How Discovery became ‘well positioned’ for OTT in 2017

Discovery Communications CEO David Zaslav speaks at Investor Day 2015
Discovery Communications CEO David Zaslav
Ben Munson

Discovery’s OTT strategy in Europe is well underway, but what about in the U.S.? What opportunities could Discovery take advantage of and what is the programmer already doing to grow its OTT business?

A backup plan might be wise for programmers like AMC, Discovery and Scripps, which could be in trouble if the traditional bundle keeps shrinking.

MoffettNathanson analyst Michael Nathanson said as much with his 2016 year-end wrap-up that slapped Sell ratings on the three pure-play cable networks.

“We strongly believe that the greatest risk in the years ahead is the continued erosion of live scripted and non-fiction linear TV programming and the move to cull long-tail cable networks in new skinny bundles,” Nathanson wrote.

Being crowded out of the traditional TV bundle indeed would be a problem for cable networks. Discovery’s networks are close to the core pay-TV bundle, but if bundles continue to shrink, channels like Animal Planet and TLC would be on the chopping block before sports, news or broadcast. So the fact that Discovery CEO David Zaslav doesn’t seem so worried could indicate that Discovery is a good case study for the new world.

Part of that, obviously, is that it would be very un-CEO-like for Zaslav to say his company is sunk. But he said his company is already “well positioned” to launch direct-to-consumer services in 2017.

Zaslav has been bullish on direct-to-consumer offerings and his company has already launched what he termed a “sports Netflix” in Europe with Eurosport, which offers live sports content for $8 per month.

In a recent interview with CNBC, Zaslav said Discovery’s overall mission to “own great IP, build great channels and put it on every platform.”

“One piece of that is to be on every skinny bundle,” said Zaslav. “The other piece is to take our content directly to consumers.”

Michael Goodman, director of digital media strategies at Strategy Analytics, said Discovery absolutely has the programming to go direct to consumers if it so chooses and the fact that Discovery owns so much of its programming would make it easier for the programmer to redistribute its content as it pleases.

“That’s one of the big roadblocks to any provider rolling out to markets is getting distribution rights. It makes it easier and also more profitable because you don’t have to share the revenue. Filming and production has already occurred,” Goodman told FierceBroadcasting. “Anything they make on the DTC side is almost pure profit. You can roll out faster and it’s more profitable. It’s just the operational costs.”

While Discovery has yet to repackage its intellectual property for a direct-to-consumer service in the U.S., the company has been playing around Amazon Channels. The programmer has parlayed the success it’s had with Investigation Discovery, its true crime channel that’s a hit with the female demographic, into True Crime Files, an Amazon Channel SVOD service priced at $4/month.

Although perhaps not directly related to its current OTT strategy, Discovery’s recent investment in Group Nine Media, a group that’s home to digital brands including Thrillist, The Dodo and NowThis, a breaking news video platform that’s reached large audiences on Facebook. While these ventures are not OTT-related, the audience for them that’s building on social media might be willing to follow them to a distribution service other Facebook and Twitter.

Still, with all the efforts in the U.S. and the concerted effort to grow an OTT sports service in Europe, the big push stateside for Discovery is the Discovery Go TV Everywhere app. That app, of course, is only available to pay-TV subscribers who can authenticate. If the prognosticators are correct and programmers like Discovery might get squeezed from the bundle, TV Everywhere is a nonstarter.

But even if Discovery stays in the bundle, those pastures may not be as green as they once were. According to Goodman, programmers are getting pressed and are less likely to see their carriage fees grow like they once did. Sustained revenue growth would have to come from other sources in that case.

If Discovery truly is well positioned to go direct-to-consumer in 2017, the programmer should move fast and find out how well their IP can connect outside of the bundle, just in case the bundle comes undone. -Ben