Weather Has Big Media Players Chatting Up a Storm

Why the 'Most Profitable Cable Channel Ever' Could Justify a $5 Billion Price Tag

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NEW YORK (AdAge.com) -- Get ready for everyone to start talking about the weather -- that is, the Weather Channel and Weather.com.

Now that Norfolk, Va.-based Landmark Communications has put the most widely distributed independently owned cable network up for sale, media company executives and analysts are already chatting about who is salivating to add the sizable cable, online and mobile audience to its portfolio.
Landmark President-CEO Decker Anstrom
Landmark President-CEO Decker Anstrom

With Weather Channel available in 95 million homes and Weather.com the 16th-most-trafficked site in the U.S. with 34 million unique visits, the brand comes with a sizable built-in audience. The Weather Channel's mobile site frequently ranks among the top-five most-trafficked in the U.S., averaging 6 million visits a month, according to Telephia.

Grabbing GPS
Although the Weather Channel's net revenue in 2007 was estimated at just $291 million by Kagan Media Research, the network is arguably the "most profitable cable channel ever produced," said Jeffrey Dearth, an analyst at DeSilva & Phillips, a media investment firm. The brand, he believes, could expand even further under the right circumstances. Mr. Dearth sees potential to connect the Weather Channel's content to GPS navigation systems, which already have a weather component built in and could provide the next revenue source for media companies. "The convergence of GPS and weather on a local basis is a huge upside. They're in the perfect position to own that space," he said.

NBC, Comcast and News Corp. are among the media companies reported to be interested in buying the Weather Channel properties, valued by Landmark President-CEO Decker Anstrom to be worth as much as $5 billion. Yahoo's name has also been bandied about as a possible suitor. Cable acquisitions have been favored as of late by NBC, which snapped up women's cable network Oxygen for $950 million this fall.

Spokespeople for NBC Universal and News Corp. did not immediately return calls for comment. Spokespeople for Yahoo and Comcast had no comment.

Landmark Chairman-CEO Frank Batten Jr. said in a statement, "At this early stage, we cannot speculate on where this process will lead. We will consider various options and, at the end, we will advise employees and customers of our conclusions." JPMorgan Chase was tapped to handle the sale of the Weather Channel, while Lehman Brothers will handle Landmark's other properties, including newspapers and local TV stations.

Very palatable
Thomas Eagan, an Oppenheimer analyst, said the Weather Channel's full package of TV, web and profitable mobile platform makes it very palatable to a big media player -- not to mention a more justifiable buy than, say, Crown Media's Hallmark Channel, which has been shopped around for the past two years with an estimated $2 billion price tag and limited web presence. "With the proliferation of platforms ... any content company with a strong brand becomes that much more powerful," Mr. Oppenheimer said. "There could still be value by creating original programming for the Weather Channel, [which] you could use to ride the brand to increase advertising on new platforms."

Derek Baine, cable analyst for SNL Kagan, said the investment marketplace for stand-alone cable networks is pretty weak right now. NBC Universal's Oxygen deal aside, few cable brands would fare well without a solid web platform. That's why Mr. Baine thinks the Weather Channel could fetch at the very least $3 billion and as much as $5 billion from News Corp., which could combine the web properties with MySpace and likely would be most willing to pay the highest price, he said.

Revenue growth has been fairly modest at the core channel, which grossed $180 million from advertising in 2007. "It's just a function of they're pretty much tapped out on subscribers. It's a fully distributed network, so they'll have growth of maybe 1% a year. They'll grow ad revenue a bit, but it's probably going to be in the 5% range at the network." Instead, Weather.com is where the huge growth potential lies. Mr. Baine estimated Weather.com's gross revenue for 2007 to be in the $100 million to $150 million range. "That's what buyers are looking for in this market, when you start to see these contractions. You got buyers just looking for stuff that's dirt cheap that they can hopefully make a lot of money off of."

Sponsoring weather
Because the Weather Channel's length of viewing time and commercial retention are less than most networks', the network has been experimenting with different ad and sponsorship models to give marketers more opportunities for on-air brand engagement. Brands can now sponsor the local weather report, for example, as well as make cross-platform buys across TV, web and mobile. As a result, the channel's top five advertisers boosted their spending significantly from 2005 to 2006, with Procter & Gamble upping its contributions from $7.4 million to $9.9 million and Hyundai more than doubling its total to $3.65 million.

Weather.com maintains category dominance, with more than double the monthly traffic of its closest competitor, Weatherbug.com. That would make it an appealing buy for NBC in particular, which recently launched NBCWeatherPlus.com and saw unique visits soar in the past year.

Although viewing times for the Weather Channel aren't as long as those of its cable counterparts, Weather.com has managed to thrive as a web brand despite offering the same service that any local-news site or major web portal provides. After Ad Age named the site its eighth-largest web brand in March, Joe Fiveash, the site's general manager, said, "That's all we do. We don't do 10 other things. ... Consumers pick up on that."

Weather.com's mobile site posts negligible ad revenue in its nascent stages but ranks as the fourth-most-trafficked mobile site and top weather site in mobile, with more than 5.2 million subscribers registered, according to M:Metrics.

That's not to say media companies should reach for their checkbooks just yet. Mr. Anstrom, Landmark's president-CEO, was quoted last week as saying he'd be comfortable with operating the Weather Channel going forward if the company didn't reach a satisfactory deal. "As a private company, from time to time, we review what's happening in the marketplace in terms of what other companies are doing and, as we looked at the environment and our business, we thought this was a good time to test the market because our businesses are very strong right now," he said.
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