Discovery Communications and Scripps Network Interactive Discuss Merger

Discovery Communications CEO David Zaslav appears to be quite ecstatic about the company’s new $14.6 billion deal to acquire Scripps Network Interactive around early next year. This will bring together the two cable network firms that, both known for non-scripted and lifestyle content.

It is a deal which “future proofs s our brands on a global basis,” explainScripps chairman Kenneth W. Lowe, who also called the agreement “an unmatched opportunity for Scripps to grow its leading lifestyle brands across the world and on new and emerging channels including short-form, direct-to-consumer and streaming platforms.”

Aside from its programming, Discovery is also known for having a strict cost discipline as well as quite a massive international footprint. Just how big? 2.8 billion people watch Discovery programming in 40 languages across 200 countries; and all of these would be quite a benefit to the Scripps Networks’ growing global distribution.

Zaslay—who happens to be one of the highest-paid public company executives—goes on to say, “When you put us together we are about 20 percent viewership on cable. As people are choosing content to put on a platform, our content together way over delivers.”

In addition, RBC Capital Markst analyst, Steven Cahill, said in a July 28th note: “While cost synergies are pretty obvious to us, we continue to believe the most compelling industrial logic is from international distribution.”

Cahill also adds that it could be possible Discovery might be looking to launch “ad-supported networks” using Scripps content in several dozen international markets. with [Scripps] content in dozens of international markets.” As such, he argues that the $3 to $10 million in annual revenue expectation, per network, is a reasonable estimate.

Finally, Cahall advised that the combined company will definitely create some leverage among distributors.

At the same time, though, Morningstar analyst Neil Macker warns that “while a potential deal could make sense financially, we believe that the long-term strategic fit is less certain.”
Instead, he argues, “By combining the two firms the surviving management team will have effectively doubled down on unscripted content during a period of uncertainty about the over-the-top future of the format.”

But the real strength, of course, is in the numbers. Discovery, for one, has a market capitalization of $11.4 billion with more than $6 billion in annual sales and roughly 7,000 employees. Also, Discovery has a net profit of $1.2 billion and Scripps Networks’ had a net profit of $673 million. Both have net profit margins in the high teens.

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