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Keeping the Roll Going at Discovery - Broadcasting & Cable

Keeping the Roll Going at Discovery

Abruzzese and Zaslav cautious about upfront posturing while they remake successful networks
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One of the deans of TV ad sales, Discovery Communications' Joe Abruzzese, doesn't want too much of a good thing spoiling this year's upfront market.

Looking at the strength of the scatter market, some network executives are predicting that prices and volume in this year's fast-approaching upfront will surpass doubledigit increases and could reach 15% or more.

But Abruzzese believes that such posturing could send money away from TV when Discovery is on a roll.

Abruzzese doesn't want to upset the applecart. Under CEO David Zaslav, Discovery is a Wall Street favorite, with earnings and a stock price that are soaring. For advertisers, Discovery has been taking steps to replenish its big networks -- Discovery Channel and TLC -- with new hits. Zaslav has also been remaking the rest of Discovery's stable of 13 domestic networks to make them more attractive to both ad buyers and cable operators. Some of those moves, like creating Investigation Discovery, have clearly been hits, while other big ideas, notably getting Oprah Winfrey to lend her talents to a cable network, might take a while to bear fruit.

Discovery will be laying out its strategies to buyers this week at its upfront presentation in New York. But before that, Zaslav and Abruzzese spoke to Jon Lafayette, B&C business editor. Here's an edited transcript.

How strong can the upfront be? We're hearing some people talking about 15% CPM growth. Is that the ballpark?

Joe Abruzzese:
If it's the broadcasters talking about 15% or 16% CPM growth, basically that's going to cover their shortfall in ratings. So they need that kind of CPM growth just to break even. But 15% or 16% is a number that I think would drive some advertisers away.

It would drive some advertisers away from the upfront?

Abruzzese:
You might. You're begging advertisers to leave national television if you get numbers that high because [buyers] can't pass those numbers across to their clients. But the media economy is different. If you're an advertiser and you look at cable, and especially us in cable, we're more effective; we're a much better value, and we're more efficient, and all original, and we own our product. So we have all this stuff the clients really want. Like, we're doing a nice little deal with Allstate for ID, where they've wrapped themselves around some vignettes. You can't do that unless you own your product.

Do you think the upfront will break early or end early?

Abruzzese: Well, I think if people are going for 15% to 16% increases it will break late. It depends on what advertisers will accept, and I don't think they'll accept 15% early. Certainly the agencies can't go back to their clients and go,"Guess what deal I got for you: You're paying 15% more than last year for less ratings points on the broadcasters."

What message does Discovery want to send this upfront?

David Zaslav: We continue on this journey of trying to become a great content company. And we have all these platforms -- 13 here and an average of five in 187 countries -- and we've hired a lot of great creative people. We're spending more money on content. We're investing and building our brands.

Discovery Channel is really strong and robust again. We've got a number of great series that are working. TLC has over 30 series with over 1 million viewers. And a number of our other networks are showing great growth and potential: Animal Planet, ID, Science, Military. So the advertising market is strong, and we're feeling really good about the fact that for the last two years we've been investing even more in content and brands, and we're hoping it's going to continue to show in the growth that we provide.

Original programming is what's most valuable to media buyers and advertisers. How much can you invest in fresh shows?

Zaslav:
We've increased our investment significantly over the last couple of years. And we've been getting a very good return. Discovery ID we started investing in about two-and-a-half years ago, and this past year it was the fastest-growing cable network in America, and a few nights a week it's a top 20 network in America, and the advertising community is excited about the fact that we have the No. 1 investigation network in America. And so that is a good example of where we found there was some space in the market. Science is another. Science was one of the fastest-growing cable networks last year. It's up 22%. It's a very strong male, young demo, and we've been finding a lot of support from the advertising community and a lot of success with viewers that are getting nourished by quality science content.

You recently reorganized the company with big networks reporting to Eileen O'Neill, mediumsized networks reporting to Marjorie Kaplan and smaller networks reporting to Henry Schleiff. Where will advertisers find the most opportunity for growth?

Zaslav: It's very hard to tell. We've found a lot of success in the last few months on Discovery on Friday night when we had Flying Wild Alaska and Gold Rush. We were the No. 1 network, including broadcast, which raises the bar. When you tell great stories with great characters, what's the potential? And so of course we're going to continue to invest in Discovery and TLC. TLC on Friday nights and Monday nights is the No. 1 network in America for women. But we also have the unique advantage of having 13 channels here in the U.S., so the idea of Animal Planet, Science, OWN, Hub, ID, Military Channel -- all of those present opportunities.

Abruzzese: We have such a great balance in the portfolio. We run the gamut from male to female, young to old, so we see all the dollars, and that really plays big for the company. And the second thing is our competitive position has gotten much better because the broadcasters are down. We've increased our ratings, so our footprint's gotten bigger. We did a study about reach, and now our networks combined are competitive to the [broadcast] networks. And I think that's a tipping point. Our reach is like 45% to 46%; broadcasters are like 50. It's getting to a point where this really resonates with clients. On some networks, we're trying to catch up to the ratings, like ID. One of the challenges is how do we get the dollars to mirror the growth for ID. Now how many people can say that? That's a real big plus for us.

Are you selling a lot of packages where advertisers buy across the networks to get that reach?

Abruzzese: Most of our clients buy a lot more than one network. Very rarely does some client just buy DeadliestCatch. Acura might buy Deadliest Catch, but most clients buy at least three networks because their portfolio is varied. They don't just target adults 25 to 54, they have different skews. Even P&G has different skews. P&G buys every network. GEICO buys every single network.

At last year's upfront, DIscovery's joint venture with Oprah Winfrey, OWN, was big news, and advertisers, led by P&G, pumped big dollars into the channel. So far, it hasn't measured up to expectations. What are you telling the advertisers you promised higher ratings to?

Abruzzese: To date, we've had not one advertiser back away from OWN. They're all in it for the long haul. They know this is a transition year. [Oprah] stops doing her show and starts doing one for us. They're in it for the female version of ESPN. They know that this is going to be a good platform eventually and they don't want to back off of it. As a matter of fact, we've had clients actually want to add money to OWN even though the ratings aren't there yet. It's all about the futures. So I'm not worried about the advertisers' support of this network.

Zaslav: This past Friday, I was at Rosie O'Donnell's house to talk about her show. Most of the content we have for OWN, we haven't launched yet. Rosie's coming; the entire 20-year Oprah library, which Oprah and the Harpo team are working on and recutting, that will be available to us in September; and then Oprah's going to come. We launched Lisa Ling's show with some meaningful success. It really broke through. Over the next 90 days we're going to be launching the Shania Twain show, the O'Neals, the Judds, Sarah Ferguson. So we have a lot of stuff coming up and we're excited to see how much our viewers like it. We've always said we're building this network over the next couple of years. We've gotten very strong advertiser support and we've gotten very strong cable operator support for the network, and so our job now is to work over the next two years to build a strong network with a great OWN brand.

Is the ad money earmarked for OWN all being spent on OWN? Or has it been flowing to other Discovery networks to give advertisers the GRPs they need this year?

Abruzzese:
No, it stayed on OWN.

How's scatter looking right now?

Abruzzese:
Scatter's been very strong. Let me go back a second. Last year's upfront volume was up anywhere from 30% to 40%, pricing was teetering on double-digit pricing, and I literally thought the following three things would happen: I thought scatter would be not real hot; I thought cutbacks would be severe; and I thought volume in scatter wouldn't be there because it was all spent upfront. And I was wrong on all three counts. Pricing's been there in scatter, volume's been there in scatter and no cutbacks. So it's been strong in fourth quarter, first quarter, and just as strong in second quarter. It surprised me it was this strong and it laid the groundwork for probably another strong upfront.

Everyone seems to be talking about the NFL strike and how that'ss going to affect programming and buying in the upfront. What preparations are you making?

Abruzzese:
Collectively, we do about 11% of our business across all our networks with autos. Discovery Channel's probably higher than that. TLC's a little lower than that. If the NFL goes on strike, you'll see that equation change. One of the problems is fourth quarter is a firm number, and if clients want to give us car money early, it's going to have to be firm. You can't decide to cancel it if they go off strike October 1. And in 1987, that did happen. I don't think anybody would take all the money with an understanding that if it gets resolved [the money goes away]. And the clients are not devious enough to say, I'll place it both ways. They wouldn't do that.

So what's the latest ammunition you've got against the broadcasters?

Abruzzese: Just look at the ratings. We're up 5% or 6%. The broadcasters are down 15%. I had one head of an agency say to me, I'm going to buy absolutely the bare minimum I need on the broadcasters. We're more efficient, and you're getting more, so it's a better play for us. I wouldn't change our position for anybody, even scripted.

Discovery has been careful about putting full-length programs on digital platforms. How does that play out in a world where advertisers are looking for multiplatform solutions that have digital components?

Abruzzese:
We try to sell as many extensions as you can. The Deadliest Catch goes from the network to the Internet to mobile and clients seem to follow those. We have clients who really follow internationally. We have clients who follow this stuff on the education platform. It really depends on the client. But as far as distribution of the shows themselves, that's a bigger issue that David controls, where platforms go from here.

Zaslav: Since we own all of our content, we digitized our 20-year library, we've converted most of it to HD, and we've spent a lot of time talking to users online as to what they want to see. And we have a very big presence on the Web, we have 22 million uniques per month. Discovery at its heart is about satisfying curiosity. So we bought How Stuff Works, which has a great text library and photo library and we've appended to that tens of thousands of short-form videos. And so we have a very big presence on the Web, which Joe and the sales team has really been able to take advantage of with advertisers.

In addition to that we have a whole team now that's working on social media. Because we're non-fiction, we have real people, so we've been working with Facebook and with Twitter. Between the captains of Deadliest Catch or Buddy Valastro, the Cake Boss, we now have over 30 million fans on Facebook. We view technology as an opportunity since we own our content. But we're also careful about putting our long-form content on any platform because we think the best experience, at least at the moment, is on the TV.

Are you participating in TV Everywhere?

Zaslav: We are participating in TV Everywhere in most of the tests. And the challenge of TV Everywhere, we think it's a great step forward. We're all waiting in the industry on both sides, the distributors and the content players for Nielsen to measure that audience. And we're waiting for the distributors to do a broader rollout so that we can have a real discussion about it.

And how do you feel about people watching your shows on iPads through applications like the Time Warner Cable app and the Cablevision app? Is that an opportunity for content and an opportunity for advertising?

Zaslav: Just like the Web, we're very careful about where we put our content. So the first thing we're looking at is, is there a business model for that platform and then how do consumers want to consume that content on that platform. In that case, we like the idea of more platforms since we own our content. We're platform agnostic. Every platform is an opportunity. But on the iPad we're going to wait and see what the business model is and what the viewership is.

You've rebranded some channels, including Science channel this week.

Zaslav: Science Channel was Joey going out and talking to a lot of advertisers about whether they'd like Science if we would invest more. Is this the type of viewer they would like to reach? What do they think of the niche? We got a lot of good feedback. The viewers really had a positive response to our new content on Science and so we've gotten the green light from Joey and we're doing well with our programming so we're going to double down.

Abruzzese: Clients look at Science as the purest form of Discovery. And clients love that. It skews a little more male and it's a little smaller than Discovery but we've had great success. The Ricky Gervais show, An Idiot Abroad, was just phenomenal. And we had a stack of them on April Fool's Day that did very, very well. The clients have really taken notice of Discovery Science and we rebranded it.

On the last earnings conference call you mentioned you might do some rebranding with Planet Green. Any progress on that?

Zaslav: We've been experimenting with content on Planet Green and we've been talking to viewers about what they see, what they like, what they're interested in viewing on cable. We haven't made any decisions. The channel itself is starting to grow a little bit, but we'll either find something organically like we did with ID where viewers were really crying out for an investigation network and so we built one, or we'll look for a really good idea and get behind it. But we're hanging back for now and hopefully over the next six to 12 months we'll take a position on it.

So Green by itself doesn't seem to be a niche that's popular enough with viewers or advertisers?

Abruzzese: When we first launched it we thought there would be a lot more clients involved in the green effort. What happened was in the economic downturn, green wasn't on top of their mind and it didn't prove to be as big a platform as it should be. So, it will be a bigger platform when we decide what to do with.

Zaslav: There were also some lessons learned there for us. We think it was a good swing, but we've also gotten some feedback from the audience that doing programming about green-it was a good lesson for us. Good programming is all about great stories and great entertainment and great characters. And if people feel like we're trying to teach them something or we're trying to preach something it falls pretty flat. So it was a pretty good lesson for us and we take that across all of our platforms. Great stories, great characters, entertaining and fun.

You're all non-fiction. Is there any thought to broadening your portfolio and putting some scripted programming in the mix of what Discovery offers?

Zaslav: Discovery is the No. 1 non-fiction media company in the world. But if you look at our portfolio, here in the U.S., we have Hub, our kids' network, which is doing very well. Our core competency is non-fiction and that's what makes up 85-90% of our channel lineup. But we do have kids in all of Latin America, we have Hub in the U.S. and we're starting to experiment with entertainment services: Liv being the best example in Latin America, which we're doing very nicely with.

Would you roll Liv around eventually to U.S.?

Zaslav: What we're looking for here in the U.S. is opportunities to build brands and programming that has some kind of a competitive advantage. I think there are a lot of entertainment services here in the U.S. We never say never, but we've found more success by trying to build niches in areas where there is a thirst for a certain type of content.

In terms of CPMs, the cable networks that do scripted programming and sports have been able to close the gap on the broadcasters. Have you been able to do that with non-fiction programming?

Abruzzese: Absolutely. What you should look at is the volume growth at each one of the cable networks versus the broadcasters and that will answer your questions. We've outpaced all the other cable companies with non-scripted. They may have gotten it for a piece, maybe Conan, certainly with the NCAA tournament. But other than that we've done as good a job if not better than the scripted stuff because our brand is stronger, our brands are stronger. So if you look at our growth, and when we announce our earnings for first quarter you'll see the growth versus the other cable networks; you'll see we've outpaced them. And we outpaced them all last year and probably the year before that also. We've actually done very well. Actually the one closest to us is also unscripted, which is Scripps. I don't think there's an analogy of scripted versus unscripted. You may pick a show out, maybe Mad Men, but that's one show. As a group we're pacing very well. I wouldn't trade it for the world.

E-mail comments to jlafayette@nbmedia.com and follow him on Twitter: @jlafayette

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