TV Ad Outlook Unclear, Discovery Channel Ratings Rising, Says David Zaslav

Discovery Communications

"Last year was a tough year" for the cable networks business, the Discovery Communications CEO tells an investor conference and discusses early 2015 ad trends.

Discovery Communications has seen a somewhat better advertising market early in 2015, but it is hard to say whether they will continue, CEO David Zaslav told an investor conference on Tuesday as he also touted the Discovery Channel's U.S. ratings momentum.

Speaking at the Morgan Stanley Technology, Media & Telecom Conference at in San Francisco in a session that was webcast, he said: "Last year was a tough year" for the cable networks business in terms of ratings. But the company did "very well" with key networks, he said.

The Discovery Channel did "just okay" in 2014, he acknowledged, but highlighted recent management changes to drive ratings, led by the appointment of Rich Ross as the network's president. "I think we have some real traction," Zaslav said. In February, Discovery was the top cable network for men in the U.S. as it had "the best performance for Discovery in the last 20 years." The network has also brought back more female viewers so far this year, he said.

"We don't program for ratings in the U.S.," but for market share around the world, Zaslav also said Tuesday when asked how his team approaches content decisions differently from other media companies. He mentioned that 80 percent of the firm's programming works well around the world, which is more important for the firm than competitors that may focus on the biggest ratings in the U.S.

Zaslav was also asked about the TV advertising market and said the company was surprised by the weakness of the fourth-quarter ad market in the U.S. and also by improvements early this year. In 2014, "we lost the bet a little bit...we sold less into the upfront" as an industry, and scatter market pricing later was strong, but "the volume just wasn't there in the fourth quarter, and we felt it," he said.

"There really is no visibility to see where the upfront is going to be this year," he added. "So far, the pricing remains very good," and volume trends have improved this year, Zaslav said, but it wasn't clear yet how things would evolve from here. "There are a lot of answers we don't have." Discovery on its recent earnings conference call projected a "tepid" ad market for 2015.

"There is no question in my mind that some [ad] money is moving [from TV] to digital and will continue to move to digital," Zaslav said when asked about an industry debate about how much of the recent TV ad weakness was due to digital's growth. "We are hearing some whispers" though that digital measurement is still difficult and that the proven reach of TV is still seen as a benefit. So there is some feeling that "maybe TV is going to be okay for a little while," the Discovery CEO concluded.

Discussing the interest in European sports rights as Discovery owns pan-European network Eurosport, Zaslav reiterated the interest in buying rights that work well financially. He mentioned the English Premier League soccer rights that were recently auctioned off in Britain. "We walked away from that kind of pricing," Zaslav said in a reference to a big cost increase in the auction compared to the previous three-year deal.

The Discovery CEO was also asked about Comcast's big acquisition currently under regulatory review and the need for scale, Zaslav said: "We have grown our share...We have been able to get deals done [with pay TV giants]. We have been getting to get significant increases" partly do to have 13 percent share of viewership. "Our scale is very good," he concluded. 

What happens when a huge distributor comes in? "We are hopeful we will get a deal done with Comcast" and that they will "negotiate in good faith," he reiterated recent comments. A carriage deal between the companies is coming up for renewal at the end of June. Zaslav has several times expressed concern that Comcast, with its planned acquisition of Time Warner Cable, could gain too much leverage over cable networks firms, saying it "raises some real issues."

He was also asked about Discovery's previously disclosed plans to launch over-the-top services in the U.S. and Latin America, including possible direct-to-consumer offers. The company has said it will disclose details in the coming months.

On Tuesday, he said the company would mostly look at OTT opportunities for super fans such as fans of Oprah Winfrey and her OWN or Science Channel. Discovery could offer a Science app just like it does for Eurosport, for example, he said. But he said in general the company is aligned with distributors to not "confuse the marketplace" with different offerings.

Discovery would like to see the industry come together to roll out TV Everywhere services more broadly, Zaslav said. In some mature markets, such as Europe, distributors are also looking to team with networks groups to offer OTT services to better serve consumers, he said.

Continuing to grow Discovery's international business, which has been growing at double-digit percentage rates, is one key focus for his team, Zaslav said, predicting "meaningful" growth for at least several years. He said the company now has a presence in 230 million countries.

He cited mid-teens growth in Europe, signaling there was upside whenever the economy there improves. If the advertising market picks up," the company can see "significant margin growth," he said.

Zaslav also reiterated the company would remain disciplined about possible acquisitions in international markets, citing the SBS Nordic acquisition in 2013 as an example. With improved financials and synergies, the deal has played out well, he said.

Twitter: @georgszalai