What is the Value of the US Nonfiction Channel Sector?

Just how valuable is the US nonfiction channel sector?

The “financial scale” question came to mind when I read last week’s announcement that Qatari-owned Al Jazeera had acquired Al Gore’s Current channel for $500 million.

• Current was a failed talk and news network with an ‘independent’ or liberal voice.
• Its average prime time audience in 3Q’12 was 31,000, a 50% drop since 3Q’11.

AJ didn’t pay half a billion for Current’s meager audience, but for its reach:

• Its affiliate contracts cover nearly 60 million US homes.

In its efforts to gain a foothold in the US, AJ had long struggled against two forces:

• Bias (“AJ = Osama’s terrorist network”).
• And the cable / satellite operators’ preference against adding a predictably low-rating hard news channel.

The acquisition of Current gives AJ a US platform and a desirable annual revenue stream of $70+/- million, based on a monthly affiliate fee of 10+/- cents per subscriber.

• That hefty subscriber fee had been negotiated by Mr Gore, using all of his vice presidential charm and leverage.
• Mr Gore himself earns a payout of $100 million from the AJ acquisition for his 20% stake in Current.

Travel UK

The Current acquisition demonstrates the enormous premium that channels can earn from their strategic position.

• I was reminded of the $100 million that Scripps Networks International paid last year for Travel UK.
• Scripps had acquired the Travel Channel US from Discovery, and buying Travel UK was the quickest route to scale up as a global brand.
• (I had worked on the business plan for Travel UK in the ‘Nineties. Landmark Communications then owned Travel US, and, like Scripps, wanted to establish a global brand. Landmark later sold Travel UK to its MD Richard Wolfe, who was the well-deserved big winner in the Scripps’ acquisition.)

US Valuations

That brings me back to the “scale” question: What is the value of the US factual or nonfiction channel sector?

Here are some useful pieces of information that help assemble the mosaic:

A+E Networks

• A+E Networks was restructured last July when NBCUniversal sold its 15.8 percent stake to its partners Disney and Hearst for around $3.0Bn.
• The transaction valued A+E Networks at $19.2Bn.

Discovery Communications

• A respected industry analyst places an “enterprise value” of $30Bn on Discovery Communications.
• Interestingly, Discovery’s International channels contribute 30% of operating revenues and 40% of the analyst’s valuation.

Scripps Networks

• $12Bn is the enterprise value most heard on the transom.

Nat Geo Channel US & NGC International

• A friend says “the combined value for ‘global NGC’ is in the $10Bn range, driven by the growth prospects on NGC International.”

Other published estimates:

• SyFy: $7.0Bn
• Bravo: $3.0Bn

So far, that adds up to $82Bn!

We could add…

• Viacom’s MTV & BET Networks, Logo and Spike.
• TimeWarner’s channels including truTV.
• Comcast’s channels including E!, Style, and perhaps Weather which offers a nonfiction schedule in prime time.
• And others including Rainbow and AMC networks, as well as the less widely-distributed Ovation, Showtime’s Smithsonian Channel and several more.

I’ll refine these estimates in the coming months.

In the meantime, $110Bn is a credible preliminary estimate of the total enterprise value of US factual channels.

And outside the US…

For a global valuation, add Canada’s flourishing and wisely-regulated multichannel sector, SKY’s factual channels, Planete and other European channels, plus emerging regional networks in China and elsewhere in Asia, and more.

Autobiographical Takeaways

• When I first walked into Discovery’s dreary Landover MD office building in the mid ‘Eighties, the fledgling channel had 50+/- employees, few of whom had any prior television experience, and making payroll was still an issue.
• Ringing in my ears was the well-meaning advice from a senior CBS executive, “Peter, don’t waste your time consulting with Discovery – there just isn’t an audience for documentaries!”
• It was my good fortune to be invited to work on the due diligence and business plan for Discovery Europe. I quickly saw the enormous value created by the 2^nd revenue stream of affiliate fees, which were both predictable and long-term, versus the cyclical, advertiser-only model of the broadcast networks.
• But who then could have imagined that Discovery could become a $30Bn enterprise?  Or that its then rival A&E would be snapping at its heels with a $20Bn valuation?
• Maybe it was our just lack of imagination: Discovery’s cable operator stakeholders, notably TCI’s John Malone, were visionaries who were confidently pushing a global strategy, even when the domestic business seemed vulnerable.

Please email your own Takeaways on the global valuation of the nonfiction channel sector. I would welcome your feedback!

(This post is dedicated to Jerry Glover, our partner on the Travel UK plan and launch, and who is still dearly missed.)

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