Discovery’s David Zaslav

Last year, Discovery Communications announced its intent to acquire Scripps Networks Interactive. The deal brings together some of the most popular factual brands in the pay-TV universe, from Discovery Channel, Animal Planet and ID: Investigation Discovery to HGTV, Food Network and DIY. David Zaslav, the president and CEO of the newly combined entity, Discovery, Inc., is well aware that viewers want total flexibility in the way they watch programming and he is leading his teams’ efforts to make content available on all linear and nonlinear platforms.

WS: What motivated the Scripps acquisition?
ZASLAV: When we looked at Scripps, we saw a lot of the same values and strategic ambition that we have. Discovery is a super-fan enthusiast content company. When I say that, I mean that we see the world [divided into] two types of content. There is scripted and movie content, with red carpets and stars and openings, and that is very expensive, very crowded and extremely competitive. And now with Netflix and Amazon competing aggressively in that space, there is more than $30 billion every year going into scripted TV and movies. It’s getting more and more crowded, competitive and disrupted. Three years ago there were 250 scripted TV series; this year there will be more than 500, and the costs are going up and up and up. And the quality will eventually be diluted because there are only so many producers and writers.

We’re not in the red-carpet business or the star business or the scripted business. We’re in the nonfiction content business and we own our content globally. The average cost of our content is about $400,000 an hour versus $5 million an hour for scripted. We see the media business as being two ends of a football field. Scripps is on our end and together we have some meaningful weight in the nonfiction area. We have a lot of quality brands in the U.S., between Discovery Channel, Animal Planet, OWN: Oprah Winfrey Network, TLC, ID and Science, and then you add to that HGTV, Food Network, Cooking Channel and Travel Channel. We have a very strong position in nonfiction, and we think that the ability to move that content around the world and onto all platforms gives us a real strategic advantage.

WS: What does Scripps bring to Discovery?
ZASLAV: When we saw Scripps, we saw that they own all their content and have these great enthusiast brands, and then we took a hard look at how they distribute that content. We recognized that we have been in the global TV business for the past 25 years and most of Scripps’s content has not been taken around the world. So we think there are three opportunities with Scripps. One is that we take their content all around the world. We have two to three female channels in every country in the world, so we can either put their content on our female channels or we could launch home or food or cooking channels—so there’s a big global opportunity. Second is the whole transition to mobile or the ability to work with the big platform companies or the big distributors around the world that have been consolidating. If Apple or Facebook or Google is looking for someone to offer global quality content that people recognize around the world, or, the same way AT&T bought Time Warner, if other big mobile telecom companies are looking for content, we have a whole menu of great content that we think will work very well on mobile and other platforms. And third is that we have a massive amount of synergy because we are a cable and free-to-air global TV factory. They are a primarily domestic cable company. We have 12 channels in the U.S. and they have six; there is a lot of overlap. Some of the basic elements of efficiency and effectiveness give us an ability to get a lot of synergies, so we can do a lot more for a lot less money.

WS: Discovery recently upped its ownership in OWN. That has been a success story, too, hasn’t it?
ZASLAV: OWN is doing terrifically. It’s the top network in America for African-American women on several nights of the week. That transaction with OWN was a twofer for us. Oprah is committed to the network, and part of that deal for her was a contractual commitment for another seven years of hard work as the chief creative officer and leader of OWN. We also picked up an additional stake in it. We love the channel and it fits our strategy. It has a super-fan group of African-American women who love it. We own more than 70 percent of it now. It was perfect timing. We got more of OWN just as we were ready to close on our Scripps transaction. It fits that same strategy of owning content, taking it around the world, and having distinct content that is different from scripted and movies. If you want scripted and movies, you can go to Netflix, Amazon or premium cable. There are plenty of places to get it, but if you want quality nonfiction content, we are one of the companies with a very strong global position.

WS: You’ve always had a passion for the cable industry. How do you see the state of the cable industry in the U.S. today? What challenges is it facing?
ZASLAV: The U.S. market was the guiding light for cable around the world. It achieved broad penetration. The basic-cable bundle was developed here and then cable started to proliferate around the world. The U.S. is a unique market. As we do business around the world, we see that the U.S. is the only market that has one culture, 350 million people and one advertising market, so it’s the bonanza of cable and free-to-air markets because of those unique features.

The issue with the U.S. market is that it is overburdened by two elements that don’t exist almost anywhere in the world. The first is retransmission consent. Anywhere else in the world you can get broadcast signals for free. In the U.S., when consumers buy cable they are paying somewhere around $10 a month just to get the broadcast networks. So retransmission consent is stuffed into the entry bundle here in the U.S. and so are sports channels. And because the big broadcasters in many cases own the sports, they leverage, in every one of their channels, regional sports channels, even channels that a cable operator or satellite distributor in the normal course wouldn’t want. When you take a look at Hulu’s Live TV package, for instance, it’s overstuffed with all of its partners’ content and their cost of content is more than the $40 monthly subscription they charge. But they never got to talk to any of us about content because they had to carry the retransmission and the sports. So that’s a little bit of a window into what’s gone on here in the U.S. It’s what has caused the secular decline.

In most markets around the world, cable is stable and young people are still buying cable because they can get it for $10 or $15 a month. If you are in college or you get your first apartment in America, and you want broadband and cable, it costs $100 a month. So young people take the broadband and many are forgetting about cable. That’s not happening in many markets around the world. In the U.S. if there were a skinny bundle without sports that was in the $20- to $25-a-month range, we’re convinced that instead of subscribers declining by 3 or 4 percent, subscriber counts would be about flat, or they might even be up 1 percent. We’re leaving behind a whole generation that has given up the $100 bundle, and they’re not wrong because 70 percent of people who get cable are not watching sports, but they have to pay for all of it.

So we have this issue of the overstuffed bundle, which is alienating a whole generation. It’s also so expensive that a lot of people, of all ages, who want it can’t afford it. That’s why you see subscriptions declining.

WS: Do you see the cable industry overcoming those challenges?
ZASLAV: I’m optimistic because we launched our own skinny bundle, Philo [with A+E Networks, AMC Networks and Viacom]. We are an investor in it. We are helping to drive Philo. More and more, existing distributors are recognizing that they have a lot of broadband subscribers who aren’t getting any cable, and their only choice right now is to buy Netflix. I’m hopeful this is the year that the distributors, satellite, cable, the entrepreneurs and we as programmers will get active. I’m hopeful that there will be non-sports bundles, over the top and on cable, over the next year or two, which I think will create a whole rebirth of younger subscribers and subscribers that couldn’t afford the $100-a-month cable bill.

WS: Are you looking to make more investments? If so, what would fit into the portfolio?
ZASLAV: We think there is an enormous amount of synergy [with Scripps]. We want to execute on that transaction, and pay down some of the debt—we did leverage up in order to make that acquisition. But this is a long journey. The industry used to be extremely stable. If you created great content, you were a winner. It’s now very crowded and there is a transition going on. The existing ecosystem is still relatively healthy. We think there will be growth over the next five to ten years in the existing business, but it’s in secular decline. It’s a fight to make the transition to all devices. People are consuming more content—they’re just spending a little less time with the TV set in the living room, and some of the younger generation is spending more time on their phone screens. So the biggest growth for us is going to be our basic theory, which is that we own all of our content. People who love cars are going to want that content on their phones. People who love cooking and food are going to want that on their devices. People who love science are going to want that on their devices and they are going to pull it through; same with people who love Oprah.

In the end, when someone grabs a device outside of the TV set, they need to curate for themselves. The basic-cable bundle provided very effective curation. You put your TV on, you had 50, 100, 150 channels, and each person in the house had the eight or ten channels that they loved and that were curated for them. There are a lot more choices today when you have the mobile screen in your hand. You can watch anything. We believe that quality brands with super-fans will be a big pull. The movie and scripted TV space is getting awfully crowded, busy and expensive. People have always loved nonfiction. They have always loved science and adventure and home and food and content about cars and crime, and that’s what we have. We think those super-fans are eventually going to choose us. We hope we can drive that by making our content better and by having a very loud voice about the quality of our content and the fact that we’re in that business. We like our strategy. When we look to the right and see all those media companies lined up and we see Amazon and Netflix, we say we’re glad we’re not there. The openings, the red carpets and the big stars, are all very sexy, but we like our hand. We need to make sure we do a great job with [the acquired Scripps] brands and create great content that people love with characters they love. We think we can make the transition to devices and mobile. And we think we are going to be one of the companies that will be among the big winners in the future.

WS: You mentioned Netflix and Amazon. What pressures are they putting on major media companies, and does that have something to do with the consolidation we’re seeing?
ZASLAV: Amazon and Netflix are creating a lot of pressure on the ecosystem. It’s $16 billion worth of pressure. They are also valued differently than 21st Century Fox or MGM or Lionsgate. So that $16 billion could be $20 billion or $24 billion. It could be $30 billion. When you put in that kind of investment and you’re [seeking] producers, writers and talent, you’re buying movies and you’re competing for scripted series, you create a lot of pressure on that side of the pendulum. We’re glad we’re not there.

WS: What direct-to-consumer products are you offering?
ZASLAV: We have a few now. In Europe, we have our sports streaming product, the Eurosport Player. Through Eurosport, the Olympics were presented on broadcast, on cable, on all platforms in a way that had never been seen in Europe before. A piece of that was Eurosport Player, where people were able to view every sport, every event, and that had never happened before in Europe. We have another direct-to-consumer product called Motor Trend OnDemand, which we are really excited about. We put our auto-TV channel Velocity in a new venture called Motor Trend [with TEN: The Enthusiast Network]. We put it together with 30 titles including Motor Trend and a big team in Los Angeles that’s doing short-form auto content.  You can buy Motor Trend OnDemand for $5 [a month]. We’re the leader in car content around the world. We have more car auctions than anyone else. We see that vertical; if you love cars, eventually, not only are you going to be watching our car channels around the world, you’ll have Motor Trend OnDemand on your phone or your device.

WS: You have numerous businesses in Europe. Which ones are showing the most potential for growth?
ZASLAV: The biggest potential for growth for us right now, in general, is that there would be some economic growth around the world. We’ve been able to grow our international business with effectively zero GDP growth in Europe for the past ten years—zero. And GDP and advertising tend to follow one another. In Latin America, there has been a lot of political disruption. We’ve become very efficient and effective in running our businesses and growing them during political and economic challenges. For the first time, it has started to look like there might be the beginnings of an economic recovery across Europe and Latin America. Not all of it but across some of it. That would be a big benefit to us because we are in more than 220 markets, in more than 50 languages and the advertising market has a direct correlation to GDP. If you see GDP starting to rise, it means there will be more money; the economies are stronger; people will be spending more money on advertising because companies will be investing in growth.

WS: In the U.S., consumers are looking for smaller cable packages. Since your brands cater to super-fans, viewers will want them in their skinny bundles.
ZASLAV: If you look at what people say they love about cable, between Discovery Channel, Animal Planet, OWN, TLC, ID, HGTV, Food Network and Cooking Channel, we have some of the most-loved brands in America. We also have the ability to go direct to consumer ourselves over time if, in fact, the existing distributors don’t launch a direct-to-consumer product, but I think they will. We are having a lot of conversations, and the distributors are quite smart. They are looking at what’s going on around the world, and they are looking at the decline here in the U.S. They are talking to their subscribers and are going on college campuses and seeing why people buy Netflix—it’s because it’s the only service they can buy for $8 a month.

WS: In 2016, Discovery announced Project C.A.T.: Conserving Acres for Tigers. How did it come about? This is particularly important to you, isn’t it?
ZASLAV: Tom Brokaw [former NBC Nightly News anchor] and I became good friends from my time working at NBC. He told me about the concept of a rendezvous with destiny, which is something he writes about in his book The Greatest Generation, about the Great Depression generation that went on to win World War II. I believe solving wildlife extinction is our own rendezvous with destiny. If we don’t act, more than 50 percent of the species that exist on Earth won’t exist for my grandchildren. Project C.A.T. is one of the ways we’re taking action. There are fewer than 4,000 tigers left in the wild around the world, making them one of the most highly endangered species. We partnered with the World Wildlife Fund to help double the world’s wild tiger population by 2022, by preserving land space in India and Bhutan for them to live and reproduce.