Is Oprah’s OWN Network Up for Sale After Al Jazeera Deal?

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Last week the media reported the sale of Al Gore’s Current TV to Al Jazeera for an estimated $500 million.

Media analysts have assumed Al Jazeera didn’t purchase Current TV for the network’s brand recognition or programming. As a television network, Current TV was an abysmal failure averaging only 22,000 daily prime-time viewers. Instead, Current TV was acquired for its distribution network into 50 million households as a platform to launch a new broadcast channel called Al Jazeera America.

Following the Current TV/Al Jazeera deal, attention should turn to the OWN Network, a joint venture between Oprah’s Harpo Productions and Discovery Communications (NASDAQ: DISCA).

Like Current TV, the OWN Network has struggled to gain a foothold in the television marketplace with lackluster ratings and growing losses since the channel was launched in January 2011. However, OWN has several valuable distribution deals through multiple cable providers such as Time Warner (NYSE: TWX) and AT&T (NYSE: T).

Given the recent sale of Current TV based entirely on distribution agreements, what’s the value of OWN’s distribution network and is a sale likely?

Back of the envelope valuation

The sale of Current TV for $500 million with distribution to 50 million household values each household at $10. Is this reasonable appraisal of channel subscribers?

For comparison, NBC Universal, a division of General Electric (NYSE: GE) and Comcast (NASDAQ: CMCSA), purchased Oxygen for $925 million in 2007. With 74 million subscribers, the deal valued each subscriber at roughly $12.

So $10-$12 per subscriber seems to be a good ballpark estimate of the value of OWN’s distribution agreements.

<img src="/media/images/user_14324/own-1_large.png" />

With OWN available in 85 million households and assuming $10-$12 per subscriber, the network could be valued between $850 million to $1.02 billion based on distribution agreements alone. 

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Likelihood of a deal

Given that OWN is expected to lose $143m this year, the network’s distribution agreements may be worth more than the channel itself. While Discovery Communications and Harpo Productions have remained publicly committed to the OWN Network, the venture has lost over $300 million. By selling the network, investors could immediately recoup their losses and earn a hefty profit on the deal.  A sale may be an attractive option given that the OWN Network is still an estimated two years away from profitability.

Who would be interested in buying OWN?

Al Jazeera is the latest in the long line of foreign news networks that have been expanding aggressively into the United States including BBC, China’s CCTV and Russia Today. These state sponsored networks may be less interested in profitability and more keen on gaining an American audience.

Why would a foreign news network purchase distribution rights rather than just negotiate with cable and satellite companies themselves? Such efforts are costly and time consuming. It’s much easier to buy another network and acquire all of the distribution rights in a one shot deal.

Foolish bottom line

Perhaps the biggest takeaway from the sale of Current TV is the value of hidden assets. Investors can spot opportunities by evaluating the assets on a company’s balance sheet and determining if they’d be worth more to another entity if re-purposed. Such inquiries are the hallmark of great investors.  

RobertBaillieul has no position in any stocks mentioned. The Motley Fool owns shares of General Electric Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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