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Discovery Communications to Own Most of Oprah Winfrey Network

Discovery Communications Inc. DISCA has decided to buy another 24.5% stake in Oprah Winfrey Network (OWN) for a consideration of $70 million. After the completion of the deal, Discovery will command 70% stake in OWN. Notably, the talk-show network was established in 2011 as a joint venture between Discovery and Harpo Inc. of Oprah Winfrey.

OWN, a video channel, is immensely popular with U.S. African-American women and carries high brand value across all distribution platforms. Per the deal, Oprah Winfrey will remain CEO of OWN with an exclusivity commitment through 2025.

Facing stiff competition and dwindling advertisement revenues, the media sector is witnessing large scale concentration. Discovery has decided to acquire lifestyle media giant Scripps Networks Interactive Inc. SNI in a $14.6 billion ($11.9 billion excluding debt) deal, which is expected to be closed in early 2018.

Upon completion, the acquisition is likely to substantially expand Discovery’s product portfolio, plus boost its earnings (adjusted) as well as free cash flow in the first year following closure. The combined company will have nearly 20% of ad-supported pay-TV viewership in the United States.

We are also encouraged by Discovery's joint venture with TEN for automotive media. The move marks Discovery's entry into direct-to-consumer offerings. Discovery will take a majority controlling interest in the venture with the option of acquiring 100% of the new venture. Discovery's decision to renew its distribution partnership with AT&T Inc. T is also a long-term positive.

Nevertheless, Discovery stated that the total portfolio subscribers in the company's U.S. Networks unit declined 5% in the third quarter of 2017. This loss in U.S. subscribers was higher than the comparable year-ago figure. Although advertising revenues increased in the quarter, the overall advertising market in the United States is facing challenges. Discovery expects ad revenues to be flat in the fourth quarter. Escalated debt levels and high costs pose further challenges to the company.

Price Performance of Discovery Communications

Discovery’s shares have declined 4.62% compared with the industry’s loss of 3.36% in the last three months. The company currently holds a Zacks Rank #5 (Strong Sell). A better-ranked stock from the same space is NTN Buzztime Inc. NTN, carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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