Scripps Clan Looks at TV's Future, Decides It's Time to Sell

(Bloomberg) -- Discovery Communications Inc. considered buying Scripps Networks Interactive Inc. in 2014, but the deal fell apart because the Scripps family wasn’t ready to sell.

Now, one of the last family media empires has changed its mind. The Scripps clan, whose legacy stretches from the Peanuts comic strip to the National Spelling Bee, has agreed to sell HGTV and its other cable channels to Discovery for $11.9 billion.

It’s a sign of how much bleaker the television industry has become in a few short years, as more consumers are dropping their cable subscriptions in favor of new online alternatives.

“The risk of cord-cutting has become much clearer,” said Paul Sweeney, a Bloomberg Intelligence analyst. “The Scripps family felt now was an opportune time to sell given the risk that it poses to their business.”

The family’s decision to sell after years of off-and-on talks raises the question of whether other longtime media owners will reconsider their stance against takeovers. The Murdochs of 21st Century Fox Inc., the Dolans of AMC Networks Inc. and MSG Networks Inc. and the Redstones of Viacom Inc. and CBS Corp. are among the prominent families who have voting control of big media companies.

Tim King, a spokesman for the Scripps family, declined to comment.

Discovery offered a more optimistic view of the television landscape Monday, saying Scripps networks such as HGTV would be popular brands no matter how consumers get their video entertainment. The company has weighed streaming its channels online, charging consumers directly.

Scripps shares rose 0.6 percent Monday. Discovery tumbled 8.2 percent Monday and was down an additional 1.5 percent in early trading Tuesday.

The merger marks another step in the shifting fortunes of the Scripps family empire, which dates back to Edward Willis Scripps and his founding of the Penny Press in Cleveland in 1878. The E.W. Scripps Co. owned dozens of newspapers, TV and radio stations. The business provided income for philanthropy, a legacy that includes California’s Scripps College, the Scripps Oceanographic Institute and the annual spelling bee. 

In 2008, E.W. Scripps separated into two public companies, with Knoxville, Tennessee-based Scripps Networks taking the lifestyle cable channels including HGTV and Food Network. Gannett Co. now owns the family’s newspapers, while the comic-strip business has been split between two firms. Cincinnati-based E.W. Scripps remains focused on TV and radio stations and lately has been acquiring online media businesses.

While Scripps’s crown jewel, HGTV, was one of the most-watched cable channels last year, the company faced threats from the likes of Netflix Inc., Amazon.com Inc. and others. On Monday, Scripps hinted at those troubles, lowering its revenue and profit outlook for the year.

The sale to Discovery came “just as Scripps Networks’ fundamentals were about to take a turn for the worst,” said Michael Nathanson, an analyst at MoffettNathanson LLC.

The Scripps family isn’t getting out of the cable business entirely. The family members are taking 30 percent of the sale proceeds in Discovery stock, meaning they’ll still have a stake in the industry. The rest, though, will be in cash, allowing family members to diversify their holdings.

The family, which controls 92 percent of the company’s voting rights, has been gradually selling its shares, “so it was seemingly exiting anyway,” said Barton Crockett, an analyst at FBR Capital Markets.

Viacom, the owner of MTV and Comedy Central, had also been bidding on Scripps. The family’s decision to sell to Discovery was partly influenced by the fact that it would hold shares in a company backed by cable pioneer John Malone and the Newhouse family, Scripps Chief Executive Officer Ken Lowe said on a conference call Monday.

The Scripps and Newhouse families once jointly ran newspapers together, while the Scripps family and Malone owned cable systems together in the 1980s and 1990s, Lowe said.

“I think it’s really what drove the family’s approval of this deal,” Lowe said.

For years, the Scripps family took a hands-on approach to its business, according to Harry Moskos, a former editor of the company’s Knoxville News-Sentinel. “When you had a meeting you would often see the Scripps family there,” Moskos said in an interview. “They emphasized news and were good to their staff. It was very good company to work for.”

Today, multiple generations have passed since E.W. Scripps began the company, and the family has become less involved in its day-to-day operations, said John Janedis, an analyst at Jefferies LLC. In 2012, the Scripps family trust was dissolved after the death of Robert P. Scripps, a grandson of the founder, leading to speculation the company would get sold.

Meanwhile, the decline of the cable TV has continued, and even some new online TV distributors have decided to enter the market without Scripps’ channels. YouTube, for instance, launched a new TV service this year that didn’t include Scripps. “I think everything sort of came together for them at the right time,” Janedis said of the family.

The family owes a debt of gratitude to Scripps CEO Lowe, who helped create Food Network and HGTV, FBR’s Crockett said. Along the way, the family has also earned respect for its responsible stewardship of the media company, he said.

“The family’s presence in TV is something everyone looks at and respects,” Crockett said. “They haven’t had to dive into controversial content. They’ve done it in a classy way.”

To contact the reporters on this story: Gerry Smith in New York at gsmith233@bloomberg.net, Christopher Palmeri in Los Angeles at cpalmeri1@bloomberg.net, Reade Pickert in New York at epickert@bloomberg.net.

To contact the editors responsible for this story: Crayton Harrison at tharrison5@bloomberg.net, Jessica Brice