Discovery Communications’ $1.2 Billion Spend on Programming: CEO David M. Zaslav on Strategy, Prospects & More

Discovery Communications’ President & CEO David M. Zaslav sat down with me at last week’s MIPTV for a one-on-one conversation about his company’s strategy and prospects.

He defined Discovery as ‘the #1 platform media company in the world’ with ‘just one strategic goal – to build market share worldwide.’

  • Mark Hollinger runs the international business as CEO & President of Discovery Networks International.

David Zaslav listed several key data points that capture Discovery’s astounding scale, growth and profitability:

Value

Profits

       2012

  • Discovery Communications’ Profits: $2.1 bn
  • International: $721 mn or 34%

       2007

  • Profits: $721 mn
  • International: $120 mn or 17%

Global

  • 1.3 billion subscribers outside the U.S.
  • 143 networks via 186 feeds in 218 countries and territories.
  • 43 international offices in 31 countries.

Programming

  • And most astounding of all: $1.2 billion budgeted for programming in 2013.
  • That’s up from $550 mn in 2007.

STRATEGY

We talked about Discovery’s global strategy, which has recently diverged from its traditional focus on nonfiction programs.

A ‘1-2 Punch’

  • “Our key strategy is to maintain a ‘platform advantage’ in more countries.”
  • “That means expanding our platform of channels, which will drive up sub fees and advertising revenues.”
  • “And then we will ‘lean in’ by offering increasingly competitive content that will accelerate the drive to value.”

International Channel Rollouts

  • TLC launched in 180 territories in 2012.
  • And the female-skewing ID crime channel is beginning its roll out in 2013.
  • Zaslav described ID as “the fastest-growing U.S. cable network, and the #1 for length of tune-in.”

Market Share

  • “The aggregate market share of all our U.S. channels rose by 8% in 2012.”
  • “Our international market share was up 25% in 4Q 2012 versus 4Q 2011.”
  • “But our corresponding international ad revenues were up by 18%. Those benchmarks should be aligned. That means that there’s a clear 7% international growth opportunity as more of our markets, particularly in Western Europe, recover from the recession.”
  • He also pointed to high growth in the cab/sat subscription base in Eastern Europe, Russia, Brazil and Latin America, Asia and India

Content

But would David Zaslav categorize Discovery as ‘a great content company?’

  • He replied that the company has “made a lot of progress” and that he ”wants creatives to run the channels … executives with deep experience in production and programming.”
  • He pointed to recent hires of “outstanding creative people like Julian Bellamy the ex-Channel 4 controller who is running an expanded commissioning team in London that will create between 500-1,000 new hours a year.”

FROM THE ARCHIVE

When I sat down with David Zaslav in Cannes, I gave him a handsomely laminated document that sends a big message. It was the cover page and financial roll-up for my 1988 board presentation ‘The Discovery Channel Europe Business Plan.’

 zazlav

I served as senior consultant on the due diligence for Discovery’s first leap outside the U.S.  Discovery was barely making payroll in 1988, and yet its visionary key investor John Malone was already driving management towards a globally branded future.

The Year 1 revenues seemed ambitious at $3 million. We could not have imagined that twenty-five years later, Discovery International would be valued at $12 billion!!

EXPANDING THROUGH CORPORATE ACQUISITIONS

As well as harvesting the low-hanging fruit of an expanding base of cab/sat subscribers outside the U.S., Discovery is using its free cash flow to acquire international operations with strong management teams.

Zaslav’s corporate acquisitions strategy has made a clear break with Discovery’s past at two levels:

  • He is not limited to the nonfiction genres that evolved out of its documentary heritage.
  • Discovery is acquiring free-to-air broadcasters as well as cab/sat channels.

Broadcast

  • In Italy, where cable/satellite lags free-to-air, “we owned a library of female-targeted content that could serve as a low cost launching pad to expand into broadcast.”
  • “We acquired the women’s channel Real Time in 2010, and we gained a lot of confidence when we managed it profitably.”
  • “We later acquired another Italian broadcaster, Switchover TV, which makes us the #3 broadcaster in the market.”
  • The model was replicated in Spain with the acquisition of D-Max.

Recent Acquisitions

  • Eurosport: DCI paid France’s TF1 $240 million for a 20 percent share, “a fantastic pan-European brand in 59 countries and 20 languages.”
  • SBS Nordic: a $1.7bn acquisition for 12 channels, which expanded Discovery’s Scandinavian market share from around 5% to 30%.

Localization / Globalization

We discussed Discovery’s long-standing goal of creating universally-appealing content that can be localized via presenters and local languages, so that it feels local.

David Zaslav adds that each international channel is also developing true ‘mini-local’ programs:

  • “The more local we get the better!”
  • “What I’m excited about is that our culture is changing. We used to be two separate entities – Discovery International and Discovery U.S.”
  • “We’re now committed to being a global company.”
  • “We took our US channels and said ‘They’re not U.S. channels.  They’re global brands.’ “

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