Discovery’s acquisition of Scripps, if approved, will give it more content and more leverage, but can it find solid ground in the shifting US media landscape?
Maryland-based Discovery Communications plans to acquire Scripps Networks in a deal worth $14.6 billion, including 70% cash and 30% stock. Discovery’s Chief Executive, David Zaslav, would lead the merged company, while Scripps CEO Kenneth Lowe would join the board of directors.
In terms of content, the Discovery-Scripps merger would create a powerhouse, operating five of the top 20 cable networks in the US. Scripps’ content, targeted mainly to women with channels such as HGTV, Travel Channel and Food Network, would round out Discovery’s channel offerings, such as Animal Planet and Discovery Channel, which are more popular with men. Discovery said that together, the company will offer 300,000 hours of content.
The deal is expected to boost Discovery’s power in negotiating with cable and satellite providers, and generate $350 million in total cost synergies. But viewed in the context of the challenges facing US media companies, the outlook seems less rosy. Analysts question the merged company’s ability to compete long term as more viewers become “cord-cutters”, eschewing cable providers, and advertising and ratings decline.
In addition to more viewers watching television on devices other than televisions, networks and cable providers must contend with intensifying competition from streaming services such as Netflix and Amazon.
“While we believe the two companies are likely better positioned together, rather than apart, the longer-term issues facing the industry still remain”, wrote John Janedis, an analyst at Jefferies. Both Discovery and Scripps reported disappointing quarterly earnings, in keeping with the climate of uncertainty in the media industry. “Five of the largest U.S. pay TV providers posted subscriber losses during the second quarter”, Reuters reports.
The merged company’s larger programming slate might find a place in skinny bundles, or economy-priced cable packages with fewer channels. But Zaslav and Lowe envision broader possibilities. “We are building a global content engine”, Zaslav said on a call with Wall Street analysts. Lowe added: “The content that we have so successfully created on linear now has this huge opportunity on a digital basis, on a social basis, and in short-form content.”
“The transaction supports and accelerates Discovery’s pivot from a linear TV-only company to a leading content provider across all screens and services around the world”, Zaslav told investors. Discovery is evaluating its own channels as well as those of Scripps to determine whether any could be web-based.
