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Scripps Networks Interactive (NYSE:SNI)

Q2 2012 Earnings Call

August 02, 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

John F. Lansing - President of Scripps Networks Llc

Lori A. Hickok - Executive Vice President of Finance

Analysts

John Janedis - UBS Investment Bank, Research Division

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

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

Anthony J. DiClemente - Barclays Capital, Research Division

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

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

David Bank - RBC Capital Markets, LLC, Research Division

Jason B. Bazinet - Citigroup Inc, Research Division

Eric O. Handler - MKM Partners LLC, Research Division

Benjamin Swinburne - Morgan Stanley, Research Division

Thomas W. Eagan - Canaccord Genuity, Research Division

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

Vasily Karasyov - Susquehanna Financial Group, LLLP, Research Division

Amy Yong - Macquarie Research

Tuna N. Amobi - S&P Equity Research

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

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Scripps Networks Interactive Second Quarter 2012 Earnings Call. [Operator Instructions] And as a reminder, this conference is being recorded. I'll now turn the conference over to Mark Kroeger, SVP, Investor Relations. Please go ahead, sir.

Mark W. Kroeger

Thank you, Cathy. 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 your questions. Also on the call is John Lansing, President of the Scripps Networks' Operating Division; and Lori Hickock, 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 second 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.

During the Q&A this morning, it would be helpful if you would please limit yourselves to 1 question and 1 follow-up. Let me remind you that our discussion this morning will contain certain forward-looking statements. Actual results may differ from those predicted. And some of the factors that may cause the results to differ are set forth in our publicly filed documents, including our Form 10-K. With that, I'll turn it over to Ken.

Kenneth W. Lowe

All right, thank you, Mark, and good morning, everyone. As always, we appreciate your interest in Scripps Networks Interactive. We just completed another terrific quarter. Let me just quickly run through some highlights. We saw audience growth at all of our Home and Food category networks. We debuted new travel programming, that is clearly resonating with viewers. We had double-digit growth in advertising and affiliate fee revenue. We just completed our $1 billion dollar share buyback authorization and just announced another $1 billion buyback this week as you probably saw. We also reached an agreement with the country's biggest distribution partner that will make Scripps branded content accessible to millions of our fans on their tablets, smartphones and other new electronic platforms.

And the big news, and I am happy to report, is the successful completion of our best-ever performance in the upfront ad sales marketplace. In fact, in total business booked, we broke through the $1 billion threshold for the first time in our company's history. That gives us a whopping 10% of the marketplace and it puts us in the same league with a very short list of other programming groups. Clearly, we've created a distinct competitive advantage by uniquely defining and staying true to the lifestyle content categories that we own and it's paying off.

Our superior performance is driven by the remarkable power of our programming and our brands. We've establish ourselves as leaders in influencing consumer purchasing decisions in the Home, Food and Travel categories. And that's why our networks and related interactive businesses are must-buys for advertisers and must-carries for content, distributors. Our investment in trendsetting original programming and our commitment to stay focused on our lifestyle categories is delivering industry-leading returns and creating uncommon value for our shareholders. So let's take a look at how we're performing in each of these lucrative content categories and we'll start out with food.

At Food Network, we had our highest rated second quarter ever and ended the period ranked eighth among ad supported cable networks in the 25-54 demo. That is just outstanding. Promising new shows like Mystery Diners, and the eighth season of Food Network Star drove our improved viewership numbers. Also contributing were stalwarts like Diners, Drive-Ins and Dives, Chopped All Stars and Restaurant: Impossible, all of which are proving their enduring popularity.

The third quarter has gotten off to a strong start with premiere of Chef Wanted, with Anne Burrell, it's a great new show. I hope you'll have a chance to catch it. And coming up, we're looking forward to another season of the breakout hit Restaurant Stakeout and the ever popular Great Food Truck Race Competition.

And it's worth noting that while we're breaking records on TV, Food Network Magazine is having an outstanding year as well. Newsstand sales are up 16% and ad pages sold continue to grow robustly. All good news and great validation of the multimedia marketing power of the Food Network brand.

Now over at the Cooking Channel, we're literally sizzling. I kid you not. Viewership among adults 25-54 was up 16% year-over-year, and the network is showing no signs of slowing down. New shows like Roadtrip with G. Garvin and new seasons of Easy Chinese and Eat St. all contributed to Cooking Channel's excellent performance.

Turning now to the Home category. HGTV tied for its best ever quarter in adult 25-54 viewership. Viewers have [indiscernible] time and time again just how much they love our signature series, including House Hunters, House Hunters International and Homes Inspection. They're also discovering new favorites like Property Brothers and Love It Or List It, which all seem to be performing well no matter where we schedule them. And later this summer and this fall, we'll be premiering several new shows including one called Buying and Selling that leverages the popularity of Property Brothers Drew and Jonathan Scott. Now in this new series, Drew and Jonathan help home owners fix up and sell their current home and then buy and renovate their new home. Another new concept is Natural Born Sellers, where viewers will be able to follow some of California's most sought-after and successful real estate agents. Now these folks have some pretty big personalities and unlike any real estate agents that most people are likely to know -- you'll see on the show, true characters and we have great hopes for it.

Our new supercharged lineup at HGTV should be great fun and we do really hope you'll all tune in. We built HGTV into a powerful, respected consumer brand, which is evident in the success of our second publishing venture. Sales of HGTV's Magazine's third issue exceeded everyone's expectations, prompting us and our partners at Hearst to green light more issues in 2013 and importantly, boost sales expectations for the magazine. In this case, it's a very good thing when lightning strikes twice, first the Food Network Magazine and now the HGTV Magazine, both doing extremely well.

Also in the Home category, DIY Network outperformed in the second quarter, thanks to its avid fan base of home improvement enthusiasts. DIY Network had its best quarter ever for adults 25-54 on the strength and popularity of The Vanilla Ice Project, Renovation Realities and Rehab Addict. It's clear that both of our top quality premium tier channels are very much in high demand.

And what we've done for the Home and Food categories, well, we're doing for Travel as well. Time spent viewing on Travel Channel improved significantly during the second quarter, and we're seeing encouraging growth in destination viewing. We also seen a very promising uptick in ratings points in adult 25-54 viewership in recent weeks, all signs that tell us we're on the right track. We're defining the network and the genre with some entertaining new shows, series and concepts. They're really out of the Scripps playbook, and they're finding an engaged audience. Hotel Impossible and Baggage Battles, 2 shows the premiered in the second quarter have performed well and have been picked up for another season. A couple of other promising new shows that we've added to the schedule are Trip Flip and Top Spot. Now in Trip Flip, fan favorite Bert Kreischer hijacks unsuspecting vacationers and hijacks them in a good way, I might add, and treats them to the adventure of a lifetime. It's a fun show. And in Top Spot, vacation planning takes on a House Hunters look as vacationers inspect and choose between 3 resort hotels or experiences at their chosen destinations. Both shows obviously, are variations of successful Scripps formats that are proving to work in the travel genre as well. In total, we'll have 6 new series premiering on Travel Channel during the third quarter, all very promising. So keep tuned to the Travel Channel. There is more to come.

Now the appeal of our multimedia lifestyle content is evident on interactive platforms as well. Our lifestyle digital businesses continue to flourish, averaging about 25 million unique visitors and 430 million page views a month. Our food and home websites are among the top content sites in their respective genres based on the tremendous amount of traffic that each generates. And to further demonstrate their appeal to consumers, our brands have some of the leading paid apps in their respective categories as well. For example, HGTV's Shelf app launched to positive reviews and

quickly reached the #1 ranking lifestyle app on iTunes. And at Food Network, our In the Kitchen app has recorded more than 523,000 downloads, while Travel Channel's Man v. Food Challenge app has more than 172,000. Both are paid apps, by the way.

And we continue to engage fans on popular social networks. Food Network has already crossed 3 million friends on Facebook, and HGTV has more than 2 million friends. So suffice it to say, consumers and advertisers are well aware of the reach, popularity and utility of our digital platforms.

On the international front, we continue to have productive conversations with various partners around the globe, exploring a variety of potential business opportunities. Additionally, as you know, we completed the Travel Channel International acquisition during the second quarter and the integration with the existing business is well underway. As part of the integration, we've been focusing on leveraging programming opportunities. We're already planning to air some Travel Channel U.S. programming on Travel Channel International this fall.

At our other international properties, our lifestyle programming continues to resonate with consumers. Food Network, in both the U.K. and South Africa is showing year-over-year double-digit audience increases. In the U.K., we just launched 24/7 on Freeview. And even with the Olympics, we're seeing strong increases in viewers in the U.K. At the U.K., they set all-time high audience records for the UKTV for the first 6 months of this year. In fact, UKTV is the fastest growing network group in terms of audience delivery.

Our international team and partners are off to a great start, and we expect there'll be other exciting international developments in the coming quarters, so stay tuned, as we say.

Overall, I'd have to say things are going very well for Scripps Networks Interactive and its shareholders. Nearly all of the key trends and measures are moving in the right direction. And as we've been saying, it looks like 2012 will be another positive year. Now here's Joe to go over the financial results. Joe?

Joseph G. NeCastro

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

First, let me mention that starting here in the second quarter, we decided to modify our income statement presentation. We're now presenting a little more detail on the face of the income statement by presenting cost of services separate from selling and administrative expenses.

Now looking at the quarter results, starting with the consolidated view. Total revenue was up 13% on strong advertising and affiliate fee revenue growth. Total segment profit was up 3.9%, which reflects the expected higher programming marketing and employee spending we've noted on previous earnings calls and as we've reflected in our annual guidance.

For the second quarter, income from continuing operations, attributable to SNI grew about 19% to $0.93 per share. Earnings per share were also positively affected by the share repurchase program and by the increase in equity earnings of affiliates, which I'll discuss later on the call.

During the second quarter, we repurchased 4.6 million shares of stock at a cost of $250 million. Over the past year, we've repurchased 21.4 million shares of stock for $1 billion. And, as Ken just said, you probably saw our announcement on Tuesday, that the board approved another $1 billion buyback program.

Looking at the key revenue drivers for the quarter. We finished with stronger-than-expected advertising sales, up 12% versus last year. We also had better than expected affiliate fee revenues, which were up 16% compared with the second quarter last year.

Our networks benefited from the strength of the ad marketplace, with second quarter scatter versus scatter pricing up in the mid-to-high single digits year-over-year, and up in the high teens over the broadcast upfront.

As for advertising categories, our top 5 were food, retail, consumer packaged goods, auto and financial, all pretty consistent with prior quarters.

Looking ahead to the third quarter, the scatter advertising market, while still healthy, isn't quite as strong as it was the second quarter. Year-over-year, scatter versus scatter pricing growth is running in the mid-to-high single digits, and up in the mid-to-high teens over 2011 broadcast upfront. Some of this softening, we suspect, is attributable to the Olympics, of course.

Overall, the general tone among our advertisers continues to be very positive, however. Now Ken mentioned our record upfront, let me provide a little color there. We finished right at the top of our cable peers, again, with healthy high single-digit gains in CPM pricing and low double-digit gains in total dollar volume commitments. Breaking the $1 billion barrier was a huge accomplishment for us. So kudos to Steve Gigliotti, President of Ad Sales and Jon Steinlauf, EVP of Ad Sales and their entire team for this great accomplishment. Really proud of that gang.

We did particularly well monetizing the audience we're building at Travel Channel, while advertiser demand for HGTV and Food Network inventory remained exceptionally strong. Our success in the upfront speaks to the desirability of our lifestyle networks as valued programming environments, with highly engaged viewers who are passionate about food, home and travel. As has been the case historically, advertisers are willing to pay up for networks like ours that can deliver engaged, upscale viewers who are willing to spend discretionary income to buy key goods and services.

And turning to the distribution side of our business, affiliate fee revenue grew about 16% in the second quarter. The increase is attributable to the renewal of about 25% of Food Network's distribution base at the end of 2011 and some positive contributions from our new international operations.

Now let's take a look at our domestic operating segment, Lifestyle Media. Revenues were up 12% on the strong advertising and affiliate fee growth I previously mentioned. Total segment costs were up about 18% during the quarter, and segment profit was up 7% from the prior-year period.

Driving the segment costs, program amortization was up 20%. We continue to expect amortization expense growth to be in the mid-to-high single digits for the second half of the year.

Nonprogramming expenses increased 16% compared with the prior year second quarter. This growth was primarily related to 2 items, first, employee costs as we've increased headcount to support our business initiatives, and marketing and promotion expense as we move some high profile programming into the second quarter in anticipation of the Olympics.

In the second quarter of 2012, we generated about $10 million of international revenue that was included in our consolidated results. We also generated about $21 million of equity earnings of affiliates, and a little over half of that was from our international partnerships. While these figures affect different parts of the P&L, in total, our international operations and partnerships are generating a growing amount of income.

As I indicated earlier, during the second quarter we repurchased 4.6 million shares of our own stock for $250 million. We ended the second quarter with $262 million in cash, including $34 million we generated from continuing operating activities. Cash flow from operations was lower this quarter due to the timing of some tax payments compared with the prior year.

And finally, a word about guidance. Total revenue is now expected to increase between 10% and 12% for the year, as a result of the better-than-expected advertising revenue during the first half of the year, and the Travel Channel International acquisition. Nonprogramming expenses are now expected to increase between 16% and 18%. Contributing to this increase is the inclusion of Travel Channel International operating and integration expenses and a decision by the company to accelerate marketing and promotional programs to further drive audience growth at its lifestyle networks.

And finally, as a result of some favorable tax items, the company's effective tax rate is now expected to be between 28% and 30% on the year. The company also reaffirms all of its other previously issued guidance.

With that, we are ready for questions, Operator.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question will come from John Janedis with UBS.

John Janedis - UBS Investment Bank, Research Division

You've been aggressive, obviously, in rolling out the new programming this year. Ken, on the marketing front, what are you doing for returning shows, meaning for like a Designer or Food Star? Are you spending a lot more to market those shows? And also new shows due to audience fragmentation? And are you using new platforms to attract viewers?

Kenneth W. Lowe

Sure, John, go ahead, John.

John F. Lansing

Yes, John, this is John. Actually, we have focused much of our marketing spend on the existing, we call them tent-pole series, such as Food Network Star, Design Star, on the theory that -- and even House Hunters and House Hunters International -- on the theory that driving time spent viewing, along with cume, is really what drives our ratings and allows us to launch new programming on the backs of those shows by bringing a larger audience into the shows that are already well-known.

John Janedis - UBS Investment Bank, Research Division

Joe, and then maybe, yes, you called out the Olympics, obviously, way back in '08 as you guys were spinning off. I know it's hard to size the impact I guess today, but can you tell us what you're seeing from back to school? And is your underlying assumption that scatter pricing reaccelerates post the Olympics for Labor Day?

Joseph G. NeCastro

John, I'm going to take a pass on that one. It's hard to tell, it's hard to call out exactly the effect of the Olympics, as always. I think the -- in general, it creates some additional tension in the marketplace. It's good to see NBC doing well with that -- but it's hard for us to parse out the effect of the Olympics. As far as pricing going forward, I think that's an overall market dynamic. And the Olympics, in or out, I'm not sure it's going to change the scatter pricing. John, do you have any...?

John F. Lansing

The other major dynamic is political advertising that'll be putting a lot of demand into the marketplace. And since we purposely don't take political advertising, that should help drive some demand towards our channels and help support pricing.

Operator

Our next question is from Doug Mitchelson with Deutsche Bank.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

I want to try to get to margins on a go-forward basis. It seems like you've annualized the major increase in programming investment that you've been making, but there's still more work to be done with Travel, right? So I was hoping you could give us a sense of how much of the programming cost growth this year is specific to investing in Travel, and how much more you think there is to go? I think you said in the past that about half of the primetime hours in Travel are now being programmed under this year's schedule. And the reason I'm headed in this direction is I want to get a sense of next year, whether we're back to flat top margins after the investment phase you've been in.

Lori A. Hickok

This is Lori. You are correct, that Travel is driving a lot of our programming increase and that should continue for the next couple of years, as we change the programming hours. I think we've talked about this before, but the level of programming -- new programming that's been generated for Travel is less than what we do for HGTV and Food. So we're on a track to do that, but we can't do it overnight. So I think you'll continue to see that. And with success, the quicker that will happen, with shows and finding kind of what the returning series will be and the original. But there is still some incremental investment, as John talked about, on some of our tent-poles and those things in HGTV and Food, as we continue to drive ratings and performance there.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

So does that imply that maybe we go from, yes, the double-digit programming cost growth we've had, because of the incremental investment in Food and HGTV in addition to Travel down to, you say, mid-to-high single digits when you normalize Food and HGTV?

Lori A. Hickok

Yes, that's a fair assumption. It should decelerate. But keep in mind we will make choices from time to time to continue to accelerate in Travel. But yes, the trend is the right one.

Operator

Next we have Michael Nathanson with Nomura.

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

I just have a couple for Joe. Joe, I wondered with the announcement of the $1 billion buyback, is that at all conditional upon your ability to finally buy in the food stake from Tribune? Or is that going to be a separate track from your ability to buy into the Tribune stake?

Joseph G. NeCastro

It is entirely separate from our ability to buy in the Tribune stake. I'm not going to sit here and tell you that one will not affect the other. If we find that we're in the middle of negotiations, it certainly might affect the pace of the buyback program. But we certainly -- we've done the math. We are pleased to proceed with both.

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

Okay. And then, let me just ask quickly on the -- your guidance on the nonprogramming expense growth. You mentioned some of it's marketing and some of it's the incorporation of bringing in Travel International. Could you give us a sense of the step-up, which is 600 basis points? Is that roughly split between bringing in Travel and increased marketing?

Lori A. Hickok

I think --

Kenneth W. Lowe

Go ahead, Lori.

Lori A. Hickok

I'll go ahead and answer that. I think this year, you're going to see little more of that towards TCI business -- that's probably a fair assessment now. But we've got integration costs this year, along with just the increased operating expense, as Joe said in the opening remarks.

Operator

And we have a question now from Anthony DiClemente with Barclays.

Anthony J. DiClemente - Barclays Capital, Research Division

I was just wondering, for Joe, if you look at the -- your increase in your guidance, the delta for the new guidance range versus yield and you attributed the inclusion of Travel Channel International as part of that delta, can you put a little bit more of a finer point on it? Is it about half of the increase? Is it more or less than half? Can you help us with that?

Joseph G. NeCastro

Sure. I think the -- of the increase, it's roughly half, I'd say at this point. That's a fair assessment. But we were very pleased with the domestic growth as well. And that's -- that alone would've gotten us to increase the range.

Anthony J. DiClemente - Barclays Capital, Research Division

Okay, great. And then just going back to John's question. I mean, we're just all trying to figure out to what extent do we shift the -- shift dollars from third quarter to fourth quarter. I mean, can you commit to the fact that, we should probably model an acceleration 3Q to 4Q? And what are the other dynamics going on? I think you talked about high single-digit CPM increases in upfront, which kick in, in the fourth quarter. Wondering if you could also share the sellout ratio split as you move from third quarter to fourth quarter. It'll help us think about it.

Joseph G. NeCastro

Yes, Anthony, I'm -- we try to stay away from quarter-to-quarter guidance. I think hopefully, if you want to follow up with Mark on modeling-type questions. But I do think it's fair to assume that some of those positive effects you mentioned on the fourth quarter will help -- will probably result in a pattern, sort of like what you're implying there.

Operator

Next question will come from Alexia Quadrani with JPMorgan.

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

I just have one question and a quick clarification on something you said previously. First, I guess the first question is, could you give us a bit of an update on where you're seeing the most success or biggest contribution outside the U.S., Travel International, separately, I guess where else are you seeing good growth? And any change in sort of your outlook in those businesses, given the concerns in Europe and [indiscernible] the macro environment? And then just a clarification, I think Joe, I think you said that the scatter market has softened in the third quarter because the Olympics. But I think I heard, the mid-to-high single-digit scatter over scatter growth. Did I mishear that? It's -- because it sounds like the scatter over scatter growth is similar to what you said it was in the second quarter.

Joseph G. NeCastro

Yes, I'll clarify that. That is, you did hear correctly. It's still in the same range, but it's a little softer than it was before, sort of lower versus upper end in that range, I was -- the way that we characterize it. And if -- after I answer the other one, if John wants to add some color that will be fine, too. But as far as outside the U.S., most of our ratings are -- have been very, very strong, especially in the U.K. We've done some things there to shore up that business. We are now on 24/7 on the Freeview platform there, and that's had a very, very positive effect on our ratings and our projected growth. That will be a good story for us. South Africa, we continue to do well. The troubles in the rest of Europe did have an effect on our projections for the business for UKTV, which is a much broader-based business. And in fact, we planned for a bit of a sideways year there. And we're happy to report that they have been exceeding those expectations and have really outstripped the growth in the market, which is a tribute to the good management team there and the programming decisions they've made, and just the quality of the programming even coming from the BBC into that partnership. So fingers crossed there. We hope for a very strong finish to the year as well. And that is by far the largest investment, largest effect on our international results at this point. We sort of like to believe that some of the weakness there may also open up opportunities for us to either acquire or venture with other partners there. So we're looking at -- very aggressively in this period because it's a good opportunity for us.

Operator

Your next question comes from Michael Morris with Davenport.

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

My first question is on your expenses and looking forward beyond 2012, especially in light of the step up in the guide you gave today. A couple of things that you've highlighted specifically in the past, 1 was about $30 million of incremental spending on new initiatives this year. And then now we have this step up in part due to increased marketing on your nets and in part due to the TCI consolidation. So as we look at the number that you're guiding to this year, and we look into next year, can you help us understand any component of that, that won't be recurring next year?

Joseph G. NeCastro

Well, maybe Lori can add fill in some color here. But certainly, the integration expenses related to the acquisition will not occur and the $30 million was made up of 2 or 3 different parts for us, mostly these new developing initiatives. It's hard to tell what that number is going to grow to or shrink to. It depends on the results and the pace of investment. And we will moderate that or accelerate that depending on the attractiveness of those opportunities. In fact, it would probably be good news if we could spend more on some of those. Then that would mean they're attractive enough to keep pushing on. So it's hard to peer forward. The best thing we can do is to continue to call those out so you know the effect of those. I'd say the -- on the sort of overall, the base of the operating expenses, I wouldn't expect to see very aggressive growth going forward. But these items on top, like the opportunistic marketing and the investment in these other growth initiatives, those are going to be -- could be lumpy and may affect the numbers. But the core underlying trend should be very reasonable, going forward.

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

And just to be clear on the TCI integration, I apologize if you said this. But you said kind of the of the 600 basis point step up in that nonprogramming guide, half is TCI and half is the domestic marketing. How much of the TCI portion is kind of the nonrecurring integration?

Joseph G. NeCastro

It was a pretty significant chunk of it, but not, certainly not all of it. That we -- it's an ongoing business and it -- the operating expenses are -- I don't know, they're reasonably significant for that side of the business. It's a -- so I can't tell you exactly what that is. But it's, it was a few million dollars on the integration.

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

Okay. And just one other item, if I could real quickly. With respect to your buyback and the cash that you maintain on the balance sheet, is there a level of cash that you feel comfortable not going below, as we look at what your behavior can look like, going forward?

Joseph G. NeCastro

We have a number of parameters we use as we execute that program, and one of those is a liquidity parameter. So it's both a combination of the cash balances and availability on the revolver. So I don't think this is -- it's appropriate to lay out all those parameters. But suffice to say, we do have liquidity parameters that we follow.

Operator

We have a question from David Bank with RBC Capital Markets.

David Bank - RBC Capital Markets, LLC, Research Division

Two questions. The first is, can you give a sense of how much of your advertising growth in the quarter came from sort of the integrated, nontraditional spot side versus the more traditional spot side? And the second question is, your ratings certainly this quarter have been less volatile than some of your competition and more successful. And I guess I was wondering, one of the big differences is between you and your competition is that you have less or very little of your content available on SVOD over the top subscription services. Do you see a correlation between that? Or do you think it's coincidental? What are your thoughts around that?

John F. Lansing

Yes, Dave, this is John. I'd be happy to tackle that. On the first part of your question, I actually wasn't quite clear what you're asking between integrated advertising and traditional, but we'll come back to that. In terms of ratings, we have just had a stellar quarter in terms of ratings. HGTV really began to gain a great deal of momentum. And Food Network, as you heard Ken say, had the best quarter in its history, certainly coming out of that. They're -- both of them are having extremely strong -- or had extremely strong Julys just prior to the Olympics kicking in. So that momentum continues. And even on Travel Channel, we're really seeing in July one of the strongest rating months pre-Olympics that we've had since we've acquired the network. But to your point about over-the-top, we have been cautious and we were purposely not early movers in aggressive over-the-top deals for the very reason that you point out, that the value of a rating point in this ecosystem is so much more valuable to us that to put it at risk for a relatively small one-time uptick of revenue, to us, just seemed like something that was much better in a wait-and-see mode and to see how it did affect ratings. And I can't certainly draw a straight line between deals that were done and ratings issues at our competitors. But I will say that we will be moving forward cautiously in the over-the-top world. But we'll start in the over-the-top world that exists in our current business model, and that's TV Everywhere. We are a strong believer in the value of TV Everywhere to our consumers and to the strengthening of our existing distribution relationships with the multi-channel universe. So that's where we are today and I wouldn't anticipate anything dramatic in the near future.

David Bank - RBC Capital Markets, LLC, Research Division

I just said that the [indiscernible] on the side -- the other question was, you do a lot of sort of in-show product placement sponsorship, not necessarily what we'd equate with a typical, just a 30-second spot. And so the question was, how much of that is driving your business versus sort of core CPMs times rating points on traditional spots?

Kenneth W. Lowe

This is Ken. Look, it's a very astute observation on your point -- on your part, because we've been doing that from day 1, because we see these brands with value-added components. And that's helped pretty much restructure the ad sales over the years. So it's very hard for us to break out. Let's just take something like Dream Home, where we have a lot of integrated advertising. But those are wrapped into the upfront sales packages. So we don't necessarily break that out. But I think your point gives me an opportunity just to talk about the advantage we have with these passion power brands, where we can sell beyond just the 30s and 60s and truly do an integrated ad sales. And I think that's part of the reason, quite frankly, that we've had this stellar upfront market we just experienced.

Operator

We will go next to Jason Bazinet with Citi.

Jason B. Bazinet - Citigroup Inc, Research Division

I had a broad question on TV Everywhere. Correct me if I'm wrong. Are we -- I don't think we're in a spot now where Nielsen is sort of measuring sort of IP delivery of video. And I was just wondering, as you go down this TV Everywhere path, from a timing standpoint, how much of mismatch do you think there could be between when your content's available online and when you think Nielsen will begin measuring that? And did that influence your decision at all to go forward with Comcast?

John F. Lansing

Yes, I know, Jason, this is John. It's absolutely a key point and was front and center in our negotiations. Our understanding is that Nielsen will be prepared to measure in the first quarter of 2013, which would coincide with our launch of TV Everywhere with Comcast. And by that time, we should have some other significant deals done, authenticated deals done as well. And once you get past the measurement issue, which obviously is key to your point, then you have the advantage of being able to count eyeballs beyond C3 and into the fourth day and beyond through the TV Everywhere VOD application. So over the long haul, once measurement is solved, then it creates even a greater opportunity to drive impressions for programming.

Operator

We have a question now from Eric Handler with MKM Partners.

Eric O. Handler - MKM Partners LLC, Research Division

Just a quick question on the upfront. You said the CPMs are up high single digits and total volume commitments, low double-digit. Wondered if you could talk about the implication that you sold more inventory across all your networks. Is that in fact what you did? Or did you pull back some inventory like in maybe Travel Channel? And by selling more inventory, is that sort of -- give an indication of your view on what scatter might look like over the next couple -- as you look into 2013?

John F. Lansing

Yes, I'll take that. This is John, Eric. No, we were -- our inventory usage in this year's upfront was in the range that we normally operate within by -- within a 4- to 6-point range between high 40s, low 50s. We were within that range. What really drove it for us was our best-of-class pricing. Steve Gigliotti and his group just did an outstanding job and once again led our peer group in terms of pricing increase. And as a result of the growth in the total volume of the cable marketplace, I think there was roughly about a 5% volume growth for all of cable. Scripps Networks took 18% of that growth. So in leading the market, we were able to capitalize on capturing the growth. And our team does that, not only by driving pricing but by really smartly churning out the low CPM business when they can and replacing it with a high CPM business and continuing to enrich in the full aggregate advertising on all of our networks.

Operator

Ben Swinburne with Morgan Stanley.

Benjamin Swinburne - Morgan Stanley, Research Division

I wanted to ask -- and I apologize if you've talked about this before, and then just please then feel free to ignore me. I wanted to ask about the investment in programming across the networks. I think if you look at last year, the cash spend was up about 30%. It's up 30% the first half of the year. And clearly, that's benefiting you in the upfront and on the top line, so definitely money well spent. But Lori, I thought you said that programming amortization expense growth would slow in '13. And I just wanted to see if that is what you said and if it is, how does that foot up with the cash increase on the cash flow statement?

Lori A. Hickok

Absolutely, yes that's what I did say, that you should see some deceleration. We also talked about Travel Channel and continuing to build on the hours that we invest in there. Again, the cash spend, you've got to be careful about because it's tied to the premieres, the type of shows and different things. So yes, our cash is up year-over-year. But then again, you have to take into account the timing and it's not necessarily apples to apples from years to year. You talk -- you heard John talk about, we've accelerated some programming earlier in the year, some of our premier programming. That has an impact. So you're seeing that in the first half of this year and it continues to have an impact as we go through our amortization life cycle. But yes, you should start to see some moderation in that.

Benjamin Swinburne - Morgan Stanley, Research Division

Got it. And then, I just wanted to ask a follow-up, John, to Jason's question on Nielsen. Do you know -- will they be able to measure TV Everywhere streaming data, streaming views with different ad loads? I think one of the big issues was if the ad loads and sort of what you were running varied across, kind of an on-demand versus a sort of time delayed on-demand platform versus live linear -- have they figured that piece out, do you know?

John F. Lansing

That's exactly what they're working on, although our bias is towards mirroring the ad load in the TV Everywhere model. And we believe that can be the case, I think it has proven to be the case in some other situations. But as you get into VOD further out from C3, I think you could have varying ad loads. And that is, I think, one of the hurdles that they're solving for, absolutely.

Operator

Next question is from Ben -- I'm sorry, Tom Egan with Canaccord Genuity.

Thomas W. Eagan - Canaccord Genuity, Research Division

You mentioned interest in ventures or investment overseas. Could you give us a little bit more color on what you're thinking about, like for example, what markets, what dollar size and whether any JV would be consolidated or not?

Joseph G. NeCastro

I'll give you my -- just a sort of a look forward there. We are very focused on certain geographic targets around the world, and I don't think anything would surprise you. Certainly Eastern Europe, Latin America, Asia are the most important targets for our programming. But that's not to say we don't have good opportunities in -- even in Western Europe and in Africa, even. But the ones I mentioned at the top are probably our most important targets. The size of the potential investments is really hard to calibrate. I will say that the investment we made in UKTV is certainly at the top end, I think of anything we've even seen since then. They're just not a lot of very large opportunities that are -- that would be in our wheelhouse, because we are trying to capitalize on our expertise in lifestyle. And there just aren't a lot of huge plays out there in lifestyle assets. Our bias, obviously, is to acquire majority stakes and consolidate wherever possible. We're building an infrastructure to support businesses that we can manage rather than have to rely on partners to manage and hopefully put us in a position with the infrastructure on our programming to be the majority partner wherever we have a partner, and then consolidate. So that's our sort of primary thrust in international, if you...

Thomas W. Eagan - Canaccord Genuity, Research Division

Is there any timing we should -- that we should be thinking about? Like do you want to make a decision before the end of the year? Or would you be thinking about '13?

Joseph G. NeCastro

Well, these are ongoing. It's very hard to predict. We have a number of conversations underway, and it's just hard to predict timing on them. I would say it's just not something that we're willing to put out there, a specific timing on any of them.

Operator

We have a question now from Alan Gould with Evercore Partners.

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

First a clarification. You mentioned that half of the increase in revenue guidance was to TCI. Was half of the nonprogramming expense increase also due to TCI? And secondly, could you tell us how much TCI does or did in 2011 in revenue and EBITDA?

Joseph G. NeCastro

Alan, this is Joe. That is what we said on both the revenue and expense. It's, let's say you have to have a -- take those with a plus or minus on them. I don't have the TCI 2011 results with me at the moment, I apologize, but we can certainly get that to you.

Operator

Next question is from Vasily Karasyov with Susquehanna.

Vasily Karasyov - Susquehanna Financial Group, LLLP, Research Division

I had a question on Travel Channel ratings. And I think you mentioned in the prepared remarks that some shows worked out really well. If my data is correct, it looks like total day and primetime were both down every month in the quarter. So my question is, what should we be looking at to judge the success of the new programming initiatives? And then as a follow up, if you -- if we assume total cable viewing is somewhat flat, and you would have to take market share to grow viewership at Travel Channel, where do you think that would come from? And is it possible at all that it could cannibalize Food or HGTV?

John F. Lansing

Yes, Vasily, this is John. I'll take that. Your point is right. In terms of the second quarter, our slate that we are, really excited about, really didn't hit in full until the beginning of July in the third quarter. It's really targeted to the third quarter. And I'm really happy to let you know that while Travel was a minus 15 in the second quarter, it was flat in July to last year's July. So it really saw some acceleration in July. And that's just prior to the Olympics kicking in. And the other stat that we find very encouraging that's undergirds that acceleration in ratings is time spent viewing. That's a stat that we watch very closely. And that had been an issue for travel because it was so reliant on really 2 series when we acquired the network, Man v. Food and No Reservations. And Man v. Food just wore out quickly, unfortunately. And when it did, it took a lot of the time spent viewing with it on the network. Now, as we have 5 or 6 series beginning to kick in and show ratings growth, we've seen time spent viewing almost double to 43 minutes per night from where it was at a low point, and up 13% just from last quarter. So that -- the key indicators for travel are very positive, and I feel very good about the slate that our team there has put together on a going forward basis. And you can anticipate some new series launches -- back to our investment in programming -- you can anticipate some new series launches in the fourth quarter as well that should continue that momentum. In terms of whether that's -- we're concerned about whether that's cannibalizing our ratings, I can only look to the data, and the data shows us that Food Network and HGTV are at all-time highs in terms of their ratings, while Travel has grown its ratings into July. We think about it very much, and we understand that some of the Travel programming, particularly as it relates to food can be impactful to Food. But once again, as you look at our entire Food category, and the growth of Food Network, the growth of Cooking Channel and now the growth of Travel, I guess my argument would be that we are gaining a hold of and controlling a major television category and owning it. And -- so my concerns about cannibalization are not really supported by any data.

Vasily Karasyov - Susquehanna Financial Group, LLLP, Research Division

Do you know where the incremental viewers are coming from, from what other categories? Just out of curiosity.

John F. Lansing

Yes, it would be a reach for me to identify this network or that network. You're absolutely right. It's a share shift. That's just the nature of television to get a viewer from one channel to another. But again, ratings are reliant not just on a viewer moving from one channel to another. They're also reliant on having a viewer that you already have on your channel remaining there, and not changing channels. And that's that time spent viewing stat that I was -- that data point that I discussing earlier.

Operator

We have a question from Amy Yong with Macquarie.

Amy Yong - Macquarie Research

You have a couple of high profile affiliate fee negotiations recently. When you think about 2013 and Travel comes up for renewal, how confident are you on raising fees in this kind of environment?

John F. Lansing

Yes, so this is John. We -- Travel, obviously is a work in progress, and it is progressing. And we will have renewals for Travel along the way. But we really feel like it'll be a more than one-step process for Travel. And to the extent that we have a positive story on ratings, then our ability to grow those affiliate fees moves accordingly. And I have confidence we'll be able to do that, as time progresses. Now 2013 is not a drop-dead date for Travel. There are renewals in '14 and '15 as well.

Operator

We'll go next to Tuna Amobi with S&P Capital IQ.

Tuna N. Amobi - S&P Equity Research

So I guess, on the equity earnings affiliate line, I was trying to maybe get a better sense of the run rate as we look to the back half. I know you said half of the Q2 number was related to the international JV, which was just kind of trying to get a sense of how we should think about that, going forward.

Lori A. Hickok

There's really not going to be a major shift there in this current year. And in fact, as you heard Joe talk, the market in which UKTV is operating is a fairly tough one right now, even though they're at the top of the field, and we also acquired that last year. So a little tougher comps in the back half. But I would look at the run rate and kind of -- and factor that, looking at that.

Tuna N. Amobi - S&P Equity Research

Okay, that's great. So for Ken, so you guys did a very good job, maybe an understatement, to kind of monetize your ratings gains upfront and you threw out some pretty amazing stats there in terms of your share of the overall market and the CPM, et cetera. I was just kind of trying to get a sense, as you think about some of your peers that have been bemoaning, actually, their inability to kind of close that gap fast enough between the revenue and the audience gains, and yet you guys are getting a disproportionate share of your -- of the market. I'm wondering if you think that -- as you look out in the next few years, if you think that you will be able to sustain that pace? And how much, at this point do you think in your particular case, that gap is in play, in terms of potentially motivating you guys? It seems like, with the kind of ratings that you've gotten across your networks, there is still possibility that there's still a lot more headroom ahead. So, how do you think about that in the overall context of the cable advertising marketplace?

Kenneth W. Lowe

True, Tuna, well, yes, first and foremost, we absolutely believe there's upside to all of our networks. And I think John touched on a couple of things. I mean, as we look at new platforms and new technology and more definitive ways to measure audiences, that's going to play very much into our favor because as you know, somewhat of a broken record, but love to talk about it, the quality of audience that we deliver, psychographically, demographically, upscale and highly educated women, continues to be at the top of every advertiser's wish list. Add to that, these passion brands. And passion continues to play out by the way in all forms of media, including social media, because passion drives not only viewership but interactivity. And then coupled with the fact that we have a very, very safe environment, if you will, for our advertisers. And more and more, I think, as advertisers are looking where to place their dollars, they are looking for safe, they're looking for reliable and they're looking for trustworthy. And that's never more been in vogue. It's not going away. It's going to continue. And I think it's from our internal research and it's what gets played back every day. I think you heard me rattle off some numbers about the number of friends that the Food Network and HGTV and all our networks have on Facebook, and the opportunity that people now have to use Twitter and socialize around these networks. So we not only see upside, we see continued growth. And the opportunity, I think, to enrich our relationships beyond just what we've been doing for a few years successfully, that's the 30s and 60s, I mentioned earlier, and that's these integrated advertising arrangements that we have. So all in all, this is not by accident. This is a lot of years in the making. This is a lot of hard work by some really incredibly talented people, both on the programming side, on the production side and on the ad sales side. So I'm very bullish on the future. And thank you for pointing out that we had a stellar quarter against some of our competitors.

Tuna N. Amobi - S&P Equity Research

That's helpful. Just quick clarification on how much of this recent growth has come from endemic advertisers?

_

John F. Lansing

I think it's fair to say it's in the 60% range is endemic. Okay, Food, of course, is more endemic because of the advertising on Food Network than on Home. But if you aggravate everything, it's in the 60% range.

Kenneth W. Lowe

I think the good thing, Tuna, is, in the early days, we were very reliant on endemic. But as these brands have grown, there's very few advertisers you don't see lined up with us, and some of that's younger males. We don't get a lot of fast food. We don't get as many soft drink dollars and things of that nature. But all in all, that these are broad-based networks. But the endemic, I think, is just indicative of the fact that in the categories we're in, again back to the safe buys, so they're must buys. So you get those endemics showing up every year. And by the way, it costs a little more this year, and will cost a little more next year.

Tuna N. Amobi - S&P Equity Research

Is it fair to expect that your endemic base could actually grow to over half by next year, perhaps, sometime next year?

Kenneth W. Lowe

I wouldn't want to speculate on that. I don't have those numbers in front of me. But again, I think the very positive thing is every year when we go to the upfront, we go to advertisers, it helps when you can lay that base in and that base continues to support us. And that just is, I think, underscores the categories we're in, Home, Food and Travel and how valuable they'll be going forward.

Operator

Our final question will come from Matthew Harrigan with Wunderlich Securities.

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

I was just curious. You didn't say [indiscernible] you were dealing with the MSOs stateside, over in the U.K., you're working with Freeview. You've gotten very good results there. Can you talk about how you're adjusting to the market over there, and what versions [ph] doing with TiVo as well? And then this is a broader question. When you look at the foodie phenomenon in the States, and you look at the markers for that activity in some of the other countries you're going into, do you feel like you're having to educate people with the process, or do you think there's a lot of latent demand that you can just hit, practically as soon as you get on the track, so to speak?

Kenneth W. Lowe

Yes, Matthew, let me take the last part of that question. This won't surprise you at all. There are people internationally waiting for the Food Network to show up. We live in a global society. It's amazing now, how many people in these countries that we're entering are already familiar with Guy Fieri from Diners, Drive-Ins and Dives, or Ina Garten or Bobby Flay. These are becoming global personalities, and I think it was never more evident than when we launched in the U.K. The immediate success of a lot of the Food Network domestic programming. We know from our partnership at the BBC it even took them by surprise a little bit because in the UKTV partnership we have a competitive Good Food Channel -- but quite frankly, we've been able to beat with Food U.K. So just the opposite. We're finding whatever the country, with very few exceptions, I think it's safe to say, Joe. People are waiting with open arms to have the Food Network into their country. Now there are some variations and it helps if there are already some stars, some chefs in some of these countries that we can put on the network and popularize. But we're very encouraged by the fact that there are foodies everywhere.

Joseph G. NeCastro

Matthew, on the distribution side of that question. On the Food Network U.K., we are on Freeview and we're on the unpaid tier on Sky. So we don't have distribution issues the way others do. We have a single revenue source business for Food Network U.K. Now UKTV, obviously is on all platforms, paid and free. And we do see the dynamics around the entrance there. In fact, there is good competitive tension. Virgin's strategy, is obviously one of them that we have to tailor our approach to, as we do with BSkyB there, the largest distributor on the paid platforms. So I think they've had a great track record, UKTV, of securing distribution and getting paid for their content. And we have renewals coming up in not too distant future. We expect a positive result. It certainly helps that they are having a very, very strong ratings year. And we're in a good position to capitalize on that with our renewals.

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

Would you expect more of an affiliate fee stream internationally when you go out 3 to 5 years? I assume that you would.

Joseph G. NeCastro

Absolutely, we would. Our objective, of course, is to build a dual revenue stream business. It's not available in all markets, to be fair. It's either, some cases you get paid for the content, and it's very hard to build an ad business or the reverse. That's the fun of the International business. But we do expect that we'll get -- our objective is of course, to get the dual revenue stream wherever we can.

Operator

Then ladies and gentlemen, that does conclude our Q&A session. I'd like to remind you that this conference will be available for replay after 12:30 p.m. today through midnight, August 16. You may access the AT&T executive playback service at any time by dialing 1 (800) 475-6701 and entering the access code 253935. International callers, dial (320) 365-3844, using the same access code, 253935. And that does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.

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