Scripps Networks profit falls in Q1

Weak ad market sees net income fall to $60.1 mil

A soft scatter market and anemic results at its online shopping services cut into Scripps Networks Interactive's first-quarter earnings, as profit dipped 10% versus the year-ago period.

Scripps Nets posted net income of $60.1 million, or 37 cents per share, down from $66.5 million, or 41 cents per share in the first quarter of 2008. Operating revenues fell 7%, to $361.2 million.

At the lifestyle media segment, which includes the cable properties Food Network and HGTV, ad sales revenue fell 4.6% to $225 million. That decline is a stark indicator of the weakness of the advertising market; before this earnings period, Scripps Nets generally outperformed the cable sector, posting double-digit ad sales gains as recently as the second quarter of 2008.

Ad declines at Food Network and HGTV were "in the low single-digit range," said Ken Lowe, chairman, president and CEO of Scripps Networks Interactive.

The cable nets posted $310.7 million in total revenue, flat versus Q1 '08. Carriage fees helped counteract ad sales declines, as affiliate revenue grew 17% to $79.1 million.

Current conditions remain mixed. While scatter volume is improving, second-quarter cancellations were in the low- to mid-teens.

"Our Q2 advertising will continue to reflect the general state of the economy, but we are seeing promising signs that the market is stabilizing," Lowe said. "This should lead to an improved advertising picture for us in the back half of the year."

Lowe noted that while Food Net enjoyed another strong quarter on the ratings front -- the net lifted its profile among adults 25-54 by 15%, averaging 536,000 viewers -- a constricted scatter market made it difficult for Scripps to take advantage of those gains.

"While it's been a challenge to fully monetize that growth in the short term given the relative weakness in the scatter advertising marketplace, we truly believe Food Network is in an excellent competitive position in this year's upfront," Lowe said.

At the beginning of the year, scatter-to-scatter pricing declines were between 10%-12%, although Lowe said scatter pricing "has been improving steadily, albeit modestly," with April pricing "coming in a little better than last season's upfront."

The company also experienced declines at its interactive services unit, which posted revenues of $50.6 million, down from $77.5 million. Segment profit dropped 66.7% to $7 million, off from $21 million in the year-ago period.

Lowe said a repositioning of the company's Shopzilla service and lower consumer demand contributed to the drop. "We made a decision to sacrifice near-term growth for long-term sustainability," he said.

Shares of Scripps Networks were up 7 cents, to $29.83, in mid-afternoon trading.
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