REVISED SCRIPPS
Discovery plan: fewer channels, better lineup
John Malone’s Discovery Communications hooked a long-hunted prey on Monday, reeling in Scripps Networks Interactive for $14.6 billion.
It is the third time that the David Zaslav-helmed Discovery has pursued the family-owned parent of the Food Network, HGTV and other cable outlets.
Zaslav, 57, finally closed the deal by offering Scripps shareholders $90 per share, a 34 percent premium over Friday’s closing price.
The programming executive, faced with dwindling leverage against a consolidating pay-TV universe and more selective skinny bundles, hopes to create a giant cable programmer with almost 20 percent of ad-supported pay-TV viewership.
At the same time, the deal could result in several of the combined entities’ cable brands disappearing from the dial — and sent to a life solely in the digital realm.
As part of the retooling, Zaslav is expected to create niche offerings, like Italian, French or Greek cooking channels or more shortform video to take on online cooking content.
Zaslav, Discovery’s chief executive, who finally closed the deal after numerous rounds of golf and plenty of dinners with Scripps CEO Ken Lowe, sees a future where there’s more investment and energy behind a smaller number of channels.
Roughly 85 percent of the revenue from the combined Discovery-Scripps comes from six of the firms’ chan- nels, Zaslav told analysts on Monday.
“We’ll evaluate all of them, and look at a strong eight,” he said. “That may be the direction the industry is going.”
Discovery has 13 channels in the US; Scripps’ has six channels. The move to put greater emphasis behind a smaller number of channels is a recent trend.
In February, Viacom’s new CEO Bob Bakish announced a move to get behind a “flag- ship six” channels focusing on fewer networks with a better lineup.
Zaslav’s decision to double down on cable TV at a time when pay-TV is losing subscribers will create pressure for him to get results fast.
Wells Fargo believes 1.28 million subscribers cut the cord in the recently completed second quarter.
On the flip side, programmers are seeing growth in virtual services, with 3 million subscribers shelling out for bundles from the likes of Dish’s Sling, Sony PlayStation Vue, DirecTV Now, Hulu and YouTube.
“This was the most obvious merger because of the overlap of audience and programming,” said Ben Winkler, chief investment officer of OMD. “The style of the sales force is even similar.”
“Neither Scripps nor Discovery has been at the front of the pack on multiplatform,” Winkler said. “I think it’s fair to speculate that together they’ll be more likely to respond to the likes of a Tasty [owned by BuzzFeed].”
One reason for the deal is that Discovery will be able to use its breadth to create better affiliate revenue for Scripps networks, which command about half of Discovery’s fees when it comes to distributor payments.