Discovery Communications Inc. will acquire Scripps Network Interactive for a price of $11.9 billion that will boost the negotiating leverage of the company as it searches for new audiences.
The deal was announced Monday and brings together the Scripps’ lifestyle channels that are largely female-focused like HGTV, Food Network and Travel Channel with Discovery’s Discovery Channel and Animal Planet whose primary audience is male.
Despite total cost synergies of an estimated $350 million analysts have questioned how the new combined entity would compete over the long term as TV viewers continue to cut cords of their cable providers and as ratings and advertising decline.
Shares of Discovery ended trading down over 8% while Scripps shares were up slightly. Discovery will pay 70% cash and 30% stock to acquire Scripps. The overall price is $14.6 billion and includes debt.
One analyst said that while most believe both companies are better positioned when together, than when apart, the issues over the long term facing the entire industry remain.
Both companies reported earnings for the quarter on Monday with both reflecting the challenges that media companies in the U.S. are facing.
Scripps missed its ad guidance for the second quarter and lowered estimates for the full year, while Discovery posted lower revenue from affiliate and flat revenue from advertising.
The television networks as well as cable providers in the U.S. have come under heavy pressure as more viewers are watching shows as well as movies on their tablets and smartphones.
In addition, there has been an increase in competition for viewers through the streaming services like Amazon.com and Netflix. Five of the biggest pay TV providers in the U.S. posted losses in subscribers for their second quarter.
The larger programming from the combined company may give it advantages in negotiations for bundling packs or cable packages that are economically priced offering less channels than the standard cable contracts.
Following the merger, the company has to offer over 300,000 hours of different content and will have about a 20% share of cable audience that are ad-supported across the U.S.
In addition, the combined entity will also have extra muscle in its negotiations with cable as well as other distributors when renewals of contracts arise, said executives.
Through adding programming from Scripps, Discovery might also launch its own bundles of different networks at lower costs, said its executives.