Discovery CEO Eyes Direct-to-Consumer Push, Lauds TLC's Focus on Middle America "Starving" for Content

David Zaslav headshot - Publicity- P 2016
Courtesy of Discovery

David Zaslav at the UBS Global Media and Communications Conference in New York also vows a record 2016 and 2017 and says the company could operate fewer networks down the line.

Discovery Communications president and CEO David Zaslav told an investor conference in New York on Monday that the TV networks company was gearing up for a big direct-to-consumer push in 2017 and lauded its TLC network for targeting Middle America, which is "starving" for appealing content.

TLC has been “a little bit wobbly” in the ratings, and management has "worked really hard" on improving its performance, Zaslav said. The election coverage affected ratings at many networks, including TLC, but "coming out of the election, we have come out like a rocket," he said. “I'm very optimistic about the brand. It’s Middle America. Nobody is programming for that audience. We get who that audience is. We're not [targeting] New York and L.A., we're [targeting] Middle America. That's an audience that is starving for great content, and when we deliver, we get very big numbers.”

Some observers have wondered whether more networks and studios will look for content appealing to Middle America after Donald Trump's surprise win in the U.S. presidential election.

Speaking at the UBS Global Media and Communications Conference, Zaslav also said the company potentially in a few years only could have six or eight "really good" channels instead of 10. Observers have said some companies could discontinue networks that don't draw big ratings amid cord-cutting and focus content spending on big core brands. 

He also said the company was "well-positioned to take our content direct-to-consumer" in 2017. "We're dual-tracking our company," on traditional and digital platforms, he said. Holding up a mobile phone, he added that "we want to be on every one of these screens," citing estimates that there are 7 billion screens worldwide.

He also said the company would "try to disrupt ourselves" with that approach by being the only media company that will take intellectual property direct to consumers around the world. He said the company already has launched a sports Netflix in Europe via Eurosport player; it also is looking to offer similar services for crime, science and kids content.

"We need to reach consumers ourselves," Zaslav said, mentioning the goal of creating "the media company of the future."

Consolidation was also a hot-button topic mentioned in the session. The AT&T-Time Warner deal shows that “the content business is a hell of a good business,” Zaslav said, adding it proves “the real value of content.” Asked if Discovery needs more scale, he said "we got through our [U.S. carriage] deals effectively," which proves the firm has enough scale. 

The Discovery CEO also lauded 2016 as a "record year" in terms of various metrics, such as revenue and earnings before interest, taxes, depreciation and amortization, adding that he expects 2017 to be another record year. Zaslav also said that 50 percent of Discovery's revenue is affiliate revenue, touting that the company will see strong growth of more than 10 percent in affiliate fee revenue in Europe in the coming years, and solid U.S. gains due to its investments in its intellectual property. In comparison, the ad market is strong and will end up being better for Discovery in the fourth quarter than expected, even though affiliate fees will be the key growth driver, he said.

"We have a growth traditional business" and a chance to redefine what a media company of the future is, he said.

Asked about new digital TV services, Zaslav said the recently launched DirecTV Now presented a big opportunity, citing its potential to attract consumers for whom traditional pay TV has become too expensive.

Asked about virtual pay TV operators and whether they will be successful in the U.S., Zaslav said: "It's hard to tell." He added that the economics of such services are "very compelling" for distributors and also work for networks. He added that quadruple-play offers, meaning pay TV, broadband, telephony and mobile services, will become more popular, but said pay TV operators often end up being pure distribution pipes.

Discovery Communications and other cable networks in the U.S. have seen ratings affected this year by news channels' gains thanks to the latter's election coverage, but Zaslav said ratings were looking good following the elections and touted the company's investment in popular content.

Zaslav on Monday also again touted the company's pan-European sports channel Eurosport, the company’s deal to air the Olympics in Europe starting with PyeongChang 2018, and the performance of Oprah Winfrey joint venture network OWN. "We are the only player that reaches across Europe," he said.

Zaslav also discussed Discovery’s digital initiatives. The company recently struck a long-term partnership with BAMTech, the streaming business of Major League Baseball, including the formation of joint venture BAMTech Europe, a digital technology provider dedicated to working with content owners, networks and OTT platforms to enhance their digital capabilities, reach and performance across Europe. 

Discovery also recently agreed to acquire a minority stake in millennials-focused Group Nine Media, a new holding company that brings together Thrillist Media, in which Axel Springer owns a minority stake, Discovery's digital network Seeker and others, via a $100 million investment. The group also includes NowThis Media, The Dodo and Seeker's production studio SourceFed Studios. "For us, this was a very good deal," Zaslav told the UBS conference.