Discovery CEO Predicts Few Platforms Will Survive Streaming Wars

David Zaslav - Getty - H 2020
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David Zaslav says that the company has exceeded its goal of $3 billion in annual free cash flow ahead of schedule and will roll out HGTV in 12 new markets.

Discovery Inc. president and CEO David Zaslav told an investor conference Wednesday that a bigger company would have to acquire the company if it wanted to beef up its streaming content offering with Discovery programming as the non-scripted lifestyle content giant is well positioned to go it alone.

Speaking at the Citi 2020 Global TMT West Conference in Las Vegas in a session, which was webcast, he was also asked about the future of consolidation and the streaming wars, predicting that there would be only two or three streaming war survivors, while other services would likely "tip over." But while most entertainment giants fight over that same limited scripted content pie, Discovery can focus on the much less crowded non-scripted part of the market, he reiterated. 

Does Discovery need to become part of a bigger media company amid the streaming wars? Zaslav said that "there is a very good argument that we are fine," adding, "we couldn't be much bigger" in terms of non-scripted content. "But at the same time, every one of those bigger players doesn't have enough content, every one of them has come to us and said you have a huge library in women, a huge library in family, your content library itself is bigger than Netflix as a whole, we need more bulk, we need more great characters ... so we have had discussions about doing things with others."

Zaslave added, "But in the end, we came to the conclusion that we may have enough to go ourselves. And if we are going to go with someone else, they really need to buy us. Because if we gave our content to somebody else to fill out one of the other big players, then we would be giving away really the future of our company."

Discovery executives recently starting saying that the TV giant could launch a U.S. streaming service aggregating all its programming. Zaslav said Wednesday that "we are looking hard at that." He later added that Discovery "can not be a growth business by just staying on the existing platform" in the U.S., given that there are fans of the firm's brands who are not pay TV subscribers. 

"We have hundreds of thousands of hours that people grew up on," he had said in 2019. "We are looking now at whether we should just aggregate … all of our content in the U.S. and having something that looks very different, is very deep, has great personalities, great brands to curate through."

Discovery CFO Gunnar Wiedenfels later said that the firm was focused on analyzing a female-focused streaming offer. "Is there room for a Discovery female-skewing aggregated package, which everyone benefits from" — consumers, distributors and Discovery, he explained.

Zaslav also touted that Discovery in 2019 exceeded its target of reaching $3 billion in free cash flow after the acquisition of Scripps, hitting that goal ahead of schedule. He reiterated his description of Discovery as a "free cash flow machine."

The Discovery CEO on Wednesday also argued that the company remains "meaningfully undervalued" despite a strong run of its stock. Discovery's stock was one of the biggest entertainment industry gainers of 2019. After selling his remaining stake in Lionsgate, billionaire investor and media mogul John Malone late in the year acquired more stock of Discovery in what was believed to be his largest or one of his largest open-market purchases of the stock ever. 

Zaslav said Wednesday that the company's stock has risen as the company has been "a story of promises made and promises met." He argued though that Walt Disney has received "full credit" and deserves that, but added that he feels Discovery could get more credit this year from the stock market as well, including for its growing direct-to-consumer business, including what he called the firm's local-language "Netflix business" in international markets that he argued will be "very big." Said Zaslav: "We think this local-language [content offering] is going to be really potent."

He added that he hopes to convince Wall Street that Discovery should be seen as "a company of the future, an IP company that has more global IP in-language than any other media company in the world."