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Discovery/Scripps Merger Is Good For Business, but (Probably) Bad for Producers

As consumers move to streaming video and "skinny bundles," smaller channels will likely go away.

Fixer Upper

HGTV’s “Fixer Upper” hosts Joanna and Chip Gaines

HGTV

Discovery Communications’ $14.6 billion acquisition of Scripps Networks makes a lot of sense — for Discovery and Scripps. A combined Discovery/Scripps will likely shed a few networks in the process, which means less choice for viewers, and fewer buyers for content creators.

Discovery hasn’t yet announced its strategic plans for its new oversized stable of channels, but the company did say that merging the cable groups could provide a cost savings of $350 million.

Discovery and Scripps will create a bigger conglomerate as, ironically, distribution pipes get smaller. Cable groups have already started to shed channels, as the coming age of “skinny bundles” means there won’t be room for smaller networks in a streamlined age.

“I think you’re going to see additional consolidation,” TBS/TNT president Kevin Reilly told reporters last week at the Television Critics Association press tour. “You’re going to start to see consolidation and different corporate alignments. There was a very good business model for a long time that, if you had leverage, create another network. I think Turner was very, very smart and ahead of the game by not taking the leverage and forming three other networks, but by saying, ‘We’ll take an extra nickel on TNT or TBS, for that matter, on CNN.’ And so we kept with a very tight pod.”

Reilly added that “entities that are floating, you know, six, seven, eight, 15 networks, it will not be sustainable going forward. That’s not necessarily a bad thing. It’s just where it’s headed.”

Already, over the past year, several companies have folded networks in order to cut overhead costs. NBCUniversal shut down the Cloo and Esquire channels, while Pivot and Al Jazeera closed after failing to find buyers.

Much of the conversation on “Peak TV” has focused on the rise of expensive, premium scripted fare. But the explosion in unscripted lifestyle programming is big business as well. In primetime this spring, HGTV averaged more viewers than networks like USA, ESPN, TBS, and its new sibling, Discovery.

The Discovery/Scripps merger will have a mix of complementary lifestyle networks, most of which focus on unscripted fare. By bulking up, Discovery/Scripps will have the heft, and leverage, to negotiate with producers, streaming platforms (which will eventually be the new cable operators), and advertisers.

Flagship Discovery Channel has a more male-oriented audience, but Discovery also boasts three major female-targeted networks with Investigation Discovery (crime), TLC (family docuseries), and OWN (scripted fare). Discovery also has networks targeting animal content (Animal Planet), science shows (Science Channel) and automobiles (Velocity).

On the Scripps side, HGTV, Food, and DIY are all centered on the home, while Travel Channel — which was once a part of Discovery, and is now reunited with its former operator — and Great American Country also has a specific focus.

But that still leaves several smaller channels that would seem to be unnecessary. Among them are Discovery Life, which averaged just 78,000 viewers in primetime this spring; Discovery’s Destination America, which might seem to overlap with Travel Channel; and American Heroes Channel. Other lower-rated outlets include Great American Country and Discovery Family.

Given their smaller numbers, those channels likely wouldn’t be missed beyond a small, loyal group of viewers.

But they would be missed by a rather large Hollywood constituency: Production companies that specialize in unscripted series.

The Discovery/Scripps merger puts together two of the biggest buyers of reality television. The merged company’s original programming output clocks in at about 8,000 hours annually, and reaches about 20 percent of ad-supported cable viewership in the United States. It also gives the company 300,000 hours of library content, which can be monetized as streaming video.

But with so many network buyers under one roof, that will further limit competition for producers selling their wares – and if Discovery/Scripps shuts down any networks, it would also eliminate buyers. Consolidation of buyers comes at a difficult time for reality producers as they face more expensive productions, lower ratings and squeezed profit margins, and increased competition.

In a survey conducted by Variety and PactUS last winter, reality producers had an opportunity to express their biggest concerns about the business. Mergers and consolidation were among the top, with respondents lamenting “cable networks folding and fewer hours of programming for traditional cable buyers” and how “the networks’ shrinking business puts pressure on producers.”

Another producer voiced alarm for “instability. There are not many buyers who seem to know what their future holds.” By merging with Scripps, Discovery is taking another step in trying to navigate those uncertain waters.

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