Discovery CEO Says Pricey Sports Makes U.S. Pay TV an "Overstuffed Bubble"

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David Zaslav told an investors conference that $15-per-month sports-free skinny bundles will reverse the industry's subscriber decline.

Discovery Communications CEO David Zaslav on Wednesday said U.S. pay TV's reliance on full carriage of pricey sport channels was unsustainable and called for sports-free skinny bundles to reverse an industry decline.

"We think the U.S. is an overstuffed bubble and the consumer is deprived of an entry level bundle where they can get good entertainment," Zaslav said at the J.P. Morgan 2018 Global Technology, Media and Communications Conference during a session that was webcast.

He argued all international TV markets feature "relatively inexpensive" TV sport offerings, including in Europe where Discovery's Eurosport network is a major player. The U.S. market, by contrast, has broadcast retransmission consent fees, especially for sports channels like ESPN and regional sports networks, which encourages expensive cable packages.

"The only choice right now that people have is Netflix and HBO, or I'll pay $50, $60 or $80 for a basic cable package. The U.S. has been overstuffed and overplayed with retrans and sports, and a lot of people out there are saying enough, time's up," Zaslav told investors.

He argued emerging over-the-top digital deals don't allow distributors the leverage to require full carriage of their sports channels. "There could be a real renaissance for subscribers, which they deserve, where people in America have a chance to buy a bundle of entertainment for $15...and then you'd see significant growth," Zaslav told investors.

He pointed to AT&T, led by CEO Randall Stephenson, planning to launch a streaming skinny bundle of TV channels for consumers at a cost of just $15 a month. Zaslav said his children will want an inexpensive cable bundle when they get out of university.

"They would take Randall's $15 offer. They don't want to pay $90 (a month). These skinny bundles will proliferate...and our mission is to get on every one of them," he said. Zaslav is credited with growing Discovery, taking it public in 2008 and overseeing the acquisition of the Scripps Networks in a $14.6 billion deal.

The company’s portfolio now includes Discovery Channel, Animal Planet, Investigation Discovery, TLC, OWN: The Oprah Winfrey Network, HGTV, Travel Channel and Food Network. Zaslav reiterated his preference for unscripted TV fare as he leaves scripted series to HBO and Showtime, while focusing on lifestyle and reality TV.

"We think that has real sustainable growth," as viewers remain passionate about food, home design, Oprah Winfrey and other reality TV brands, he said. The Discovery boss is aware Netflix, Amazon and other digital disrupters are dipping their toes in unscripted fare, but isn't worried.

"Yes, Netflix can decide to buy a few shows. And they will. You go to Netflix for the big scripted series, and will get nourished by other stuff. Same with Amazon and Showtime. But we have the best hit rate, and that's not what they do," he argued.

Asked about the advertising market and the outlook for the upfront market, Zaslav expressed optimism. "The early look seems favorable. We think we'll outperform the market. We're getting a good reception," he said.

Discovery in the U.S. market currently has a 20 percent share of the ad-supported TV market. "We go to the market now as the number-three player in terms of viewership on television," he said, pointing to a better offering for advertisers from prized channels like Food Network and HGTV.

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