Discovery Communications and Scripps Look to Join Forces

discovery-scripps-merger
 

If the third time’s the charm, Discovery Communications, owner of the Discovery Channel and Animal Planet, will soon acquire Scripps Networks Interactive, parent company of the Food Network and HGTV.

In a deal valued at about $11.9 billion, Discovery is proposing to combine their advertising efforts with those of Scripps to control about 20 percent of the ad supported pay television audience in the US.

“Shotgun Marriage” Could Be Problematic, Says Experts

Both Wall Street and telecom analysts are skeptical about the acquisition, however.

With Discovery’s stock falling in value and both companies releasing disappointing second quarter earnings, the move looks like one of desperation. Discovery missed revenue growth expectations this quarter; Scripps had weak advertising results and because of it, lowered its full-year revenue guidance during the same period.

A research note from telecom analyst Michael Nathanson is telling: “This shotgun marriage is a clear sign that the cable network industry has seen the future, and that future requires deep cost cutting and increased scale to mitigate both the current headwinds and the inevitable painful changes that lie ahead.

Without any material improvement to current ratings and subscriber trends, the timing and cost for Discovery to double down in the US will likely look foolish in hindsight.”

Discovery CEO Optimistic, Despite Warnings

Despite the warning bells sounding all around him, however, Discovery CEO David M. Zaslav is optimistic.

He has recently outlined his plans to expand Scripps’s content to 220 countries and territories and has intentions to develop all new services for streamers and mobile television consumers. Scripps is already a significant player in emerging social media platforms like Snapchat, making them a potentially vital piece of Zaslav’s plan to move Discovery forward in the same arenas.

“We took another look at those assets and put it through our filter: Do they help us in the US, do they help us internationally, and do they help us in the new world?” Zaslav told the New York Times in a recent interview in response to questions about a new attempt at acquiring Scripps.

This will make the third attempt in nine years by Discovery to buy the network, but with both companies badly wounded by cord cutters and the cable market’s general trend of consolidation, it could prove to be a mutually beneficial combination this time. The additional scale will give Discovery more leverage during negotiations with advertisers and distributors, and Scripps will be able to dump $2.7 billion in debt.

 

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