Discovery CEO: Scripted Content Is "Very Difficult Game" That Is "Not Us"
David Zaslav also tells an investor conference he sees upside from the planned Scripps acquisition, doesn't see a need to get even bigger and calls sports programming in the U.S. the "big bully."
Discovery Communications is "feeling really good" about its $14.6 billion deal to acquire Scripps Networks Interactive and continues to expect it will close before the end of the first quarter, CEO David Zaslav said Wednesday. But he also signaled he doesn't see the need for another big acquisition in the wake of recent mega-deals.
Speaking at the Citi 2018 Global Technology, Media and Telecom West Conference in Las Vegas, Zaslav said: "The current cocktail party talk is everyone’s got to get bigger. We don’t think right now we need to get bigger, because we are not playing in that scripted TV, scripted movie game. So we’ll see if we’re right."
He also said: "You see Rupert [Murdoch] doing this deal with [Bob] Iger — it looks quite smart. [You have AOL chief] Randall [Stephenson]’s deal with Time Warner — it looks quite smart. But those guys are on the right side of the ledger. They are in the business of scripted series and scripted movies. And three years ago, there were 250 scripted series; this year there will be over 500 scripted series. Everybody is going there. It's the red carpet, it's the sexy actors and actresses, it's the opening and it's all the glare and all the glamour. That's not us.” The exec said Discovery is on the nonscripted or left side of the ledger.
"Everybody is moving toward that, and the investors are saying, ‘Boy, does that look sexy.’ But that’s a very difficult game," Zaslav continued. "It's a difficult game because it's so crowded, it's $5 million an hour or more for scripted television. ... But on that side is Amazon and Netflix that are getting valued a very different way."
He concluded: "All of that is in disruption. That is on the right side. Our view is good luck with that. We are on the left side of the ledger, we're in the business of nonfiction. Our average cost of content is $400,000 to $450,000 an hour. We own all of our content globally. And we are in the enthusiast superfan business."
Zaslav also said Wednesday that there is upside to the financial benefits of the Scripps deal that the companies have identified, including $350 million in cost savings. "The more that we have looked at it, the more confident we feel that there will be more synergy there," he said.
Discovery also has signaled that there would be revenue benefits from the combination but hasn't quantified those yet. "The revenue synergy will be upside, and we’re hopeful that there will be a significant amount of it," Zaslav said.
Discovery will buy Scripps, known for nonscripted and lifestyle content, in a cash-and-stock deal, which the companies said would create "a global leader in real-life entertainment" and "accelerate growth across linear, digital and short-form platforms around the world."
Scripps operates HGTV, Travel Channel and Food Network, among others, while Discovery's networks include Discovery Channel, Animal Planet, TLC and OWN. Zaslav on Wednesday told the conference that "we love the transaction."
Discussing how the acquisition will boost the company's position in carriage talks with pay TV giants, the exec said: "It's important to have quality channels that people like, but you need to have enough scale that you can be a meaningful piece of the conversation. … Scripps will help us."
He also said the enlarged company will be in a strong position to do deals with mobile phone operators. "We are having a lot of discussions now about mobile, because we think a lot of the IP that we own here in the U.S. and around the world and some of the Scripps stuff might really work very well on mobile," Zaslav said.
"There is a turbulent environment, there is a fair amount of uncertainty," he said, adding that diversifying the business and adding strong network brands will help. He also said there was a "massive" free cash-flow opportunity that could take the company from $1.3 billion-plus to $2.4 billion and even $3 billion over time. Higher free cash flow will ensure financial strength, or "a moat" of sorts around the business, Zaslav told investors.
Discovery's European sports network Eurosport will next month air coverage of the Winter Olympics in PyeongChang, South Korea — its first Olympic Games under a multiyear rights deal. That topic wasn't in focus on Wednesday.
But Zaslav again took a shot against expensive sports rights in the U.S. "We’re fighting against sports. And you see it in the U.S.," he said. "Sports has just become the big bully here in the U.S. And the people that are really losing are the consumers, and it’s going to be the industry." He highlighted that younger people don’t want to want to get pay TV and pay $100 a month to take every sports channel and regional sports network.
Later on Wednesday at CES, Zaslav commented on the possibility of a Oprah Winfrey presidential run.
LionTree CEO Aryeh Bourkoff started his panel by asking whether Zaslav would let Winfrey out of her contract to run for president. Zaslav's Discovery is a part-owner of OWN.
Zaslav responded, to laughter in the audience: "Oprah is in charge of her own destiny."
Jan. 10, 12:15 p.m. Updated with Zaslav's comments at CES.