What's Behind Discovery's $2 Billion Euro Bet
Discovery’s Dec. 14 announcement that it would spend nearly $2 billion to acquire stakes in European channels is the latest in a series of big moves by big media companies to expand their holdings overseas - and we should expect to see more.The U.S. multichannel market is healthy and growing, but other parts of the world are seeing much faster growth. In contrast to the 90% penetration of pay-TV services in the U.S, about 61% of Western Europeans have pay-TV services, according to data from PricewaterhouseCoopers.
That is encouraging major U.S. players like Discovery, Turner, News Corp., Viacom, Disney/ABC, Sony and NBCUniversal that have been launching international channels since the late 1980s to significantly expand those efforts, some of which are already producing well over $1 billion a year in revenue.
Discovery is a particularly notable example of this. In the last two years, it’s grown its cumulative subscribers from 1 billion worldwide to over 1.8 billion.
But it isn’t alone. Time Warner has announced that it wants to get $1 billion in operating profits from its international networks by 2014. Meanwhile Fox, NBCUniversal and Scripps have also been pumping more resources into international channel launches while over-the-top players like Netflix, Amazon and Hulu have also been expanding their international services.
Besides growth opportunities, these channels also provide outlets for programs created by their U.S. owners, which helps fund both cable and network fare. Overtime, these investments could also help them develop and discover new hits for the U.S.
Survivor is only one of many hit formats to come out of Scandinavia, where Discovery is acquiring SBS Nordic, which operates 12 networks and will put the company in the entertainment and scripted space. It also has a second deal with French broadcaster TF1 for a minority stake in Eurosport and other channels, taking it into the sports arena. These deals help diversify programming, which also gives their global ad team new demos to sell.
But there are risks. U.S. companies face very different regulatory climates, political pressures, cultural issues and programming competition as they move into international markets.
ESPN, for example, was an early investor in the pan-regional channel Eurosport — which Discovery is acquiring 20% stake in from TFI. ESPN sold its 33% stake in 2000, in part because the pan-regional service was having a hard time competing with powerful local broadcasters.
Discovery is also ramping up its European footprint at a time when the region is in a deep economic funk. With unemployment standing at 11.7% in the Eurozone, where there are some 18.7 million unemployed people, Discovery and other would-be investors will need some patience to see the growth they expect.