Kenneth Lowe was a vice president for E.W. Scripps Co.’s television broadcasting division in 1994 when he persuaded the newspaper publisher to start a home and gardening cable channel called HGTV. It was a long shot, but it worked. Lowe bought another network focusing on food and was soon running the fastest-growing set of properties at the Cincinnati-based company. Scripps rewarded him by making him president and chief executive six years ago, when William Burleigh, the CEO since 1996, stepped down (he remains chairman of the board).
Lowe’s timing, it turns out, was impeccable. The new millennium has been unforgiving to traditional newspaper companies, which have struggled as readers have fled to the Internet. Lowe and the investors fortunate enough to have bet on him instead of rivals like Dow Jones & Co., New York Times Co. and Tribune Co., have been rewarded with faster profit growth and superior stock performance. Since the beginning of 2000, Scripps shares have more than doubled, while Tribune, Dow Jones and New York Times shares have declined 37, 44 and 49 percent, respectively.
Today, HGTV and the Food Network are available to viewers in nearly 90 million households. Scripps’ group of emerging networks — such as DIY Network, Great American Country and Fine Living, all of which were launched or acquired since 1998 — has also turned profitable.
Lowe’s tenure hasn’t been an unqualified success. One key misstep: buying the struggling Shop At Home Network from Summit America Television in 2002. Scripps never turned the channel around and sold it in June for a $120 million pretax loss. The 56-year-old North Carolina native, who has been married to his second wife, Mary, for 26 years and likes to golf, scuba dive and hike, says the Shop At Home debacle is a reminder that no company has a 100 percent success rate. Scripps hasn’t been timid about changing the composition of its portfolio over the years to prune underperformers; it sold its radio group to several buyers in 1993 and its cable distribution systems to Comcast Corp. in 1996.
Scripps’ most important line of business today unquestionably is cable programming. Before Lowe launched HGTV, about 60 percent of the company’s profits came from newspapers, such as Denver’s Rocky Mountain News and the Commercial Appeal in Memphis, Tennessee. Today that division contributes a little more than one quarter of earnings, with cable networks accounting for 40 percent. (The remainder comes from television stations and Scripps’ United Media unit, which syndicates newspaper columnists and comic strips such as Peanuts and Dilbert.)
Lowe continues to look for the next big thing. With the cable programming market saturated, he believes that future growth will come mostly from online ventures, including Internet-only programming that viewers can access on demand. Scripps’ biggest acquisitions in recent years have been in the online arena — in June 2005 the company bought shopping comparison service Shopzilla, and earlier this year it followed up by acquiring U.K. online commerce search platform USwitch. Lowe, a graduate of the University of North Carolina at Chapel Hill who joined Scripps in 1980 as general manager of its radio properties, recently discussed the company’s prospects with Institutional Investor Contributor Robert Hertzberg.
Institutional Investor: From a standing start in 1994, cable now represents 40 percent of your business. How will you maintain that growth?
Lowe: The growth will have to come from additional ancillary businesses. We expect the Web sites to become bigger and bigger opportunities, especially for HGTV and the Food Network. Broadband, as you know, is in more than 50 percent of homes. And that provides us a great platform to launch online networks like HGTV KitchenDesign channel, the HGTV BathDesign channel, the Woodworking channel, etc. It’s also our belief that these networks will continue to attract younger viewers. So we think HGTV and Food are very healthy for the foreseeable future.
The cable programming business is more mature today than it was when you launched HGTV. Is it still possible to make a big splash with a new channel?
The odds are very slim. And even if you could get the distribution, I don’t think it would be the way to go. The future is going to be more video over the Internet. What we’re going to see are smaller and smaller slivers, if you will — that HGTV KitchenDesign channel, for instance — all on broadband. So instead of 24/7 cable programming, you’re just stocking up inventory on what people can come and use in an on-demand environment.
Just three months after you bought USwitch, Google introduced an online commerce service called Google Checkout. What are the special challenges of competing online?
To be fair, Google also just removed Froogle, which is its online comparison shopping service, from its home page. I’ll leave it up to somebody else to figure out if that means they’re actually backing off of that service. But be that as it may, there are risks in all of these businesses. At the end of the day, you’re only really as good as your product and the consumer interest in it. So our goal in both Shopzilla and USwitch is to build the very best consumer-oriented product in the areas they operate in, comparison shopping and comparison search shopping, and then use our other properties — our cable networks, newspapers, and television stations — to help promote and build these brands.
In the wake of Knight Ridder’s sale and Tribune’s examination of a spin-off of its newspapers, why has Scripps held on to its papers?
Well, for one thing, our newspapers still generate sizable free cash flow. They operate primarily in midsize markets, where they are not quite as susceptible to some of the national trends we see in larger, major- market newspapers. We’ve used a lot of the free cash flow from our newspapers and our broadcast television stations to build the cable networks and to invest in the interactive businesses. By doing so, we’ve lessened our dependency on the newspaper part of our company. I think the question over the next few years is, Can we enhance the value of the papers in their markets by using the Internet? Our newspaper in Naples, Florida, for instance, produces a daily 30-minute broadband news program that’s getting lots of hits. The jury is still out. But right now some of our newspapers are growing and performing well in a very difficult environment.
Your television stations are also concentrated in midsize markets. They too seem to have little growth potential and face the threat of Internet and video programming. Where’s the upside?
You pose a good question. The broadcast business is probably long term under more pressure from outward competition. A lot of it centers around the fact that a broadcast station does not own all of its content. You’re a pass-through, or you’re running syndicated programming. But for us, it’s still a good business. It’s throwing off a lot of cash, which we’ve used to enhance and build other parts of our business. In the meantime, in the markets in which we operate our broadcast television stations, ratings for our cable networks are higher by 20 percent or better, on average, because of cross-promotion.
Shop At Home never really emerged as a rival to QVC. What did Scripps learn from that experience?
That business had a lot of moving parts. You’ve got warehouses, you’ve got fulfillment, you’ve got call centers. The thing that we underestimated most was our ability to gain meaningful household distribution. We bought Shop At Home with the understanding that we would build it over time. And almost like a missile, these online comparison shopping services just leapfrogged it. It told us that technology is going to continue to affect all of our businesses.
Can you see Scripps ever doing what Viacom did — separating into two distinct companies?
There are so many things in the marketplace these days that are going on with companies — different ways to look at them, value them, split them up. We obviously pay attention to what the split has done at Viacom, which at this point is not a lot as far as the share price. I would never say never. We’re constantly looking not only at how the company is valued, but also at what’s the most efficient way to run these businesses. It is sometimes a bit complicated to keep them all under one roof. But we have no immediate plans in those areas.
Have traditional media companies lost their power to the digital crowd — people like Steve Jobs at Apple and the guys at Google and YouTube?
No, of course not. But I do think these new media companies are putting more and more power in consumers’ hands. There’s a great future for traditional media if we understand that and embrace the change. That’s the world we’re all going to have to live in, and hopefully thrive in.
