?

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from the line of Anthony DiClemente, Barclays Capital.

Anthony J. DiClemente - Barclays Capital, Research Division

I have one for Joe, and one for Ken. Joe, it -- compared to our model, your affiliate fee growth in the quarter came in higher than we thought. Just wondering if you could talk about the sustainability of affiliate fee growth as we work through the year and even maybe remind us about the pace of your -- or the timing of your affiliate renewals as we look into 2013. And then for Ken -- go ahead, and then I'll follow-up.

Joseph G. NeCastro

Okay, Anthony, I'm going to ask Lori to handle the question on the specifics of the first quarter renewals but the second quarter, or the balance of the year, we have the same modest renewal calendar. We have some coming up, some smaller ones coming up, at the end of 2012, very light for, I guess, for Travel Channel. And we don't have much activity then until the end of '13 and some in '14.

Lori A. Hickok

Yes, and what's going on in the first quarter, really, I guess the good news is, is we made some assumptions on the universe and what would happen as far as erosion on the sub, so we really had more subs than anticipated in our plan, so that's why we did a little better than we're anticipating.

Anthony J. DiClemente - Barclays Capital, Research Division

Okay. That's helpful. And then, for Ken, this question might be a little bit out there, but last night, YouTube had this huge presentation in New York and as part of it and as part of YouTube's branded channel effort, they talked about pledging $200 million of marketing against all those new channels and we were looking at the list of channels that they have, their branded channels and you've got one geared towards home, one geared towards food, one geared towards moms and so, there's -- there are folks out there that kind of say that this is a genre where, because it's a little bit lower cost in nature, the barriers to entry might be perhaps lower, it's not the high cost of sports programming, for example, so I just wondered if you could comment on the competitive landscape and how you think about your brands in the context of online and digital and new entrants like YouTube, thanks.

Kenneth W. Lowe

Sure, Anthony. Fair question. The competition for us in our category is obviously nothing new, we've been experiencing that almost since we launched HGTV and acquired Food, because if you go up and down the cable dial currently, there's quite a bit of competitive programming, and I think that just underscores the popularity of not only these categories, but how the popularity has grown and expanded, you just heard in my remarks that Food had the absolute best first quarter in the history of that network facing all this new competition. And so first and foremost, it's the competition from major programmers that are already out there in these categories. And I think the digital expansion, which is happening, and YouTube is a good example, is going to continue, because people go where the money is, they go where the eyeballs are, and there's no better audience than women, upscale women, women who are highly educated and it's where we do very well. We look at YouTube somewhat even with that kind of money and marketing power behind it as somewhat as another opportunity for us to see talent develop, maybe we can pluck some talent off of those channels. So I don't think, you've always heard me say, that the fragmentation will never stop, competition will never stop, so we're prepared for it. And the last thing I would just say that, we're currently on YouTube with an HGTV and Food Channel, and we're probably going to be working with them to develop even more channels. So to us, it's just another platform, another opportunity. But again, I'll just underscore the success we're having, even with all the competition we're experiencing. And by the way, we're getting competition on the broadcast networks now. So our goal is to continue to be the leader, is to continue to put quality programming up, and we'll just be ever mindful of the opportunities that the digital platforms provide us.

Operator

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

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

The -- just a couple of questions. The first quarter was on a pace that suggests guidance could prove conservative this year. I'm just curious, the areas of uncertainty or the key dynamics that you would need to see before you'd be comfortable getting more aggressive with guidance? And separately, the buyback was a pretty healthy number this quarter. Any indications that you can give investors as to what kind of pace we should expect going forward? Thanks.

Joseph G. NeCastro

Sure, Doug, it's Joe. Look, I think the first -- you're right to point out the math on the first quarter pacing. I'd say, if we were at the end of the second quarter or maybe in the middle of the summer, we might feel better about how the upfronts have actually played out. So I think until we see the whites of their eyes, if you will, we're going to sort of hold where we are on guidance. Secondly, on the buyback. Yes, we have been working at a reasonably good pace there. It wouldn't surprise you to know that, that's a topic that we will be reviewing with the board at the upcoming meeting to determine sort of how quickly to continue to go there and what the next steps will be. So nothing to announce today or even shed any light on, other than to say, you see what we've done so far, and we will be addressing it going ahead.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

If I could sneak one more, and I think on the last call, you indicated that seasonally, the 2Q advertising growth looked stronger than 1Q, and now you've put up obviously a pretty healthy number for 1Q. Can you shed any light as to whether that seasonality would boost 2Q above 1Q's rates still?

Joseph G. NeCastro

Yes. I think, you can tell from my comments in the script, we probably, we did outperform in the first quarter relative to our expectations. I would love to believe that, that would mean we will pull up the second quarter, but I think it's too early to say and I think what we're -- our sense is that we'll at least be on a similar pace for the quarter. But it's far too early for us to take a more positive view yet.

Operator

And our next question comes from the line of Alexia Quadrani, JPMorgan.

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

Just 2 quick questions. First, I'm following up on your comments on the affiliate fees. I guess given where subs came out in the quarter, is there some volatility there, or should we expect the affiliate revenue growth sort of be at the same run rate for the rest of the year? And then the second question is, just really on Travel, which was surprisingly strong in terms of revenues in the quarter, given the ratings challenges, anything else going on there?

Lori A. Hickok

Alexia, on your first question, there's a couple of things. Yes, I think you can imagine, we were very conservative in our sub estimation so as long that stays in line, there might be a little bit pickup there, but also there was some consolidation in the industry and unfortunately for us, the consolidation goes from a higher-paying sub-affiliate to one that pays lower rates. So you're not going to see the same sort of rates, so it's going to be a little lumpy and probably decelerate. But again, I think stay tuned to what's going on as there's been lots of articles on what's the universe look like, and where things are migrating.

John F. Lansing

Good morning Alexia, this is John. On Travel, we're very pleased with the progression of the programming strategy there and we saw a sequential improvement in ratings going into the first quarter and each month of the quarter. And in addition, our performance against relative to our audience estimates improved and that helped the drive the revenue in the quarter. In addition, the, just the pricing on Travel, overall, our pricing has been in the first quarter, in the high singles, Travel was the strongest of all of our major brands in terms of pricing, year-over-year, scatter versus scatter. And then, finally, DR, was really an improved story from a year ago. A year ago, DR on Travel represented 27% of the inventory and this first quarter, represented only 13% of the inventory, which is really, normalizes it and puts it in the same place, if you will, as HGTV and Food Network. So those 3 major dynamics really, pushed mostly by the improved programming and ratings really help drive that successful number.

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

And that shift in DR to other advertisers should continue to be a bit of a tailwind for you for the next couple of quarters as well, shouldn't it?

John F. Lansing

Yes, it should.

Operator

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

Eric O. Handler - MKM Partners LLC, Research Division

You've taken a path of rather than doing Netflix, Amazon type deals, you've talked about doing deals with your cable and satellite partners. Just wanted to see if you can give us an update there, where you stand with that business. And then also, just a cash flow statement question for you. When I look at your, the dividends paid to minority interests, it was about $48 million there, much higher than what we normally see in a quarter. Anything unusual there to Tribune or something new?

Kenneth W. Lowe

Okay. John, you want to?

John F. Lansing

Sure, I'll tackle the first question. We are actively in the market right now, discussing opportunities with third-party distributors on the digital side. It really represents a third of our three-prong digital strategy, the first prong obviously is to work closely with our incumbent distributors to develop a digital strategy that helps strengthen the ecosystem of the current business model. And then we also, as you may know, we have a current direct-to-consumer digital business of our own. That is $100 million business today and it's being driven largely by video views on our websites and we just believe there's an opportunity for us to expand the existing direct-to-consumer digital business. And then thirdly, really take advantage of these third-party opportunities and we're out exploring those as we speak.

Joseph G. NeCastro

Eric, this is Joe. With respect to the distributions in the first quarter, the first quarter payment is the clean-up for the year, typically we pay out, based on a formula as we go. And in this case, there are 3 or 4 effects in that first quarter. One was that we had a very strong year in Food, so that residual is going to be bigger than the prior year. But also, it now includes the Cooking Channel and thirdly, we also had payouts to our partner, sorry, on the Travel Channel.

Operator

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

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

Two questions, my first one's on the advertising trends. Clearly, you came in ahead of where it seemed you were guiding, you gave full year high single-digit guidance, you thought the first quarter would be below it. As recently as kind of the end of February, you spoke to that. So did things accelerate in March and that's what took you above that level? And I mean your comments are again cautious, I guess just kind of cutting to the chase, I'm trying to figure out if you guys are being extra cautious again in your comments going into the second quarter? Or sort of what happened to get you above that level that you were guiding to in the first quarter? And then I have a follow-up.

John F. Lansing

Yes, this is John. I'll take that. It's a -- the first quarter was driven by 2 major factors. We had better-than-expected ratings, particularly on Food Network and HGTV. So we were over-delivering and the marketplace itself in the first quarter was strong with high-single-digit growth, scatter to scatter. We also put more inventory last summer into the upfront, so we're benefiting from that as well. The second quarter, the pricing is really just a tick below, if it's not high single, it's mid-to-high singles right now, and so that's giving us just some slight cautionary tone. The ratings continue to be strong, the marketplace overall is good, the representation of, as I said earlier, about Travel of DR has been lessened and replaced by more of the upfront inventory that we put in last summer and that's helping give us some wind in our sails. So all in all, we've over-delivered on the first quarter based on variables, some we control, some we didn't control. The variables we control in the second quarter continue to be good, and we feel good about those and the ones we don't control, i.e., the market pricing, we're just keeping a close eye on.

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

So March trends didn't necessarily see an acceleration from what you were seeing in January and February?

John F. Lansing

No, I wouldn't say March, I would pull out March as a single story in the quarter, it was really a full quarter story.

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

Okay. And then, on your international investments, this is a bigger picture question, but can you remind us or update us, why are you focused on acquiring these networks internationally as a strategy for the expansion versus maybe licensing the content that you develop in the U.S., if it does have global appeal to networks that are already on the ground, have footprints in place? Thanks.

Joseph G. NeCastro

Sure. Mike, we have been licensing content globally for many, many years. It is not a very big business, in fact, it's a relatively small business, and we found that we were essentially putting other operators in business in our categories in other markets, and that we would retain 0 equity value, there'd be no long-term value creation for our shareholders. So that's sort of what the genesis of the international strategy in general. The fact that we've done a number of transactions that, some of which are acquisitions, some of which are JVs, is an indication that we want to own a fair amount of the upside wherever we go, and certainly, the value of our content should be reflected in the value of those investments over time. I think you just happened to see a quarter where we did an acquisition, we are probably a lot more active looking at JVs where we own a either a majority or even in some cases, a minority position and our contribution is programming. So there is a marriage of our programming and distribution out there that makes a lot of sense, and those are the types of relationships we're pursuing.

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

When you think historically about the fact that you said that the licensing of the content has been rather limited, has that been your decision that people have been coming to you, but you've been cautious on how much you've let out? Or has it, can you give me a little color on that dynamic?

Joseph G. NeCastro

Well, I think it's fair to say, we've gotten a lot better at understanding what programming works and we likely could have grown that business a little bit more aggressively, probably in the last couple of years than we have, because we've chosen to try and own some of it. But I think, the easiest way to answer that is to say we were relatively cautious about the amount of programming we would license and we didn't have the most organized effort, we had many parties involved. So I think we've gotten better at that, but with a deliberate intention of limiting the amount of programming that we do license and holding back enough that we can build the channels business alongside of it.

Operator

And our next question comes from Alan Gould, Evercore Partners.

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

Given the success in your ratings, I was wondering if this is changing at all your view as to how much you're going to invest in programming this year? I noticed in the first quarter, your program payments were pretty high, 166 versus 115 a year ago. Are you still targeting that mid-teens type of growth rate?

John F. Lansing

Yes, this is John, Alan. We are still projecting where we were in programming, it's a little heavier in the first half of the year, we were particularly focused on the second quarter and as the year progresses, it will moderate and our forecast on programming is where we put it before.

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

Should we see program payments and amortization of program assets start matching up or truing up by the end of the year?

Joseph G. NeCastro

They will certainly moderate, I'm not sure if it'll match exactly, but you'll see a reduction in the program payments of both in the prior year.

Operator

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

John Janedis - UBS Investment Bank, Research Division

Can you give us an update on the rollout about the CityEats offering, and then the timing up for the potential for that self-distributed content platform you talked about?

Joseph G. NeCastro

I'll talk about the CityEats just very briefly, you probably saw an article in the Journal where they're starting to highlight that as a way we might use the value of our Food Network brand and maybe even Cooking Channel brand to give us an advantage in new product development. I'd say it's still very early to talk about the longer-term view of CityEats, we are launched in 2 cities now and working on a third, hoping to be much more aggressive in rollout going forward. But I think it's probably too early to talk about any specific results from that. We talked about the investment in that business being part of our results for the year, that's going to continue. If we get a sense that we're getting better traction, that may accelerate some, if not, it may, we may moderate some. But I think right now, we like where we are, we like the early results, we're committed to continue to build and hopefully, you'll see a much stronger push on that. And John, you want to talk about the video?

John F. Lansing

Yes, sure so, as you know today, we're pushing out a significant amount of video through our own websites. And we're working most closely with our incumbent distributors to create something that is mutually beneficial in terms of digital video delivery and then as we expand the opportunity on our own sites, we're working out a variety of strategies there to look to create a multiplier, if you will, in terms of the number of impressions we can create, and the timing of that is really, it's a rolling operational project.

John Janedis - UBS Investment Bank, Research Division

And would that be sometime mid-year, do you think, or is it open-ended for 2012?

John F. Lansing

I wouldn't think of it as an event, so much as just as a rolling strategy to develop and create a mechanism for driving more video impressions online.

Operator

Our next question comes from the line of Michael Nathanson, Nomura.

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

I have one for John, and then I'll ask Lori to follow up on my affiliate fee question. Hey, John, you guys always give great data on scatter pricing. If you look at your slides from the last conference call, you had a conference [ph], you were saying that first quarter scatter was up mid-single digits and then, clearly, on this call, you're saying that first quarter scatter versus scatter was up high single digits. So, it would seem that March pricing got better, was that a function of just having more Food ratings to sell, is that why your implied pricing was better in March versus kind of what you guys thought back, maybe, last time you updated the market?

John F. Lansing

Yes, it's -- you're really talking about a couple of points in terms of 5% and 6% turning into 7% and 8% growth, and now we're seeing it come back a little bit closer to 5% and 6%. So we -- I think, I wouldn't read that much into the difference between high single, low single, we're not talking about 9%s and 4%s, we're really just talking about the midrange from 5% to 8%.

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

Okay. And then Lori, just thinking about the new affiliate fee deals, on 25% of your sub base. Is it fair to assume that the rates you got for Food are consistent with rates that are already in the marketplace? So we should we think about, maybe the organic step-up from those deals kind of, we have a parameter based on the deals you did previously, or did you guys get above market rates for Food relative to you we were previously?

Lori A. Hickok

No, they were basically based on the market, the rate card was set with the other deal, to be honest, so it's what you've seen previously as a guideline.

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

Okay. So then, can you help us with how much of -- you say it could be a bit lumpy this quarter or this year, of the 16% growth, how much do you think is kind of one-offs that we should just not model the rest of the way?

Lori A. Hickok

I think, when -- by saying lumpy, what you have to watch, it's really more of a function of 2 things. One, we can't predict what's going to happen with the universe and the subs and so you'll see things moving in to telcos and out of the cables and the satellite companies and vice versa, so that does have an impact because they pay different rates depending on size. The other thing is we know, and you've probably seen like Insight and others that have been acquired, I figure MSOs have an impact on what they pay in the modeling. So I always talk a little bit of fun [ph] with small numbers, because $0.5 million or $500,000 makes a big difference in your percentage quarter to quarter.

Mark W. Kroeger

Everyone, this is Mark, in the interest of time, and to respect everybody's time, if we could limit it to one question and maybe one follow up, we'd really appreciate it.

Next question please?

Operator

Our next question comes from Ben Mogil, Stifel, Nicolaus.

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

And just one question for me. I'm just following up on, I guess, Michael and Alexia's question on the sub numbers. Are you seeing, overall, the sub numbers stabilizing or being better than you expected just at SNI? Or when you talk to your MSO partners, are you seeing the whole MSO universe across the board be more stable than originally they thought, even a couple of quarters ago?

John F. Lansing

Yes, Ben, this is John. I can take that. Actually, the story is good. It's over the entire universe, the complete multichannel universe. We see a gain, again, this month of 130,000 subs and that's the third monthly increase in a row, and that's the first time that we've had 3 months of universe growth, albeit small, in a row since December 2010, December to February, 2011, so over the past year, so that's good. And then, we're outperforming that on a limited basis, particularly with our digital networks. So we're over-indexing that small, stabilized universe as well.

Operator

And our next question comes from the line of Ben Swinburne, Morgan Stanley.

Benjamin Swinburne - Morgan Stanley, Research Division

I will follow Mark's instructions and ask one question and then one follow up. So since you put these Nielsen numbers in the release, I guess we have to ask about them, because it's interesting, you're obviously talking about strong trends in subscribers, but the numbers were down year-on-year. I would say so far, on the cable satellite side of those that have reported, the numbers have actually been a little lighter. We had Comcast yesterday and Time Warner Cable last week. So should we just ignore these Nielsen numbers, or is there just more noise here, or are you seeing an improvement from -- it sounded like that 130,000 number was actually April.

Lori A. Hickok

Well, what I would say is there's 2 different numbers, right? Nielsen represents what John and I talked about we look at -- when we're looking at the affiliate revenue line, that's really what we call it, the subs that are being reported. Those are the real hard-core subs, and there's always a difference between that and Nielsen, this is what we use with our advertisers and our clients to pay. So ...

Benjamin Swinburne - Morgan Stanley, Research Division

Where those up, Lori, the real subs in Q1 for the fully distributed networks versus down in the press release?

Lori A. Hickok

I'd have -- to be honest, I'd have to look and get back to you. What I know is they were better than our expectations. I think they were flat to maybe slightly up, and what were looking at for the full year was probably something more flat to down. Again, there's some seasonality to that. So there's it once when I get talking against our values and our expectations, is that we are expecting there could be more loss.

Benjamin Swinburne - Morgan Stanley, Research Division

Got it. Okay.

Lori A. Hickok

Okay. Did that help?

Benjamin Swinburne - Morgan Stanley, Research Division

Yes, very much. And then my follow up, I guess, to Joe on the buyback. We sort of tortured you for 8 or so quarters on buying back your stock. So now that we'll torture you on, why did you increase it? The buyback pace in Q1 and this is the new run rate or is there some different thought process on the balance sheet and capital sort of allocation from here?

Joseph G. NeCastro

Ben, we didn't really increase the pace. We had a quiet period because of the bond financing that we did last fall. So we always had a certain pace in mind and we've stayed true to that so far. Obviously, we will continue that way because, again, we watch prices and we watch other factors in the market and so, I would have to say that the past is no indication on what we're going to do in the future, although we have not deliberately increased the pace in the first quarter.

Operator

Our next question comes from the line of David Bank, RBC Capital Markets.

David Bank - RBC Capital Markets, LLC, Research Division

My question is, if you look at revenue growth year-over-year, kind of by channel and particularly for HG in ad growth, I should say, can you give us the portion of growth that was attributable to the sponsorship and sort of nontraditional 30-second spot kind of advertising? Thank you.

Joseph G. NeCastro

Well I would be unable to give you a specific number or percentage other than to say that it is not something that you can uniquely and discreetly pull out because it also helps secure other advertising. For instance, in the Dream Home, which is our biggest special, if you will, of the year on any of our networks, the advertisers that are in the Dream Home are there because of a significant commitment to Dream Home and other commitments as well and it helps drive other business, particularly due to the fact that it's non-cancelable. And so, to put a hard number on it, it wouldn't be easy other than to say that it's a significant reason why we tend to outperform our peers based on our premium pricing, or the high quality of our audience and our ability to tie our endemic advertisers into these programs that are non-cancelable and really can help support us through challenging quarters.

David Bank - RBC Capital Markets, LLC, Research Division

But, I guess, would you go as far as to say it's sort of a material contributor? Like why you can't quantify it, is it a couple of hundred basis points or really just impossible to quantify at all?

Joseph G. NeCastro

Well I'd be very comfortable saying that it is material, absolutely, and had you been with us at our upfront in New York last week and you see the presentation of how we integrate advertisers into these special events and what that means to those advertisers in terms of their results. It becomes material not just in the way we count money, but in the way our advertisers see us as a valuable, and in many cases, irreplaceable part of their marketing plan.

Kenneth W. Lowe

And David, this is Ken, if I could just tag on to that, I mean, this has been part of our DNA from the get-go and I think a lot of it centers around these categories and the fact that there's a lot of utility in the information, so we've been hand in glove with the advertising community, and I guess one reason we have such a great relationship, another reason why our networks do score so well in engagement, because we've been willing to do these partnerships and yet maintain a programming integrity, and it's something I think, that others are trying to get closer to, but being in these categories, really gives us a leg up, if you will.

Operator

And our next question comes from Vasily Karasyov, Susquehanna Financial Group.

Vasily Karasyov - Susquehanna Financial Group, LLLP, Research Division

Joe, I have a question on the Travel Channel International acquisition. You mentioned that the EBITDA contribution is not really that material. I'm wondering, when you were looking at the acquisition, did do see any low hanging fruit there that could turn it into a more material contributor to the profitability? And if so, what would the drivers be and how soon would that happen?

Joseph G. NeCastro

Sure. Vasily, I think that the most important thing about the acquisition is the footprint that it provides for distribution, it's in a number, it's in 90-plus countries in 20-plus languages. And it's an opportunity for us to inject our programming into that distribution footprint and improve ratings. It's fair to say that it's in a lot of countries and some are much more promising than others. Certainly, we believe that it's a great footprint for us and a base of operations in Europe from which to build. So we do see a fair amount of low fruit, but it's to the, sort of with the revenue upside, more than it is, taking any costs out.

Operator

And our next question comes from the line of Thomas Eagan, Canaccord Genuity.

Frank Poerio

This is Frank Poerio calling in for Tom. With the Lifestyle segment profit margin being 50% in the first quarter versus 52% of last year, is the 50% margin what we should expect for the first half of the year before it rises in the second half?

Joseph G. NeCastro

Like I'd say, that's not unfair. We -- as we've said before, the cost drivers that affected the first quarter will certainly continue into the second quarter. And we don't give specific margin guidance, we don’t manage to particular margin numbers, but certainly, it's not unreasonable to expect that the second quarter will look like the first quarter.

Operator

Our next question comes from the line of Matthew Harrigan, Wunderlich Security.

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

You have to be pretty happy with the UKTV investment and I know it's more a bouquet of general entertainment channels and all that, but are there any learnings you could extract from there to here? The British TV market is interesting, I know you did the BT Vision deal, I don't think that Good Food or Home are on that yet. But even beyond, just as a standalone basis, is there anything that really ties back to the larger corpus stateside when you look at what you've done?

John F. Lansing

Certainly, Matt, there's a lot of learnings every day there. I think that their market is similar to ours on the distribution side. That is, cable and satellite, are predominant in terms of the distribution mechanics there and that the relationship between programmers and distributors is every bit as delightful as it is here, in many cases. They -- the one thing about that market that I think is really instructive for us is that they are much more aggressive in digital distribution of content and the availability of some of the content, especially longform on multiple platforms. And to navigate a world where you have that challenge for viewers, as well as the normal challenges from regular threshold competition is important for us. And it's good learning for us as well. I'd say it's too early to say we've learned anything that's going to make a practical difference in the way we operate right here, but they are, I think in terms of the evolution of the marketplace, they're a little ahead of where we are.

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

And specifically, with reference to BT Vision, is it just -- you're -- just too early?

John F. Lansing

It's a little early, we just did a deal at UKTV with BT Vision for some of the content and there's more, hopefully more down the road, but as you say it's too early for that.

Kenneth W. Lowe

And I think Matthew, just one quick thing, this is Ken, some of our longer-term aspirations, because of our programming generally flowing very well to international markets, we see an opportunity as we expand globally, to make that a two-way street if you will, where you'll probably see a little more international programming coming back this way as well. We've come across some "stars" in the Food category, for example, that we think will play very well here. So it's both offense and defense. We see some real opportunities, talent-wise, to exploit these brands globally and then maybe bring some of this talent back stateside.

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

What Lori was talking about, "Reza, Spice Prince of India" down in South Africa, I think.

Kenneth W. Lowe

Yes, no, yes, that's a good example.

Operator

The next question comes from the line of Michael Corty, Morningstar.

Michael Corty - Morningstar Inc., Research Division

I had a question about the possibility of some online distribution at some point? And I realize this is an open-ended question, so I just wanted to get a little more insight into maybe, in the long run, how to value your content even more in terms of opportunities to get additional revenue streams. And question is, in terms of your major channels or brands like Food, HGTV, Travel, Cooking, are there certain programming or certain channels that you'd be a little more, I don't want to say aggressive, but would maybe, be a little more lenient towards giving the likes of a NetFlix or an Amazon more current content? With Travel, fully distributed, but not the audience you want long term and Cooking is a new but growing channel, the thought being, if that might grow your audience for that channel over time by putting it on like a different network? Balancing that versus obviously, Food and HGTV, which are very strong, and you might be a little more protective of that content. So any thoughts on that would be appreciated.

John F. Lansing

Sure, Michael, this is John. Of course the great advantage that we have is that we own the vast majority of all of our content, upwards of 90% to 95%, we own all the rights and that's why currently, we're in a $100 million digital business that's being driven largely by the growth in online video on our own sites. In the first quarter it was up significantly year-over-year. And to your point, the -- all of our brands have an audience and that audience is what we're after. The distribution mechanism to get there is something we're agnostic about, whether it's YouTube, whether it's Hulu or whether it's our websites, the point is that we have the ability to meet a consumer on any platform, on any device, and with premium pricing of content that we own. And I think, it operates a dual benefit for us as the direct improvement in revenue that we can drive and then it also expands our brand and meets our consumer wherever that consumer is, when they want to consume our content and in doing that, it helps build the brand, and helps keep that growth in a positive way going forward.

Operator

And our last question comes from the line of Tuna Amobi, S&P Capital.

Tuna N. Amobi - S&P Equity Research

I guess I wanted to get a sense, Ken, the GAC channel, it seems to me that you could be doing a lot more with it, given the scale that you have right now. So if you can perhaps speak to a long-term commitment that you have to that? And perhaps, anything's going on there? I know it's been kind of flying under the radar, but from a financial perspective, I was wondering if you had any targets for breakeven, or any kind of strategic changes that may kind of be on tap, and how long you intend to stay with it before perhaps kind of changing direction from a branding perspective would be helpful to understand.

Kenneth W. Lowe

Sure, Tuna, good morning. A fair question. As I said in my comments, it's been a bit under construction for several months now. You may have noted that we've moved more towards a living country lifestyle format, more in our sweet spot, more of the type of programming that really caters to the heartland of America. And so we're considering strategies to leverage the close relationship we have with Nashville, with the country music fans, they're all across the country. To aggregate that audience, we've invested a modest amount in programming, there's some shows like Day Jobs and Tom's Wild Life, that are starting to have a little traction just to supplement the music video experience, again, that I mentioned in my comments that we're moving away from a little bit. Look, there's definitely value in 62 million households, it's something that we take a great deal of pride in. This one is probably going to require just a little bit more time to see how this country lifestyle format develops. But right now, we're very optimistic. We like the team that we have. We like the opportunities in front of us and I think again, if you look at the success we're having with DIY, and the Cooking Channel, Cooking Channel is coming on pretty quickly. DIY has not been "an overnight hit" it's taken us a while to build that audience. We're patient, but we're patient to a point. I expect that network to continue to grow in value, for us to continue to build some valuable programming on it. And then, needless to say, our ad sales team is none better than extracting value from the audience we aggregate there. So all in all, we think there's a good future for GAC and believe me, it's front and center for us.

Tuna N. Amobi - S&P Equity Research

Okay. That's a great answer. And if I can have a follow-up question on one of the -- with all due respect to you, I'm going to make it very quick. So on the digital comment, as you monetize your, the online traffic on your core sites, any kind of metrics that you can share with us as to the success, how you would gauge success on those, particularly given your reticence, it appears, on third-party distributors, just to get a sense of how you kind of monetize that? Is it just kind of in hard dollars? Or perhaps in promotional incremental benefits on the linear platform? So that'd be helpful.

John F. Lansing

Yes, Tuna, this is John. I know it's definitely hard dollars advertising against online video. Pricing has been very strong, as we've seen and our impressions are growing. In fact, foodnetwork.com had 36% growth in just video impressions in the first quarter with really solid CPM growth. And, but then, that we'll also look to monetize our content through any other business model that makes sense, as we, obviously, subscriptions make sense, direct-to-consumer, download to own, whatever it is. But the bottom line is, our content is valuable. We see that value flowing through our affiliate agreements, as we're improving our affiliate rates and we expect to see that same value flow through on any other platform.

Mark W. Kroeger

All right, thanks, everybody. This is Mark, and I appreciate your cooperation, and Mike and I will be available to take your follow-up calls for the rest of the day. Dave, you can read the callback -- playback instructions.

Operator

Ladies and gentlemen, this conference will be available for replay after 12:30 p.m. today through midnight, May 17, 2012. You may access AT&T teleconference replay system at any time by dialing 1 (800) 475-6701 and entering the access code, 245397. International participants may dial (320) 365-3844. That does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference Service. You may now disconnect.

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