Entertainment

Tara Lachapelle is a Bloomberg Gadfly columnist covering deals. She previously wrote an M&A column for Bloomberg News.

Scripps Networks Interactive, the $8.3 billion owner of the HGTV and Food Network channels, has always been among the littler of the big guys when it comes to TV content. So that's why in recent years, as cable and satellite-TV providers sought mergers and explored skinny-bundle packages, and as online streaming services gained steam, Scripps was seen as one of the industry's likeliest takeover candidates. Without a deal to join a larger company, it was at risk of getting left off new offerings -- or so the argument went.

It's still true that Scripps is one of the most attractive, and therefore likely, takeover candidates in the industry. But while it's not entirely clear what the shifts in TV will mean for content producers long term, at least for now, Scripps is doing well and proving that if it were to be acquired, a deal wouldn't be from any position of weakness. 

How Do You Like Me Now?
Scripps is one of the best-performing entertainment-media stocks this year.
Source: Bloomberg

There are a few things that make Scripps and its content unique. For one, its main audience is probably the most attractive from an advertising standpoint -- women ages 25 to 54. These are loyal viewers who likely make a lot of the purchase decisions in their households. Audiences that skew older and are more well-off are also less likely to be cord-cutters.

But for those who do cut the cord, Scripps's niche content has become a must-have option for skinny bundles and over-the-top platforms (a term that applies to services such as Dish's Sling TV, which allows customers to watch certain channels through an app without a cable subscription). It's also cheaper to carry than some other bigger networks. Scripps's HGTV, Food Network  and Travel Channel are already on Sling's base package, and it has or plans to have a presence on other OTT platforms, such as Sony Vue, DirecTV Now and Verizon's go90.

Ad Dollars
In the latest quarter, Scripps posted strong growth in advertising revenue, which accounts for about 60% of its total revenue. The company relies more on ad money than its larger peers do.
Source: Bloomberg

Even though remarks from Scripps CEO Ken Lowe and CFO Lori Kickok at a Goldman Sachs investor conference last month were reassuring, at least one analyst has since downgraded the stock to a sell. Scripps's normally strong cable ratings did suffer in August, but analysts have said this may be explained in part by the Olympics and therefore may be just a blip. 

Ratings Pullback
August wasn't a good month for Scripps, but this could be an anomaly in large part due to the Olympics. Many networks, including Scripps, warned of this earlier in the year.
Source: Nielsen, SNL Kagan, Bloomberg Intelligence

Some early September figures for two of Scripps's main networks are looking good again:

Autumn Awakening
HGTV and Travel Channel viewership looks good for the period shown below. The company is in the process of revamping the Food Network as some programs miss the mark.
Source: Nielsen

Food Network has been a soft spot as of late, but Scripps is working to find the right mix of programming to restore its ratings amid competition from shows like "Top Chef" on Bravo, owned by Comcast's NBCUniversal. It's already seen progress with its growth efforts at Travel Channel.

According to executives, Scripps has the highest engagement of commercials and lowest amount of fast-forwards through them. There are a few reasons for this. Given the nature of HGTV shows like "Fixer Upper," "Flip or Flop" and "Love It or List It," which revolve around home renovations, certain ads are just a natural complement to the content.

Always Be Selling
In a January survey by Beta Research, viewers were asked whether certain brand attributes described specific networks. These networks had the highest percentage of respondents say they're more likely to buy products advertised on them:
Source: Beta Research Corp. brand identity study

Scripps's content is also family-friendly, which means it can be left playing on the TV no matter who is in the room. And one show sort of flows to the next to the next; the stars and subjects may differ, but the premise is pretty similar when you're talking about, say, food or home renovations. If you tune out for a bit and then re-engage, it's not like you missed some crucial piece of the story as you might in a scripted series. 

The company's stock looks relatively inexpensive, with only the troubled Viacom fetching lower multiples based on profit measures:

Cheap Stock?
Scripps trades at a discount to most of its larger peers. (Viacom and CBS were left off this chart for space, but their valuations are also in flux given that they're exploring a merger.)
Source: Bloomberg

Now that its valuation, once considered a deterrent to takeover bids, has come down, this may give suitors another reason to take a look. There's been rumblings of some M&A movement in the industry ever since the pay-TV companies went through their own consolidation (on the content side, Fox bid unsuccessfully for Time Warner two years ago).

Just about every peer has been speculated as a possible merger partner for Scripps, including Discovery, CBS, Viacom, Disney and even Fox and Time Warner. Viacom probably would have the most to gain from adding Scripps's strong ratings and demographics, but its downward spiral during the past year left it in a weak position to do a large deal. (And anyway, Viacom and its stronger sister company CBS, which are both controlled by the Redstone family, are now considering a merger at the Redstones' request.)

Could Scripps be a better alternative to the candidates being talked about for Disney? In the latest round of what will the Magic Kingdom buy next, Twitter's name has come up, but analysts largely agree a deal could be detrimental to Disney CEO Bob Iger's legacy and his otherwise impressive M&A track record. Much of Disney's recent success comes from smart acquisitions of content, and Scripps would be a natural fit. 

But even if Scripps continues to remain independent, are investors nonetheless underappreciating it? 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. Tribune Media owns about 31 percent of Food Network.

To contact the author of this story:
Tara Lachapelle in New York at tlachapelle@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net