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Scripps for Sale? Staying Small In Consolidating Media Industry Seems Tough

Variety logo Variety 7/19/2017 Brian Steinberg

Each day, Scripps Networks-owned cable outlets like Food Network and Cooking Channel tell viewers how to make dishes like chicken cutlets with spicy arugula, root beer pulled pork or oxtail chili. Now, something different seems ripe for gobbling: the corporation itself.

A potential acquisition of Scripps Networks Interactive is being considered by both Discovery Communications and Viacom, according to reports in the Wall Street Journal and Reuters. A Scripps spokesman said the Knoxville, Tenn., company would not comment on “rumors.” Representatives from both Discovery and Viacom declined to comment on the reports.

Even so, many on Wall Street readily acknowledge the combination could prove quite appetizing. Smaller media companies are increasingly at a disadvantage in an industry where telecommunications providers and cable distributors are snapping up content houses in an effort to gain more sway over consumer choice. Comcast’s $13 billion purchase in 2009 of a controlling stake in NBCUniversal has set in motion a shift in terrain. Bulking up on content alone no longer seems feasible. Increasingly, companies must also have some hold over the ways in which consumers connect to their favorite programming.

Recent deals speak to this new pressure. AT&T, which already purchased satellite distributor DirecTV in 2015 in a deal valued at approximately $48.5 billion, is preparing to close an $85.4 billion pact to snap up Time Warner, the owner of HBO, CNN, Warner Bros. and DC Comics. Charter Communications broadened its national footprint by acquiring Time Warner Cable in May 2016 for approximately $65 billion. The Murdoch family seems intent on acquiring the remaining shares of European broadcaster Sky its 21st Century Fox does not control. And Lionsgate acquired Starz earlier this year in a deal valued at around $4.4 billion — a combination seen as a way for media magnate John Malone, who had stakes in both companies — to create a new media competitor.

Given a clear consumer desire for so-called “skinny bundles,” eroding linear-TV viewership and softer advertiser demand for cable, said Michael Nathanson, an independent media-industry analyst, “there is a clear need for the non-broadcast-affiliated content owners like Scripps, Discovery, Viacom and AMC Networks to gain distributor negotiating leverage and cost savings through mergers.”

The Comcast-NBCU tie-up seems to prove the value of getting bigger. Since buying a minority stake in NBCU from General Electric, and, subsequently, the remaining shares, Comcast has become an impossible-to-ignore presence. It now controls a bevy of must-see properties, including U.S. broadcasts of the Olympics; “Sunday Night Football”; and “This Is Us.” It has extended its reach into the world of sports rights and kids’ programming. In TV’s recently completed “upfront” marketplace for advance advertising sales, the company secured a little under $6.5 billion in ad commitments, compared with around $6 billion in 2016.

Discovery and Scripps seem the most like-minded. Both specialize in so-called nonfiction programming, with Discovery focused more on content centered on nature, adventure, science, and, increasingly, unscripted reality programming. But it has only a touch of the content that fills Scripps’ flagships — HGTV and Food Network — and has bet lately on international sports rights to help augment its portfolio, which includes TLC, Investigation Discovery and a stake in Oprah Winfrey’s OWN.

Viacom, if it were to move forward on a deal for Scripps, would find itself in very new territory. For decades, the company has put its stock in trade in finding young TV viewers eager to watch the latest on MTV, Comedy Central and Nickelodeon. Scripps properties like Travel Channel would put a new flavor of “unscripted” programming under the company’s umbrella, which usually provides shelter for such stuff as “Jersey Shore” and “The Daily Show.”

But there’s no guarantee a merger of rival content producers will help stave off broader trends. Cable networks are under increasing pressure to demonstrate their viability as the industry appears to be on the cusp of allowing consumers to have more choice over the content they take into their homes and on their smartphones. NBCUniversal has in recent years shut down cable networks like Esquire, Cloo, Style and G4. ESPN, whose live-sports dominance once seemed to ensure its place in the media landscape, has had to contend with subscriber losses. Viacom in May found some of its best-known networks like MTV, VH1 and Comedy Central relegated to a pricier tier on cable systems owned by Charter, a signal that the distributor sees less value and demand for those properties from subscribers.

“Having 18 combined networks in a world shifting towards skinnier bundles might only compound secular challenges,” UBS media analyst Doug Mitchelson note in a Wednesday research note.

The Scripps-Discovery recipe has been tasted before. In late 2013, the two companies pondered a tie-up, only to go their own separate ways. There are some barriers to mixing the two sides anew, including a John Malone stake in Discovery and a group of longtime family shareholders at Scripps. But there’s no question: Smaller media companies can only continue on for so long before broader consumer consumption trends force them on to someone else’s plate.

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