Discovery-Scripps: Thin Is In

Zaslav hints at skinny bundle, direct-to-consumer opportunities

Discovery Communications’s $14.6 billion purchase of Scripps Networks could be the stepping-stone for a separate over-the-top or direct-to-consumer offering, as well as making its networks more compelling for existing skinny bundles, Discovery CEO David Zaslav told analysts in a conference call to discuss the deal.

Discovery and Scripps ended weeks of speculation surrounding a possible pairing by announcing the deal this morning, a $14.6 billion cash, stock and assumed debt transaction that will combine two of the biggest non-fiction based programmers in the industry.

But aside from the obvious synergies associated with a deal – Zaslav said the combined Discovery-Scripps controls about 20% of cable viewership but less than 10% of the economics, presenting opportunities to increase affiliate fees – the deal could make it easier to offer a separate package to consumers on its own.

Discovery already is available on Sony PlayStation Vue and DirecTV Now platforms and Zaslav said the combination probably “helps with those discussions.” But he hinted that the two brands could be strong enough to develop a package on their own.

“We do think we have the makings ourselves for a very compelling core for a skinny bundle,” Zaslav said on the call, adding that opportunities could be to pair up with existing players, new players, existing distributors or even offering a package directly to customers.

“There are a lot of different ways to play it,” Zaslav continued. “We will be really listening to consumers. There is no question that there will be an evolution.”

Zaslav has said in the past that U.S distributors need to launch a $8-$12 per month non-sports bundle for customers, similar to what is available in Europe, and  reiterated that need. He pointed to existing distributors that make it easy for broadband-only customers to access the Netflix app as an example.

“It’s counter-logical to look in the U.S. and see these large distributors that have millions of customers that are broadband-only and the only product they’re offering is Netflix,” Zaslav said. “We grew up in business together. We have great content that’s nourishing. I think you’ll be seeing existing distributors putting together over-the-top packages, one because they’ll make money on it, and two because consumers that are buying Netflix want other products, they want other choices. I think that will happen, it’s just a question of how quickly and we’ll try and accelerate those discussions because we think its good for the ecosystem.”

But investors didn't seem convinced. Discovery stock was down 8.5% ($2.27 per share) in early afternoon trading to $24.53 each. Scripps Networks stock was up slightly (0.5%, or 45 cents each) to $87.36 each.