Discovery’s Deal for Scripps Nears Completion, But Is It Enough?

The Justice Department approved Discovery Communications’ $15 billion acquisition of Scripps Networks Interactive on Monday, which moved up the likely completion of the merger by a few weeks to mid-March. With the TV business moving at lightning speed right now, that’s great news for Discovery and Scripps.

These deals take time — the Discovery-Scripps merger was announced in July 2017 — to push through the regulatory approval process, and nearly every major company in the business is either involved in a pending merger or rumored to be. There has even been serious discussion of CBS and Viacom, which are likely to announce a merger soon, jointly acquiring Lionsgate even before their own merger is completed.

Why the rush?

Netflix’s success in building a global streaming operation to distribute home-grown franchises like Stranger Things, Altered Carbon and Bright and a general trend toward industry consolidation have sent every other telecom and media outlet scrambling to build their own global streaming operations with home-grown franchises. AT&T is buying Time Warner for franchises like DC Comics and CNN. Comcast and Fox are competing to buy Sky for its European distribution. Discovery and Scripps are merging to scale up lifestyle and reality content.

“This is a different world,” Discovery CEO Davis Zaslav said Tuesday during an earnings call with investment analysts. “Before, we generated content, we put it on our cable and free-to-air channels, and we made deals with cable and satellite distributors. Now, we’re doing business with the mobile players as well.” Zaslav pointed out that Apple, Amazon, Google, Facebook and Netflix are all operating at a global scale. “There’s opportunities for us to either compete with them or to piggyback on those platforms.”

After the merger, Discovery and Scripps will be heavily concentrated in U.S. cable networks — 18 of them — at a time when all of the growth in bundled TV packages is by streamers like DirecTV Now and Playstation Vue that have much smaller channel lineups than traditional carriers. Hulu Live TV, YouTube TV and Sling TV don’t carry any of Discovery’s networks.

“Our ambition is to be carried on every platform,” Zaslav said. “Given the amount of time that people spend with our channels — with Discovery, with Oprah [OWN], with Food Network, with HGTV, with TLC, with ID — I’m an optimist, so I’m confident in the long run that our consumers will win out.”

Zaslav said he foresees eventually getting Discovery’s networks onto Hulu Live TV, YouTube TV and Sling TV plus getting onto more targeted bundles like Philo, which costs $16 a month vs. $35-$40 for the streaming bundles that include expensive sports networks like ESPN and FS1. Viewers who watch more of HGTV’s Fixer Upper and Discovery’s Gold Rush than ESPN’s SportsCenter may look at their next $100 cable bill and decide that a $16 plan — or even a cheaper one — is too hard to pass up.

“We think that there’s a big need in the U.S. for a low-priced-entry product,” Zaslav said. Variety estimated in early 2017 that Discovery and Scripps’ 18 combined networks cost U.S. carriers about $3 per month per subscriber, which gives the company tremendous latitude to price an a-la-carte package. “We could create a pretty compelling offering for $6, $7, $8 [a month] that would look a lot different than Amazon Prime and a lot different than Netflix and that could be very attractive in every language globally.”

Discovery could aim such a product at mobile subscribers in the United States — something Viacom is planning to do later this year — and in international markets as a global Discovery service that would include reality, lifestyle, food, travel, science and history programming and be available through mobile providers and streaming-bundle services.

Discovery post-merger with a $20 billion market value would still be relatively small as global media companies go. Discovery could be a buyer and acquire a smaller company like AMC Networks, or a bigger company like Verizon, Amazon, Disney or CBS-Viacom could buy Discovery to gain access to U.S. lifestyle programming to balance out more expensive sports and scripted programming.

“We expect there will will be more consolidation,” Zaslav said. “There’s gonna be a race to try and be more global, to own more IP, to have some stuff that’s gonna work on mobile.”

Scott Porch writes about the TV business for Decider, is a contributing writer for Playboy, and hosts a weekly podcast about new digital content called Consumed with Scott Porch. You can follow him on Twitter @ScottPorch.