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Morningstar | Discovery Starting to Reap the Benefits of Scripps Acquisition

Discovery Communications produces and owns unique content with proven appeal to audiences across cultures and languages. This transnational appeal provides the company with the ability to repurpose the content across multiple platforms and international borders. Discovery, TLC, HGTV, Food Network, and Animal Planet are the three flagship networks for the company in the United States and around the world. Hit programs for the company include Deadliest Catch, Gold Rush, and Street Outlaws on Discovery Channel, along with Counting On and 90 Day Fiance on TLC. Discovery’s three primary traditional networks have wide distribution in the U.S. and worldwide, each channel reaching over 87 million U.S. cable households and more than 260 million international households. The top two networks (HGTV and Food Network) acquired in the Scripps transaction are available in more than 90 million households in the U.S., with a third one (Travel Channel) available in more than 82 million households. The company’s namesake channel is the one of the most widely distributed networks in the world, reaching more than 220 countries and 340 million subscribers. Given its reach, the company is able to repurpose its programming to provide localized versions, as over 50% of the content shown on the international networks is produced for the U.S. networks.Discovery is leveraged to benefit from increased pay-TV penetration internationally, as it already generates 50% of its revenue and 45% of its EBITDA outside the U.S. The firm established distribution outside the U.S. over two decades ago and now operates in over 220 countries with a cumulative 3 billion-plus viewers. Most television distributors (cable, satellite, and so on) worldwide believe their channel offerings are deep enough and see no need to expand. A new channel could overcome this reluctance by paying for carriage, but the risk inherent in this tactic precludes small firms from employing it. On the other hand, since its networks are among the most widely watched and create a steady stream of affiliate fees and advertising dollars, Discovery can use its existing channels as leverage to gain distribution for new channels.