scripps networks interactive (sni) earnings report: q4 2015 … · scripps networks interactive...

CompanyName:ScrippsNetworksInteract iveIncCompanyTicker:SNISector:ServicesIndustry:Media

EventDescription:Q42015EarningsCallMarketCapasofEventDate:7.09BPriceasofEventDate:58.04

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ScrippsNetworksInteractive(SNI)EarningsReport:Q42015ConferenceCallTranscriptThefollowingScrippsNetworksInteractiveconferencecalltookplaceonFebruary23,2016,10:00AMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

DylanJones;ScrippsNetworksInteractive;ChiefCommunicationsOfficerKenLowe;ScrippsNetworksInteractive;Chairman,President,CEOBurtonJablin;ScrippsNetworksInteractive;COOLoriHickok;ScrippsNetworksInteractive;CFOJimSamples;ScrippsNetworksInteractive;President-International

OtherPart icipants

DougMitchelson;UBS;AnalystMichaelNathanson;MoffettNathanson;AnalystVasilyKarasyov;CLSA;AnalystDavidJoyce;EvercoreISI;AnalystToddJuenger;SanfordBernstein;AnalystAmyYong;Macquarie;AnalystAlexiaQuadrani;JPMorgan;AnalystMichaelMorris;Guggenheim;AnalystRyanFiftal;MorganStanley;AnalystBenMogil;Stifel;AnalystLauraMartin;Needham;AnalystEricHandler;MKMPartners;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator :

WelcometoScrippsNetworksInteractivefourth-quarterearningscall.

(OperatorInstructions)

Asareminder,thisconferenceisbeingrecorded.

NowI'dliketoturntheconferenceovertoDylanJones,ChiefCommunicationsOfficer.Pleasegoahead.

DylanJones (ChiefCommunicationsOfficer):

Thanks,Operator.Goodmorning,everyone.

OnthecallwithusthismorningisKenLowe,ourChairman,PresidentandCEO;BurtonJablin,ChiefOperatingOfficer;LoriHickok,ChiefFinancialOfficer;andJimSamples,PresidentofInternational.

Wewillstarttheconferencecallwithpreparedremarksthatshouldtakeabout20minutes.Thenwewillopenitupforquestions.Letmeremindyou,ifyouprefertolisteninviatheInternet,gotoourwebsite,clickontheInvestorbuttonandfindthemicrophoneicononthelandingpage.




Additionally,underthemicrophoneiconyouwillfindthefourth-quarterearningspresentationmaterialswewillbereferencingduringthepreparedremarksportionofourcall.Anaudioarchivewillbeavailableonthesitelatertoday,andwewillleaveittherefortwoweekssoyoucanaccessitatyourconvenience.

DuringtheQ&Athismorning,pleaselimityourselftoonequestionandonefollow-up,sothatwecanaccommodateasmanypeopleastimeallows.

Letmeremindyouthatourdiscussionthismorningwillcontaincertainforward-lookingstatements.Actualresultsmaydifferfromthosepredicted.Someofthefactorsthatmaycauseresultstodifferaresetforthinourpublicly-fileddocuments,includingourForm10-K.

Withthat,IwillturnitovertoKen.

KenLowe (Chairman,President,CEO):

Allright.Thankyou,Dylan.Goodmorning,everyone.Wearehappythatyouareabletobewithustoday.Whatayear.2015wasamilestoneyearforScrippsNetworksInteractive.Revenueswereup13%,hitting$3billionforthefirsttime.Advertisingrevenueswereup14%,exceeding$2billionforthefirsttime.

Adjustedsegmentprofitsup13%to$1.3billion;adjustedearningspershareup25%to$4.94.AndwecompletedthelargestacquisitionintheCompany'shistory,successfullytransformingourinternationalbusinessthroughtheacquisitionofTVN.SoquiteayearindeedfortheCompany,andI'djustliketosaythankstoallthededicatedemployeesthathelpedmakethispossible.

Youknow,wehaveaprettysimplebusinessphilosophy.Wefortifyandprotectourcorebrands.Weextendourreachbycreatingnewconnectionswithconsumers.Andfinally,wegenerateandextractvaluefromeachofthoseconnections,whetheritbeonatelevisionscreen,amobiledeviceoreventhepagesofamagazine.Andwearedoingthataroundtheworld.

WithTVN,theleadingmultiplatformmediacompanyinPoland,ourCompanyfirmlyestablisheditselfinoneofEurope'smostvibranteconomiesandcreatedaplatformforfuturegrowthinthisdesirableregion.

HereintheUnitedStates,ourtelevisionnetworksenjoyedanotherstrongyear.Weonceagainoutperformedourpeergroupaswecontinuedtoattracttheupscaleengagedaudiencescovetedbyouradvertisers.AsyouwillhearfromBurtonshortly,ournetworkscontinuetobeanessentialelementinthemediaplansofbrandsandagencieseverywhere.

Wearemeetingthechallengespresentedbychangingmediaconsumptionhabits.We'vebroadenedourhorizonsandwe'vemadeourvaluedcontentavailableonagrowingarrayofdeliveryplatforms,includingtelevision,tabletsandmobile,tomeetclearconsumerdemand.WearemakingsmartstrategicbusinessmovesthatfurtherpositiontheCompanytotakeadvantageoftheevolvingmedialandscape.

WeconsolidatedallofourUStelevisioncontentdevelopmentunderanewChiefContentandBrandOfficer,KathleenFinch,whoisdoingafantasticjob.It'samovethatreallymakesiteasiertotaptheexpertiseandtalentpreviouslyseparatedbybrand.Ithasreallymadeusamorecohesiveandholisticorganization.

Atthesametime,weareexpandingbeyondtraditionaldistributionplatformsandgeneratingmoreon-demandandshort-formcontentspecifictotheplatformonwhichit'sconsumed.OurrecentlaunchoftheScrippsLifestyleStudiosreflectsourprogressinthisarea.

Wemadepositivestridesin2015,toletconsumersaccessourcontentontheirdeliveryplatformofchoice,andthey'verespondedbyvisitingourwebsitesandmobileappsinever-increasingnumbers.




In2015,weexperiencedstrongrevenuegrowthinadvertisingsalesandcontentdistribution.WeunitedthoseunderasingleChiefRevenueOfficer,SteveGigliotti,whoistaskedwithmaximizingalltheCompany'smonetizationstreams.

Wecompletedacompanywidecostanalysisandtakenecessarystepstobringcostsinlinewithprojectedrevenue.Ithasmadeusleanerandithasreallyenhancedourabilitytomovequicklywhenopportunitiesarise.

Advertiserswanttoworkwithus,anddistributorsconsiderourchannelsasthekindofmust-carrybrandstheirconsumersdemand.Soinsummary,2015wastrulyatransformationalyearforourCompany.

Overthelast20years,wehaveestablishedpowerfulbrandsthatconnectdeeplywithconsumersacrosstheworld.Wearegrowingrevenuesaswemonetizeaudiencesonallplatforms.Thesolid,consistentperformancethatourCompanyexhibitsquarterafterquarter,yearafteryear,validatestheeffortsofourincrediblytalentedteamsaroundtheworldaswebuildvalueforallofourshareholders.

SoIwanttothankyouagainforyourinterestinScrippsNetworksInteractive,andnowletmeturnitovertoBurtonwhohasdetailsonourstrongfourth-quarterresults.Burton.

BurtonJablin (COO):

Thanks,Kenandgoodmorning,everyone.Theyear2015endedstrong,andthatstrengthhascontinuedintotheearlypartof2016.Herearejustafewhighlights.In2015,bothHGTVandCookingChannelrecordedtheirbestyearsever.HGTVwasoneofonlythreetop10cablenetworkstogrowitsratingsin2015.Itcompleteditsninthconsecutiveyearasthenumberonenetworkforupscalewomen,andforthesecondyearinarowwasnumberonewithwomen25to54onweekends.That'satimeperiodthatreallyservesasasecondprimetimesalesopportunityforus.

FoodNetworkandTravelChannelexperiencedstronggrowthinthefourthquarterandsofarthisyear,allsixofournetworksareseeingratingsgrowth.

OnHGTV,somenewershowsemergedashugehits.FixerUpper,aseriesaboutremodelinghomesinWaco,Texas,hasbecomeoneofthebiggestshowsinthenetwork'shistory.It'sjustoneexampleofhowHGTVtapsintotheheartlandofAmerica.

NewseasonsofFliporFlop,HawaiiLife,andPropertyBrothersHomeontheRanchdeliveredhighaudiences,asdidHouseHunters,ofcourse,ourperennialfranchisethatwecontinuetoexpandtogreateffect.

AtFoodNetwork,we'veturnedthecorneronaudiencegrowth,especiallyamongyoungerviewers.Millennial-appealinghitslikeCutthroatKitchen,CampCutthroat,andWorstCooksCelebritydrove5%year-over-yeargrowthinthevaluableadults25to34agegroup.

Family-friendlyserieslikeHalloweenBakingChampionship,RachelRay'sKidsCook-Offencouragedco-viewingbythewholefamilyandincreasedyoungerviewersbydoubledigits.The11thseasonofFoodNetwork'sStarscored15%higherratings,becomingoneofthesummer'sbiggestsuccessstories.Duringfourthquarter,FoodNetworks'overallviewershipwasup5%over2014.Thenetworkfinishedinthetop10inwomen25to54,andjustoutsidethetop10amongadults.

TravelChannelalsoshowedverypositivemovement,assomeofthenewshowswe'vebeentellingyouaboutcontinuedtogaintraction.Overall,TravelChannelviewershipwasupanimpressive5%forthequarter,andthenetworkhasmaintaineditspositiveperformanceintothenewyear.

KeycontributorsincludedExpeditionUnknown,BizarreFoods,andBoozeTraveler.Andwehaveaslate




ofnewshowsinthepipelinethatweareconfidentwillhelpcontinuethegrowthtrend.

Latelastyear,webegantomovesomeTravelChanneloperationstoourKnoxvilleheadquarters,andweexpecttogainadditionalcreativesynergiesasthatmoveplaysoutoverthenextfewquarters.

RatingsatCookingChannelcontinuedtoimproveinthefourthquarter,maintaininghealthygrowththroughouttheyear.CookingChannelfinished2015withitssixthstraightyearofaudiencegrowth.Forthefourthquarter,viewershipsoared13%torecordlevelsforadultsandwomenages25to54.

Moreover,thequarterwastheyoungesteverforprimetime,thankstostronggrowthinadults25to54.RatingsgrowthresultedfromsuccessfuloriginalshowslikeUniqueEatsandSugarShowdown.

DIYNetworkhadastrong2015,themostwatchedyeareverforadults18plus,andthesecond-highestyearforadults25to54,drivenbyshowslikeRehabAtticandBarnwoodBuilders.AndGreatAmericanCountryexperienceditsmostupscaleyearyet,aswecontinueitssuccessfulconversiontolifestyleprogramming.

Nowwetalkalotabouttelevisionaudiences,andlineartelevisionisthrivingatScrippsNetworksInteractive.WealsobenefitfromthegrowingawarenessofTVEverywhere.UsageofourWatchappsincreasednearly300%inJanuaryversusayearearlier.ConnecteddevicessuchasRoku,AppleTVandAmazonFireTValreadycomprisemorethanone-thirdofourtotalTVEverywherereach.

Weareworkingdiligentlytoensurethatweattractthenextgenerationofviewersandconsumers.Wehaveseensignificantprogressonourtelevisionnetworksandonover-the-topservices,butwemustalsocreatecontentthatispurposelydesignedforalternativeformats.

Attheendof2015,welaunchedScrippsLifestyleStudios.It'sadedicatededitorialteamthatcreatescontentspecifictotheplatformonwhichit'sconsumed.ItcouldbeFacebook,AppleNews,Snapchatoranyofthemanyplatformsthatemergeeveryday,aswellasourowndigitalproperties.Anditletsustakeadvantageofkeyaudiencesandadvertisingopportunitieswhilealsoreachingdigitalnatives.

AnearlyexamplefeaturedChefBobbyFlayandhisdaughterSophiestarringinaseriesofcookingvideosthatairedonSnapchat.Thisapproachtocontentgenerationgivesusgreateragilitytotakeadvantageofadvertisingopportunities.Weareabletointegrateadvertisersintoauthenticstorytelling.Thishelpsclientsreachhigh-valueaudiencesonthedigitalplatformstheylove,andtranslatesthatengagementintodeeperconnectionandtransactions.

Iwanttoexpandalittlenowonourinternationalprogress.TVNGroupclosed2015withastrong22%shareoftheadults16to49televisionaudienceinPoland,anditsspringseasonhasopenedwithstrongnumbers.TheprogramsMasterChefJuniorandthenewdramaseries,SecondChance,scoredthebestseasonpremiereratingssince2013acrossallTVchannelsinPoland.

TVNcontinuestoshineinitsover-the-topstrategy.Morethan1.7millionpeoplehaveregisteredwithaTVNplayer,makingitoneofthetopfivedistributionplatformsinthecountry.WecontinuetoviewTVNasagreatassetfortheengagedaudiencesitsnetworksaggregate.WealsoseegoodopportunitytoleverageTVNasalaunchpadforexpandingScripps'presenceinthisimportantregion.

NowwhileTVNprovidedtheyear'sbiginternationalheadline,theCompanyexperiencedsubstantialgrowthinotherpartsoftheworldaswell.FoodNetwork,ourmostwidelydistributedglobalbrand,isnowavailableinmorethan150countries.ItisthetoplifestylechannelintheUK,andhasseensubstantialsuccessinSoutheastAsiaandmorerecentlyinLatinAmericaandAustralia.

TravelChannel,oursecondmostdistributedbrand,isviewedinmorethan130countriesacrossEurope,theMiddleEast,AfricaandtheAsia-Pacificregion.




HGTVdebutedontheinternationalscenejustaboutayearago.ItisalreadythenumberonelifestylechannelinSingapore,andisgrowingrapidlyinMalaysiaandthePhilippines.Additionally,ourinternationalonlybrands,AsianFoodChannelandFineLivingNetwork,enjoyedstronggrowthin2015.AsianFoodChannelallowsustodeveloplocally-producedshowsspecifictoAsianmarkets,whilewithFineLivingNetworkwecanshowcasethebestofourcontentfromthehome,foodandtravelcategoriesonasinglenetworkinmarketswherethatapproachworksbest.

FromKnoxvilletoNewYork,toWarsawandSingapore,onTVscreens,tabletsandsmartphones,weareconnectingwithmillionsofconsumersworldwideeveryday,everyway.Andwearetakingadvantageofnewwaystomonetizethecloserelationshipswedevelop.That'sourgoal,that'sourcommitment.

Andnow,I'llturnitovertoLoriwhowillreviewfinancialperformance.

LoriHickok(CFO):

Thanks,Burton,andgoodmorning,everyone.Sinceyouhaveseenourstrongresults,IwillhighlighttheconsolidatednumbersthatKenmentioned,discussoursegmentperformance,provideguidanceandthenopenitupforQ&A.

2015wasagreatyearforScrippsNetworksInteractive.Revenueincreasedanimpressive13%,surpassing$3billionforthefirsttime.Drivingthisgrowthwasastrongadvertisingmarketforourlifestylebrands,growthinaffiliatefees,andasignificantexpansionofourinternationalbusinessthroughTVN.

Thisstrongrevenuegrowth,coupledwithfocusedcostcontrolhelpedinpartbyour2014announcedrestructuringandearlyretirementeffort,translatedtoa13%growthinadjustedsegmentprofitandadjustedEPSgrowthof25%comparedwiththeprioryear.

Forthefourthquarter,totalCompanyrevenuewasup27%.ContributingtothisgrowthwastheinclusionofTVNandstrongadvertisinggrowthandaffiliatefeeincreases,primarilyattheUSNetworkssegment,whichI'lldiscussinmoredetaillater.

Totaladjustedsegmentprofitincreased19%,drivenbystrongrevenuegrowth,partiallyoffsetbyincreasesincostofservices,primarilyprogrammingexpense.AlsocontributingtotheexpensegrowthwereinternationalincreasesrelatedtotheinclusionofTVN.

AdjustednetincomeattributabletoSNIwas$1.35perdilutedshare,up35%duetotheoperatingimprovementsnotedpreviously.WehadagreatquarteratourUSNetworkssegment.Revenuesincreased8%,drivenbystrongadvertisingdemandforourlifestylenetworks,aswellascontinuedaffiliatefeegrowth.

Fortheadvertisingrevenue,improvedscatterpricingcoupledwithCPMpriceincreasesfromthe2015/2016upfrontandcalendarupfrontmarkets,drovean8%year-over-yearincreaseinthefourthquarter.Scatter-versus-scatterCPMpricingwasuphighsingletolowdoubledigitsyear-over-year,anduphighteenstolow-20%soverthebroadcastupfront.

Ourtopfiveadvertisingcategoriesduringthequarterwerefood,retail,consumerpackagedgoods,autoandpharmaceutical.Thesecategoriesarefairlyconsistentwithpriorperiodsexceptpharma,whichwasstrongerthannormalinthefourthquarter.

Thisstrongadvertisingmarkethascontinuedintothefirstquarter,withscatter-versus-scatterCPMpricinguphighsingletolowdoubledigitsyear-over-year,andupteenstolow-20%soverthenewbroadcastupfront.

Foraffiliatefees,contributingtothe5%growthwerecontractualrateescalatorswithourtraditional




distributionpartners,incrementaldistributionincreasesthatwenegotiatedinsomerecentrenewalsforbothDIYNetworkandCookingChannel,andnewdistributionsrelatedtobroadbandproviders.

Lookingatouradjustedsegmentprofit,andasBurtonmentionedforthefourthquarterof2015,ournetworksrealizedpositiveratingsmomentumthathavecontinuedinto2016.Helpingtodrivethisperformancewasthedecisiontoshiftprogrammingpremierestothefourthquarter,whichalsoallowedustotakeadvantageofarobustadvertisingmarket.However,thisrecordamountofnewprogrammingalsodroveanincreaseinprogrammingexpenseforthequarter.

Additionally,andasindicatedonpreviouscalls,wefocusondevelopingprogrammingthemesfortheTravelChanneltodevelopastrongnetworkidentity.We'vereevaluatedourprogramminglibraryandelectedtowriteoffalargerthannormalamountofTravelChannelprogramminginthefourthquarter.Asaresultofthesedecisions,ouradjustedsegmentprofitwasdown1%forthequarter.

However,webelievethelonger-termtrendwillbeacontinueddecelerationintherateofprogrammingexpensegrowth,consistentwithwhatwe'veseenoverthepastcoupleofyears.

Ourinternationalrevenuesof$163millionincreasedsignificantlyduetotheconsolidationofTVN,coupledwithgrowthinourexistinginternationalbusiness.TVNrevenueswereup7%inlocalcurrencycomparedtothesamequarterayearago,whilerevenuesfromourexistingoperationswereup17%onanorganicbasis.

Internationalsegmentprofitwasahealthy$36millioncomparedwithalossof$8millioninthefourthquarterof2014.This$44millionimprovementisprimarilyduetotheinclusionofTVN,aswearestillinvestinginourexistinginternationallifestylenetworks.

Inadditiontoourconsolidatedresults,wehavesignificantinternationaloperationsreportedinourequityearnings.Intotal,ourequityandearningsofaffiliateswas$11million,downcomparedwiththeprior-yearfourthquarter,primarilyduetotransaction-relatedaccountingadjustmentsandseasonalityrelatedtotheTVNminorityinvestmentsweacquired.

Onthebalancesheet,Iwanttotouchonacoupleofitems.Asyouhaveseen,reflectingtheconfidencemanagementhasinthebusinesstocontinuetogeneratestrongoperatingfreecashflow,wehaveincreasedourdividendforthesixthconsecutiveyearto$1pershareannually.

Withinourcapitalallocationpriorities,wearefocusedonusingoperatingcashflowtofundorganicgrowth,reduceourleverageandinvestinM&A,bothintheUSandinternationally.Weendedthefourthquarteratapproximately3.2timesgrossleverage,andwerecentlynotifiedCoxCommunicationofourintenttopurchasetheir35%stakeinTravelChannel.Thisnotificationstartedthevaluationprocessforthetransaction,andweexpectthetransactionwillbecompletedbytheendofthefirstquarter.

Finally,andbeforeweopenitupforquestions,wewillprovideourfull-year2016guidance.AllguidanceisbasedontotalCompanyresults.Asaresultofthestrongdemandforournetworksfromviewersandadvertisers,alongwithanincreasingcontributionfrominternational,weexpectrevenuegrowthofapproximately12%.

WebelievetherevenueincreasewillbedrivenprimarilybyafullyearofTVNresultsandgrowthinadvertisingrevenue.Weexpectforthefirsthalfof2016,theCompanywillrealizeahighergrowthratedueinparttoeasieradvertisingcompsattheUSNetworkssegment,andbecauseTVNresultswerenotincludedinthefirsthalfof2015.

WeexpectthethirdquarterwillbeimpactedbytheOlympicsandtoalesserextentthepresidentialelection.Soitshouldbetheslowestgrowthquarteroftheyear.Thengrowthshouldaccelerate




somewhatforthefourthquarterof2016.

Weexpectadjustedsegmentprofittoincreaseapproximately7%.AdjustedsegmentprofitexcludesTVNtransactionintegrationcosts,restructuringandreorganizationcostsfor2015and2016.Impactingthe2016segmentprofitgrowthwillbealargerproportionateshareofinternationalrevenueswhichhaveaninherentlylowersegmentprofitprofilecomparedtoourUSnetworks,achangeinourprogramamortizationpolicyandestimationratesforcertainprogrammingacrossthenetworks,andthelikelyimpactfromaonetimerateequalizationprocessduetotheexpectedrenewalofcertaindistributoragreementsthatarebeingconsolidated.

Afterthisinitialperiod,weexpecttorealizemid-to-highsingledigitannualizedpricingincreasespersubscriber.Thesethreeitemsimpactourestimatedadjustedsegmentprofitgrowthby500to600basispoints.

Weexpectdepreciationandamortizationexpensetobe$120millionto$125million.Thisestimateexcludes$52millionofTVNpurchasepriceadjustments.Wewillalsoexcludepurchasepriceadjustmentsfromouradjustedearningspersharecalculation.Weexpectinterestexpensetobeapproximately$135million,andlastly,ourtaxrateshouldbe30%to32%fortheyear.

Withthat,wearereadyforyourquestions.

QUESTIONS&ANSWERS

Operator :


DougMitchelson,UBS.

DougMitchelson (Analyst-UBS):

Great,thankssomuch.Imean,Ithinkacouplethingspopout.

One,withadvertisingbeingthisstrong,canyoujustgiveusasenseof,ifyouwould,howthecalendarupfrontsortofendedupintermsofrateorvolume,andwhatyouarethinkingasyouheadintothisyear'supfront?

Itwashelpfulgettingthecadencearoundhowyouthinkadvertisingflowsfortheyear,butaswejustthinkaboutthesetupgoingforwardwithyourratingsdoingabitbetter.

Andthenanydetailsthatyouhaveonthechangeinprogrammingamortization,therationale,andwhatyouchangedfromandtowouldbehelpful.Andthenifyouwouldn'tmindmethrowingathirdinthere;justanythingintermsofnewentrantsintodistributionthatyouwouldcommentonatthispoint.Itseemslikethere'salotofconversationsgoingonthatbythemiddleoftheyear,wemighthavesomenewentrantslaunch.

Doyouthinkyouwillbeavailableonanynewplatformsorbundlesatlaunch,oristhatsomethingthat'sstilluncertainatthispoint?Thankyou.

BurtonJablin (COO):

Great,Doug.Wewilltackleallthree.ThisisBurtontostartontheadsales,andthenwewillgotoLoriandthenKenfortheothers.Thecalendar,upfrontwasverystrongforus.Withscatterpricingwhereitis,Ithinkadvertiserswanttogettheirmoneydownandtrytonotplayinthatscattermarketiftheycanavoiditbecausepricingissohigh.




Butcalendarisalwaysstrongforusbecauseespeciallyonthehomeside,it'swhereendemicsinthehomecategoryreallyputtheirmoneydown.That'sthewaytheirbuyingcalendarworks,andsoweareseeingthatcontinuedstrength.Weareveryhappywithit.

AndIhavetosaygoingintotheupfront,wearefeelinggood.Ratingsatallsixofournetworksareup.That'sagreatpositiontobeinaswetoutthestrengthofourbrandsandthequalityofouraudience.Wearestillupscale.We'vegotagreatstory.

Infact,ouradsalesgroupismeetingthisweekfortheirnationalsalesmeeting.Iwaswiththemyesterday;Iwillbewiththemthisafternoon.Theyareasupbeatastheycanbe,givenwherewearewithournetworksandwheretheyareinthemarketplace.

LoriHickok(CFO):

Yes,Doug.AndI'lltackletheprogramamortizationquestion.Asitshouldbenosurprisewhenweperiodicallylookathowweareestimatingouramortization,howitmatcheswithrevenue,andhowshowsarebeingpremiered.Andasaresult,weareacceleratingouramortizationinthefirstyearforcertainnetworks,andit'shavingaone-timeadjustmentaswechangethepolicy.

Sowhatyouwillseeisanimpactwhenyouseeourcostofsalesnumbersinthegrowthrateprobably,callit,from1pointto2pointsimpactfortheyear,dependingonwhentheshowispremiered.So,again,wegetpast2016,itwillbenolongeranimpact.SoI'dcallitanon-cashamortizationimpact.

Sohopefully,thathelpsyoualittlebit,butwecontinuetolookatthesethings.Andagain,IthinkwiththecollapseofthenetworksallunderKathleen'sleadership,wemightcontinuetorelookathowweareusingprogrammingandhowthatmightimpact.Sowewillkeepyouintune.Butonanongoingbasis,ourinvestmentisstillmoderatingfromacashbasis.So,again,ifyoulookatthedollarsgoingoutthedoors,wearestillmoderating.

Ifwegobackintime,wewereprobablyaswebroughtintravel,weweremoreatthehighteens.We'vemoderatedthattothelowteens,andnowweareinthe--Iwouldcallwearecloselyandwithoutthisadjustmentprobablyinthehighsingledigitzone,whichiswhatwe'vebeenstrivingtodooverthelastcoupleofyears.


Andmaybe,Lori,itwouldbehelpfulinthesenseifthisissortofneworiginalprogramming,aretheybeingamortizednowsortofoveratwo-yearperiodratherthanathree-yearperiod?Ifyoucangiveusasenseofjusthowmuchisamortizedinthefirstyearversuswhatitwasprior.

LoriHickok(CFO):

Yes,andagain,it'sonanetworkbynetwork,soIcan'tgiveyouablanketanswer.ButIwouldsayforcertainofourbiggernetworks,whatwearedoingis--thelifeisthesame,butweareadvertisingmoreinthefirstyear.Sowhat'swithhappeningasthatfirstyearthat'sbeingamortized,youaregoingtoseeabiggerchunk.

Soforthepremieresin2016forcertainnetworks,someofourlargerones,theyaregoingtotakeabiggerproportionofthatamortizationinyearone,whichtheywillgetthebenefitinyeartwo,threeandfour.So,again,anytimewemakechangesintheamortization,ittakesometimetofunnelthrough.Andthat'swhyIpointbacktothecashinvestment,becausethat'sabetterindicatorofwhatwearespendingandwhatyouwillseeovertime.





Doug,sinceyouwereabletoslidethatthirdquestioninonpotentialnewentrantsregardingdistribution.Insteadofspeculatingonit,Ithinkthebestwaytoanswerthatquestionisuptothispoint,we'vebeenincludedineachandeveryso-calledskinnybundleorgoingbacktoDISH'sSling,whichinsomewaysstartedsomeofthealternativedistributiondeliverysystems,weareacrosstheboard.

Andyouheardmesayinmycomments,wearemust-have.SoIthinkit'ssafetosaythatanyalternativedistributionplatformsgoingforward,ahighlikelihoodthatwewillbeinthose,butatthispointthat'sprettyspeculativeastowhotheywillbeandwheretheywillbeandwhentheywilllaunch.Butweshouldbethere.


Allright.Thankssomuch.

Operator :

MichaelNathanson,MoffettNathanson.

MichaelNathanson (Analyst-MoffettNathanson):

Thankyou.Justaquickfollow-uponDoug'ssecondquestiononamortization,andoneforBurton.

Lori,whenyoulookattherelationshipbetweencashspendingonprogrammingandyourprogramamortization,thisyearit'sabout12%greater.Socashspendwas12%greaterthantheamortlevel.

SoIwonderjustlookingatitthatway,dowethinkitlookslikemid-highsingledigitsnextyearinthatrelationship,becauseit'sbeencomingdowneveryyear?Soisthattherightwaytothinkaboutthebalancebetweencashspendingandamortization?

LoriHickok(CFO):

SowhatIwouldsay,includingtheimpactofthisamortizationyou'dprobablyseethatmoderatingdownfromwhatyouareseeing.Sowe're,again,dependingonthetimingofpremieresandwhatweareplanning,whichalwayschangesthroughouttheyear,Iwouldsaywearehoveringrightaroundthat10%rangeandmakingthewaydowntolikethe8%to10%range.

So,again,saywewereatthe10%to12%ayearago;nowweare9%to10%withthisimpactinthere.So,again,wearecontinuingtomoderate.


Okay.AndthenBurton,let'sgototravelforasecond.YouguysrecentlynamedCourtneyWhitetobetheHeadofProgrammingatTravel.AndIknowthatsinceyou'veacquiredTravel,there'sbeenalotofchangesinthevisions.

Iwonderwhat'sthevisionnow?What'sCourtney'svision?AndthenwhatkindofprogrammingexpensegrowthdoyouexpectatTraveldistinctly,giventhereboot?

BurtonJablin (COO):

Programexpenseshouldcontinueverymuchalongthelinesthatwehavealwayssaid.Wehadinvestedmore,asLorijustsaidafewmomentsago.Thepercentagegrowththerewashigher,butthat'sbeenmoderating.Weexpectthatmoderationtocontinue.

AndthereasonisthateventhoughCourtneyisnewtocomingintoTravel,whatwe'velearnedaboutthetravelaudienceandtravelprogrammingoverthelast18monthsiswhatweintended.Youmayrecall




overthelastseveralquarters,we'vebeensayingthatwearegoingtoputalotofprogrammingon,newprogramminginthefourthquarter.Wedid.Welearnedalotaboutwhatweputon.

AsalwaysinTV,someworked,somedidn't.Sonowwehavebetterdirectiongoingforward.Courtney,she'sgotalonghistorywithus,10years;alonghistoryinthebusinessbeforethat.Sheisveryadeptatarticulatingaveryclearrationaleforwhyprogramsneedtobeontheair.Soshehasverycraftilydividedsortofwhat'sworkingontravelintoseveralgroupsofkindsofshows,andwe'regoingtobepursuingthosebecausewe'veseenthattheywork.

You'llseealotofadventurequestshowsintheguiseofExpeditionUnknown.WelikeseeingpersonalitieslikeAndrewZimmernandotherslikeinBoozeTravelerandBizarreFoodsgoingoutandexploringtheworld.You'llseemoreofthat.

Youwillseemorepairsofpeopletraveling,becausewelikedynamicsbetweenthem.Andwe'regoingtobringalittledoseofcelebritytothenetworkaswell.WehavegotQueenLatifahwithanewshow.ShewillstartoffinSouthAmerica.Andthenwe'vegotothercelebritiescomingon,too.

SoalotofwhatwelearnedfromthecurrentprogrammingatTravelthat'sworking,whatCourtneylearnedatHGTV,wearegoingtobringtobear.AndIhavetotellyou,sheismovingforwardataveryfastpacetomakeallthiswork.

LoriHickok(CFO):

AndMichael,IjustwanttoclarifywhenIhavebeentalkingaboutthat,that'sbeenUSnetworks.You'vegottokeepinmindwearebringingininternational,andwhenyouarelookingatthebalancesheet,you'vegotthesix-monthimpactofTVN.SoIjustwanttomakesurethatthat'sclear.


Okay,thanks.

Operator :

VasilyKarasyov,CLSA.

VasilyKarasyov(Analyst-CLSA):

Thankyou,goodmorning.Aquickfollow-upontheguidance.Canyoupleasetelluswhentherateequalizationwillstartimpactingthegrowthrateandwhenwillitlapit?

Andthenonadvertising,itusedtobethecasethatcablenetworksarguedthattheiradvertisingpricingisonlyafractionofwhatbroadcastnetworksgetforsimilarprogramming.SoIwaswonderingifyoucouldgiveusanideawhereyouareinthatrelationshipinpricing.Andifyoucanever--ifthereisstillaheadroomforyoutocatchupwiththat,andwhat'sdrivingthisdiscount.

LoriHickok(CFO):

Yes,onyourfirstquestiononthetimingoftherateequalization,wearereallygoingtostaysomewhatsilentonthat.Thisisjustourestimatedimpactfortheyearaswearestillnegotiatingthat.Ithinkyouarequitefamiliarwithallofthemergersgoingon,butweexpectthattohaveanimpactthroughouttheyear.Andthatwhenwegettonextyear,thisisaonetimeanddone,andwewillstarttoseethosemid-to-highsingle-digitpricingincreases.

Sowereallylookatthisasaone-timeitem,2016,andthenwearebacktonormalratesofgrowthnextyear.




BurtonJablin (COO):

Vasily,thisisBurton.Thanksforthatquestionbecauseitgivesmeachanceonbehalfofouradsalesteamtosaythereisstillagapinpricing,andweareworkingveryhardtocloseit.Butwethinkwehavesometremendousadvantagestobeabletodothat.Thequalityofouraudienceisunmatchedintelevision--highincome,highlyeducated--withagreatpreponderancetobuytheproductsthattheyseeadvertisedonournetworks.Thatisindisputableandbasedonoutsideresearch,notourownresearch,andweareatthetopinthoseattributes.

Moreover,asdatabecomesmoreofacommodityinthesellingofadvertising,wearegoingtoexcel.Purchasingdata,ouraudiencesbuystuff.Theyhavethemoney;theyhavedisposableincome;theygooutandbuythings.Youareseeingpricingincreases,asLoripointedout,inourscatter.Wethinkwearegoingtocontinuetoclosethatgap,andwethinkwehavealotofheadroomtodosobecauseofthequalityofourcontent,thenatureofourenvironmentinwhichtheadsrun,andmostimportantlythequalityofthataudience.

VasilyKarasyov(Analyst-CLSA):

Thankyou.

Operator :

DavidJoyce,EvercoreISI.

DavidJoyce (Analyst-EvercoreISI):

Iwaswonderingifyoucouldprovidesomemorecolorontheseasonalityofyourvariousinternationalbusinesses,particularlyTVN,bothontheadvertisingprogrammingexpenses,howthatshouldphasethroughouttheyear;andthenanythingweshouldthinkaboutintermsofaffiliatedealscomingup.Thankyou.

BurtonJablin (COO):

Intermsofseasonality,IthinkparticularlyrelatedtoTVN,you'llseenotunlikeUSnetworksthattherewillbeincreasedprogrammingspend,typicallyinthefallandleadingintofourthquarterwhennewpremieresareontheair,aswellasinthefirstquarterwhenwepremiereourspringseasons.Soyou'llseesomeseasonalitythere.

Obviously,TVNasagrouphas12channels,andsoamongthethematicchannelslessseasonalitymoretypicalofcablenetworks.

Operator :

DavidJuenger,SanfordBernstein.

T oddJuenger (Analyst-SanfordBernstein):

ThisisToddJuenger,IguessDavid'sbrother.(laughter)Listen,onequickoneonguidance,andthenletmeexplorealittlebitontheprogrammingside.SoIknowyouaregivingguidanceonaconsolidatedbasisnow,andthat'sfine.JustdeducingwhatthatmeansforUSdomestic.

Ithinkit'sprettyclearthatifweweretothinkaboutwhatUSdomesticadvertisinggrowthrateisembeddedintheguidanceyougave,itseemslikeitmightbethesameormaybeaslightaccelerationfromthisyear,maybethehigherendofmid-singles.Ifyoucouldcommentonthatinanyway,Ithinkitwouldbehelpful.




Andthenkindofrelatedtothat,anybodywhowantstojustopineonthetheoryhere.Wehavebeenobservingwhenweseeyourratingsgoup,whichisrareinthisworld,itseemstobetiedverycloselytowhenyouputnewepisodesofyourkeyprogramsontheair,whichisgreatnewsbecauseitshowswhenyouhaveahitshowandyouputanewepisodeon,peoplewatchit.

Italsobegsthequestionofhow--areyoumoredependentthaneverbeforeonhavingtohavenewepisodes,andwhatdoesitmeanforrateofcontinuedspendandinvestment?Istheworlddifferentnow,doyouthink,thanitwasacoupleyearsagoandhowsensitivetheaudienceistonewprogrammingversusthelifespanofrerunsofthose?Thankyou.


Thosearegoodquestions.Youarealsosmarterthanyourbrother.Goahead,Lori.

LoriHickok(CFO):

IwillgiveyoualittlecoloronthetotalCompanyrevenueguidance.Andyes,ontheUSNetworks,weareseeingaccelerationyear-over-year,whichwouldnotbesurprisingonthegrowthratecomingoutofthefourthquarter.Again,wesawstrongpricingcomingoutoftheupfrontversusourpeerset.We'vegotgreatdemandwithimpressions.

So,again,Ithinkit'sthestoryofpricingandjustlikeyouareseeing,weareseeingstrongscatter.Weareseeingthecalendarwasverystrong;optionsareatnormallevels.Sowearefeelingagainthatit'sgoingtobeaverygoodyear.It'sgoingtobebetterthanlastyear,butunlikelastyearwhichIthinkwetalkedalotaboutthataccelerationthroughouttheyearwherewestartedoutslow.

It'sthefirsthalfwethinkisgoingtobeverystrong,duetosomeofthethingsIsaidinmypreparedcommentsisthatitwassofterinthefirsthalf,sowegotpricingplusourimpressionsareallup.Soallverygood,andweareseeingalittlemorestrengththerethanwedidlastyear.

BurtonJablin (COO):

Todd,onprogramming,youandIcouldprobablyhaveanhour-longdiscussionaboutthat,becauseitsuchanuancequestion.Ingeneral,though,Iwouldsayyourpremiseisrightthattelevisionaudiencesingeneralhavelesstoleranceforreruns.Andthat'swhyyouareseeingalotofwhat'sgoingoninthetelevisionindustryoverall.

Itisalsowhywerespondedmanyyearsago,infact,whenJimSampleswasrunningHGTVtothatbyputtingintoproduction300and400episodesayearofHouseHunters.Averyreasonablypricedshowforus,drivesalotofviewing.Wedecidedthat'sworththeinvestmentinoriginalcontent.

Itbecomesmorenuance,though,becauseeachnetworkisalittledifferentinourmix.Andevenwithinanetwork,differentkindsofshowsaredifferentwhenitcomestorepeatability.CompetitionshowslikeaFoodNetworkStar,theydon'trepeatverywell.Soovertime,I'msureyouhaveobservedyou'veseenusdofewerandfewerbigstunttypeshows.

HGTV,infact,isbackingoffalotonthat;FoodNetworkisscalingthemdownalittlebit.Theydon'trepeataswell.Theyaregreatwhentheyrun,buttheydon'trepeataswell.

Ontheotherhand,ashowlikeFixerUpperwhichisfarandawayrightnowthenumberoneshowonHGTV,theteamthereissogoodatunderstandingwhenaudiencesarewatchingthenetworkoncertainnightsthattheyrealizedthatFixerUpperonTuesdaynightwasgettinganaudience.ButFixerUpperrerunsonWednesday--onThursdaynight,rather--couldgetadifferentaudiencethathadn'tseenit.Sureenough,theyputitononThursdaynight,weactuallypromotedit.Thefirsttimewe'veever




promotedrepeatsofashow,andtheratingswerenearly100%aswhattheywereonTuesdaynight.

Sotherearewaysforustoutilizereruns,recognizingthewayaudiencesviewindifferentpatternsonournetworks.Soyes,youwillseemoreoriginalprogramming,althoughasLorisaid,wearenotgoingtogocrazyonourprogrambudgets.Wethinkwehavetherightnumberofhoursandwecanmakethemixwork.

T oddJuenger (Analyst-SanfordBernstein):

Iwilldefinitelytakeyouuponthathour-longconversation.It'samaintopic.Thankyouverymuch.

Operator :

AmyYong,Macquarie.

AmyYong (Analyst-Macquarie):

Thanks.Iwaswonderingifyoucouldtalkalittlebitaboutyourcapitalallocationpriorities.Iguessonaslide,there'samentiononM&A.Onjusthighlevel,canyoutalkaboutyourappetitefortraditionalanddigitalassets,Iguessparticularlyonthedomesticfront,andwhattypesofcharacteristicsyouarelookingfor?

Andthensecondly,howmightthebuy-inortheCoxtransactionimpactyourguidanceorleverage?Thankyou.

LoriHickok(CFO):

Okay.Well,asIsaidearlier,Ithinkwhenwelookatourcapitalallocationpriorities,it'sstartingwithjustorganicgrowthwhichisembeddedintheguidancewegaveyou;howdowecontinuetogrowinternational.Wearefocusedondelevering.

OntheM&Aside,wearelookingonthedigitalfrontforopportunisticmoretuck-ins,Iwouldsay,thanoutrightbigthings.Again,inthishighvaluation,thosevaluationsmaycomedown,buttheyarenotasactionable.

Andthenontheinternationalfront,wejustdidthebigTVNtransactionandJimandhisteamarefocusedonmakingthatworkassuccessfullyaspossible,takingthebenefitofthat.Andagain,there'snotalotofbiginternationalopportunitiesthatcomeonthehorizon.

So,ofcourse,anythingthatcomeswewilltakealook,keepinginmindthatwehave--thatwearetryingtodeleversothatwecantakeadvantageofthoseopportunitieswhentheycome.

Again,ourpriorityisoninvestingourcashflowsforthingsthatgenerategrowthandcashflow.So,again,we'vealwaysgot6to12monthwindowthatwearelooking.Alsoonthetravel,that'salreadyembeddedinourdeleveringplan.Wethinkwecaningestthatandreallytakecareofthat,sowecontinuetodelever.That'sourfocus.Wethinkwe'llbeingreatshapeaswecontinuethroughouttheyearandwhenweroundout2016.

AmyYong (Analyst-Macquarie):

Perfect,thankyou.

Operator :

AlexiaQuadrani,JPMorgan.




AlexiaQuadrani(Analyst-JPMorgan):

Thankyou.Ifyoucanjustpleaseremindus,Iguess,whereweareinthecycleofaffiliaterenewals,sortofwhatpercentageareleftandsortofwhen.Anddoyouthinkthereisfurtheropportunityaheadfor,Iguess,moredistributionlikewejustsawonthesmallernetworkstosortofcombatmaybetheoverallindustryshrinkage?

LoriHickok(CFO):

Ontherenewalcycle,Ithinkwe'vetalkedthatweareinanewrenewalcyclethatstartedin2014.Itwasatwo-tothree-yearprocess.Butasyouknow,whatyouexpecttodoandhowthosenegotiationsgochangeovertime;dateschange,rightsthatpeoplewantaredifferent.

ButIthinkwe'vegotayearwithsomenegotiationsandthenitwillmoderateoverthenextfewyears,andthenagainwewillhitanotherrenewalcycle.SoIwouldsayweareprobablyroundingthecurveonthisrenewalcycleandreadytomaybebemoremoderateforthenextcoupleofyears.


Andintermsofdistribution?


Alexia,Ithinkifyoulook--ifyouthinkofmyremarksthismorning,whatwearedoingasacompanyistransformingtoacertaindegreetodifferentplatforms.Sowhiletheoveralltraditionaldistributionmodelthatweallhaveadmiredfor20yearshascomeundersomescrutinyinthelastyearorsoasfarasgrowthandstagnation,wearefindingnewwaystoreachconsumersindifferentplatformsanddifferentpackages.AndIthinkDougupfrontmentionedmaybesomenewentrantscomingon.

Soifyoulookatourtotalbusinessoperationdomesticallyandyourealizewearehavingprobablyin21yearssomeofourbestratingsyearsever,it'sbecauseweareattractingneweraudiencesandgrowingstill,eventhoughsomeofthedistributionasIsaidhaswanedabitonthetraditionalplatforms.Butasweseeopportunitiesonalternativedistributionplatforms,wearegoingforthem.

ImentionedtheScrippsLifestyleStudiosthatwe'vecreatedtodomoreshort-formprogramming.Weareverymuchabouttakingourcontentandourcategoriesandcontinuingtogrowit,butnowondifferentdistributionplatforms.Andwe'rehavingenormoussuccessontheTVEverywheremodelasfarastakeratesandSVODingeneral.

Sowethinkthefutureforusisabrightone,butwe'regoingtohavetobemorecreativeandingeniousinhowwedoreachfutureconsumersontheirplatformofchoice,ifyouwill.


Andjustafollow-upifImight.Ithinkyoudidspeakaboutthebuy-infortherestoftraveland,ofcourse,thefocusoninternationalgrowthaswell.Wouldit(inaudible)thatpossibly,IguessFoodNetwork--therestoftheFoodNetworkbuy-inisstillonthehorizon,albeitprobablynotnear-term?


Yes,Alexia,we'vebeenansweringthisquestionalongtime.It'ssomewhereonthehorizon,it'soutthere.Butlook,it'sabrokenrecord;you'veheardussayitmanytimes.Attherightpriceandattherightmultiple,itmakesallthesenseintheworld,justlikebringingintherestoftraveldoes.Andifthatopportunityeverpresentsitself,wewillbeprepared.





Thankyouverymuch.

Operator :

MichaelMorris,Guggenheim.

MichaelMorris (Analyst-Guggenheim):

Twotopics.First,ontherateequalizationprocess,justafollow-upthere.Theimpactthatyouareanticipatinginthecomingyear,isthatonlyrelatedtothemajorconsolidationthatwesawoverthelastyear?Andthere'sanothermajorconsolidation,distributionconsolidation,inthemarketplacerightnow.

Wouldyouanticipateasimilarimpactfromthatconsolidationaswell,oristheresomethinguniqueaboutthatthatwouldn'thavethesametypeofimpact?

Andthenmysecondquestion,youspokeacoupletimesaboutcontentbeingspecificallydesignedforotherplatforms.Auniqueapproach,itseemslikeotherplatformswouldbemorecompetitive.Itseemsperhapsaneasierplaceforathird-partytocomeinandtrytomaybetakesomesharefromyou.

Socanyoutalkstrategicallywhyyouarebetterpositionedtocreatethat?Whatareyoudoingthatisuniquethatmaybesomebody,anewentrantcomingintothespace,couldn'tdo?Thanks.


Michael,whydon'twegowiththesecondpartofthatquestionfirst?Burton,goahead.

BurtonJablin (COO):

Sure.Youareright,therearenotasmanybarrierstoentryonotherplatforms,althoughitdoesdependontheplatform.Ourbasicpositioniswedon'tautomaticallywinonotherplatformsthewaywedointelevision.Wehavetobeincrediblycompetitive.Wehavetolookatwhatcompetitorsaredoing.Wehavetounderstandaudiences,particularlyyoungeraudienceswhomaynotinsomecasesbeasfamiliarwithourTVbrands.

AlthoughI'dpointoutwetoldyoutodaythatmillennialaudiencesactuallyaregrowingonourTVnetworks,sowedoattractthemthere.Sothewaywetalkaboutitinternally,strategically,isweareinthesamebusinesswewereintelevisionwhenitcomestonewplatforms.Wecreategreatcontent,weattractdesirableaudiences.It'sbrandedcontentinmanycases,andwe'vegottocompetejustasaggressivelyonnewplatformsaswedidonTV.

Noguaranteethatwewillwin,butwehavealonghistoryofsuccessofknowingaudiencesinourcategories,ofstickingtoourcategories,ofresearchingourcategoriesandknowingadvertisersinourcategories.SoIhavetosaywebetonourselvestodowellinthoseenvironments.Maybenoteveryone,butthepreponderanceIthinkwilldoverywell.


AndifImightadd,thisgoesbothways.YouheardmementionKathleenFinch'snameearlier.OneofthethingsthatKathleenandherteamaredoingnowinlookingatnewtalent,we'llgoouttoasocialmedia,we'llgoouttotheYouTubes.Wewillactuallyrecruittalentbecausetheirultimategoalistobeonournetworks,andyouwillseemoreofthatinthefuture.

Wehavealreadylookedatsomeoftheprogramminglineupsthat'scomingupIguessinthenextfew




months,Burton,wherewearetappingintosomeofthistalent.Soit'snotjustforustotrytocreatecontentforthoseplatforms.Wefindoutwhat'sworking,andinsomeareaswherewecanrecruitthetalent,bringthemintoourCompany.Wecanenhancethattalentbyofferingthemlargerplatformsanddifferentsocialmediaoutletstoexpandtheirpersonality,theirbrand,theirtalentaswell.

Sofar,we'vehadaprettygoodsuccessratewiththeoneswe'verecruitedin.Soit'salittlebitofatwo-waystreet.Thisisnewterritoryforusinsomeways,butprettyexciting.

Lori,areyougoingtotakethesecondpartofthequestion?

LoriHickok(CFO):

Yes,Michael.Trytogiveyousomehelponyourequalizationquestion,becausewereallydon'ttalkaboutthespecificnegotiationsandwheretheyare.ButIthinkmaybethiswillhelpyougettowhereyouarebytriangulatingwhatI'msaying.

One,youheardfromanearlierquestionthatweareroundingthebendonourlastgrouping,largegroupingofaffiliaterenewals;notmuchinthehorizonpast2014forsometime--andthatwe,ofcourse,areestimatingthatthereisgoingtobeanimpactfromtheseconsolidationsthatarehappening.Andthat'sembeddedinthat500to600basispoint,whichincludestheotherthingswherewe'vegotanincreasingamountofinternationalinthefirstsixmonths,aswellastheprogramamortization.

Sothereisanimpactthere.ButIwouldliketostressagainit'saone-timeitem,andthenwhenwegetto2017again,wearelookingformid-tohighsingledigits.Sowereallyjusthavetogetthroughthisyear.We'vetriedtogiveyouenoughcolorbasedonwhatweareseeingandwhatisinourpipelinetohelpyouworkonyourmodelsfor2016.


Okay,that'sgreat.Justtobeclear,though,itincludesbothcompletedconsolidationsandanypotentialfromcontemplatedconsolidationsinthemarketplacerightnow;iswhatisembeddedinyouroutlookforthe2016andthensortofthe2017dynamic?

LoriHickok(CFO):

Again,thewayIwouldanswerthatisthisisourlastyearofprobablyabigroundofnegotiations,anditcalmsdownconsiderablyafterthisyear.Soyoucoulddeducethat.


Qualified.


Allright,thankyou.

Operator :

RyanFiftal,MorganStanley.

RyanFif tal(Analyst-MorganStanley):

Great,thankyou.TwoifImay.One,youmentionedIthinkitwasa300%increaseintheuseofTVEverywhereapps.Canyoutalkaboutwhatwasdrivingthatkindofstepfunctionincrease?Andthenmorebroadly,canyoutalkalittleabouttherelativemonetizationofviewersonyourTVEverywhereappsversusyourlinearnetworks?




Andthensecond,IjusthadaclarificationforLori.Youmentionedaftertherateequalizationyouexpecttoreturntomid-to-highsingle-digitgrowth.Isthatacommentonrateorrevenue?Thanks.

BurtonJablin (COO):

Well,letmetackleTVEverywherefirst.Lastsummer,andIbelievewe'vetalkedaboutthisoncalls,westartedaggressivelypromotingourTVEverywhereWatchapps,primarilyonourthreebignetworks:HGTV,FoodNetworkandTravelChannel.WebegantoseesignificantdownloadsofourownWatchappsatthatpoint,andtheyaregrowingbytensofthousandsofadditionaldownloadseachmonth.

TheRoku,AmazonFire,andAppleTVappsareconnecteddevices,soyouwatchthroughatelevision.Thosehaveaverylargeexistingbasealready,sothegoaltherewastomaketheexistingusersofthosedevicesawarethatourappswerenowavailable.Theybecameavailabletowardtheendoflastyear,andweareseeinghugedownloadsofthoseappsoverthefirstthreemonthsthatthey'vebeenavailable.

Theviewing,ofcourse,isanothermatter.Onceyouhavetheapps,youthenhavetoview.Sotheviewershipwearepushingaggressivelyonairaswell.Sowehaveatwo-parpromotionmessageonTV.Oneisgettheapp.Thesecondisnowyoucanwatchyourfavoriteprogramsanytime,anywhere,anydevice,ifyouhavetheapp.Andthat'sbothliveviewinganddelayedviewing.

Soitreallyisaverycoordinatedpromotionalefforttotrytogetviewerstounderstandyoucanwatchusnowmoreoften,anywhere,anytime,onanydevice.AndIhavetosayit'searlydays,butweareseeingitwork.

Onmonetization,thesearestillsmallnumbersagainsttheoveralllineartelevisionuniverse.Somonetizationwillcome.Wehavetostartgettingthehabitintherenow.Itcomesinacoupleofways.Ofcourse,inC3wecanmonetizeallthoseconnecteddevicesrightawaybecauseNielsenmeasuresanythingthatcomesthroughaTV.

Theappsthatpeopleareviewingontheirpadsorphones,C3willbealittlebitofawaittomonetizeuntilNielsengetsthemeasurementinorderandwesignupforthatadditionalmeasurementproduct.However,oninsertionafterC3,that'sallmonetizeable.Now,again,that'ssmallrightnow,butweseethatasapotentialgrowthareafortheinsertiondynamicandinsertionofads.

Sowearegettingthehabitsinplacenowforviewing,butweexpecttoseemonetizationgrowastimegoeson.

JimSamples (President-International):

Ryan,thisisJimSamples.IwouldjustaddatTVNinPoland,weareseeingtremendousresponsetoournonlinearofferingthere.Wehave1.7millionregisteredusersalreadyfortheTVNplayer.AndbecauseTVNproducesandownsmuchofitscontent,wehavealotofflexibilitybothtoputthatcontentoutthereandtomonetizeitthroughtheiradsaleshouse.Soit'saterrificmarketforustoexploreandtounderstandthedynamicsofuserbehavioroffofthetelevision.

LoriHickok(CFO):

Andthen,Ryan,onyourquestionaboutwasthatpercentagearateorarevenuenumber;itisapricing.Andthen,ofcourse,you'dhavetofactorinyourpointofviewonwhatyouthinkisgoingtohappenonthesubscribergrowthornot.Butagain,Iwouldremindyouthatofcoursewe'vebeenverysuccessfulingettingintothoseskinnybundlesandreallykeepingournumbersmorewholethanmaybesomeofourothercompetitors.

RyanFif tal(Analyst-MorganStanley):




Okay,that'sveryhelpful.Thankyou.

Operator :

BenMogil,Stifel.

BenMogil(Analyst-Stifel):

Thanksfortakingthequestion.OntheCoxdeal,canyouremindusagain,isitanarbitration;isitjustsortof--whatthemechanismaroundthebuyoutis,ifyouwill?

LoriHickok(CFO):

Thereisaprocess;thereisaprescribedprocessandvaluation.Itisatypicalonewherewegetavalue,theygetavalue.Andiftheyarewithinacertainamount,youarefine;ifnot,thereisathird.Soit'saveryorderlyprocess.


Andjustsortoftiedtothataswell,arethereanycostsavingsweshouldexpectnowthatyoutakeitallinandmaybedon'thavesomegovernanceorduplicativecostsfromthere?

LoriHickok(CFO):

Notthatwouldbeofanymaterialnature.


Okay.Thankyouverymuch.

Operator :

LauraMartin,Needham.

LauraMart in (Analyst-Needham):

Greatnumbers,congratulations.


Thankyou.


SoIwanttogobacktoyouwereoneofthefew,asyousaid,allsixofyourchannelsareupinratings.Andyouhighlightedsomeoftheseyoungerdemos,whichwearestillfightingoverwhetherkidswatchTV.SowhatIamreallyinterestedinishowmuchofyourdigitalexperimentationdoyouthinkisdrivingthosenumbers?Ortorefertoapriorquestion,isitjustthatyouaredoingmoreepisodesonline?

Isit90%becauseofwhatyouaredoingontheairisdrivingtheseratingshigher,ordoyouthinksomeofthesedigitalinitiativesthatyou'vehadinplaceforyearsareactually--weareseeingitintheNielsennumbersonyourchannels?Iamveryinterestedinthat.

Andthentwoothers;Lori,oneforyou.Canyouremindustheimpactofpoliticalinyourfourthquarterhistorically,sowecanbuildthatintoourfourth-quartermodel?InoticedyoucalledoutOlympicsasbeinganegativeinthethirdquarter,butremindushowpoliticalaffectsyouguys.




AndthenC7versusC3,wearehearingalotofpeoplesaytheythinkthisupfront,theycanmovetoC7.IsthatagoalofyoursordoyouprefertostayatC3,orareyoupushingforC7inthisupfront?


Laura,letmetakeaswingatthefirstquestion,whichisagoodone,andthenI'llpassitontoBurton.Ithinkit'sboth.Ithinkit'sboththeareasthatwe'vemovedintoindigital,whatwearefinding.Wewillcallitexperimentationbecauseitisalittlebit.Thisworks,maybethisdoesn'twork,putmoreemphasishere.

ButIalsothinkitunderscoresthefactthatmillennialswatchtelevisionandaregoingtocontinuetowatchtelevision.Muchofitforus,Laura,hastodowith25to34-year-oldsgrowingintothecategories.Oncetheystarttobecomeinterestedinthedesignoftheirapartmentortheircondo,oriftheyarefortunateenoughtheirhome.Foodsimilarly,onceyoustartpreparingmeals,onceitbecomesalittlebitmoreofafamilyenvironment,thenourcontentjustnaturallyclicksin

Sowhatwe'veseenisnotonlytheincreasesinratingsoverall,buttheincreasesasyoumentionedinmillennials.Butalotofithastodowithtraditionaltelevisionwatching.

Now,noquestiontheyareusingmobileindifferentways,theyareusingotherplatformsindifferentways.Andweareexperimentingoverthereandwearealsousingtheinvestmentsthatwe'vemadeinTastemade,Refinery29,toseehowthosetakeratesare,howmillennialsarerespondingthere.SoIdon'tknowifyou'dagreewiththat,Burton,butIthinkit'samixtureofboth.

BurtonJablin (COO):

Correct,Iagree.Wellsaid.


Okay,allright.

LoriHickok(CFO):

Andthenonyourpoliticalquestion,Laura,reallyit'stwoparts.One,it'smoreaboutviewershipduringthe--andagain,it'snotasbigastheOlympics.Butbasically,whenthereisdebategoingonandyougetclosetotheelection,weexpecttheremaybesomeimpactonournetworks'viewership,probablymoreHGTVthanothers.

Andthen,again,ontherevenueside,again,that'smoreofalocalplaythananationalplay.That'swhyyouseeusuallyabigliftonthebroadcastplayersversusus.Butiftheregetstobelotsofdemandandtheycan'tgetalltheirlocal,thenyoumightseealittlespilloverintous.Butreally,again,it'smoreofaviewershipandimpactonourtopline,andthat'swhywe'vegotjustalittlebitofahedge,forlackofabetterword,builtintoourplanfor2016.

BurtonJablin (COO):

Yes,andIshouldjustreiterate--it'sBurton--wedon'ttakepoliticaladvertisingnationally.Youmayseepoliticaladsonournetworks,butthoseareinlocalinsertions.Butwe'vekeptournetworkspoliticsfreeforagoodreason.

C3versusC7,Iwasjusttalkingtoouradsalesteamacoupleweeksagoatourstrategymeetingonthatquestion.No,we'renotexpectingabigmovetoC7forus.Remember,ahugepercentage,anywhereupwardsof90%oftheviewingofournetworks,islive.Andadvertiserslikethatbecausetheycanmakesuretheirmessagesareappearingwhentheyintendthemto.




Sowewillnotexpecttosee,forusanyway,ashiftbigshifttoC7inthecomingupfront.


That'shelpful.CanyoufollowuponSnapchatspecifically?WhatsortofviewhaveyoulearnedfromyourSnapchatexperimentationontheDiscoverplatform,andwhatsurprisedyouthere?

BurtonJablin (COO):

Ithasbeenagreatlearningexperienceand,infact,itwassortoftheinitialimpetusforformingtheScrippsLifestyleStudios.Andwhatwelearnedwasthatwereallydohavetoproducecontentinadifferentwayforthatparticularformat;notjusttalkingaboutverticalversushorizontalshotvideo,butthewaythevideoiscreated.

Sowehavegonetoschoolveryquickly.WeworkverycloselywiththeSnapchatteam.Theyareverygoodpartnersinhelpingusunderstandthataudience,andwewanttoworktogethertodoabetterjobinattractingaudiencesthere.

Sowehavegonetoschool.Wehavereorientedsomeofourcreationofcontenttobemuchquickerinproducingalotofshort-formvideoinourofficeswithaphoneandusingourstafftodoit,andit'sreallypaidoff.Oh,andwe'reactuallydoingalittleexperimentwithSnapchatcominguplaterthisweekattheSouthBeachFoodFestival.YouwillbeabletoseelivefeedsfromtheSouthBeachFoodFestivalthatwearedoinginpartnershipwithSnapchat,andwe'rekindofexcitedaboutthat,too.

Operator :

EricHandler,MKMPartners.

EricHandler (Analyst-MKMPartners):

Yes,thanksforfittingmeinthere.Twoquickquestionsforyou.First,lookingatyourinternationalsetofnetworks,thesegmentprofitmarginforthatlineitem,I'mjustcuriouswhat'sthenormalizedmarginthatyoucanlookatgoingforwardfromthisbusinessline?Andthensecondly,wheredoyouthinkitcantrendoverthenextcoupleyears?

Andthenasafollow-uptothat,whenyoulookatyourcorporateexpenseline,shouldwethinkofthataslikeastableexpenseitemnowontheEBITDAline,orhowshouldwebelookingatthatline?

LoriHickok(CFO):

Okay,Eric,justacouplethingsandI'llletJimchimein.OntheInternationalNetworks,Ithinkwehavetogooutayearortwotoprobablygiveyouwhatwearestrivingfor,becausewearecontinuingtoinvest.SoIthink,again,wearestrivingtogetclosertothose30%marginsovertime,maybegettingto25%beforethat.

SoI'dlookatmilestonesand,again,youcouldlookatTVNwhenweacquireditandlookatwhatkindofmarginitwasdoingwhich,ofcourse,it'sgoingtoproportionatelycontributemorethantheotherthingsthataregrowing.Butitisstillaninvestmentstorybut,ofcourse,wethinkwearegoingtoseemargingrowthoverthecomingyears.Butwearegoingtobalancethatwithinvestments.

Idon'tknow,Jim,ifyouwanttoaddanything.

JimSamples (President-International):

Andifyoulookatsortofthelasttwoquartersof2014,Ithinkyouwillgetafeelforthescaleofwherewe




areinvestingbeyondTVN,andthosenetworksthatwe'vebeenlaunchingaroundtheworld.

Obviously,verydifferentfinancialprofilesfromthenetworksthatwelaunchfromscratchversusthosemorematurenetworksthatwehaveacquired.Butverygoodprogressandrevenuegrowthinthosenetworksthatwe'velaunchedasthedistributionsincreaseandaswe'vebroughtadvertisersonboard.

LoriHickok(CFO):

Andthenregardingyourquestionon,iscorporatestable;well,Ihopewearestable.Butcorporate,Iwouldsaythosecostsareaprettygoodindicatorofwherewearegoing.

Ofcourse,aswehavetriedtodooverthelastcoupleofyears,wecontinuetolookathowwecanbemoreefficientandoperate,includingonthecorporatelines.Butaswe'vebecomemoreglobal,we'veaddedstaffandfunctionstosupportthat.

ButIthinkifyoulookatwhatwehaveintheplanandevenifwearesubstitutingcertaincostsforothersaswegrow,Ithinkyoucanusethatasyourproxy.

DylanJones (ChiefCommunicationsOfficer):

Thanks,everyone.Asareminder,MikeGallentinewillbeavailableforfollow-upcallsthroughtherestoftheday.I'llnowhanditbacktotheoperatorforreplayinformation.

Operator :


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