It’s been a rough few years for TV networks. TV viewership is declining and media companies are forced to compete with the Googles and Facebooks of the world for ad dollars. That means more media mergers.
Discovery’s merger with Scripps makes them worth more than Viacom
The media marriage creates a TV bundle worth over $22 billion.
Rani Molla was a senior correspondent at Vox and has been focusing her reporting on the future of work. She has covered business and technology for more than a decade — often in charts — including at Bloomberg and the Wall Street Journal.
Discovery Communications announced today it was going to buy Scripps Networks Interactive in an $11.9 billion deal. The combined entity will create a sizable bundle of channels worth over $22 billion — Discovery’s market value plus the size of the Scripps deal. That’s more than Viacom, the next-biggest TV company by market value.
Caveat: Discovery’s offer includes both cash and stock, and as Discovery’s shares have dropped on the announcement, the overall value is now slightly lower. Also, once Scripps is fully absorbed into Discovery, investors will buy and sell that stock accordingly and its valuation will likely change. But this offers a fair look until then.
In theory, the combination does two things for Discovery’s business: It gives it more leverage when negotiating carriage agreements with cable distributors, and it cuts costs. The merger is estimated to save $350 million in costs.
But what it won’t do is solve the main issue confronting TV companies: The internet. Discovery, Animal Planet, HGTV and Food Network excel in creating the kind of reality content the internet already produces for free, so this tie-up won’t solve that issue.
The combined 2017 monthly affiliate revenue fees could grow to about $3.10 per subscriber, when Discovery and Scripps affiliate revenues are added, according to data from financial data firm S&P Global.
Will there be more consolidation? Watch for Viacom and AMC to consider a deal. Here’s a look at the value of other media companies as well as the average monthly revenue they get for each pay TV subscriber to see where other media companies might cut costs or gain leverage.
This article originally appeared on Recode.net.
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