Discovery’s David Zaslav Discusses Recent Investments & Acquisitions

PREMIUM: Discovery Communications has made a number of acquisitions and strategic partnerships; president and CEO David Zaslav talks to World Screen about the company’s focus on international growth.

WS: What has driven the success of Investigation Discovery (ID)?
ZASLAV: If you look around the world, forensics and investigation programming is the most popular genre in scripted television. Recognizing that, five years ago, Discovery took advantage of one of the key genres on our flagship and mined our extensive library of forensics and investigation programming to launch a nonfiction channel in that genre with ID and it has become the fastest-growing cable network in the U.S. It is also number one in all of television in length of tune in, which demonstrates how great storytelling can keep viewers from changing channels. Last year, given the universal appeal of the genre, we began to rollout ID as a global brand and it has been equally well received, particularly in markets like Eastern Europe and Latin America.

WS: What was the strategy behind the recent deals with TF1 and SBS Nordic?
ZASLAV: For the past several years, given Discovery’s strong free cash flow and balance sheet, we have been actively looking for opportunities to further solidify our international platform through the acquisitions of assets that further extend our presence in key markets and support our long-term growth strategy. Together, our equity stake in TF1 and acquisition of SBS Nordic (which is expected to close in the first quarter) solidify organic growth by adding new dual-revenue-stream networks and programming platforms to our business, new opportunities for genre expansion across our portfolio, and new and complementary sales teams to our executive ranks.

WS: And tell us about the recent deal to acquire Switchover Media in Italy, which operates pay- and free-TV channels?
ZASLAV: Italy is an example of a market where the free-to-air digital terrestrial television television platform enjoys significantly greater penetration than pay- TV, and where it makes sense for Discovery to invest in free-to-air channels. The success of Real Time, which we launched two years ago and is now the seventh most-watched channel among female viewers in Italy, is an example of how this strategy has been successful.

The acquisition of Switchover makes us the third-largest broadcaster in Italy, which is a huge move for us. This new portfolio of 12 channels gives us the diversification of the genres to grow and gives us significantly improved scale is this key market. We made a similar move with the acquisition of Fatafeat, the number one food network in the Middle East, which gives us great reach, presence and diversification in that important market.

WS:  What main growth areas are you seeing in Discovery’s international businesses and in the domestic businesses?
ZASLAV: Discovery’s mission is to be the number one provider of high-quality content around the world and across all screens. We achieve this by investing in compelling content for our brands to capture additional market share in mature pay-TV markets, such as the U.S. and Western Europe, and increasing our subscriber base in high-growth markets, led by Brazil and Mexico in Latin America, Poland and Russia in Eastern Europe, and India in Asia. We are also investing in digital platforms, such as Revision3, to capture audiences on new platforms.

WS: Discovery was one of the first companies to own all its content. What advantages have you derived from this strategy?
ZASLAV: Content ownership is one of primary differentiators that has powered Discovery to become the number one pay-TV programmer in the world. Ownership enables us to take our content around the world and use it on our international networks in over 200 countries, which is particularly valuable for Discovery because our nonfiction programming has universal appeal. With our extensive library, we also can quickly and economically launch new channels and brands, and create new short-form content for our digital platforms.

WS: What is Discovery’s strategy for making its content available on digital platforms like Netflix or Amazon?
ZASLAV: As more players enter the distribution market, there is more demand than ever for quality content to fill those pipes, which is great for Discovery. While the traditional pay-TV model remains at our core, we have worked with new digital providers to create a new window for slightly older content. Whether it is older series that no longer air on our networks, or older seasons of current series, the digital platforms provide Discovery with additional opportunities to monetize our extensive content library, and it can help drive linear viewing by introducing viewers to content they may not have seen.

WS: How has the factual-programming genre evolved and what are some of the highlights today on Discovery and TLC?
ZASLAV: Discovery was founded with a simple mission to create great, high-quality content that ignites curiosity and delivers the thrill of Discovery by introducing viewers to people, places and ideas that they wouldn’t otherwise experience. That is still the mission that drives us today, and the fundamentals haven’t changed. Great storytelling and compelling characters will always find an audience. Gold Rush and the upcoming North America on Discovery Channel are great examples, as well as lifestyle content on TLC, like Cake Boss and NY Ink.

WS: Discovery recently commissioned its first scripted series, Klondike. What are your plans for scripted programming?
ZASLAV: Nonfiction content will always remain at Discovery’s core, but we also see the value in commissioning scripted programming events that complement our nonfiction series and are on brand for our networks. Klondike, for example, is a perfect complement to Gold Rush, Yukon Men and Bering Sea Gold that have been the most-watched shows in all of television (broadcast and cable) in the U.S. on the nights they air.

Internationally as well, nonfiction remains our core, but we will also continue to take advantage of opportunities to diversify our portfolio in additional genres (including kids, scripted entertainment and sports), on a market-by-market basis, where we have a more limited presence and where it enables us to see more advertisers across a wider range of demographics, as well as to take advantage of a larger market share. In addition to growing organically through gaining more subscribers, we see this as an opportunity to grow by building our portfolio and genres.

WS: When you worked at NBCUniversal, you oversaw the launch of several channels, including CNBC, MSNBC and Bravo. What have you learned about the first years of a channel on its way to breaking even?
ZASLAV: The main lesson is that it takes time for a new network to find its voice and find its audience. Viewers only have 8-10 channels that they regularly tune into and it takes time for a new channel to break into that rotation. Investigation Discovery is the exception to the rule and I have never seen anything like it, growing to become a top 15 network in less than five years. Generally, however, you have to be patient and listen to the audience. If you do that and focus on creating great content, the audience will find you. We are seeing this now with OWN in the U.S., which has now recorded 12 straight months of growth.

WS: How do the first two years of any of those channels compare to OWN’s and The Hub’s first two years?
ZASLAV: The pay-TV marketplace in the U.S. today is a different world than it was when CNBC, MSNBC and Bravo were launched, which makes it almost impossible to compare. There were far fewer channels and screens competing for eyeballs and the number of subscribers was growing rapidly every month, whereas today there are hundreds of channels, as well as the Internet, on-demand and DVRs, and the market is fully penetrated. Overall, I feel very good about OWN and The Hub. Both networks are growing and getting better every month.

WS: Tell us about OWN’s ratings successes in the last year. Are you still expecting OWN to break even by the end of this year?
ZASLAV: OWN has had tremendous success in the past year and we fully expect the network to be cash flow positive by the end of this year. OWN grew both prime time and total day delivery by double-digits in all key demographics in 2012, and that has continued in 2013. Oprah’s Next Chapter was the number one program on cable with women 25-to-54 seven times last year, and the network has established a roster of series that are resonating with viewers, including Welcome to Sweetie Pies’, Ayanla: Fix My Life and Six Little McGhees.

WS: With viewers increasingly watching wherever, whenever, what must linear channels do to maintain their relevance?
ZASLAV: Viewers are watching content on more screens, but the “big” screen, the TV, still remains the go-to place for the most immersive and compelling viewing experience. This is especially true with Discovery’s content, which looks so good in HD on a big screen. Viewers want to experience programming like Planet Earth and the upcoming North America on TV to get the full experience. As long as Discovery continues to produce that kind of high-quality content, people will want to tune into the channel.

With regard to time-shifting, linear channels need to give viewers more reasons to tune in live. That can be through social media—creating a virtual “living room couch” where viewers interact with each other as they watch— or, creating must-see “events,” such as Discovery is doing with Gold Rush Live, a live version of our number one series, or Oprah Winfrey’s interview with Lance Armstrong, which drove record live tune-in around the world. You can’t wait three days to find out what Lance told Oprah [by watching the interview on your] DVR, you have to watch it live.