Discovery’s International Growth Path

This week, Discovery Networks Asia-Pacific (DNAP) introduced the Investigation Discovery (ID) brand to Asian audiences as a block on the Discovery Channel. The roll out kicked off in Taiwan at the beginning of the  week and extends to the Southeast Asian and Australian/New Zealand feeds later in the month, before expanding to India in September.

This news capped off a string of announcements from Discovery Communications’ divisions outside of the U.S. in the last few months, including the launch of Discovery HD into Latin America, the introduction of ID to a host of markets and additional carriage deals on Animal Planet in Central and Eastern Europe, among many others.

It has been two decades of growth for Discovery Networks International (DNI), since the launch of Discovery Channel in the U.K. in 1989. Today, DNI encompasses a portfolio of factual, lifestyle and entertainment brands that reach some 900 cumulative subscribers in 170 countries. Greg Ricca, the president and CEO of DNI, recently spoke to TV Real about what the future holds for one of the world’s most recognizable channel brands.

TV REAL: What have been the drivers for Discovery’s international growth in the last two decades?
RICCA: First and foremost, Discovery was an early entrant into the international marketplace 20 years ago, which has made it possible for us to build the local management expertise, infrastructure and relationships necessary to grow one of the largest and fastest-growing international multichannel businesses in the world. Discovery Networks International now delivers about a third of the company’s revenue. Furthermore, given that we have been on the ground in so many international markets for two decades, we have the type of scale that allows us to grow distribution revenues more competitively than if we were just starting to build platforms today, resulting in an extremely stable base of distribution revenue for the company. We have continued to strengthen our portfolio with the launch of new brands and genres that now deliver more than half of our international audience. We now have at least five channels in nearly three-quarters of our international markets and, as pay-TV penetration levels rise, our businesses continue to grow. In recent years we have been focusing our efforts on growing our local ad-sales capabilities in key growth markets in order to drive advertising revenue.

TV REAL: How are your operations performing in the U.K. and in the rest of Europe?
RICCA: The U.K. is a challenging market for the industry right now due to the current environment, but we continue to strengthen our portfolio with new brands, including DMAX, and are extremely pleased with the performance of our networks. In 2008, Discovery’s portfolio of networks accounted for nearly half of all factual viewing on the Sky platform in the U.K.

EMEA [Europe, the Middle East and Africa] is our largest international region and a key growth engine for the company, encompassing some of our fastest-growing markets. In 2008, our international paying subscribers increased by 22 percent across the region and we also grew total viewership by 13 percent. In addition to continuing to drive distribution across the region, we are building our local ad-sales capabilities in key markets.

TV REAL: Your businesses in Asia and Latin America celebrate their 15th anniversaries this year. What are the growth opportunities for you in these two regions?
RICCA: We grew our paying subscribers by 20 percent in Latin America and 10 percent in the Asia Pacific in 2008. We see a lot of potential for the growth of digital pay-TV tiers in both regions and continue to strengthen our leadership position by diversifying our portfolios in each market. Our broad international portfolio, which includes strong digital brands such as Discovery Science, positions us to benefit from the growth of digital tiers. Discovery Channel has ranked as the most-watched regional cable and satellite channel across the Asia Pacific for ten consecutive years and is consistently the most recognized brand in the region. We now offer Discovery HD across Asia and launched our first international HD simulcast service for Discovery Channel in Japan last fall. In Latin America, Discovery Kids is the number one channel among preschoolers and women and a key ad-sales-driven business for the region. Discovery Channel also continues to deepen its share in the region and grew its audience by 16 percent in 2008 over the previous year.

TV REAL: Given the ad downturn, what steps are you taking to boost your nonadvertising-based revenue streams?
RICCA: Discovery is uniquely positioned in that nearly half of our revenues come from multiyear subscription fees that are not subject to the uneven economic environment and therefore provide the company with top-line stability. Another strategic advantage we have is our unparalleled global reach and geographic diversification, which helps us weather any downturn in a particular market. With over a third of our revenues derived from operations in 170 countries around the world, we still have the opportunity for growth, even if some of the more developed markets are contracting. Many of the pay-TV markets we have invested in over the past 20 years are poised for additional distribution and ad-revenue growth, giving us the chance to expand where others aren’t as well positioned. In 2008, Discovery’s international paying subscribers increased by 16 percent, resulting in distribution-revenue growth of 13 percent for the year.

TV REAL: What are your priorities in the next year?
RICCA: We will continue to focus on growing our international distribution base, expanding our local ad-sales capabilities and strengthening our programming mix and category leadership. We will also further diversify our portfolio with the launch of new brands and genres such as Investigation Discovery, our crime-and-investigation channel. There is strong international demand for this genre, and taking ID globally is part of our strategy to harness our U.S. pipeline of programming in order to further develop our international brands. Creating compelling programming with global appeal allows us to further capitalize on our growing distribution platform, build market share and ultimately drive ad revenues over the coming years.