Kate Bulkley, Media Analyst.

Playing Netflix at its own game

By Kate Bulkley

Broadcast News

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For Broadcast June 09, 2016

Subscription app is a shrewd move for Discovery, says Kate Bulkley

There is certainly more to Discovery these days than Shark Week. As expansion in the TV channels business slows in the US, international markets, and Europe in particular, are seen as the new growth engine for the group, with sport a special focus. Indeed, last week Discovery struck a pioneering deal with the All England Tennis Club to air highlights of Wimbledon.

Here’s a little recap: over the past five years, Discovery has invested in European free-to-air channels, bought Eurosport, and most recently paid £920m for the pan-European rights to the Olympics. Investment in Eurosport has doubled in the past year to $300m (£200m) and a flurry of sub-licensing deals for the Olympics mean it will make a profit.

All this, though, seems to have been just the prelude to what chief executive David Zaslav describes as the next big thing: building up its direct-to-consumer offerings through apps that people subscribe to, as they would to Netflix.

Indeed, Discovery has already launched a D-Go app in the US and D-Play in Northern Europe, each carrying a mix of factual and entertainment content. The firm is now looking at apps built around “passion communities” like motor racing and science, using content it already owns from its linear TV channels.

The thing Zaslav is most excited about is the Eurosport app, which he dubs a “sports Netflix”. The app has about 200,000 subscribers but Zaslav says the next step is about catering to superfans and experimenting with offerings for specific sports, such as a season pass for cycling or an app subscription to all the tennis majors. It’s a bit like the targeted SVoD services launched by NBCU, such as UK reality portal Hayu.

Discovery thinks the Eurosport app will help it reach its “first million” OTT subscribers and, at the equivalent of $8 (£5.40) a month, earn an extra $100m (£70m) in revenues by 2017 and set a new direction for the company. The key differentiator for Discovery is that unlike Netflix, which has to amortise all its programming costs against its SVoD service, Discovery’s channels business has already done that; effectively, the app business has no direct content costs.

And there is a lot of content to be had. Zaslav says that even with all the Eurosport TV channels across Europe, at least 1,500 hours of Olympic sport will only be available on the app. For a company that has had to rely on other platforms like Sky and Virgin Media to market and sell its content, this is a big change in culture. For Zaslav, the move into apps is a game-changer because, as he says, it cuts out the middleman.

The app play is also about getting the public stock market on board with this next phase of Discovery’s growth and hoping a bit of the Netflix magic will rub off on its valuation.

Zaslav calls Eurosport a “sports Netflix” for a good reason: Netflix’s shares have had a rockier ride recently, but are still up more than 11% in the past 12 months, while Discovery’s are down 16% in the same period. Zaslav says the Discovery OTT business plan has much better financial footing than Netflix but admits that the next test is getting it to scale.

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