As Discovery Communications completes its $11.9 billion acquisition of Scripps Networks Interactive Inc., the newly supersized basic cable network powerhouse will lay the foundation to launch its own online video mini-bundle of all 18 Discovery and Scripps networks, along with on-demand options, for as little as $6 a month.

The new service, to be branded collectively as “Discovery” will include programming from:

Discovery

Discovery Channel, TLC, Animal Planet, Investigation Discovery, Oprah Winfrey Network, Velocity, Science, Discovery Family, American Heroes Channel, Destination America, Discovery Life, Discovery en Español (Spanish), and Discovery Familia (Spanish).

Scripps

Cooking Channel, DIY Network, Food Network, Great American Country, HGTV, and Travel Channel.

The package is being developed as a defensive move to fight the ongoing erosion of subscribers that are cord-cutting traditional cable television. Discovery has lost 5% of its viewers in the U.S. in the last quarter alone, because many customers are moving to on-demand services like Netflix combined with over-the-air stations.

The newly enlarged Discovery is now the largest provider of non-fiction basic cable programming in the country. A combination of instructional programming popular on Scripps’ networks is expected to fit well with the reality and documentary programming popular on most Discovery networks. Although frequently bundled with alternative cable television streaming services, those services typically lack a deep on-demand library of content.

In order to drive subscriptions, Discovery’s streaming service is expected to be budget priced and include a large library of on-demand content, possibly including programming from other networks not owned by Discovery down the road.

The combined company also hopes to leverage as much savings out of the merger as possible. That will likely mean extensive job cuts at both companies. Discovery and Scripps together have more than 11,000 employees, including 600 ad sales people working for Discovery and 500 ad sales people working for Scripps.

Discovery will shut down its headquarters in Silver Spring, Md., and open a new headquarters in New York for both Discovery and Scripps employees. But Discovery will maintain Scripps’ headquarters in Knoxville, Tenn., as an “operations headquarters” for back-office work.

The two companies also have a significant international presence with more than three billion viewers worldwide, but the company plans to downsize international studios and consolidate production facilities in the United States and Poland, where Scripps owns  TVN, a Polish broadcast television network that favors reality TV programming and is seen in 90% of the country.

At some point, some of the 18 networks may be consolidated. Discovery executives note it now has two channels devoted to food and cooking — Food Network and the Cooking Channel.

Discovery’s niche will continue to be non-fiction programming, even as much of the rest of the industry is rapidly moving towards scripted series. Discovery executives point out that an hour of a scripted TV series now costs an average of $5 million, while an hour of reality programming produced in-house costs about $400,000. Scripps’ networks have managed to produce their shows for even less, recorded in pre-constructed studios that do not require remote location filming.” As far as Discovery is concerned, sticking with nonfiction programming is the right choice.

“We look at that [scripted] side and we say, ‘Good luck with that,’” said Discovery CEO David M. Zaslav. “That’s not what we do. We don’t do red carpet.”

Discovery Communications and Scripps Networks promote their merger and their global networks in this company-produced spot. (2:47)

NEW YORK (Reuters) – Discovery Communications Inc is acquiring Scripps Networks Interactive Inc for $11.9 billion in a deal expected to boost the company’s negotiating leverage as it seeks new audiences.

The acquisition, announced on Monday, brings together Scripps’ largely female-focused lifestyle channels such as HGTV, Travel Channel and Food Network with Discovery’s Animal Planet and Discovery Channel, whose viewers are primarily male.

Despite expectations of $350 million in total cost synergies, many analysts questioned how the combined company would compete long term as viewers cut cords to cable providers and as advertising and ratings decline.

Discovery shares ended regular trading down 8.2 percent at $24.60 while those of Scripps finished up 0.6 percent at $87.41.

Discovery is paying 70 percent cash and 30 percent stock for Scripps. The total price of the deal is $14.6 billion including debt.

“While we believe the two companies are likely better positioned together, rather than apart, the longer-term issues facing the industry still remain,” wrote John Janedis, an analyst at Jefferies, in a note on Monday.

Both Discovery and Scripps reported quarterly earnings on Monday that reflected the challenges facing U.S. media companies. Scripps missed its second quarter ad guidance and lowered its full-year estimates, and Discovery reported flat advertising and lower affiliate revenue.

U.S. television networks and cable providers are under pressure as more viewers watch shows and movies on phones and tablets. There is also increased competition for viewers from streaming services such as Netflix Inc and Amazon.com Inc.

Five of the largest U.S. pay TV providers posted subscriber losses during the second quarter.

The combined company’s larger programming slate might give it an advantage in negotiations for inclusion in skinny bundles, or economy-priced cable packages that offer fewer channels than a standard contract.

After the merger, the company will offer 300,000 hours of content and capture about a 20 percent share of ad-supported cable audiences in the United States, Discovery said on an analyst call Monday morning.

“The transaction supports and accelerates Discovery’s pivot from a linear TV-only company to a leading content provider across all screens and services around the world,” David Zaslav, Discovery’s chief executive, told investors.

The combined company would also have more muscle in negotiations with cable and other distributors when contracts come up for renewal, executives said.

By adding Scripps programming, Discovery could also launch its own “skinny bundle” of networks at a low cost, executives said.

The combined company would be home to five of the top cable networks for women with more than a 20 percent share of women prime-time viewers in the United States, according to Discovery.

Discovery will evaluate the Scripps channels, as it has its own, to figure out if any could be web-based, Zaslav said on the call.

Scripps has been considered a takeover target since the Scripps family trust, which controlled the company, was dissolved five years ago.

Under the terms of the deal, Scripps CEO Ken Lowe would join the board of the combined company.

The deal requires regulatory and shareholder approvals. Major shareholders including cable magnate John Malone, Advance/Newhouse Programming Partnership and members of the Scripps family, support the deal, the companies said.

Discovery had tried unsuccessfully twice before to buy Scripps. Discovery outbid Viacom Inc for Scripps, Reuters reported first last week.

Guggenheim Securities and Goldman Sachs served as financial advisers to Discovery. Allen & Co LLC and J.P. Morgan Securities served as financial advisers to Scripps.

Evercore Group served as financial adviser to the Scripps family.

Reporting by: Jessica Toonkel; Editing by Jeffrey Benkoe and Steve Orlofsky

Discovery Communications, occasionally left out of online video alternative bundles targeting cord-cutters, is preparing to retaliate with a $3-4 web-delivered bundle of channels featuring Discovery Channel, Animal Planet, TLC and other affiliated networks and possibly Scripps Networks’ bouquet of channels including HGTV, Food Network, and the Cooking Channel.

Discovery is one of two bidders (Viacom is the other) vying to take charge of Scripps Networks Interactive, one of the few remaining independent network owners not affiliated with a cable company or Hollywood studio.

Bloomberg News reports Discovery wants the networks to bolster its forthcoming inexpensive online video bundle, which will sell for $3-4 a month. While Discovery has advocated selling a sports-free package of networks in partnership with Viacom and AMC for under-$20 since April, those negotiations appear to be stalled, so Discovery is reportedly moving forward on its own.

Discovery Networks¹

If Discovery successfully snares Scripps, it will own five of the top 20 U.S. cable networks. That is likely to be important in future negotiations with cable and satellite providers at contract renewal time. Discovery, like most cable network owners, pitches cable companies bundles of networks sold at wholesale prices, whether a cable operator wants all the channels in that bundle or not. Discovery plans to avoid alienating cable and satellite providers by using them to market the bundle direct-to-consumers. A prospective customer would call their local cable or satellite provider to order the bundle of web-streamed networks, not Discovery. Cable operators would likely also handle billing and customer service issues.

Scripps Interactive Networks¹

This type of sales partnership is not unprecedented. Before the era of DirecTV and Dish Networks, home satellite dishowners using C band TVRO satellite dishes as large as 12 feet across often ordered satellite-delivered programming from cable companies, particularly those owned by John Malone’s Tele-Communications, Inc. (TCI) and sold through its home satellite programming division Netlink. Customers would be billed directly by the nearest TCI cable system on an ongoing basis, which irritated a lot of dishowners in the 1990s who sought satellite reception as an alternative to dealing with the cable company.

The practice did not come without problems. Many local TCI systems were baffled when their customer audits revealed they had customers in cities 100+ miles outside of their immediate service area. Many were accidentally disconnected after their subscriptions were purged from TCI’s systems in error. By 2005, TCI was five years out of the cable business and had sold Netlink to Echostar, which owns Dish Networks. That same year TVRO owners were informed they could no longer subscribe to a number of networks for their giant backyard dishes and were converted to Dish Network small dish service instead.

¹-Information sourced by Wikipedia and Stop the Cap!

All of these media and content companies may be up for grabs.

Could Rupert Murdoch become the next owner of CNN? Will Verizon consider buying out the owner of more than a dozen cable networks, or the Walt Disney Company, owner of ABC?

Since 1983, media moguls have assembled annually in posh Sun Valley, Idaho to talk business. But never have they met while several huge consolidation and merger deals are on the table among their colleagues. Comcast acquiring Time Warner Cable and AT&T buying out DirecTV are both seen as game-changers among Wall Street bankers and the media elite, leaving many self-consciously pondering whether they are no longer big enough to stay competitive in a consolidated media world.

The Wall Street Journal and the Atlanta Journal-Constitution both report that at least one huge merger deal could emerge as a result of this week’s conference. Among the most likely buyers is FOX CEO Rupert Murdoch, who is reportedly looking to buy a major content company.

The most likely target is Time Warner (Entertainment), former owner of Time Warner Cable. After spinning off its money-losing magazine unit, TW has become much more focused on content and distribution – exactly what Murdoch is looking for. Time Warner owns New Line Cinema, HBO, Turner Broadcasting System, The CW Television Network, Warner Bros., Kids’ WB, Cartoon Network, Boomerang, Adult Swim, CNN, DC Comics, Warner Bros. Animation, Cartoon Network Studios, Hanna-Barbera, MLB Network and Castle Rock Entertainment. In fact, altogether the company owns or controls dozens of television channels which could all soon fall into the hands of Murdoch.

A Murdoch acquisition would be the last death-blow for Ted Turner’s Turner Broadcasting System, which launched CNN, TBS, and TNT and is now a division within Time Warner. Murdoch’s Fox News Channel was launched as a conservative alternative to CNN’s perceived left-leaning reporting. A Murdoch buyout would either deliver bipartisan profits to the media mogul or allow him to shut down the network or relaunch it under the Fox News brand.

Such an acquisition would not be cheap. Time Warner is worth as estimated $62 billion.

A Murdoch buyout would be especially troublesome for those already upset with corporate media consolidation. Murdoch would end up controlling three major U.S. networks – FOX, CW, and MyNetworkTV, multiple cable news channels, dozens of local television stations in major media markets, and more cable networks than most people can count. In fact, the assembled list of Murdoch-owned media properties is enormous:

Murdoch: The next owner of CNN?

Adult Swim, Boomerang, Cartoon Network, CNN Worldwide, HLN, Inside CNN Tour & Store, TBS, TCM, TheSmokingGun.com, TNT, truTV, Turner Sports, Fox Business Network, Fox News, Star India, YES Network, Twentieth Century Fox, Fox 2000 Pictures, Fox Searchlight Pictures, Fox International Productions, Twentieth Century Fox Television, Fox Home Entertainment, Shine Group, Twentieth Century Fox Animation, The Sun, The Times, The Sunday Times, Times Literary Supplement, The Wall Street Journal, The New York Post, The Australian, The Daily Telegraph (Australia), The Sunday Telegraph (Australia), The Herald Sun, The Sunday Herald Sun, The Courier Mail, The Sunday Mail, The Advertiser, NT News, The Sunday Territorian, The Sunday Times (Australia), The Sunday Tasmanian, Mercury, Warner Bros. Pictures, Warner Bros. Pictures International, New Line Cinema, Warner Home Video, Warner Bros. Advanced Digital Services, Warner Bros. Interactive Entertainment, Warner Bros. Technical Operations, Warner Bros. Anti-Piracy Operations, Warner Bros. Television Group, Warner Bros. Television, Telepictures Productions, Warner Horizon Television, Warner Bros. Animation, Warner Bros. Domestic Television Distribution, Warner Bros. International Television Distribution, Warner Bros. International Television Production, Warner Bros. International Branded Services, Studio 2.0, The CW Television Network, DC Entertainment, Warner Bros. Theatre Ventures, HarperCollins General Books Group, HarperCollins Children’s Books Group, HarperCollins Christian Publishers, HarperCollins UK, HarperCollins Canada, HarperCollins Australia/New Zealand, HarperCollins India, FX, FXX, FXM, National Geographic Channel, Nat Geo WILD, Nat Geo Mundo, FSN, FOX Sports 1, FOX Sports 2, FOX Soccer Plus, FOX College Sports, FOX Deportes, FOX Life, Baby TV, Fox Broadcasting Company, Sky 1, Sky Atlantic, Sky Living, Sky Arts, Sky Sports, Sky Movies, Sky News, Sky Deutschland, Sky Italia, MyNetworkTV, MundoFox, FOX International Channels, Fox Sports Enterprises, HBO, HBO On Demand, HBO GO, Cinemax, Cinemax on Demand, MAX GO, HBO2, HBO Signature, HBO Family, HBO Comedy, HBO Zone, HBO Latino, More Max, Action Max, Thriller Max, 5 Star Max, Max Latino, Outer Max, Movie Max, Barron’s, MarketWatch, Factiva, Dow Jones Risk & Compliance, Dow Jones VentureSource, All Things Digital, Amplify, News America Marketing, and Storyful.

Murdoch has already shown a willingness to spend big. He has recently taken an ownership interest in the up and coming Vice Media, popular with the under 30-viewing crowd. He also spent $415 million to buy romance novel publisher Harlequin Enterprises.

But Murdoch may not be the only one shopping for a deal. The Wall Street Journal offered a shopping list:

• Small cable network owners: Nobody just owns three or four cable networks these days. Content conglomerates like CBS, Disney, Time Warner and Comcast own 15, 30, or even 40 different channels. Smaller players are ripe for the picking. Chief among them include Scripps Networks Interactive (Food Network, HGTV), AMC Networks (AMC, IFC, Sundance), and Crown Media (Hallmark).
• Small studios: Owning a small Hollywood studio is quaint, but Wall Street investment bankers think the time is long past to sell out to larger corporate entities who can better leverage distribution of their releases, easy enough if you own your own theater chain, pay cable network, broadcast stations, and basic cable outlets.

Both phone companies are attending Sun Valley for the first time.

In addition to buyout offers from the largest networks around, Discovery Networks is also in the mood to grow larger at the urging of its board of directors, which includes Dr. John Malone, CEO of Liberty Global. Malone is behind much of the cheerleading to consolidate the cable industry and helped spark the Comcast-Time Warner Cable deal when his partly owned Charter Communications sought a takeover of Time Warner Cable itself.

Wall Street bankers love even better the idea of selling Discovery to a new owner – Disney.

For the first time, phone companies AT&T and Verizon are also in attendance at Sun Valley, and analysts don’t believe the CEOs are there for summer vacation.

Jimmy Schaeffler, chairman of media and telecom consulting firm Carmel Group, says Verizon has been most lacking in the content ownership department and “needs something else right now” as rivals bulk up. AT&T’s acquisition of DirecTV only underlines that sentiment among many Wall Street analysts who think Time Warner (Entertainment) could be an option if Verizon isn’t outbid by Murdoch.

All of this shopping has caused alarm for some, including CNN’s media reporter Brian Stelter who declared, “I will eat my remote control … in fact, I will eat my copy of the New York Post … if Murdoch becomes the owner of CNN.” 

[flv]http://www.phillipdampier.com/video/WSJ Digits Media Consolidation 7-7-14.flv[/flv]

The Wall Street Journal’s ‘Digits’ explores the ongoing consolidation of media creators and distributors. This year’s media conference in Sun Valley could spark more merger deals. (5:02)

The trend towards cable consolidation is no longer just limited to cable operators. Now programmers are looking to strengthen their position in cable carriage negotiations by building “must-have” packages of cable programming that could mean smaller independent channels could eventually get locked out.

Bloomberg News reports the board of Discovery Communications, owner of the Discovery Channel, is discussing a possible bid for Scripps Networks Interactive, which runs channels including HGTV and the Food Network.

Scripps is one of the smaller network owners, but one that has proven popular and profitable. But it is not tied to a media conglomerate or the cable industry directly. Discovery has been a part of the cable television lineup for decades. Cable TV billionaire Dr. John Malone controls 29 percent of Discovery’s voting rights, giving him significant influence at the company.

A combined operation would control these networks:

Discovery:

• TLC
• Animal Planet
• Oprah Winfrey Network
• Destination America
• Investigation Discovery
• Discovery Fit & Health
• Discovery Science
• Military Channel
• Science
• Velocity

Scripps:

• HGTV
• Food Network
• DIY Network
• Cooking Channel
• Great American Country
• Travel Channel

Some analysts suggest such a combination doesn’t make much sense for Discovery, which has been focused on expanding operations internationally.

But other bidders might surface for Scripps, reports Bloomberg, which may be a complementary business for 21st Century Fox, Time Warner or Viacom, said Eric Handler, an analyst at MKM Partners, in a research note.