David Zaslav

David Zaslav, president and CEO of Discovery Communications, explains how the company’s continued investment in content is fueling growth in the U.S. and internationally.

WS: There was speculation in the press that Discovery might acquire Scripps Networks. Would Discovery be interested in buying a channel group?
ZASLAV: First, Discovery is primarily an organic growth company, and we see tremendous growth opportunities in our existing business. We don’t need to buy to continue to grow. We are opportunistic, but highly selective when evaluating acquisition opportunities. Potential acquisitions that give us additional opportunities to grow or position us for long-term success are attractive. Last year, we made the largest acquisition in company history with the purchase of SBS Nordic, a channel group in the Nordics, in addition to other deals, such as Switchover Media, a channel group in Italy. Both of those transactions were accretive from day one and gave us a larger presence in important markets, which helps us drive more value with advertisers and distributors. If similar opportunities came up in other markets, which offered those same types of benefits, we would certainly take a look.

WS: Part of the speculation in the press is that channel programmers need extra leverage when negotiating subscriber fees with cable operators.
ZASLAV: Successful channels—with high-quality content that engages and entertains viewers—provides the best leverage. At Discovery, we have a very strong story when we sit down with distributors. Over the past few years, we have invested over $1 billion a year in content. We’ve launched more new brands than any other media company, including Investigation Discovery, OWN, Destination America, Velocity and the most recent, American Heroes Channel. And, viewers are responding. The market share for Discovery’s networks has increased from 7 percent in 2007 to more than 10 percent in 2013. Internationally, our total ratings increased by 25 percent. Our channels are consistently ranked as ‘must have’ by cable viewers.

WS: Is Discovery interested in making other acquisitions in the U.S. or overseas?
ZASLAV: Discovery has a very strong organic growth story—we don’t need to make acquisitions to continue growing. At the same time, we are always open to opportunities that will help us grow in new ways, give us a stronger strategic position in a given market, and complement our existing business. Those opportunities could be domestic or international, but we think the most opportunities are likely outside of the U.S., as the U.S. is a mature market.

WS: What are the major issues facing the U.S. cable industry? Are they different from the ones facing the international pay-TV industry?
ZASLAV: In the U.S., and other mature markets, the primary issues are lack of subscriber growth and changing viewing habits. U.S. cable subscriptions are flat, which means the only way to grow is to take market share from competitors. In addition, the landscape is changing; younger viewers are utilizing new platforms. The industry needs to continue evolving and responding to viewer patterns, without sacrificing the strong economic model that allows for significant investments in content.

Outside of the U.S., in a number of markets, cable penetration is still low and there is tremendous room for growth from adding new subscribers. The key in these markets is having a presence and that is where Discovery is uniquely positioned, with more channels in more markets than any other media company.

WS: Why is TV Everywhere a good model?
ZASLAV: It is a great time to be in the content business, especially for a company like Discovery because we own most of the rights to everything we produce. As viewers seek to consume content on new platforms and devices, it creates more demand from distributors for those rights and more opportunities for Discovery to gain additional value for that content.

TV Everywhere is an attractive solution for both content providers and distributors because it preserves the traditional cable model and bundle. For programmers, it is measurable, so we can earn advertising revenue for viewers who are watching on mobile devices and tablets. For distributors, it is authenticated, so viewers need a cable subscription to view content.

WS: Is Discovery Communications’ strategy for providing content to digital streaming platforms changing?
ZASLAV: Discovery is platform agnostic. We [produce] content for our global networks. This includes traditional long-form for our pay-TV networks, as well as long- and short-form content for our online streaming networks. We make content available on various platforms as it makes sense economically for that market. So far, we haven’t seen a business model that makes sense for streaming full episodes on a larger scale.

WS: Looking at Discovery’s international businesses, starting with Europe, tell us about integrating the SBS networks into Discovery’s international businesses. How has that process been?
ZASLAV: We have made significant strides integrating our 2013 SBS Nordic acquisition. The joint ad-sales team we've assembled is closing deals in the spot market while preparing upfront presentations during the first quarter that showcase the compelling content offering and value proposition we can deliver to ad clients. Our programming teams have also identified thousands of hours of content that can be shared across the combined portfolio. On the cost side, as well, we have carefully eliminated any redundant positions and consolidated physical locations where appropriate. It is still early days, but we remain certain that the combined entity of SBS Discovery Media further strengthens the unmatched platform Discovery has built for 25 years and helps to bolster the long-term growth outlook of our international portfolio.

WS: What growth opportunities do you see in the free-TV business in Europe? How are you combining free-TV and pay-TV assets in your international portfolio?
ZASLAV: Free-to-air is a limited strategy for Discovery on a market-by-market basis. The company always will be primarily focused on dual-revenue stream businesses. We have pursued free-to-air opportunities in mature markets such as the U.K., Italy and Germany, where pay-TV penetration is limited or there is very little competition among distributors. In these cases, free-to-air enables us to reach a wider audience and increase advertising revenue. More importantly, we can launch these channels quickly and at a very low cost, because we already have a library of in-language content. That gives us an advantage over other broadcasters. While there are some additional markets where free-to-air channels might make sense, our primary focus is dual revenue stream channels.

WS: Discovery has acquired a controlling interest in TF1 Group’s sports platform, Eurosport. How has the Eurosport deal been for Discovery so far? What added benefits does this majority stake bring?
ZASLAV: Eurosport is one of the strongest, most dynamic sports platforms in the world. Over the past year, as we have been working directly with our partners from TF1, it became clear that combining the power of Eurosport’s brands and audience reach with Discovery’s network portfolio, boots on the ground, and country-specific expertise creates an unrivaled and powerful offering for viewers, advertisers and affiliates. The decision to take a controlling interest underscores Discovery's strategy to support already strong organic growth with targeted acquisitions and partnerships. This deal will enable our industry-leading international team and its new leader, JB Perrette, to create new value for our business partners by developing and sharing programming across channel brands, and building a stronger and more diversified network portfolio. We are privileged to continue our successful relationship with TF1 Group and look forward to growing Eurosport for many years to come.

WS: On what other geographic areas and international businesses have you been focused?
ZASLAV: Discovery is a truly global company reaching 2.5 billion subscribers with more than 190 networks in more than 220 countries and territories, and we are focused on growing in all of those markets. Over the past few years, we have rolled out TLC as an international flagship network across Europe, Latin America and Asia-Pacific. It is now the most widely distributed female-targeted lifestyle brand in media. More recently, we’ve begun rolling out Investigation Discovery around the world, launched the Oprah Winfrey Network in South Africa and we have expanded our successful Discovery Kids channel offering beyond Latin America and into the Asia-Pacific region.

WS: What potential do you see in the Latin American market?
ZASLAV: Latin America has huge potential with some of the fastest growing pay-TV markets in the world, including Brazil and Mexico. Discovery is very well positioned to take advantage of this growth with 17 brands in 49 countries and territories across the region. Discovery Channel has been the number one factual channel across the region for 10 years; Discovery Kids continues to rate as a top channel for kids and women; and Discovery Home & Health is the top network for women. With this strong presence and growth still to come in the region, we expect Latin America to be a significant growth engine in the years ahead.

WS: What opportunities are you seeing in the U.S Hispanic market?
ZASLAV: The U.S. Hispanic market presents a tremendous opportunity for programmers as it continues to expand and grow in economic clout. Discovery currently has two Spanish-language channels in the U.S., including Discovery en Español, which is the number one pay-TV network with Hispanic men. Going forward, we will be focusing on how we can further nourish this audience and attract them to both our Spanish-language and English-language networks.

WS: Programming is what drives all other businesses. Why was the move into scripted programming important and how have scripted shows been received so far?
ZASLAV: Discovery’s first scripted program, The Challenger Disaster, aired in November on Science Channel and Discovery Channel. The program attracted nearly two million viewers and was the most-watched telecast of the year for Science Channel. Klondike, our first scripted mini-series, which premiered in January in the U.S. and in several markets across Europe, Middle East, Africa, Latin America and Canada, helped deliver Discovery Channel’s most watched Monday prime time in history. We see scripted as a tentpole strategy, one or two events a year. While Discovery Channel and the majority of our networks always will be primarily nonfiction, programs that are on brand, like Klondike, give us an opportunity to create buzz and bring new creative partners to our portfolio.

WS: With a large portfolio of networks, ratings ups and downs are to be expected. How has the Discovery Communications portfolio performed recently?
ZASLAV: Animal Planet was the breakout network in 2013, delivering its best year ever with strong series like Finding Bigfoot, River Monsters and Treehouse Masters. Animal Planet is now a top-20 cable network.

In the U.S., Discovery Channel, in fact, had its highest total viewership in 12 years in its key demographics in 2013, driven by Gold Rush, Naked and Afraid and Deadliest Catch. Skywire Live with Nik Wallenda was also the number one live program of the year and Shark Week had its best year ever. TLC also delivered its best third quarter in a decade last year and was a top network for women, with hits like Here Comes Honey Boo Boo, Long Island Medium and Breaking Amish.

Our emerging nets continue to drive viewership—OWN was up double digits in 2013 in its key demos and the two Tyler Perry series, Love Thy Neighbor and The Haves and The Have Nots, were number one programs in all of television with African American women on their respective nights. Our newer brands also continue to perform well, including Destination America and Velocity.

We feel we have a strong slate of new and returning programming for 2014 and we are confident that ratings will continue to grow.

WS: As viewers continue to watch on demand more and more, what do linear channels need to do to remain relevant?
ZASLAV: Linear channels need to continue to invest in producing great content and provide viewers with a reason to tune in. The success of Skywire Live with Nik Wallenda demonstrates that viewers will tune in for live television events. There are also tremendous opportunities to leverage the power of social media to drive live tune-in. It is much more fun to tweet about a show when everyone is watching than when you are the only one watching.