Bidding War Looming For the Travel Channel

At least a half dozen Big Media players with deep pockets are expected to bid up to $1 billion for the Travel Channel at a time when niche cable networks are among the industry's most choice assets.

Time Warner, Liberty Media, Scripps Networks Interactive, NBC Universal and Comcast could participate in a Travel Channel auction conducted by Goldman Sachs within a week now that Cox Communications has decided to sell the operation.

Stand-alone cable networks owned by conglomerates or pure players such as Discovery Communications generally have been valued by analysts at about 12 times projected 2010 earnings. Some estimate the Travel Channel could command between $700 million and $800 million. In 2007, Cox acquired the Travel Channel and $1.25 billion in cash in exchange for its 25 percent stake in Discovery. At the time, the Travel Channel was valued at between $800 million and $1.1 billion. Privately-held Cox said it is using advisers to determine the best options for the channel.

While not a dominant cable channel, The Travel Channel has enough universal appeal to be reshaped to suit the needs of an acquirer while generating stable income.

Cable networks' multiple revenue streams from advertising, subscriptions and affiliate fees make them uncommonly recession-proof. The most popular cable networks may come closer to matching broadcast network ad unit prices during the laggard upfront market having recently attracted similar viewing levels. Leading cable networks such as TNT and USA are generating healthy returns on higher original program investments.

Most media conglomerates have covered their bets by owning both cable and broadcast networks. Cable network revenues as a portion of total corporate revenues range from a high of 58 percent at Viacom (MTV, VH1, Nickelodeon) to a low of about 10 percent for CBS, according to Bernstein Research. Cable networks are the highest single source of earnings at Viacom, News, Disney and Time Warner, contributing as much as 60 percent to the latter.

Standalone cable network valuations in media conglomerates as well as in pure plays such as Discovery are generally 12 times estimated 2010 earnings, according to analysts. Cable networks generally have been protecting their value by cautiously wading into new on demand paid models of free online web video.

Attractive economics and other forces will spur a host of Travel Channel bidders that could include:

• Time Warner CEO Jeff Bewkes is armed with a new central focus on content and $9 billion-plus in proceeds from the recent public spin off of the company's cable systems. Its dominant entertainment networks include TNT, TBS and the cable news bellwether CNN.
• Liberty Media is control by shrewd dealmaker John Malone whose portfolio companies have aggressively acquired and managed best-in-breed companies such as DirecTV, which it could soon merge with another entity or take private, according to Pali Capital analyst Richard Greenfield.
• NBC Universal and Disney own strong cable network franchises which they tie into their studios and theme parks, all of which could be strategically tied into the Travel Channel.
• Scripps Networks Interactive, like Discovery, is a pure-play owner of cable networks that generally depend upon advertising for 70 percent of overall revenues, which it grew eight percent in 2008 and increased affiliate fees 18 percent, according to Bernstein analysts. Its anchors include the Food Network, HGTV, DIY, FLM and GAC.
• Comcast made a failed unsolicited offer to buy Disney some years ago, and has since preferred to organically grow niche program hubs such as Sprout for children and the recently announced Olympics Cable Network.