During the past four years here on Frank’s Forum I have focused on mergers in the business world, television ratings/business side of television, and news that impacts the consumer. The news on a Monday morning that Discovery purchased Scripps Networks combines elements from all three of those sub-themes.
First, the merger itself is worth over $11 billion and will combine the networks under the Discovery umbrella (Animal Planet, TLC, Discovery, ID network, and a stake in the OWN Network) with that of the Scripps portfolio (HGTV, Food Network, DIY Network, and Travel Channel). This merger will give the new Discovery Communications ownership of about 20% of the “basic cable” landscape.
This will provide them with leverage when negotiating carriage rights with the cable and satellite providers because they will have much more content and be able to split the channels up into different packages to promote to those providers in order to attract new customers.
Second, the ratings side is a big component of this deal as well. The ratings for basic cable programs are held to a different metric than the national broadcast or premium cable programs, but ratings are still crucial. This is made even more significant by the decreasing viewership levels for cable television programs due to the large number of consumers cancelling their cable service.
The ratings for certain programs that air on Scripps channels are significant, and the combination of the two entities helps their overall combined ratings compared to if they remained two separate units. The reality series, Fixer Upper on HGTV is the #2 rated overall cable program, so that is a huge addition to the Discovery Networks stable when the time comes for contract renewals with the cable and satellite providers.
This ties in nicely to the third component: the impact for the consumer. The combined Discovery/Scripps unit will now be able to offer more content and more value to the cable /satellite providers. They will also be offering their channels in different bundle packages which will benefit the consumer. These factors should lead to lower costs to the consumer for those particular channels.
The additional benefit will most likely be that the content from the new Discovery Networks combined entity will become more readily available in the “On Demand” functions of your cable or satellite provider.
The last component which impacts both the consumer and the business side of the television landscape is that the Discovery executives have discussed the development of their own streaming application. The proposed application would feature a range of content from this newly formed group of popular cable channels.
However, some industry experts remain skeptical of Discovery creating their own streaming service application because it is expensive to develop properly. Many of those same experts also counter that the combined Discovery/Scripps is going to cost more to operate because it is going to be a larger company with more expenses. That is going to require some adjustments by the senior management structure to run efficiently.
In the end, the merger of Discovery with Scripps Networks is an indication of the direction that those types of media companies are going to take in the future. The trend toward consolidation is going to be a necessity in order to compete with NBCUniversal (Comcast), Disney/ABC, and AT&T (DirecTV) especially with AT&T set to purchase Time Warner.
The management at both Discovery and Scripps knew that in order to survive in this new world order in cable television they had to combine forces. The increase in streaming content and consumers trending toward “cutting the cord” with cable services is going to further consolidate the industry in the years ahead. The landscape will change and only the strong will survive.
This merger should have a few benefits to the consumer especially if Discovery could get a streaming application launched. The changes will continue and how it will all turn out in the end is anyone’s guess, we will all just have to stay tuned, literally.