The growth equation for Discovery Communications – a US$6.4 billion revenue engine still deeply embedded in pay-TV – is changing.
Last year, pay-TV contributed 97% of global revenue for Discovery, on a par with lifestyle-oriented rival Scripps but significantly higher than the contribution for peers such as Viacom, 21st Century Fox, Time Warner and Disney.
Nonetheless, Discovery’s brands and content are becoming more visible beyond the established pay-TV ecosystem, especially outside the US, in countries where its market share is relatively small.
These exploratory ventures, which can serve as standalone revenue streams as well as on-ramps for more lucrative distribution deals, are part of a broader bid by Discovery to maintain the growth it has traditionally enjoyed in an increasingly multiplatform world.
“This year, we will have well over US$2 billion investment in content,” stressed Discovery Communications president and CEO David Zaslav, speaking earlier this month at the company’s international media day.
“We are looking to spend more money on bigger content, bigger events, bigger audiences, more important content that people want to see when they can see anything,” Zaslav told the assembled journalists.
This means a push for scale and share across the TV and digital landscape, with a focus on content audiences care about the most.
At the end of May, Discovery announced its first move into the free-to-air space in Latin America, buying a 27.5% stake in Mega, Chile’s most popular TV channel, for a reported US$40 million via the station’s parent Bethia Communications.
The deal, which allows Mega to become part of Discovery’s local distribution and advertising deals, provides useful leverage in a market where ad sales are growing, Zaslav noted.
Discovery has also broadened its free-to-air footprint in Europe. A new female-oriented non-fiction channel in Spain, called Dkiss, officially launched May 19, following a content tie-up with local media group Kiss TV announced earlier in the year.
However, similar broadcast opportunities are thin on the ground.
“There aren’t many markets where we can invest in free-to-air in a way that’s meaningful, and we can also create a partnership,” Zaslav noted, referencing the partnership in Chile.
More DISTRIBUTION PARTNERS
Globally, there are more opportunities in mobile and broadband deals, spanning direct-to-consumer relationships as well as exclusive content sales on mobile and digital platforms.
As viewing habits diversify, it’s a chance for Discovery, a mainstay for pay-TV subscribers, to become more broadly known.
Executives are actively assessing deals, and how they might reshape existing relationships.
Tie-ups with Facebook and Twitter for example, both pushing deeper into live as well as on-demand video, can promote Discovery’s branded environments elsewhere, as well as directly serve neglected audience segments.
“They have some ambition to have it all… which maybe would not be a bad thing, for us to give them some IP for the right economics,” Zaslav said.
“The more people that want our content, the more ways we can slice that content with our brand on it, the more people we can partner with to reach more audiences, the better.”
At the same time, executives are weighing up the business implications of standalone digital extensions for Discovery’s channel brands. Success, in turn, will contribute important leverage and scale.
Male-oriented Velocity, branded Turbo outside the US, commands a tribal following worldwide, Zaslav contended.
“That’s a product that has so much energy behind it, that we are looking very hard at whether we should create a direct-to-consumer product,” he said.
Such an offering could combine content from Discovery’s library with extras such as live auto auctions, as well as additional content sourced elsewhere, Zaslav mused.
“It’s something that we’re serious about, and the first offering might not be right,” he continued.
“In the end, we have to figure out what people want to pay for, and what they feel they’re getting really good value for.”
A more expansive multimedia presence for Discovery Science is also under consideration.
“We have science content and we convert it into 56 languages,” Zaslav said.
“Could we create a direct-to-consumer science app with some of our best science content and make that available to drive STEM (science, technology, engineering and mathematics)…?” he added.
“We’re looking very hard at that. We could do that without diminishing the science channel itself.”
Successful brand evolutions could also come in handy during pay-TV renewals.
As competition for viewing time intensifies, strong brands and a broader suite of multiscreen rights can command a premium from incumbent as well as new distribution platforms.
Zaslav is confident that operators will still opt for Discovery channels, despite moves to woo subscribers with slimmed-down channel packs.
A smaller bundle, created to make pay-TV more affordable in Brazil, carried six of the ten channels Discovery had in the market, he pointed out.
That pack, which became the main driver of pay-TV growth, boosted the viewership and brand equity of the chosen Discovery channels, he added.
“If we hold out for the right value, and if we work with distributors to create the right packages like we did in Brazil, it can be quite effective,” he said.
“If there’s a move to offer content for economics that don’t make sense or with business models that are weak, then, as those platforms grow, it starts to diminish your return.”
new pathways in sports
Sports in particular – as a vehicle for new technology as well as viewer engagement – provides Discovery with room to experiment with mixed business models.
Discovery is talking to multiple mobile operators about exclusive windows and access Eurosport Player – an SVOD service with about 200,000 direct subs in Europe, Zaslav revealed.
“We see Eurosport Player as being something that can be a big part of mobile in Asia and in Europe,” he said.
“You will see us doing more of those types of deals, as well as cutting the content so we can go directly and nourish but also tease – to the extent that, you see some of our content on Vodafone or on Telenor or on the local platforms, you can get all the content if you get the app.”
Its portfolio is set to become much bigger, having landed Europe-wide multiplatform rights for the Summer and Winter Olympics from 2018 to 2024.
“One of the reasons we’re spending so much time, resources and dollars against all these different initiatives is we don’t have it right yet,” Zaslav said.
“We want to figure out how people want to consume content on different platforms.”
This could mean dedicated apps focused on particular sports or affinity groups for example, once Eurosport starts covering the Winter Olympics in South Korea in two years’ time.
That would support the company’s pledge to showcase the Olympics in a different way, especially to younger viewers.
The IOC reportedly received higher bids for the Olympic rights, but still opted for Discovery.
“We want to be in a position where we have learned a lot about as many sports as we can, and technologies and direct-to-consumer outreach,” Zaslav said, “so that when we get to ’18, we can really be aggressive about pushing the Olympics.”