In a deal with some impact in Australia, US media magnate, John Malone has moved further ahead of the Murdoch clan with the news that the Discovery Channel, which he part controls, is to buy Scripps Networks Interactive in a deal valued at $US14.6 billion, including debt.
Malone already controls the merged Charter Time Warner cable business, controls Liberty Global in the US and Liberty Media internationally, Virgin Media in the UK (as well as 10% of ITV), plus online business such as Trip Advisor
The Scripps family, which controls about 92% of Scripps voting shares and votes as a block, has agreed to vote in favour. So has the Newhouse family, the owner of Condé Nast, whose Advance Publications is Discovery’s largest shareholder.
Malone is the largest individual shareholder in Discovery and will remain so after the deal. When the deal is completed, Scripps shareholders will own around 20% of the emerged company which will be one of the largest cable content makers in the world.
This deal underlined the importance to, 21st Century Fox (and also to News Corp) why the $US17 billion deal to mop up the 61% of Sky in the UK is so vital for the Murdoch clan. If it is blocked by the UK government it means the Murdoch family company will fall even further behind its global media peers.
But this deal will not be welcome in Australia at Foxtel and News Corp because it will make the combined company a much stronger player and supplier, and no doubt increase pressure on Foxtel to pay higher subscriber fees. Foxtel/News Corp (Fox Sports) and 21st Century Fox control many of the most popular channels on Foxtel, but a combined Discovery-Scripps Networks will have considerable clout.
And it will also pay to watch the US where Japanese tech giant/investor, Softbank, is trying to convince alone and his Charter cable TV giant to merge with Softbank’s Sprint telco in a deal that would be worth $US140 billion – but face enormous competition problems. Malone has said no, but talk still persists that a deal is looming.
The deal will unite the Discovery channels TLC, Animal Planet, HGTV and the Food Network (seen in Australia on SBS 3) at a time when the television industry is being reshaped by consolidation and streaming/digital viewing.
The cash and stock deal values Scripps at $US90 per share or $US11.9 billion worth of equity, a 34% premium to where the stock was trading on July 18, before news of a possible deal first emerged.
As well as food, Scripps specialises in real estate, DIY and lifestyle series, with hits like HGTV’s Fixer Upper and Property Brothers and the Food Network’s Chopped, Cupcake Wars, and Mystery Diners. Scripps owns a small Polish broadcaster, but its major non-food asset is the joint ownership of UKTV with the BBC. UKTV is one of the most popular channels on Foxtel in Australia.
Discovery Channel is also on Foxtel, but plenty of its programs make their way to free to air TV such as the Deadliest Catch series. Discovery and Scripps networks will account for about 20% of US cable TV viewership, but according to US media analysts only attract about 10% of the affiliate fees distributors pay media groups to carry their channels. Analysts see a chance of Discovery to boost that with the takeover, but with cable viewing and subscriber levels falling, it will be an uphill battle.
But there were also financial and an international drivers behind the deal – especially falling viewer, advertising and subscriber levels, which in turn has seen Discovery, and to a lesser extent, Scripps look offshore (the SBS joint venture for example). Overnight Monday Discovery said subscriber losses at its channels accelerated to 4% from 3% in the first quarter and 2% last year, while Scripps cut its guidance for full-year revenue growth to 4% from 6%, due to lower ratings and fewer advertisements delivered.
Cord cutting is hurting both in the US as more and more cable users abandon it and move to broadband or change down to cheaper so-called skinny bundles. Discovery has made a determined push into Europe – in 2015, the group pipped regional broadcasters to buy near-exclusive rights to four sets of Olympic Games in Europe for €1.3 billion.
It has also bought Scandinavian broadcaster SBS and Italy’s Switchover and now has total control of Eurosport which competes with Sky Sport, owned by Sky and through it controlled by 21st Century Fox and the Murdochs.
