Discovery to rebrand Hub network as kids ad market stifles

Discovery Communications is planning to take full control of the Hub Network—the children's channel it co-owns with Hasbro—and rebrand it as Discovery Family.

The announcement could happen as soon as Friday, sources tell CNBC.

Discovery will buy out the majority of Hasbro's stake, though the toymaker will still control six hours of programming in the middle of the day. The rebranding of the channel, with a new focus on an older "family" audience, could happen before the end of the year.

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While Hub hasn't managed to grow to the level of a Nickelodeon or Disney Channel, the Discovery-Hasbro partnership is profitable.

So why is Discovery making this move? It all comes down to the myriad challenges with kids programming.

The Discovery Communications logo is shown on the exhibit floor during the National Cable and Telecommunications Association (NCTA) Cable Show in Washington.
Andrew Harrer | Bloomberg | Getty Images
The Discovery Communications logo is shown on the exhibit floor during the National Cable and Telecommunications Association (NCTA) Cable Show in Washington.

First, there are a ton of restrictions on what kinds of ads can be shown to children, i.e. no candy promotions.

There are also limits on the amount of time that can be devoted to TV commercials, as well as requirements that programs be separated from commercials by unrelated program material—so the channel couldn't go seamlessly from a "My Little Pony" cartoon into ads.

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Plus, as kids shift away from traditional toys to more electronics, the advertising market for kids isn't as robust as the rest of the ad business.

Plus, the rise of Netflix and Amazon's streaming services have been a game changer for children's viewing habits.

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Parents have switched their kids over to on-demand offerings, which conveniently are commercial-free, while Netflix and Amazon have struck major deals for exclusive and original content from the likes of DreamWorks Animation, Disney, and Nickelodeon.

Discovery also sees a major opportunity in true "family" programming—an area where it sees huge demand from advertisers. ABC Family, for example, is increasingly focused on content about high schoolers, which is occasionally racy, and certainly more sophisticated than what parents might want their seven or eight-year-olds to watch, sources say.

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Discovery, whose 14 channels reach about 12 percent of viewers, has launched more new channels in the past five years than all the other media giants combined.

Most notably, Discovery rebranded Discovery Health as "OWN," The Oprah Winfrey Network. It struggled right out of the gate, but now after some management shakeups is a top 25 network.

The question now is how much Discovery will benefit from the end of management battles with Hasbro over the content. In conflict with Discovery, Hasbro's interests are more about selling toys than selling ads.

—By CNBC's Julia Boorstin