Discovery, Scripps fire up merger talks again, report says

Cooks vs. Cons Geoffrey Zakarian (Scripps)
(Scripps)

Discovery Communications and Scripps Networks Interactive are reportedly once again in talks regarding a potential merger.

While possible terms for the deal are not known, the Wall Street Journal points out that Discovery is worth about $15 billion and Scripps is worth about $8.8 billion.

The general consensus among analysts is that a deal combining the two media companies would provide significant synergies.

“We see a ballpark $150m-$250m of cost savings (most of corporate + 6%-16% of SG&A), while potential revenue synergies are harder to pinpoint (SNI's lifestyle content across DISCA's leading int'l distribution, perhaps enhanced U.S. pay TV leverage as the #2 group with 13% of A25-54 L7 viewing, #6 by revenue),” wrote UBS’s Doug Mitchelson in a note.

Jefferies analyst John Janedis said the tie-up could provide more leverage in future MVPD negotiations, a leading position in reaching the female demographic, cost rationalization, and the expansion of international footprint.

MoffettNathanson analyst Michael Nathanson also agreed that increased leverage is urgently needed now more than ever.

“Given the mix shift to skinny vMVPD sports and news bundles, declining viewership trends and soft cable network ad demand, there is a clear need for the non-broadcast-affiliated content owners like SNI, DISCA, VIAB and AMCX to gain distributor negotiating leverage and cost savings through mergers,” wrote Nathanson in a blog post.

Barclays analyst Kannan Venkateshwar said though that a number of factors could hamper this sort of horizontal consolidation for media companies. Besides challenges to realizing cost synergies, Barclays said the combination could significantly raise its exposure by relying on advertising for around 60% of total revenues.

RELATED: AMC, Discovery, Scripps will face hard times in 2017, analyst predicts

The report of renewed merger talks comes as many analysts believe pressure is increasing for pure-play cable networks. In a year-end blog post, Nathanson said his firm was wrapping up 2016 with Sell ratings for the three pure-play cable networks.

“We strongly believe that the greatest risk in the years ahead is the continued erosion of live scripted and non-fiction linear TV programming and the move to cull long-tail cable networks in new skinny bundles,” Nathanson wrote.