Discovery buys Scripps for US$11.9B

Cable firms adapt to new TV environment

• Discovery Communications Inc. agreed to buy Scripps Networks Interactive Inc. for US$11.9 billion in a bet that uniting ownership of cable channels like Animal Planet and HGTV will help the company adapt to a fastchanging television landscape.

Discovery, one of billionaire John Malone’s key holdings, is grappling with shrinking audiences at some U.S. channels — including the Discovery Channel and Animal Planet — as consumers drop cable subscriptions and get more entertainment online from Netflix and others.

Discovery chief executive David Zaslav said Monday he plans to use Scripps programming to strengthen the company’s international reach and expand its distribution options, including creating more short-form video for social media.

The combined companies could leverage their programming to ensure they’re included in new online TV services that offer fewer channels at lower prices, he said. Given their wide viewership, both Scripps and Discovery networks are relatively inexpensive for distributors to include in their channel lineups, he said. Hulu and Alphabet Inc.’s YouTube TV, for instance, didn’t include Discovery networks in their new web-TV services, and YouTube didn’t include programming from Scripps.

“It probably helps in those discussions,” Zaslav said Monday of negotiating with new online-TV services. “We do think we are making ourselves a very compelling core of a skinny bundle.”

Discovery wants to package the Scripps networks with its own in an online service for as little as US$3 to US$4 a month, Bloomberg reported this month, citing a person familiar with the company’s thinking.

Discovery, based in Silver Spring, Md., will acquire Scripps for about US$90 a share and assume long-term debt of US$2.7 billion, bringing the total price of the equity value plus liabilities to US$14.6 billion, according to a statement Monday. The price represents a 34-percent premium over Scripps’ close of US$67.02 on July 18, the day before news of the companies’ talks became known.

Discovery’s offer forced Viacom Inc. to abandon its own efforts to acquire Scripps, people with direct knowledge of the matter said last week.

Discovery’s cable channels are losing three per cent of subscribers each year, and his smaller channels are losing subscribers at a faster rate, Zaslav said Monday. Scripps, meanwhile, said Monday that ratings declines have forced it to lower its revenue and profit outlook for the year.

The deal combines two companies that specialize in so-called unscripted programming, focused on real-life adventures, travel, wildlife and home. With Scripps, Discovery gets the home-improvement channel HGTV, where hits like Property Brothers and Fixer Upper have made it one of the more popular cable networks.

The combined company will have almost 20 per cent of the ad-supported pay-TV viewership in the U.S., with a large female viewership. Buying Scripps could help Discovery boost its international sales, which currently account for half of its annual revenue. Knoxville, Tenn.-based Scripps owns an interest in Polish TV operator TVN and a stake in Britain’s UKTV.