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What's going on?
According to a report in The Wall Street Journal, two major American cable television companies are considering joining forces in what would be a $19 billion deal
What does this mean?
Its tough days for cable television. For one, the number of customers are dropping due to the rising popularity of Netflix and other streaming services. Cable channels have historically been paid by both the cable companies (i.e. Comcast or Sky) that broadcast shows to consumers and by advertisers airing commercials during their shows.
But that business model is struggling as customers are migrating away from cable subscriptions. That poses a threat to media companies like Discovery and Scripps, which operate cable channels like Discovery Channel and Food Network. And its an important reason why theyre considering merging!
Why should I care?
The bigger picture: Getting bigger is a logical move in todays cable TV landscape.
By merging, the two companies would have more resources to launch their own online content bundle (like a combined app on Apple TV or a channel on an internet streaming service). A fair amount of overlap in their viewership (by and large, adult females) helps in this regard: they can easily pair existing shows together and market them as a package to the same demographic. Beyond that, a combined company would also have more power to negotiate deals with cable companies, at least for as long as that business model continues to exist!
For markets: Both Discoverys and Scripps stocks were up following the news.
There is no guarantee that a deal will happen the two companies made similar plans to join in 2014 that were shot down by the family which controls Scripps but the idea of joining together to fight back against up-and-coming competitors seems to have merit for investors, as evidenced by both companies stocks jumping higher on Wednesday.
Originally posted as part of the Finimize daily email.
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