Discovery Communications, Inc. (NASDAQ: DISCA) has begun takeover conversations with Scripps Networks Interactive, Inc. (NASDAQ: SNI), according to a Reuters report on Monday, revisiting a deal that was scrapped three years ago.
Scripps, whose channels include HGTV, Travel Channel and a majority stake in Food Network, is looking for a buyer at a time when it and other smaller media companies are under pressure to grow to give them negotiating power with cable and satellite companies.
Scripps shares spiked 16 percent on the reports while Discovery was gaining 3.7 percent. Viacom Inc. (NASDAQ: VIAB), who also has held talks to acquire Scripps, added 2 percent. AMC Networks Inc. (NASDAQ: AMCX), a similar company with popular, non-sports TV networks, was rising 5.7%.
Either transaction would make sense, for one overriding reason: TV network owners that don't also own a broadcast station or sports need size to sustain their positions on pay-TV platforms.
A possible tie-up with Scripps by either Discovery or Viacom comes as all three networks have begun talks in recent months about creating a so-called "entertainment package" whereby pay-TV operators could sell a tier of channels to viewers who don't want to subscribe to sports networks such as ESPN or Fox Sports 1, a channel owned by Rupert Murdoch's Twenty-First Century Fox Inc. (NASDAQ: FOXA). As the extraordinary rise of Netflix Inc. and even Hulu LLC and Amazon.com Inc.'s video channels have demonstrated, millions of people get along just fine without live sports.
Scripps has long been considered a takeover target since the Scripps family trust that controlled the company ended five years ago. This is at least the third time that Discovery has held talks to buy Scripps, according to sources. A deal between the two would create a $19 billion cable network that specializes in non-scripted shows.