Market Insight

Discovery completes merger with Scripps to create new factual channel giant

March 07, 2018

Tim Westcott Tim Westcott Director – Research and Analysis, Programming, IHS Markit

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Discovery Communications has completed its acquisition of Scripps Networks Interactive, creating a new factual channel programmer with worldwide reach and combined 2017 revenues of $9.8 billion. The two US-based groups made their merger agreement public in July 2017.

The new company will be known as Discovery Inc and is expected to relocate its headquarters to New York this year. The company's factual channel and lifestyle brands include Discovery Channel and Animal Planet, Eurosport, Food Network, HGTV and The Travel Channel. Outside the US Discovery's assets include the SBS channels in the Nordic region, TVN in Poland and a 50% stake in UKTV in the UK. 

Based on 2017 company reports, Discovery Inc generated 62% of revenues in the US and 38% in the international market last year. According to IHS Markit Channels & Programming Intelligence, Discovery operates 76 channel brands worldwide, including 30 in HD, while Scripps has 31, of which 12 are HD.

Under the agreement, Scripps shareholders will be paid approximately $90 per share, with $65.82 per share in cash and the balance in Discovery stock. Discovery valued the deal at $14.6 billion last year, including the assumption of $2.7 billion in debt from Scripps .

Our analysis

The completion of Discovery's takeover of Scripps comes as other global media companies are negotiating deals to gain scale. AT&T's acquisition of Time Warner is still under investigation by regulators, while Walt Disney Co is waiting for clearance for its purchase of the entertainment assets of 21st Century Fox. Fox is negotiating a long-delayed full takeover of Sky, with Comcast considering a competing offer for the pay TV platform. It is also reported that National Amusements is thinking about reuniting its CBS and Viacom outfits.  

Discovery's combination with the smaller Scripps will not change its position in the ranking of US based entertainment companies, according to IHS Markit analysis. With annual 2017 revenues of $10.0 billion, Discovery Inc would move above the cable networks division of Viacom ($10 billion) and just behind NBCUniversal ($10.6 billion). We estimate Discovery had 3.3 billion primary subscribers at end 2017, and Scripps, 1.1 billion.



The combined company will certainly look to exploit its larger portfolio of networks in carriage negotiations (Discovery has had a series of disputes with pay TV operators in Europe over the last few months). Discovery has emphasised its strength is the female demographic, with a claimed 'five of the top female US cable networks... and a reach of 20% of women watching primetime pay TV'. Both companies have also been aggressive in developing an online presence, claiming to deliver seven billion video views in an average month. 

However, there is some overlap in the coverage of the groups' channels which may call for some rationalisation of the portfolio.- most obviously with Scripps' Travel Channel and the Discover Travel and Leisure channel brand. Conversely, the companies diverse range of international activities, ranging from free-to-air channels in Europe to a 50% stake in All3 Media and UKTV, does not fully square with a focus on unscripted programming.

Research by Market
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