Discovery’s Scripps Deal Is All About Streaming TV (Analysis)

Building a mini-media empire with the parent of HGTV helps compete in over-the-top world

Scripps Discovery
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Discovery Communications’ $14.6 billion deal for the parent company of HGTV and the Food Network, Scripps Networks Interactive, makes it a powerhouse in traditional cable. But more importantly — and like so many HGTV shows — it gives the growing family a better framework for what comes next.

The mega-deal, which handsomely rewarded Scripps shareholders with a 34 percent premium over the stock price when the potential acquisition was first reported, is all about securing an (expensive) foothold in at least part of the future of pay-TV: over-the-top streaming services, which have reshuffled the deck in the era of cord-cutters and cord-nevers. Popular networks and content owners have all kinds of new distribution outlets from which to cash in, but marginal channels dependent on the traditional large bundle are finding themselves in a tough spot when cash-conscious couch potatoes choose to downsize.

The best way not to be marginal: buy a ratings powerhouse like HGTV.

“Discovery’s added scale, content engine and multiple brand offerings will present a compelling opportunity for new digital distribution partners, including mobile, OTT, and direct-to-consumer platforms and offerings,” the two companies said in a joint statement announcing the deal.

That opportunity wasn’t lost on Viacom, which also made a play for Scripps and whose MTV and Comedy Central channels’ viewership is far below their heyday, as their target millennial demographic has largely moved on from “Jersey Shore” to “Netflix and chill.” HGTV and Food Network would have helped the company build a more durable collection of cable networks for the 2017 audience.

Scripps, however, has had a much better go of it in these cord-cutting times. Its crown jewel, HGTV, has increased its prime time viewership by 29 percent since 2013 during a time when some other cable channels, like Disney’s ESPN, are shedding subscribers by the hundreds of thousands every month.

And with the addition of the Scripps networks, the bigger and better Discovery will have a nearly 20 percent share of the domestic ad-supported cable audience and more than 20 percent of female prime time pay-TV viewers. In addition to HGTV and Food Network, Scripps includes Travel Channel, DIY Network, Cooking Channel and Great American Country, as well as a handful of international properties. Discovery’s offerings consist of its flagship Discovery Channel, TLC, Investigation Discovery, Animal Planet, Science and Turbo/Velocity, in addition to the American operations of OWN, Discovery Kids in Latin America and Eurosport.

Google’s YouTube TV has essentially built its streaming television service based on the four broadcast networks and their affiliates, adding the AMC Networks family of channels in order to reel in new subscribers with AMC’s “The Walking Dead,” the highest rated show on television. And with about 50 channels — similar to the base packages for competitors like Hulu with Live TV, Sling TV and DirecTV Now — these internet TV providers don’t necessarily have room for everyone. YouTube TV doesn’t carry the Turner networks like CNN and TNT or channels from Discovery, Scripps or Viacom. Hulu has Turner and Scripps but no Discovery or Viacom. Sling has Turner, Scripps and Viacom, but no Discovery.

On Discovery’s first-quarter earnings call, CEO David Zaslav called many of those streaming services “overstuffed turkeys,” saying those bundles weren’t exactly “skinny” once regional sports networks and broadband was added in, and contrasted them with European plans that Discovery’s channels are a part of. But when the people are asking for overstuffed turkeys, it’s good to be on the plate.

It’s no longer enough just to have a channel that’s widely distributed through traditional providers. Networks that aren’t popular or powerful enough to squeeze into the smaller menus offered by the new carriers that are increasingly becoming the way younger generations of consumers watch pay-TV, risk being left behind.

That’s why Discovery was happy to oblige when the home of “House Hunters” was looking for a new landing spot of its own. In the world of streaming television, it’s helpful to have a sister property with hits like “Property Brothers.”