As Scripps Networks and Discovery Communications work toward a merger, they’ve already promised shareholders substantial cost savings. But, arguably, the bigger long-term benefits will come from what the two sides can learn from each other.
The two companies’ domestic revenues have been growing strongly over the past years. However, when you look at where that growth has come from, it becomes clear that each has found a different sweet spot, with Scripps driving much stronger growth from advertising revenue and Discovery finding many of its gains in affiliate fees.
Roughly 80% of Discovery’s revenue growth since 2015 has come from rising fees forked over by pay-TV companies and, more recently, by subscribers to its direct-to-consumer offerings. Meanwhile, 95% of Scripps’ growth has come from higher prices, better ratings and other drivers of ad revenue.
Related Stories
Discovery has been better able than Scripps to secure bigger increases in its affiliate fees from major pay-TV companies, especially during 2016, when Scripps saw a drop in affiliate fees as it renegotiated one of its big contracts. Discovery has also begun selling some of its offerings direct to consumers through Amazon Channels.
Popular on Variety
Scripps has improved its revenues on cable networks by targeting advertisers whose offerings appeal to home improvement, travel, cooking and other specialized audiences its networks attract.
Though the companies are touting $350 million in annual cost savings as a justification for the merger, it’s arguably what the two firms can learn from each other about growing affiliate fees and providing an attractive platform to advertisers that will drive greater long-term benefits.
Scripps currently generates around 70% of its U.S. revenues from advertising, while Discovery gets about half of both its domestic and international revenues from affiliate fees. If Scripps were able to raise its affiliate-fee share and Discovery its ad-revenue share commensurate with their respective subscriber bases, they’d both see a sizable boost in overall revenues.
On top of that are the synergies that would come from bringing significantly increased scale to bear on negotiations with advertisers and pay-TV providers. For Madison Avenue, the combined entity could offer broader audiences across a number of properties targeting women, while among MVPDs, the companies could offer seven networks featuring more than 80,000 subscribers, providing added leverage in carriage deals.
Of course, none of this will immunize the companies against the ills troubling the linear TV industry. But banding together could help offset some of those effects significantly.
Jan Dawson is the founder and chief analyst at Jackdaw Research, an advisory firm for the consumer technology market.