Discovery merger impact up in the air Featured

Silver Spring’s Discovery Communications Inc. gave no indication of the potential local economic impact as it announced its plan to acquire Scripps Networks Interactive Inc. of Knoxville, Tennessee.

Discovery announced the acquisition July 31 and said it expects to close the deal in early 2018 after shareholder votes and antitrust regulatory review. It employs 1,300 people in Montgomery County and 7,000 worldwide, said a company spokeswoman. According to Scripps online securities disclosures, it has about 1,000 workers in Knoxville and 3,600 worldwide.

“There’s no news from Discovery on office or employee locations” once the acquisition is completed, the spokeswoman said. “It’s way too premature,” she explained, because there’s been no discussion yet between the companies on the status of channels, shows, production capabilities, or other operations. For now, she noted, “It’s business as usual” within both companies.

Discovery’s best-known channels are Discovery, Animal Planet, TLC, Investigation Discovery, American Heroes Channel, and the Oprah Winfrey Network in the United States. It has seven other U.S. channels, including two that present company material in Spanish, and sizable operations abroad, including Eurosport, a major soccer channel and carrier of the Olympics in Europe.

Scripps’ main channels are HGTV, which focuses on homes, remodeling and neighborhoods, Food Network (majority ownership), Cooking Channel, Travel Channel, DIY (do-it-yourself) Network, Great American Country, and Fine Living Network. It too has substantial foreign operations.

Discovery CEO David Zaslav, in a July 31 public phone call for investors and press on the acquisition, noted that the combined Discovery-Scripps entity would “have a nearly 20 percent share if ad-supported pay-TV audiences in the U.S,… [and] will be home to five of the top pay-TV networks.” In addition to HGTV, Food Network and Travel Channel, high-rated channels for women include the Discovery’s product, Investigation Discovery.

Zaslav said the combined company would seek to find synergies in its strong woman-oriented programming and to leverage its 20 percent market share in negotiating payments from cable companies.

As for specific channels, shows and operations, Zaslav said on the call, “We really haven’t gotten into it with [Scripps CEO] Ken [Lowe] and their team about whether all of [the channels of both companies] are going to be survivors and winners.” As a result, Zaslav offered no basis to speculate about local economic impacts.

Conceivably, Zaslav indicated, parts of the company could contract. He explained that, before focusing on the Scripps acquisition, top Discovery managers were “looking at” possibly paring the U.S. channels to “a strong eight,” noting that “the overwhelming majority of our revenue comes from six or seven channels.” This review, Zaslav added, was also to adjust to “the direction the industry is going” as consumer viewing habits have strayed the last several years from watching traditional cable TV.

As for newer media as American and worldwide TV viewing habits change, Zaslav continued on the call, the combined entity may offer a “skinny bundle” of woman-oriented programming downloadable to phones or computers, aiming particularly at people not subscribing to monthly cable providers. This bundle might cost subscribers $3 to $4 per month, according to several TV business analysts. Such bundles are already popular in more than 100 foreign countries, analysts add.

Zaslav told investors that both companies are strongly pushing another newer medium, short-form video. The two companies already are producing 7 billion short-form video streams monthly to distribute their content, he said.

As for traditional forms of content, he added on the call, the combined company “will produce approximately 8,000 hours of original programming annually” and has a library of 300,000 hours.

According to securities disclosures, both companies are profitable. Discovery’s earnings in 2016 were $1.2 billion, and Scripps’s were $673 million. Their combined sales in 2016 were about $10 billion.

Discovery will pay Scripps shareholders $90 per share, a 34 percent hike from the Scripps share price the day before rumors of the deal were widely reported (July 18). Of the $90, $63 (70 percent) will be paid in cash, and $27 (30 percent) in Discovery stock.

Altogether, Discovery will pay $14.6 billion for Scripps, $11.9 billion to the shareholders, and $2.7 billion to take over Scripps debt.

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