Sky CEO on Carriage Dispute: "I Can’t Think of One Discovery Show in Our Top 100 Shows"

Courtesy of BSkyB
Sky CEO Jeremy Darroch

"This is really [about] a difference of opinion on Discovery’s performance," says Jeremy Darroch.

European pay TV giant Sky's CEO Jeremy Darroch on Thursday said that a carriage dispute with Discovery Communications was due to different views on the audience appeal and performance of the company's networks.

"This is really [about] a difference of opinion on Discovery’s performance, and that’s what the dispute is about," he told reporters on an earnings conference call. "The fact is that their share of viewing in linear has been in long-term decline." On-demand, the Discovery portfolio performs "at a third of what it does in linear at best," he added.

And Darroch said: "They are not hitting the sort of big shows that people expect and pay for. I can’t think of one Discovery show in our top 100 shows."

Sky traditionally doesn't share broad-based viewership data, making it difficult to gauge how certain channels it carries do on the Sky platform, compared to other distributors. 

Discovery late Wednesday threatened to pull its networks from Sky in the U.K. and Germany amid a U.S.-style carriage dispute rarely seen in Europe. It emphasized that it has expanded its channel lineup in recent years and has continued to invest more in its onscreen content.

"If an agreement is not reached, Discovery's much-loved channels and programs, which make up 50 percent of all viewing to the factual category on Sky, could disappear from Sky and [its streaming video service] Now TV households after January 31," Discovery said. "We believe Sky is using what we consider to be its dominant market position to further its own commercial interest over those of viewers and independent broadcasters."

Discovery also said: "Discovery is now paid less by Sky than it was 10 years ago, while Sky households are paying so much more than they did in 2007. This is despite Discovery having increased its share of viewing on the Sky platform by more than 20 percent. Discovery has also increased investment in original content by more than 30 percent since 2010, adding new channels to its portfolio, including Eurosport, TLC and [ID]."

Sky added later: "We were prepared to pay a fair price for the Discovery and Eurosport channels and invest more in those channels to make them even better for our customers. We have offered hundreds of millions of pounds to Discovery ... but that wasn’t enough. They asked the Sky group to pay close to £1 billion ($1.25 billion) for their portfolio of channels, many of which are in decline."

Could Sky, in which 21st Century Fox owns a 39 percent stake that the entertainment company is looking to take to full control in a recently agreed deal, face more such criticism, especially amid the Fox offer? "I think their comments last night were about their own commercial self interest," Darroch said. "We’re extending contracts with a whole range of our providers," pointing to deals with the likes of HBO, Showtime and "all the other big U.S. producers and people here in the U.K." He concluded: "We seem to have effective partnerships across the board. We want to invest where our customers see value. And the one thing that we'll ask for is performance from our partners on the back of this."

The companies have talked since April, and Sky has made "a number of offers" with different structures and "increased what we were willing to offer them many times," Darroch also shared. But he said the companies haven't been able to agree on a deal so far. 

Darroch also said: "The challenges that Discovery has are not restricted to us. TalkTalk didn't renew their contract with them here in the U.K. I know they have had problems in Germany." Discovery has said it will ensure it gets paid what it considers fair value for its networks, and it has struck carriage deals with various U.S. and other distributors in recent years. 

Discovery, led by CEO David Zaslav, has 12 channels carried by Sky, including Discovery Channel, TLC, Eurosport, ID and Animal Planet, among others. Since acquiring European sports channel Eurosport, the firm has stepped up its efforts to get paid the types of carriage fees in Europe that it feels it deserves.

Susanna Dinnage, managing director of Discovery Networks U.K. and Ireland, had said late Wednesday: "Our portfolio of channels caters to a wide range of personal tastes and interests from adventure, natural history, science and sports to extraordinary people, families, weddings and true crime. From Racing Extinction, Gold Rush, Say Yes to the Dress UK to Cake Boss and Warrior Apes, which is launching later this year, we create shows that make people's worlds bigger."

Asked about the public spat that is common in the U.S., but unusual for Europe, Darroch told reporters on Thursday: "It’s not our way of operating. We want to try and get sensible agreements with our partners and keep these kind of commercial conversations behind closed doors."   

Asked about the decline in the British pound and whether it means that the company will look to renegotiate U.S. content and carriage deals, Darroch said: "We are not advancing any of those normal renewal discussions.” He added: “We are very well hedged on a medium-term basis."