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Discovery Communications Touts International Growth Outlook

UP: David Zaslav

CEO David Zaslav says “international is key” because the U.S. cable networks business “is a fight” as he and other top executives discuss the company’s outlook for digital deals with the likes of Netflix and the rebranding of Planet Green.

NEW YORK – Top executives of cable networks company Discovery Communications once again touted the importance of the firm’s international business at a breakfast event here on Thursday.

President and CEO David Zaslav and his team also discussed the outlook for digital content deals with the likes of Netflix and the rebranding of Planet Green as Destination America.

“International is key for us...because the U.S. is slowing down if not flat,” said Zaslav. “We take market share from each other. We are doing well here in the U.S., but it is a fight.”

The international growth story is much more compelling as growth overseas feels a lot like in the U.S. when he ran the NBC cable networks group in the 1990s, he said.
 
Zaslav cited the bigger advertising rate difference between broadcast and cable internationally than in the U.S., subscriber and viewer growth upside, as well as ad growth. “It creates a meaningful wind at your back,” he said. Since Zaslav started at Discovery at the start of 2007, international operating cash flow has risen from about 10 percent of the company’s total to more than 35 percent now, he said.

In 2011, Discovery's total revenues of $4.2 billion increased 12 percent, with a 16 percent gain at the international networks leading the way and the U.S. bringing in growth of 11 percent. Adjusted operating income before depreciation and amortization grew 13 percent to $1.9 billion, driven by 18 percent growth in international markets and 10 percent growth in the U.S.

And Discovery content increasingly moves around the world. At Discovery Communications’upfront later in the day, some content developed by his team for the U.S. and global networks will be on display, said Mark Hollinger, president and CEO of Discovery Networks International.

Hollinger highlighted three key themes for the success of Discovery’s international efforts.  First, moving content from the U.S. to international markets and vice versa. “It is this great two-way flow of content that is unmatched in the non-fiction world,” Hollinger said. A second driver of success has been that the company got into international markets early. “Being out early has been a great benefit,” Hollinger said. Third, Discovery runs a global business locally, with only about 2 percent of the international team in the company’s headquarters in Maryland and local content living next to global content. 

“It feels like it is your channel” when you turn on key company channels in foreign markets, Hollinger said in describing the effect. When the company started pushing TLC, for example, it didn’t know how its U.S. content would work overseas. The channel is now in well over 100 million homes internationally, with more of its content working well overseas, but also “a lot of local” content that isn’t that expensive and has the benefit of developing new production relationships.

Luis Silberwasser, chief content officer for Discovery Networks International, showed clips of shows that his team has developed that will make their way to markets around the world, including in the U.S.

Among the projects was How We Invented the World, a landmark series planned to air in September and October that the company is also bringing to the U.S. as one of the first co-productions of Discovery’s U.S. and international business. It focuses on the biggest inventions that have changed the world, such as cell phones, skyscrapers, weapons, cars and flight. “We are going to create a master program, but it will be localized for 10 of our top markets,” Silberwasser said. For example, in Brazil, big Brazilian personalities will be part of the show and talk about how inventions affected the country.

Another project he showed off was One Car Too Far, which the company recently announced and which teams a driver and a survival expert and drops them off with a car in a rough location.

Silberwasser also said that TLC around the world will likely pick up new hit show Shopping Nights from TLC Italy. “It could work internationally,” he said, predicting a deal for TLC internationally soon. Hosted by the team of What Not To Wear in Italy, the show sees women getting to shop for clothes after-hours in a store. 

Hollinger also signaled that Discovery’s acquisitions approach is disciplined, including overseas. While the company has looked at media assets in Turkey and elsewhere, he said any deals would need to make financial and strategic sense. “We don’t want to get ourselves too focused on a giant asset in a single market that could become a giant distraction,” he said.

Asked about the potential for digital deals abroad like Discovery has done with Netflix and Amazon.com in the U.S., Hollinger said “the dynamics are different in every market” and the company must make a judgment on whether it will compromise its core business. “Generally speaking, the opportunity is to really move..has not presented itself internationally in a way that we have felt we need to take advantage of,” he said.

Zaslav said Netflix is a well developed business in the U.S., and the company got comfortable with its window in a three-year deal that Discovery can end after two. “We will see how it goes,” he said, adding that so far the company has not seen a cannibalization of its traditional business. “It could all be incremental,” although some digital and TV platforms could have an impact on each other over time. “For now, it’s quite exciting.”

Also on Thursday, Silberwasser was asked about Discovery En Espanol, saying that he feels good about its outlooks. “We had the best audience quarter ever” in the first quarter, he said. The network has even beaten Univision cable network Galavision on some nights, he said.

Asked by THR about the rebranding of Planet Green as Destination America, Zaslav said: “We’re trying to take a lot of swings - thoughtful, strategic swings...With Planet Green, we really thought we could...launch a compelling channel. After four years, we just found [audiences] were much more comfortable with that content on the Web.”

With more than 60 million homes, the company felt though that it could use that real estate to create “something that had more of an appeal, more viewership.” Destination America can use a lot of original and library content and will not be on the forefront of Discovery’s various international channel rollouts, Zaslav said. The first goal with it is “to get more people in the U.S. spending time on this channel,” he said.

Hollinger said it is hard to imagine the company will look for a formal broad rollout of the channel internationally. “But if a network is more successful in the U.S., it helps because it produces more programming,” he said. And Discovery networks abroad will be able to use that content overseas, he added.

Email: Georg.Szalai@thr.com

Twitter: @georgszalai