5 Reasons a Merger Makes Sense for Discovery and Scripps—and 2 Reasons It Doesn’t

The companies are reportedly in talks to combine, which could benefit them both

Discovery Communications and Scripps Networks Interactive previously discussed a merger in late 2013, but talks broke off in January 2014.
Sources: Getty Images, Twitter

The television industry could be on the verge of a big upheaval, as Discovery Communications is reportedly in talks to merge with Scripps Networks International.

The potential deal, first reported by The Wall Street Journal, would combine Discovery’s portfolio—with networks like Discovery, TLC, Investigation Discovery and OWN—with Scripps’ portfolio, which boasts HGTV, Food Network and Travel Channel. Discovery brought in $6.5 billion in revenue last year, while Scripps posted $3.4 billion in revenue.

Discovery Communications is valued at around $15 billion, while Scripps’ market valuation is $8.8 billion. The last time the two companies discussed a potential merger, in December 2013 and January 2014, Discovery’s market capitalization was around $30 billion, while Scripps was around $11 billion.

Separately, Reuters reported that Viacom has also been in talks with Scripps about a possible deal. Discovery, Scripps and Viacom each declined to comment to Adweek about the reports.

The Journal cautioned that Discovery and Scripps could ultimately not reach a deal—as was the case three and a half years ago—or that another bidder could emerge. But Wall Street seemed initially receptive to the deal, with stocks for both companies up in after-hours trading last night and early trading this morning.

That’s because a union between the two companies could make a lot of sense in the wildly shifting television landscape. Here are five reasons why the merger could be great—and two reasons to be wary.

Both companies are seeing ratings—and advertising— growth

Despite linear television ratings softening across the board, many of the networks in these two companies—including Scripps’ entire lineup—saw ratings gains over the past year.

TLC was up 20 percent in prime time in the first quarter, while Discovery, which was the No. 1 channel for men 25-54 last year, had its highest ratings ever in the first quarter. OWN is the No. 1 network for African-American women, Investigation Discovery is No. 1 in length of tune and No. 2 in total day in women 25-54.

Over at Scripps, HGTV had its highest-rated year in 2016 and was No. 2 in total day viewing among all adults. (That means the combined company would boast two of the top networks in length of tune, with HGTV and Investigation Discovery.) But all six of Scripps’ networks—HGTV, Food Network, Travel Channel, DIY Network, Cooking Channel and Great American Country—had C3 ratings growth last year in the adults 25-54 demo.

With no major ratings albatrosses in the portfolio, those audience gains will make the combined company even more attractive to advertisers, especially as viewers continue to seek out the equivalent of TV comfort food in the midst of such political upheaval.

Scripps ad sales chief Jon Steinlauf told Adweek in March that with 4,000 new episodes a year, “if you tune into one of our channels, the chances of seeing something that’s brand new is pretty high.” And that gives Scripps viewers very little incentive to watch programming via DVR or on demand.

“A lot of advertisers are starting to think of sports, news and Scripps as the place to get high-quality audiences live. And that’s the whole goal for an advertiser now—you have to buy where you think they’ll be watching live,” Steinlauf said.

In May, HGTV, Food Network and Discovery all saw double-digit year-over-year increases in advertising spend, according to data from Standard Media Index. Scripps’ U.S. ad revenue surpassed $2 billion last year, said Steinlauf, and now has a double-digit share of cable advertising.

The respective portfolios complement each other well

Despite the number of networks in both portfolios, there is surprisingly little overlap between the networks. While TLC is making a return to its roots next year by bringing back Trading Spaces, the network’s most successful series ever (the show “put property shows on the TV map,” said Nancy Daniels, president and general manager of TLC, told reporters in March), that network has little overlap with HGTV and Food Network.

While some consolidation is possible, there aren’t any immediate issues that would exist if say, NBCUniversal aligned with Discovery Communications (both have networks focusing true-crime, women, kids and science).

More leverage with cable companies

The combination of two mid-sized companies will give Discovery and Scripps more leverage when negotiating new carriage deals with cable behemoths like Comcast and AT&T. This is especially important as smaller companies are in danger of getting squeezed out of skinny bundles, and channels that are dropped by major cable companies—like NBCUnviersal’s Esquire Network—end up folding before too long.

It will boost Scripps’ global expansion

Discovery has expanded globally in recent years—international revenue now counts for 46 percent of total revenue—but Scripps lags far behind on that front. A Discovery merger would give Scripps a built-in infrastructure to quickly capitalize on global opportunities for its networks, and shows like House Hunters and Fixer Upper.

Big OTT opportunities

A merger could give both companies muscle to compete in the over the top (OTT) space, with offerings that could combine the best of all companies.

Last October, Discovery split its app into individual Go apps for each of its networks, and has big plans to expand in that space. “Certainly linear is the lion’s share of our business, but the real growth areas are out of those Go properties,” Ben Price, president of national ad sales for Discovery Communications, told Adweek earlier this year.

Paul Guyardo, Discovery’s chief commercial officer, noted earlier this year that Discovery’s apps offer more content than their competitors, as many of them feature every episode ever produced of a given series. That gives buyers the flexibility to buy a show, a series, a season or even sponsor an entire app.

Discovery has already partnered with Amazon for OTT apps on true crime, paranormal and weddings, and could expand that into food, travel and home improvement with Scripps’ content.

But … where’s the sports content?

While Scripps and Discovery complement one another in many ways, their portfolios are missing an essential element in today’s landscape: sports programming. (Discovery has a robust international sports presence, with Eurosport, but nothing in the U.S.) Sports-related content continues to dominate among audiences and advertisers, and without that piece of the puzzle, the combined company could lose a toehold on live audiences.

They could be too much alike

The biggest red flag in a Discovery-Scripps merger could be that the companies are too similar, and a union wouldn’t address the weaknesses that each of them share: their companies are too linear-dependent, which will put them at a disadvantage if audiences continue to erode. While Discovery built its digital footprint last October with a $100 million investment in Group Nine Media, where digital sites Thrillist, Seeker, The Dodo and NowThis have a combined 4 billion monthly views, neither company’s portfolio of channels has a strong digital presence at the moment. Unlike the AT&T-Time Warner deal, where those companies bring different strengths to the table, this merger would double down on Discovery and Scripps’s shortcomings along with their strengths.