UKTV: Future of Scripps, BBC Joint Venture in Focus

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ABC's 'Quantico' airs on UKTV's Alibi

"Scripps would definitely want to fully consolidate UKTV," says one analyst amid chatter that the British government may require BBC Worldwide to sell its 50 percent stake.

How much does lifestyle networks company Scripps Networks Interactive want to fully own British channels group UKTV? That may be one of the questions that the management team could face when it reports its latest financials on Thursday.

UKTV is a networks joint venture between Scripps and BBC Worldwide, the commercial arm of U.K. public broadcaster BBC. Scripps Networks in 2011 agreed to acquire a 50 percent stake from U.K. cable giant Virgin Media for $495 million (£339 million), giving it a key foothold in Britain with such channels as general entertainment network W, formerly known as Watch, male-centric Dave (which airs such shows as Parks and Recreation, The Last Man on Earth and Suits), female-centric Really (Grey’s Anatomy, The O.C., Bridezillas), Drama, crime drama network Alibi (Quantico, Castle, CSI: NY), classic comedy channel Gold (Cheers, Fawlty Towers, Absolutely Fabulous, The Office), Home and Good Food.

UKTV recently reported 10 percent earnings growth for its latest year to $120 million (£82 million) on a 13 percent revenue gain to $465 million (£319 million), helped by higher programming spending, audience growth and by its strategy of making some of its channels available free-to-air. The Guardian reported that the figures mean that UKTV now accounts for a third of BBC Worldwide’s total profits and that the company has overtaken the advertising market share of the channels operated by Viacom’s Channel 5 and pay TV giant Sky for the first time.

Given those trends, BBC Worldwide has not shown any interest in selling its 50 percent stake in UKTV, even when reports said a couple of years ago that Scripps offered as much as $730 million (£500 million) to buy 100 percent control, in line with what it paid for its initial stake.

But amid recent industry chatter in London that the U.K. government is considering forcing BBC Worldwide to sell its UKTV stake as it negotiates a new 10-year-plus charter outlining the BBC’s duties and purpose, the future ownership of UKTV has come back into focus.

Scripps declined to comment on its interest. Observers have also mentioned that in an attempt to boost its content business, Liberty Global-owned Virgin Media could look at buying a 50 percent stake in UKTV, but a company representative declined to comment on that. Bankers said various U.K. companies, from ITV to Sky, and U.S. companies looking for further international exposure, could take a look if half of UKTV does become available.

But Scripps, which has been expanding its international business, is widely seen as the likeliest buyer.

“I imagine Scripps would definitely want to fully consolidate UKTV and have it reflected in its revenue” and cash flow, MKM Partners analyst Eric Handler tells THR. “It would also go along with the desire to increase its international exposure.” He highlighted the topic as one “to watch for” on Scripps’ earnings call.

"UKTV is a significant opportunity for Scripps Networks Interactive to participate in a thriving multi-channel, dual revenue stream media business in one of the world's largest television markets," said Scripps chairman, president and chief executive Kenneth Lowe when the company first bought into UKTV.

In 2015, the company agreed to acquire a controlling stake in Polish commercial broadcaster TVN for $615 million to further expand in Europe before buying full control.

Owning UKTV outright would fit into that expansion abroad, said Wunderlich Securities analyst Matthew Harrigan, who estimates that the company overall could be worth as much as $1.7 billion.

Enders Analysis analyst Toby Syfret highlighted how UKTV is outperforming in Britain, making it an attractive target in an environment where British TV viewing via TV sets has declined by 11 percent since 2010. “Almost every TV group has felt the decline,” he said. “However, one group stands out as having bucked the trend. UKTV has seen its total daily average minutes viewed increase by 17 percent since 2010.”

All of this means that deal chatter is likely to persist in Britain's TV industry after Viacom acquired U.K. broadcaster Channel 5 in 2014 for $725 million and smaller deals for various TV production companies.

Concluded one industry watcher: "Scripps is likely the natural home for UKTV if the BBC needs to sell. Add in talk about a privatization of [U.K.] broadcaster] Channel 4, and you know we will have all sorts of potential deal intrigue to keep the industry riveted."

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