Discovery Communications is leaning toward dropping its bid for Court TV.
The Bethesda, Md.-based owner of Discovery Channel is souring on taking over Court TV because Discovery fears that if it buys the legal cable channel it could end up with far less distribution than the 33 million subscribers Court TV currently has, according to sources close to the deal.
That’s because Time Warner, which owns one-third of Court TV, doesn’t want to include its almost 8 million Court TV subscribers as part of the deal, said sources.
If Time Warner agrees to sell Court TV without its subscribers, the value of the cable network would significantly decrease. Discovery has valued Court TV at roughly $350 million, or slightly more than $10 per subscriber.
In addition, Discovery’s shareholders — who held a conference call to discuss the matter Friday — are worried that if they buy Court TV, some of its other cable system affiliates may drop the channel. Discovery is owned by Liberty Media Corp., Cox Communications, Advance/Newhouse Communications and Discovery founder and chairman John Hendricks.
Discovery would like to buy Court TV’s 33 million subscribers and use them to launch one of its many new services, such as Discovery Health. In this scenario, Court TV’s programming format would be scrapped, or perhaps moved over to a less-distributed digital channel.
The problem with this plan is that once Discovery dumps the legal programming format, Court TV’s cable system affiliates are contractually allowed to drop the service and use the channel slot to add a different cable network. Discovery executives have said that they would not switch Court TV’s programming format without first carefully conferring with its affiliates. Considering the scarcity of analog channel space, Discovery could find itself in a bidding war with other cable networks trying to buy their way onto Court TV’s channel slots.
Time Warner, Liberty Media Corp. and NBC — which each own one-third of Court TV — put the cable channel up for sale after a long period of bickering about how the channel should be run. Discovery’s sudden offer two weeks ago displaced a $300 million bid by LBO fund Evercore Partners and NBC executive VP Tom Rogers.
If Discovery does withdraw its Court TV offer, Evercore could reemerge as a white knight.
As the negotiations drag on, morale has hit an all-time low among Court TV’s 200 employees. Inhouse sentiment is that Discovery would be a great owner — but only if they decided to keep the network’s trial format. If Discovery ownership means gutting its legal content, Court TV’s employees are rooting for Tom Rogers and Evercore to buy the channel.