Discovery Communications and TEN Revenue Up Auto Deal
August 03 2017 - 12:29PM
Dow Jones News
By Jeffrey A. Trachtenberg and Suzanne Vranica
Discovery Communications Inc. has struck a new partnership aimed
at garnering a larger share of the lucrative automotive advertising
market.
The big cable programmer, which earlier this week agreed to pay
nearly $12 billion for Scripps Networks Interactive Inc, is forming
a new joint venture with The Enthusiast Network (TEN), the Los
Angeles-based media company that owns such automotive publications
as Motor Trend, Automobile and Hot Rod.
TEN also owns the video subscription streaming service Motor
Trend on Demand, which TEN says has 100,000 subscribers who pay
$4.99 per month or $49.99 per year, and the Motor Trend channel on
YouTube, which has more than 5 million free subscribers.
The joint venture represents Discovery's first
direct-to-consumer video play in the U.S.
Discovery is contributing its Velocity automotive-focused cable
network together with its automotive video library, and will have a
majority stake. Ten is contributing all of its digital, social,
video and live event automotive holdings. No cash is changing
hands.
The joint venture, TEN: A Discovery Communications Company, is
expected to close later this year pending regulatory approval.
The two companies are creating a multi-platform haven for
automotive advertisers focused on new car buyers, consumers
interested in purchasing car accessories and general car
enthusiasts ranging from hot rodders to off-road drivers.
They say the male audience on their properties is upscale and
attracts numerous advertisers for non-car offerings.
"This is about going after super fans across all platforms,"
said Paul Guyardo, chief commercial officer for Discovery
Communications, and CEO of the new venture. "We're going to deliver
a quality male audience at a much more efficient rate than sports,
an audience that also buys much more than cars."
Velocity launched in the fourth quarter of 2011 with 38 million
homes; today it is in 73 million homes, where it offers such shows
as "Wheeler Dealers" and "Iron Resurrection."
Growing ad revenue is important for the channel, since it
receives only about 14 cents per pay-TV subscriber per month,
according to research firm SNL Kagan, a relatively low figure by
industry standards.
A spokeswoman said publicly traded Discovery doesn't break out
Velocity's ad and affiliate revenue, but said the network "is
profitable."
TEN has an option to sell its stake in the new venture at a
later date, while Discovery holds an option to buy out TEN.
Auto manufacturing is the single biggest-spending ad category in
the U.S.
Altogether, automakers spent almost $10 billion on U.S ads in
2016, according to estimates from Kantar Media, an ad tracking firm
owned by WPP PLC, up about 9% compared to 2015.
Despite the ad gains, car sales have been showing signs of
slowing. Nationally, auto sales have been weak in recent months,
falling 7% in July. General Motors Co. and Ford Motor Co. each
reported July sale declines of 15% and 7.4%, respectively.
A slowdown in car sales to consumers could lead manufacturers to
curb some related ad spending in favor of other promotional
activity. Car advertising will "likely weaken as companies move
money from advertising to incentives," said John Janedis, an
analyst at Jefferies.
"Discovery's decision to form this new joint venture and
contribute Velocity to fuel our growth and momentum is confirmation
of our transformation as a company," said Scott Dickey, CEO of The
Enthusiast Network.
Once the joint venture is approved, Mr. Dickey and Bob Scanlon,
who built the Velocity channel, will serve as co-presidents
reporting to Mr. Guyardo. The new venture doesn't include ownership
of any of TEN's print automotive publications but allows for joint
sales efforts.
Write to Jeffrey A. Trachtenberg at jeffrey.trachtenberg@wsj.com
and Suzanne Vranica at suzanne.vranica@wsj.com
(END) Dow Jones Newswires
August 03, 2017 12:14 ET (16:14 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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