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Analysts: Discovery-Scripps Merger Won’t Solve Problems

Cable network business challenged 7/19/2017 9:21 AM Eastern

Reacting to reports that Discovery Communications and Scripps Networks Interactive were in merger talks, Wall Street said that while a combination might make some short-term sense, it wouldn’t solve long term issues.

Related > Discovery in Talks to Combine With Scripps Networks: Report

“With ongoing MVPD consolidation and wave after wave of negative pressures hitting pure-play cable network stocks, there is sound industrial logic for M&A on the network side,” said Michael Nathanson of MoffettNathanson Research.

“Given the mix shift to skinny [virtual] MVPD sports and news bundles, declining viewership trends and soft cable network ad demand, there is a clear need for the non-broadcast-affiliated content owners like Scripps, Discovery, Viacom and AMC Networks to gain distributor negotiating leverage and cost savings through mergers,” Nathanson said in a note.

But while a merger could mean cost savings, international opportunities and better scale, “we don’t think this merger will fundamentally alter the long-term prospects of these companies," he added. "If anything, it does allow for a couple of years of a new narrative to form about future inorganic opportunities."

Scripps had a strong year in advertising in 2016, but matching that will be difficult in 2017, Nathanson said. That might make it a good time for Scripps to sell. But Discovery already has too many networks for a skinny bundle world.

“If ratings and subscriber trends do not improve, the timing and cost for Discovery to double down in the U.S. will look foolish in hindsight,” Nathanson said.

Read more, including other analysts' perspectives, at broadcastingcable.com.

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