Will Cox Say Bon Voyage to Travel Channel?
Cox Communications has made it no secret that it's open to selling a majority stake in Travel Channel Media and my sources tell me bids for the cable channel are due tomorrow. Cox, the third largest cable company, says that no decision has been made on whether or not it will sell the channel or make any kind of deal.
But my sources tell me that media giants from CNBC's parent company NBC Universal (GE), to Barry Diller's Interactive Corp, to Time Warner and Scripps Networks Interactive, are all considering the acquisition.
There's no question that cable is hot, arguably the strongest part of the media space right now, providing a steady revenue stream from subscription/affiliate fees, plus ad revenue, which has held up far better than ads on broadcast networks.
Travel Channel has 93 million subscribers, and is valued somewhere between $600 million at the very low end and $1 billion at the high end, depending on just how much each subscriber is considered to be worth. Cox says it engaged Goldman Sachs to evaluate its options after it received some unsolicited inquiries into Travel Channel Media earlier this summer.
So what now? Time Warner certainly has the assets to make such an investment, with $7 billion in cash on its balance sheet. Time Warner is already heavily invested in cable, which generates the majority of its operating income, and it's had a lot of success revitalizing cable brands, like Court TV, now Tru TV. Plus, a company like Time Warner has the benefit of being able to bundle channels together when working with cable operators and advertisers.
The Travel Channel brand fits well with Discovery Communications, but it doesn't have such a rich balance sheet. Scripps Networks Interactive, another niche player, has a very healthy balance sheet, which would allow it to use debt to buy the asset.
Working in Travel Channel's favor is the fact that cable assets don't come up for sale all too often and the travel genre holds some real potential. On the downside, the company has a higher average age and lower ratings than comparable rival channels. If someone does indeed buy the channel they'd likely want to jazz up the brand to attract a bigger, younger audience.
Another challenge for the sale is the fact that Cox wants to retain a stake in the company -- somewhere around 25 to 35 percent -- for tax purposes. This could be a negative for potential acquirers and drag out negotiations. Now we'll see just how appealing the cable platform is for the media giants.
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