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.
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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.
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(END) Dow Jones Newswires
August 03, 2017 12:14 ET (16:14 GMT)