Discovery CEO on Scripps Deal: "We'll Evaluate All" Networks

Courtesy of Discovery Communications
Discovery Communications CEO David Zaslav

David Zaslav says the $14.6 billion transaction will create a "global content engine" as he and his Scripps counterpart Kenneth Lowe tout the benefits on a call with analysts.

Discovery Communications CEO David Zaslav on Monday touted the company's $14.6 billion deal to acquire Scripps Networks Interactive, which will bring together the two cable networks firms known for non-scripted and lifestyle content by early 2018.

On a call with Wall Street analysts, Zaslav and Scripps boss Kenneth Lowe discussed the deal rationale and benefits, especially amid cord-cutting, carriage fee showdowns with pay TV companies and ratings challenges that have hit cable networks groups.

"We are building a global content engine," Zaslav said, one that aims to "unlock global strategic synergies, driving significant value." The Discovery boss outlined the immediate benefits to shareholders from acquiring a stable of profitable TV networks, including HGTV and Food Network, and not a start-up online service.

"We may have more IP than any other media company. We're certainly up there," Zaslav told analysts.

"The content that we have so successfully created on linear now has this huge opportunity on a digital basis, on a social basis, and in short-form content," Scripps' Lowe added in his own comments on the call.

"We're not planning any asset sales. Let's wait until the deal closes," Discovery CFO Gunnar Wiedenfels told analysts. Zaslav added that Discovery can still do "selective purchases" in the next few years, while his company weighs which of its dozen channels in the U.S. market will fare best.

"We'll evaluate all of them," the exec said, signaling some brands may disappear as linear channels. "We had started to move towards looking at our 12 channels in the U.S. and seeing a strong eight may be the direction that the industry is going. We haven't got into it with Ken and the team to try and get their best sense about whether all of [their channels] will be survivors and winners ... or whether some of them could be taken in a different way, to mobile or consumers."

In announcing the cash-and-stock deal earlier on Monday, the companies highlighted the deal would allow for $350 million in cost savings as they combine popular brands, including several networks popular with women, and provide international opportunities for Scripps' businesses and more upside in the area of digital and direct-to-consumer services.

For his part, Lowe on the call echoed Zaslav in arguing the Discovery-Scripps merger is a long game, as he told analysts: "It's way too early to start thinking about which brands go away, as opposed to which brands are better positioned for different platforms." Zaslav also said buying a larger share of the pay TV business will increase the combined entity's offering of longform and shortform content over the long term, especially as part of emerging skinny and entertainment bundles offered in the U.S. market by distributors.

Addressing market watchers arguing the deal doesn't focus enough on digital, Zaslav insisted the deal for Scripps represents a "combination of our collective brands and IP and enhances our options to participate in new mobile and digital products." He added Discovery's stake in Group Nine Media and Scripps creating next-generation content via its Scripps Lifestyle Studios division meant the combined entity would be a bigger original content supplier to Snapchat and create Spotlight-branded shows for Facebook.

The Discovery topper also appeared to side-step a question about whether his company will now go direct to consumers in the U.S. with its content, after doing so in Europe. Across the Atlantic, Discovery has innovated, carrying German Bundesliga soccer on its Eurosport Player platform and launching digital, direct-to-consumer products ahead of rolling out what it intends to be a Netflix of sports on that continent.

"If we can build a direct-to-consumer business in Europe, we could come of this terminal value business as one of the biggest winners in media," Zaslav insisted. Scripps operates HGTV, Travel Channel and Food Network, among others, while Discovery's networks include the likes of Discovery Channel, Animal Planet, TLC and OWN. 

The combination is expected to close by early 2018 and be accretive to Discovery's adjusted earnings per share and free cash flow in the first year after close.