Discovery and Scripps could suffer in the skinny bundle era favoring live sports and news, report says

Geoffrey Zakarian, host of Cooks vs. Cons, on Scripps' Food Network. Image: Scripps

A new analysis of television networks addressed value in terms of viewer passion—a nearly unmeasurable metric that revealed the worth of live sports and news networks.

The report, released today from research firm MoffettNathanson, looked at which networks are the most valuable from the perspective of multichannel video programming distributors, and how to determine which of those should be included in “skinny” channel bundles. The top sports and news channels appeared most favorably positioned in the report’s analysis: ESPN, CNN and regional sports networks combined all had reach at least one standard deviation above the mean.

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The “U.S. Affiliate Fees—How Do You Calculate Passion?” report measured how many Americans watched a network in a given period of time, and how long they watched, in an attempt to measure how “passionate” viewers were about the channels they were watching.

“There is no correlation in a simple regression between affiliate fees paid to each network and the underlying ratings,” the report states. “When asked about the discrepancy, media execs would reply with qualitative answers about the ‘passion’ their channels evoke.”

Children’s programming was the only genre to under-index on viewer reach, but it outperformed all other genres in terms of average length of tune, or how long viewers watched. This observation drove an investment recommendation for Disney, and the report further recommended investments in the largest, most diversified media conglomerates including 21st Century Fox and Time Warner.

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“We believe that media companies with high exposure to live ratings, affiliate fee pricing power and diverse revenue bases will outperform,” the report states. “The emergence of new virtual distributors, in the beginning of this roll-out, will benefit these stronger companies.”

The movie and general entertainment genres showed the best results in both reach and time spent, the analysis shows.

“We see the most risk at pure-play cable networks due to the fundamental challenges that lie ahead and have Sells on Discovery and Scripps Networks,” the report states.

For example, about two-thirds of Scripps Networks' revenue base is generated from advertising, the report states in a risk assessment. This could create problems for the network during market fluctuations, and Scripps is highly dependent on the performance of its two popular channels, FOOD and HGTV. If either channel experiences ratings drops, the impact could circle back and negatively affect advertising results.