Journey of Discovery: DNI turns 25

David Zaslav

As Discovery Networks International hits 25, David Zaslav, JB Perrette, Mark Hollinger, Dee Forbes and Luis Silberwasser tell Stewart Clarke about the story so far and what lies ahead.

“In the last 25 years the company has solidified its presence as the number one non-fiction television company globally and I think if you look at the next five-to-ten or two-to-five years, it’s about taking some of the digital experience I have and trying to transform Discovery Networks International (DNI) into the number one non-fiction video company across all screens,” says JB Perrette of the next chapter in the life of his company. He is perhaps the best qualified person to make that call as the incoming president, having been elevated from chief digital officer in January.

With more pay TV markets maturing and consolidation among operators, outgoing president and CEO Mark Hollinger agrees that the challenge is “to continue to have strong offerings in the traditional business and be as ambitious and entrepreneurial as we have been in the past few years in looking for growth outside of traditional factual pay TV.”

In its quarter century, DNI’s history has been inextricably intertwined with that of the wider pay TV business as one of the first cable channels of note in the US and then one of the first to make international moves – initially with a one channel service and now with a business that comprises 44 channel brands in 224 countries and a reach, the company says, of 1.6 billion viewers.

Looking ahead, international will be the major driver of growth at Discovery Communications. In the 12 months to end-December the international networks recorded revenues of US$2.5 billion (e1.8 billion), a 51% increase on the previous year. The US nets generated US$2.9 billion across the same period and registered 7% growth. Discovery claims to have become the world’s most widely distributed television brand in 2001 and was already a strong global business when David Zaslav took the overall reins of Discovery Communications in early 2007.

“The great opportunity I saw was to expand and diversify our portfolio outside the US even further,” he says, citing the TLC roll out, expansion of Discovery Kids and launch of OWN programming blocks. With the goal in the US now winning market share of a fully distributed pay TV world, the Discovery chief is clear that international offers the wider company a good growth story.

Hollinger says that while the lower margin and complex international business will not generate more profit than the US for some time, his sign-off year could see the balance of sales start to tip. “From a revenue point of view and assuming the Eurosport transaction is closed in the spring, 2014 could very well be the year the company makes more revenue outside the US than inside, which would be a huge milestone for international.”

Being an early entrant and placing a sizable bet on international pay TV has given Discovery an advantage it still enjoys today – an unmatched distribution footprint. While other channel operators are scrapping for EPG positions with new offerings, Discovery has a hunk of channels real estate built since the 1989 launch of Discovery in the UK and Scandinavia and then regional roll outs in Asia, Latin America, the Middle East and Africa five years later.

As Perrette puts his plan to dominate all screens into action, the huge channels footprint will be invaluable. “It provides an incredible laboratory for testing, understanding and watching consumer habits,” he says, noting that in Latin America, the CEE, Middle East and Africa regions the core business of pay TV still offers plenty of room for growth.

[icitspot id=”161552″ template=”pull-quote”]With distribution in place and mindful of existing long-term relationships with platform operators, DNI does not need to chase carriage on all-new platforms in international markets. As Hollinger says: “If you look now at international territories there is a different dynamic [to the US] in that almost all of them don’t have established OTT players with giant subs bases so there haven’t been big revenue opportunities. The balance in international markets is firmly in favour of sticking with pay TV operators and waiting to see how OTT develops.”

Discovery has then won the battle to attain distribution dominance, but the shifting sands of the content business have thrown up a new challenge. The pay TV business reaching maturity in several western European markets means the historic levels of year-on-year growth cannot be sustained without DNI widening the scope of its activities.

Those imperatives spurred the US$1.7 billion acquisition, completed last April, of SBS Nordic from Germany’s ProSiebenSat.1 Group.

That gave DNI 12 TV networks across the region generating both advertising and affiliate fee revenue. Within pay TV the firm extended its minority stake in Eurosport in January to give Discovery majority control from 2015 – a tie-up that Zaslav claims “creates an unrivaled and powerful offering for viewers, advertisers and affiliates.” Elsewhere, DNI has invested in Takhayal Entertainment, which operates Middle Eastern food network Fatafeat, and in Italian kids and general entertainment broadcaster Switchover Media.

In advertising-supported TV meanwhile, having launched free-to-air channel DMAX in Germany in 2006 Discovery now also has dedicated free-to-air offerings in Italy, Spain and the UK and the SBS channels live in both pay and free TV worlds.

“This strategy has helped us become the third biggest broadcaster in Italy,” says Dee Forbes, president and managing director, Discovery Networks Western Europe. “We also launched a male-skewing factual channel in Spain in the depth of their recession, we are launching TLC in a free-to-air environment in April this year in Germany, and in 2013 created an ad sales house with Viacom in the Benelux region. This growth strategy has paid off – we grew our audience share by 48% last year.”

Another pillar to DNI building its market-leading position has been owning rather than licensing content, with a push to make more internationally-originated programming currently underway.

Luis Silberwasser is executive vice-president and chief creative officer at DNI and, assisted by creative director Julian Bellamy, oversees the DNI original content drive, which started with invention four-parter How We Invented the World. He cites the likes of Naked and Marooned and You Have Been Warned as the notable successes two-and-a-half years into the push into originals. “In addition, we’ve brought Bear Grylls back to Discovery Channel with two fantastic new concepts – Bear Grylls: Escape from Hell and Bear Grylls: Extreme Survival,” says Silberwasser.

The firm also bought UK-based production company Betty in 2011. “While it is not our core business to buy and aggregate production companies, finding great creative talent and access to winning content is a key element to growing our channels around the world,” says Silberwasser.

Given all this expansion, will there be a time when DNI grows to the extent that Discovery Channel is no longer the biggest brand?

“The reality is that in a way that’s a goal and ambition we have, not because we want to see Discovery reduced in any way, we want to see it grow as it has, but also want to see that happen to TLC, ID, Animal Planet and Eurosport,” says Perrette. He claims that retaining a risk-taking investment culture is essential. “When [in the early days of pay TV] a lot of people were not that incentivised to do anything outside the US, we planted that flag and went out and built that incredible platform of distribution, which today is really hard to replicate. We were early into HD and 3D. The company has a philosophy and culture of being comfortable forward-investing in the next big thing.”

In DNI’s case, Perrette’s role is to make sure it plants the right flags. Put simply, Discovery needs to keep on discovering.