×
You will be redirected back to your article in seconds

A Merger Between Scripps and Discovery Could Be a Smart Fit

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.

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.

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.

More Biz

  • Alan Horn Disney

    Variety Keynote Speaker Alan Horn Sees Opportunities in Expanded Portfolio

    As Walt Disney Studios co-chairman and chief creative officer, Hollywood veteran Alan Horn oversees the most enviable content portfolio in show business. In step with his co-chairman, Alan Bergman, Horn has command of monolithic brands like Marvel Studios, Lucasfilm and Pixar — to say nothing of the 21st Century Fox film assets the men added [...]

  • Edward Cheng, Tencent Pictures CEO

    Tencent Shows Rising Cost of Compliance, Impact of China's Slowing Economy

    Tencent, the Chinese tech giant which commands dominant positions across games, music, streaming and social media, Wednesday revealed third quarter results weighed down by slowing ad sales, slowing PC games and rising costs. Revenues in the July to September period showed a 21% year-on-year increase to RMB97.2 billion ($13.8 billion). Net profits dropped 13% to [...]

  • Lilly Burns Tony Hernandez

    Variety to Honor Jax Media Chiefs Tony Hernandez, Lilly Burns at New Leaders Event

    Emmy Award-winning producer Tony Hernandez and Emmy-nominated producer Lilly Burns will receive the Creative Leadership Award on behalf of Jax Media at the Variety New Leaders event presented by City National Bank, taking place Nov. 14 in New York City. As founders of Jax Media, Hernandez and Burns have produced shows and specials such as [...]

  • Andrea Bocelli

    Andrea Bocelli Calls Plácido Domingo Cancellations Due to Sexual Harassment Claims ‘Absurd’

    Italian singer Andrea Bocelli is defending embattled opera star Plácido Domingo, saying it is “absurd” that concerts have been canceled in the wake of multiple sexual-harassment allegations. “I am still appalled at what happened to this incredible artist,” Bocelli said, according to the Associated Press. “I don’t understand this. Tomorrow a lady can just come up [...]

  • Rudy Lopez Negrete Returns to CAA     

    Rudy Lopez Negrete Returns to CAA

    Rudy Lopez Negrete has rejoined CAA as an agent in the Music Touring department, specifically focused on leading brand partnerships for CAA’s Latin music clients. He will be based in the company’s Los Angeles office, where he will work with Latin artists including Enrique Iglesias, Ricky Martin, Jennifer Lopez, Becky G, Isabela Merced, Luis Fonsi, Mon [...]

  • Richard Plepler HBO

    Former HBO Chief Richard Plepler Close to Signing Apple TV Plus Production Pact

    Former HBO chief Richard Plepler is close to signing an exclusive production pact with Apple TV Plus. Apple declined to comment and Plepler could not immediately be reached for comment. It’s understood that Plepler plans to launch a boutique production company designed to focus on a handful of high-profile projects. Among his advisors in pulling [...]

  • Byron AllenVariety Inclusion Summit, Inside, Los

    Byron Allen, Comcast to Square Off in Supreme Court on Racial Discrimination Case

    Byron Allen’s racial discrimination case against Comcast Corp. on Wednesday heads to the Supreme Court, where justices will consider Comcast’s argument that the case should hinge on two words: “but for.” Allen filed a $20 billion lawsuit against Comcast in February 2015, arguing that the nation’s largest cable operator was discriminating against his company, Entertainment [...]

More From Our Brands

Access exclusive content