Last week, Discovery Communications reported a 10% overall distribution revenue increase for 2008, with sales up in the tough fourth quarter during the worst ad market in decades. Full year profit was $274 million, up by $123 million.
David Zaslav, Discovery’s CEO and president talked to B&C’s Claire Atkinson about how the company is weathering the recession, his thoughts on cable programming online and potential acquisitions.
Why is Discovery doing so much better than everyone else in a tough market?
Discovery is a company that is uniquely positioned to perform in a tough market, as well as a strong market because half of its revenue comes from subscription fees that are locked in and give us sturdiness. One-third of our revenue is from outside the United States. We’re in 173 countries. Some, such as the United Kingdom and Italy, are feeling the recession. A number of countries in Latin America and Eastern Europe and Asia still look and feel to us like the cable market in the late nineties, and we’re still seeing growth. Put on top of those advantages, and the fact that we have some great brands with content we own, and it is very helpful in getting through a difficult economy.
In the fourth quarter ad revenue rose 6%, despite the fact that Discovery’s brands would seem to skew male and therefore be more exposed to the auto and financial category advertisers, which are obviously hurting. How do you account for the improvement?
One of the keys for us is to continue to grow our market share and our ratings. We’ve had ratings growth on Discovery, TLC, Animal Planet, ID: Investigation Discovery and Science Channel. It was a big differentiator for us that we had strong brands and growth in ratings.
In terms of ad revenue the market has been challenged for all of cable but Discovery has some unique advantages. There is still a meaningful [price] differential between broadcast and cable, which continues to be an opportunity.
We have a good diversity of demos and we’re not exposed to any single one.
Discovery is male, TLC is primarily female, Animal Planet is a bit more female, Science is mostly male and ID is mostly female. We also have a fantastic ad sales team headed up by Joe Abruzzese [president ad sales], who has built a best-in-class operation and they hustle. We own and produce almost all of our content.
What about your cable distribution deals? What’s coming up?
We had one big deal that was coming up which has been renewed. We don’t talk about who, but the overwhelming majority of deals are locked in and internationally 70% of the deals run through the end of 2010. We have a pretty sturdy subscriptions platform that allows us to focus hard on building our brand and growing audience share if we’re going to maintain strong growth.
Most companies are having a hard time seeing what’s in store in 2009, and yet Discovery has been one of the few media company’s providing guidance. What are you seeing?
When we look at guidance, half of revenue is from subscription fees; we could fairly assess that for us, that is a plus. We still look to markets outside the United States to show growth because gestationally they’re earlier stage.
You had a hand in developing Hulu when you were at NBC Universal. Are you looking at joining any of the cable systems operators’ plans for full episode online TV services?
We have 20 years of programming in the library. We’ve been least aggressive about putting long-form content on the Web, but we have been aggressive about short-form on YouTube and developing games and clips. We’ve deployed a ton on the Website HowStuffWorks.com. We’ve been holding back on long-form because we haven’t seen a strong economic model on the Web. We are interested in what cable operators are doing, we’ve been listening to them; we’re really still just listening.
You’ve said that you’re committing between $70 and $80 million on the launch of Oprah’s OWN. What are the developments there? And how will you promote and marketing the launch?
We are planning on launching OWN late 2009 or early 2010. We’re really excited about president Christina Norman. She’s a fantastic leader and she has grabbed the reigns. We’re excited about going to the upfront, and we have a number of show concepts. In terms of the launch, that will be for Oprah to focus on.
You mentioned on the earnings call that Discovery might be open to making an acquisition. What would fit?
We’re in a great position. We have a lot of assets that can get bigger and stronger like Science and Planet Green and OWN and ID. We’re launching channels all around the world, we can get good sustainable growth with the assets we have. We’re always looking for additional assets that would help us grow faster in a difficult market—that sometimes presents opportunities. Right now we have our head down and we’re going to take a hard look at any assets that come along.