Kate Bulkley, Media Analyst.

Voyage of Discovery pays off

By Kate Bulkley

Broadcast News

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For Broadcast January 17, 2013

International strategy has been key to success, says Kate Bulkley

Wherever you turn in the TV world at the moment, Discovery Communications seems to be there.

Not only has the group been making a series of international acquisitions (culminating this week in the purchase of Italian DTT channel operator Switchover’s four-channel business), but it has at least a couple of fingers in this week’s big interview - the Lance Armstrong appearance on the Oprah Winfrey Network (OWN).

Discovery co-owns OWN and you can be sure that it views the drug cheat’s confession as a chance to bring in some more viewers and revenue.

OWN has not been a runaway financial success, but Discovery has been successful overall for the past few years and, in the past year, has made half a dozen overseas acquisitions, including its biggest ever just before Christmas, when it stumped up $1.7bn (£1bn) for Nordic broadcaster SBS. It also paid $222m (£138m) to buy 20% of Eurosport - with an option to buy a majority of the sports broadcaster in two years’ time.

The visionaries who took Discovery beyond US borders in 1989 (remember Joyce Taylor?) should be thanked for their foresight. The new deals mean that more than 40% of the non-fiction TV company’s revenues will now be coming from outside of the US, and Discovery chief executive David Zaslov says that international markets are his “number one target”.

The deals will help Discovery diversify significantly. SBS owns general entertainment TV channels in Norway, Sweden, Denmark and Finland, moving Discovery into new programming areas such as scripted.

It is diversifying commercially too. Like many of its pay-TV peers, Discovery has traditionally ridden the dual revenue wave of fees from platforms such as Comcast and BSkyB, plus advertising income. The stock market has rewarded it, with Discovery’s stock up 57% year on year in December, but it is now pushing its free-to-air model harder with the SBS deal and its DTT channels in Germany, Spain, Italy and the UK.

The move into live sport is perhaps the most interesting. Sport is arguably the most resilient of all the pay-TV businesses, and Eurosport has a different model to many of its rivals. It doesn’t traditionally bid against local market heavyweights, such as BSkyB or ITV in the UK, and instead works with the European Broadcasting Union for free-to-air coverage.

When you realise that Eurosport is in 130 million homes in 59 countries in Europe and 19 territories in Asia, then the advertising and sponsorship numbers look attractive. The plan is to plug them into Discovery’s global distribution and advertising network, adding scale and reach. That seems a good hedge against what has been dubbed ‘cord cutting’ - where subscribers cut their cable or satellite pay-TV subscription for a more streamlined (and cheaper) service such as Netflix.

More platforms, more genres and new business models are all part of Discovery’s strategy for staying ahead of these challenges. So when Mr Armstrong sat down with Ms Winfrey, there was a lot more going on at Discovery HQ than a confession/rebuttal. Somewhere in the building, someone was planning the next purchase - it’s only a matter of time.

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