35. Discovery Communications

Revenues 2014: $ 6.265 billion (€ 4.716 billion)

Overview

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Discovery Communications Inc. is a globally active media company that transmits its television programs in 38 languages to 170 countries. It was hived off from cable magnate John Malone’s empire (Liberty Media) in 2008 to become an independent, listed company, producing primarily information based TV content and web portals. The flagship of the company is the Discovery Channel family of the same name, which features documentaries only.

General Information

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Headquarters:
One Discovery Place
Silver Spring, MD 20910
Phone: 001-240-662-200

850 3rd Avenue
New York, NY 10022-7256
Telephone: 001-212 548-5555
Website: http://corporate.discovery.com/

Branches: TV, Cable channels, Websites, Production studios with focus on Non-Fiction and Documentaries
Legal Form: Public Company
Financial Year: 01/01 – 12/31
Founding Year: 1985 (as Discovery Channel), 2008 (Initial Public Offering after splitting Discovery Communications Holdings LCC)

Table I. Economic Performance
20152014201320122011201020092008
Revenues (in $ Mio.)6,3946,2655,5354,4874,3253,7733,5163,443
Net income (in $ Mio.)1,0481,1371,0779451,133658559445
Share Price (End of the year, in $)26,6834,4590,4263,4840.9741.7030.6714.16
Employees7,000n/an/an/an/a4,2004,400

4,000


Table II. Segment Revenues (in $ Mio.)
20152014201320122011201020092008
USA3,1312.9502,9522,7482,6192,3632,1422,062
International3,0923.1572,4741,6371,4551,2511,1891,158
Education and Other173160114105162153176196
Corporate(2)(2)(5)(3)(1)6927

Executives and Directors

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Management:

  • David M. Zaslav, President & CEO
  • Joe Abruzzese, President Advertising Sales
  • John Honeycutt, Chief Technology Officer
  • Adria Alpert Romm, Chief Human Resources & Global Diversity Officer
  • Bruce Campbell, Chief Development, Distribution & Legal Officer
  • Bill Goodwyn, President and CEO, Discovery Education
  • David C. Leavy, Chief Corporate Operations and Communications Officer
  • Jean-Briach Perrette, President, Discovery Networks International
  • Paul Guyardo, Chief Commercial Officer
  • Andrew Warren, Senior Executive Vice President & Chief Financial Officer
  • Eric Phillips, President, Domestic Distribution
  • Marjorie Kaplan, President of Content, Discovery Networks International

 

Board of Directors:

  • Robert J. Miron, Discovery Communications
  • Robert R. Beck, Independent Financial Consultant
  • S. Decker Anstrom, Landmark Communications
  • Robert R. Bennett, Hilltop Investments
  • Paul A. Gould, Allen & Company, LLC
  • John Malone, Liberty Media Corporation, Liberty Interactive, Liberty Global
  • Steven A. Miron, Bright House Networks/Advance Newhouse Communications
  • M. LaVoy Robison, The Anschutz Foundation
  • J. David Wargo, Wargo & Company, Inc.
  • David M. Zaslav, Discovery Communications

History

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A twelve-part documentary series about the continental drifts on earth? A report about icebergs in Newfoundland? A sixty-minute portrait about the old Egyptian pharaoh Echnaton? When Discovery Channel went on air for the first time in the USA on the 17th of June 1985, there had been a not inconsiderable number of TV-insiders who doubted a long-term survival of the niche channel due to such a relatively sophisticated program. The level of the US-American TV landscape would be to shallow, the average viewer to uneducated and the relevant target groups for advertising too uninterested in non-fiction formats, such went the worried melody of the experts.

But Discovery’s first leading CEO John Hendricks was convinced that there was a target group amongst the audience which had not been addressed to a satisfying extent by the advertising industry: The group of so called LLL (Lifelong Learners). These people, according to Hendrick’s calculation, remain curious until old age and desire television programs that could both entertain and educate them. What had been a success on the American magazine market in the form of National Geographic or Scientific American for a long time already – responding to a niche audience interested in natural sciences and culture – was now supposed to be a winning formula for television as well. The responsible masterminds behind the Discovery Channel were aware of the fact that their program would not cater for a mass audience. Instead, the focus lay on the well-educated and therefore well off Americans, who might be of interested to advertising companies with the products that fit the mould of Discovery channel’s range: Technology, science & travel.

Nevertheless, the launch of Discovery Channel was a substantial television experiment. Nobody was capable of estimating how the television audience would react to Discovery’s peculiar infotainment character. 75 Prozent out of all of Discovery’s broadcasted content had never been seen before by the American audience, both in terms of content and form. Just how consistently the channel pursued its goal to offer something new to its audience in the early years became evident in spring 1987. In the final stages of the cold war, Discovery aired 66 hours of Russian public television, entitled ‘Russia: Live From the Inside’, to provide US-Americans a glance into what goes on in the Soviet Union.

Another reason for the relatively swift establishing of the Discovery Channel was its distribution as a cable channel. Discovery and its niche program were the perfect match for US cable television. Unlike common cable channels, Discovery asked for no fees from the cable companies in return for its distribution. The distribution was even further amplified by purveying a self-confident image as high-quality information channel. In times when the majority of cable channels relied almost entirely on violent and pornographic content, the cable providers hoped to polish up their image by including the Discovery Channel in the range of channels on offer.

Over the course of the first 20 years of its existence, Discovery Channel was gradually reconstructed into the media company of today, operating on a global scale and combining various other cable channels and Internet activities under one roof. Therefore, various niche channels were acquired between 1985 and 2005 and other were founded anew, all meaningful contributions to Discovery Channel: The Learning Channel (1992), Animal Planet, Discovery Science, Discovery Kids, Discovery Civilization, Discovery Home and Leisure, Discovery Wings (all 1996), Travel Channel (1997), Discovery Health Channel (1999), Fit TV (2003) und Discovery Lifestyle Networks (2004).

At the same time, the international brands were promoted further. In 1989, the Discovery Channel aired in Great Britain for the first time; 1994 saw the first steps being taken into Latin America and Asian markets; Scandinavia and both middle and Eastern Europe followed in 1997. The total number of Discovery viewers increased from 156.000 US-Americans in 1985 to 187 million people from 146 countries in 2000.

In order to be able to provide this gigantic audience with a constant stream of high-quality content, many collaborations with other media houses were agreed upon.  The first one was a joint venture with the British BBC in 1998. In 2002, the Discovery Times Channel was co-founded with the New York Times Company. Since 2006, Discover Communications supports Google Earth with information and pictures. Finally, in 2008, the Oprah Winfrey OWN (The Oprah Winfrey Network) was founded together with the talk show host of the same name.

When CEO John Hendricks wanted to pass on the sceptre of leadership to his long-standing subordinate Judith McHale in 2004, it proved to be more difficult than first expected. The reason why it took such a long time to carry out a change of guard came down to the fact that by now, a total of three different companies could influence the company’s political direction through Discovery Holding. When Hendricks had exhausted his capital reserves only one year after Discover Channel was founded in 1986, other media companies threw themselves into the breach and bought shares of Discovery. As was done by John Malone’s Liberty Media, which secured a 50% share and media companies Cox and Advance acquired a share of 25% respectively. It was not before 2007 that this wickerwork could be disentangled to some degree, by means of buying back the Cox shares (for which Cox received the Travel Channel from Discovery as part of the multi-million transaction). The remaining shareholders then agreed on founding a new, listed public company that operates under the moniker of Discovery Communications today. John Malone could turn his investments and shares into money due to the initial public offering and secured himself a seat in the supervisory board as well.

While the first 20 years of Discovery had been distinguished by success and continuous expansion, the years 2005/2006 bore witness to the first serious crisis. Between 2001 and 2005, the ratings of Discovery Channel in the USA decreased by 30 percent. It was at the same time when all of the subsidiaries and affiliated channels of the Discovery Network dropped out of the ranking list for the top 20 cable channels, measured by the highest audience shares.

This drop happened for several reasons. On the one hand, the television landscape went through radical changes when compared to the 1980s. More and more nice channels and documentary formats competed for the audience’s affection. Especially the National Geographic Channel (Nat Geo), which started in 1997, claimed an increasing amount of market shares. On the other hand, not later than the by end of the 1990s, a general increase in quality in series’ formats became evident, which made it more and more difficult for non-fiction services such as Discovery to compete on the television market. 

However, the program of Discovery itself was also part of the problem. Formats with an historical or natural science focus were being replaced by shallow lifestyle shows that were only marginally distinguishable from the large networks’ equivalents. One of the most controversial and most discussed decisions made during Judith McHale’s term was to repeat hit shows by Discovery (such as the motor show ‘American Chopper’ or ‘Trading Spaces’ in which neighbours would renovate each other’s living space) on infinite rotation for a whole day – something that deterred many viewers in the long run.

It was not before the emergence of McHale’s successor, David Zaslav, that things changed. He took notice of recent developments and turned the wheel to steer in a different direction. Zaslav diversified the program and concentrated on the crucial target group for Discovery, the 28-42 year olds. Viewers, who found families, build households and buy products, first and foremost. On that note, Discovery-formats showed a progressive tendency to address topics such as family, education and the administration of capital (The best example is Discovery’s rating success ‘Cake Boss’, about an Italo-American family dynasty of bakers in New Jersey). Bringing the former ABC-Nightline anchor, Ted Koppel on board strengthened the journalistic profile, as he was one of the most famous faces in the American news business.

The company enjoys the distinct advantage that even in times of dwindling revenues generated from adverts, it can rely on a crisis-resistant stream of incoming subscription fees. Furthermore, Discovery no longer relies solely on takings on the US-American market. A third of all revenue is generated in more than 170 foreign markets by now. A large percentage of the content is produced in-house and due to its universal character, can easily be aired in other countries. Between 2006 and 2009, the profits from the international business increased from 125 million to more than 650 million US-Dollars. Analysts attest brilliant growth prospect and compare the company with Walt Disney from 25 years ago, when Michael Eisner stepped to the plate.

Management

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The trained lawyer David Zaslav has been residing at the top of Discovery Communications since 2006. He had his first run-in with the cable channel as early as 1985. Still a temporary lawyer back in the day, he travelled all over the USA for six months, together with founder John Hendricks, in order to finalise agreements with cable network operators. Zaslav already saw the potential lurking beneath the surface of cable television and it went without saying that he was happy when he started working for the NBC, where he headed the cable division of NBC Universal for 18 years. He was responsible for the launch of CNBC and MSNBC (among other things), both of which are established positions in the world of cable by now.

Zaslav is considered the new star on the US cable firmament. Within four years, he managed to turn the rudder of a company that drifted of into treacherous waters under his predecessor McHale. In the period between 2006, when he started at Discovery and 2010, he could increase the revenue from 2,88 billion to 3,77 billion US Dollars.

His way to go about business was not the most precious one you could image: Since settling into his new position, he fired all directors of Discovery’s 13 channels and replaced them with trusted employees. He also influenced the content’s specific orientation to a considerable degree and made it more in tune with the Zeitgeist. Thus, he turned the housekeeping channel Discovery Home into Planet Green, a channel for conservation. Discovery Times, the result of a former Joint Venture with the New York Times Company became Investigation Discovery, a documentary channel concerned with criminology and forensics, of which one hit show deals with famous female serial killers (Deadly Women). It is widely agreed however, that Zaslav’s masterstroke had been the signing of Oprah Winfrey, who was recently named the most prominent person in the world by Forbes and received her own TV channel in 2011.

Business Fields

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Cable/Television:
Discovery Communications operates 14 cable stations in the USA. Apart from the flagship Discovery Channel, these are TLC (Women and Lifestyle), Animal Planet (Animals and Nature), Discovery Health Channel (Health), The Hub (former Discovery Kids, a kids’ channel operated together with toy manufacturer Hasbro), Science Channel, Investigation Discovery (Forensics), Military Channel (Military and Aviation), Planet Green (Environment, the concept is subject to change in 201), FitTV (Fitness), HD Theater (Documentaries in HD), Discovery en Espanol & Discovery Familia (both in Spanish) as well as OWN (The Oprah Winfrey Network). The new channel by the talk-queen suffered from low ratings following its launch in January, which prompted the head of the company to invest 50 million Dollars into OWN to make the program more attractive. Furthermore, the OWN-CEO Christina Norman was let go after only four months and replaced by Discovery-COO Peter Ligouri.

Amongst the most important television endeavours are the international Animal Planet and People+Arts channels, which were run together with BBC until November 2010, when the BBC sold its shares to Discovery for 156 million. For an exhaustive list of all international Discovery channels, please go here. Since 2003, Discovery has also been hosting the SilverDOCS, one of the most important documentary film festivals in the world. 

Internet:
In 1996, Discovery Communications acquired ‘The Nature Company’ store chain, which sold popular science toys and nature products. In the meantime, all 114 branches have been closed down and Discovery operates a catalogue based online store (shopping.discovery.com). Other renowned Internet brands are Treehugger.com, a website for eco-lifestyle as well as HowStuffWorks.com, which specialises in popular science explanations of everyday-life phenomena.

Videogames
In 2007, Discovery Communications entered a partnership with Game Publisher Activision and aims to release family friendly video games with animal characters. 

Education:
Since 2006, Discovery Education offers online-based video material for schools in the USA. COSMEO is a subscription-based website that helps pupils with their homework. In the coming years, the focus will be on educational software for (tablet)-computers. Discovery employs more than 200 people for its educational division, including many former teachers. The educational software can be found at 60% of all public schools. In a recent development, four states greenlighted the deployment of the Discovery Science Techbook. This multimedia tool is supposed to replace printed books in the long run, which are usually more expensive than software licenses. Educational publishers generate 500 billion US-Dollars per annum with educational material. The toughest competitors of Discovery’s educational divisions are McGraw-Hill and Pearson.

Licensing:
DiscoveryAccess.com is a website that offers video material to third parties from over 100000 hours of Discovery Channel for a licensing fee.

References

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Content

Institute of Media and Communications Policy

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Media Pluralism in Europe

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Partners

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Mediadb.eu is funded by medienboard Berlin-Brandenburg,

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the Open Society Foundations' Media Program,

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Germany's Federal Agency for Civic Education,

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the Rudolf Augstein Foundation,

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the city of Cologne, Germany,

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and the State of Thuringia, Department of Commerce.