Another Consolidation in the Offing

Zacks

Yesterday, VARIETY reported that Discovery Communications Inc. (DISCA) is considering a bid to acquire Scripps Networks Interactive Inc. (SNI). This is reflective of the growing consolidation trend in the cable TV operators industry. This trend might soon be adopted by the TV content producing industry. However, neither Discovery nor Scripps Networks have confirmed this report.

We believe a merger between Discovery and Scripps Networks will be significantly beneficial for both entities. Discovery has a diversified content network. Its flagship Discovery channel is known as a nature channel. Similarly, Animal Planet is a wildlife channel.

The company has a military channel, an ownership interest in Oprah Winfrey Network and has recently acquired the SBS Nordic operations of Prosiebensat.1 Media AG. Moreover, Discovery is highly geographically diversified in more than 200 countries with over 100 TV networks.

On the other hand, Scripps Networks is a pure-play lifestyle TV network consisting of six channels. All these cable channels have loyal audiences, who also view the company’s content in several non-TV platforms.

This helps Scripps Networks to explore the non-TV verticals, such as magazines (print media) and websites (Internet). The company also acquired Asian Food Channel, a leading food-focused pay-TV network in Asia.

Additionally, both the companies are gradually depending on the video streaming or the TVEverywhere platform. Scripps Networks has a content licensing deal with Amazon.com (AMZN) through which its popular TV channels are available on Amazon’s subscription-based video streaming service – Prime Instant Video. Discovery recently renewed its agreement with Time Warner Cable Inc. (TWC) to offer Discovery’s content on the TVEverywhere platform of the latter.

Current Zacks Consensus Estimate revision trend is indicating 7.2% revenue growth and 12.3% earnings per share growth year over year in 2014 for Scripps Networks. Similarly, these figures are expected to rise 11.5% and 28.2% year over year, respectively.

We believe that this favorable market trend raised the stock prices of Scripps Networks and Discovery by 14.5% and 1.2%, respectively, in the aftermarket trade on Nasdaq. Currently, both Discovery and Scripps Networks have a Zacks Rank #3 (Hold).

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