With YouTube TV Deal, Discovery CEO David Zaslav Doubles Down on Streaming

April 10, 2019

By Spencer Feingold

Discovery will bring its most popular channels to YouTube TV in a multi-year distribution deal that represents a major step in the company’s aggressive effort to showcase its programming on streaming platforms.

“We’ve been at this for the last five years,” David Zaslav, Discovery’s president and CEO, told Cheddar's Jon Steinberg in an interview Wednesday. “We’ve really been trying to change our company to be a sustainable, long-term growth company.”

Starting Wednesday, YouTube TV’s live and on-demand subscription service will stream eight of Discovery’s most popular brands: the Discovery Channel, HGTV, Food Network, TLC, Investigation Discovery, Animal Planet, Travel Channel, and MotorTrend.

The Oprah Winfrey Network, which Discovery owns a majority stake in, will begin streaming by the end of the year.

“We really earned it,” Zaslav said. "We've worked hard on our channels. We have the top four channels in America for women. We have the No. 1 channel for African American women with OWN. We have the top channel for men — Discovery."

He said the company's embrace of streaming has been part of a sustained effort to get closer to consumers. “It’s about terminal value, which is a fancy way of saying it’s about long-term growth.” he said.

The deal brings some of TV viewers' favorite shows, including Discovery Channel’s "Deadliest Catch," HGTV’s "Property Brothers," and TLC’s "Say Yes to the Dress," to another premier skinny bundle. Discovery content is already on Hulu and Sling.

Since its founding in 1985, Discovery ($DISCA) has grown to be the third-largest media corporation in the United States, delivering over 8,000 hours of programming a year. The company broadcasts in over 200 countries and territories and in 50 languages.

The company has largely focuses on nonfiction entertainment around popular science, technology, history, and reality television.

“Ultimately people tune in to hear stories from people. They want to see people and they want to hear their stories and they want to be inspired,” Zaslav said.

Discovery also dominates the world of golf. In 2018, the network singed a 12-year contract with the PGA for the exclusive rights to show live tournaments around the world. Discovery also recently launched GOLFTV, a PGA-branded video streaming service.

“Nobody is in our lane,” Zaslav said. “So the question is, can we make our lane global and transactional?”

The deal with YouTube comes less than two weeks after Discovery signed a 10-year agreement with the BBC for the British broadcaster's library of documentaries and natural history programs including "Planet Earth," "Blue Planet," and "Walking with Dinosaurs." That multi-million dollar deal also allows Discovery to create spin-off content with BBC Studios' material for linear and streaming distribution.

Zaslav said that the network's strategy of forgoing scripted content — an area dominated by competitors like Netflix, HBO, and Showtime — has been successful.

"That’s going to be a tough street fight ー we’re glad we’re not in it," he said. "That’s the really in vogue place to be and we’re everywhere else."

With Discovery, YouTube TV increased its streaming membership price from $40 to $50 a month. The platform now includes over 70 networks and three concurrent streams of content available across users' devices.

FULL TRANSCRIPT

Steinberg: Out of retirement to interview [LAUGHTER]

Steinberg: David Zaslav at Discovery's Upfront.

Steinberg: But before we get to that,

Steinberg: you dropped the big news I think within the past hour

Steinberg: that eight of your networks are live

Steinberg: effective immediately on YouTube TV. Is that right?

David: And one, eight effective right now.

David: Um, and, uh, one more on before the end of the year.

David: So nine of our channels on YouTube,

David: uh, we're on almost every, uh, skinny bundle.

David: But most importantly, we, we really earned it.

David: If you take a look at the statement from YouTube,

David: we've worked really hard on our channels.

David: We have the top four channels in America for women,

David: HGTV, Food, ID, TLC.

Steinberg: Yup.

David: We have the number one channel for

David: African-American women with, with own.

David: We have the top channel for men in America Discovery.

David: And so a lot of these skinny bundles launched with

David: the broadcasters and sports

David: because they they kinda leveraged then.

David: And, uh, the real question was,

David: were we gonna be able to get on those platforms?

David: And the good news is that the consumer always wins.

David: We- we have said let's

David: not fight with these skinny bundles.

David: Let's fight with the consumers.

David: Let's get more of them loving our content.

David: So we've invested more money in

David: content and in our brands,

David: and we've emerged with

David: the top four channels for men, top women,

David: top channel for women, uh, for men,

David: and as a result, um,

David: YouTube announced today that

David: they're listening to their customers.

Steinberg: Uh-hmm.

David: Customers want the Discovery Networks.

David: Um, they're putting it on.

David: We, we love the YouTube team.

David: We're gonna be getting behind them in a big way.

David: Hulu did the same thing a few months ago,

David: Sling, and for each of them, it's really a win win.

David: We're thrilled to be on and to be part of

David: the skinny bundles which exist in

David: almost every country in the world except for the US.

David: So this is great for the ecosystem.

David: Um, but it's also good, you know,

David: we think it's also very good for them.

Steinberg: And you took it very seriously to your point.

Steinberg: I mean, this has been I remember when you did

Steinberg: the interview with, with Faber, you know,

Steinberg: six, seven months back when you were just

Steinberg: gone on to Sling and Hulu I think.

David: Right.

Steinberg: When Hulu was about to do Sling,

Steinberg: you've tactically done this one foot

Steinberg: in front of the other over the past few years.

Steinberg: Why was it so important to you

Steinberg: given that we're talking, you know,

Steinberg: nine million households right now

Steinberg: that are the sum total of these bundles?

David: You know, it's really about, um,

David: it's about terminal value,

David: which is a fancy way of saying

David: it's about long term growth.

Steinberg: Uh-hmm.

David: By being on every bundle,

David: outside the US we're in every bundle.

David: So no matter what age demographic, whether and,

David: whether you're buying a $15 bundle

David: or a $40 bundle or $100 bundle,

David: the top channels from Discovery are on there.

David: Here in the US, we were

David: broadly distributed with the traditional distributors.

David: But some of the skinny bundles we weren't on.

David: So we don't know who's going to win this.

David: Is Hulu gonna be the big winner?

David: Is YouTube gonna be the big winner?

David: Is Sling gonna be the big winner? Direct TV?

Steinberg: Yeah.

David: Which one? Sony. So we're kinda agnostic.

David: We're rooting for all of them because, you know,

David: the idea of a skinny bundle is

David: terrific because it means that there's less channels.

Steinberg: Yes.

David: And by less channels,

David: it means that people are gonna spend

David: more time with our content,

David: um, we love our brands.

Steinberg: [OVERLAPPING] And this is the MoffettNathanson argument

Steinberg: around what they call scenario 2,

Steinberg: which is faster melting of the traditional ice cube,

Steinberg: more movement to the skinny bundles,

Steinberg: the fewer channels that are in there getting

Steinberg: a greater lion's share of

Steinberg: the viewership and advertising revenue.

Steinberg: You obviously got paid for this because

Steinberg: YouTube TV raised their prices in concert with this.

Steinberg: Do you think that you're gonna take up

Steinberg: affiliate revenue guidance or advertising revenue

Steinberg: guidance in any meaningful way for the year

Steinberg: now that you've got this additional?

David: [OVERLAPPING] We're not gonna talk about guidance.

David: But what we have seen is as

David: these skinny bundles grow around the world,

David: where outside the US is a couple of years ahead,

David: we've done extremely well.

David: So we might have 14 channels in Italy or in Brazil.

David: And if we get eight of

David: our channels on and we're eight of 30 channels,

David: we get much more ad revenue as you say.

Steinberg: Right.

David: Brand recognition goes higher and net net it's a big win.

David: And so for us,

David: we've also been ready for this day.

David: Eighty to 85 to 90 percent of

David: our affiliate revenue relates

David: to our top eight or nine channels.

David: And so, uh, it's a big day for us, uh, with YouTube.

David: It's also a big day because

David: we announced this morning that Chip.

Steinberg: [OVERLAPPING] Yes.

David: And Joanna Gaines are coming.

Steinberg: Yup.

David: We're gonna, we're gonna turn DIY

David: into, into their network,

David: which they're gonna take over where, you know,

David: we own the majority of it but they're owners with us.

Steinberg: Yep.

David: Uh, they're gonna curate the network.

David: Uh, we think they're extraordinary talent.

David: We're gonna take them around the world on

David: cable but we're also going

David: to take them direct to consumer.

David: So we're super excited about having them

David: be back as part of the Discovery family.

Steinberg: On direct to consumer, I'm sure you'll

Steinberg: talk more about it today but you came

Steinberg: out a few weeks ago with kind of

Steinberg: a tidal wave of news around

Steinberg: these various DTC services that

Steinberg: are gonna be very experiential in nature.

Steinberg: What got you so excited about

Steinberg: going forward at this moment in time

Steinberg: and how will the experiential elements you've

Steinberg: talked about cooking and golf classes,

Steinberg: how will that be be scalable?

MALE_1: Well, we've been at this for the last five years,

MALE_1: we've really been trying to change our company to

MALE_1: be a sustainable long term growth company.

MALE_1: And we, we see the industry kind of broke apart.

MALE_1: The majority of the industry went to scripted series and

MALE_1: scripted movies, and that's HBO,

MALE_1: Showtime, Netflix, Disney, buys Rupert's business,

MALE_1: so they can get more IP in

MALE_1: the- in the movie and scripted series.

MALE_1: They're all going after

MALE_1: that aggregated entertainment package

MALE_1: for between $10 and $15.

MALE_1: Those are great companies we

MALE_1: think they're going to be very successful,

MALE_1: but they're all doing the same thing.

MALE_1: And people are going to say how many of those do we need?

MALE_2: Yep.

MALE_1: Ah, a lot of the same movies

MALE_1: are turning up on all of them,

MALE_1: and it's getting more and more expensive.

MALE_1: So we look at that area and we say

MALE_1: that's going to be a tough street fight,

MALE_1: we're glad we're not in it.

MALE_1: We've pivoted away, that's the soccer ball on the field.

MALE_1: That's the, that's the really involved place to be.

MALE_2: Yes.

MALE_1: We're everywhere else. So while

MALE_1: they were focused on that,

MALE_1: we acquired almost all the golf in

MALE_1: the world for the partnership with Jay Monahan,

MALE_1: the PGA Tour, the European Tour, Tiger,

MALE_1: because we think you,

MALE_1: you may get Netflix and HBO,

MALE_1: but if you love golf, whether you're in Europe,

MALE_1: whether you're in China, South Korea,

MALE_1: anywhere in the world you're going to love golf,

MALE_1: we own most if not all of it. Um, so-

MALE_2: So I agree with you 90 percent on this,

MALE_2: on the soccer field metaphor.

MALE_2: It has been 100 percent true,

MALE_2: now I'm at 90 percent,

MALE_2: and it's because like a couple of those Netflix kids,

MALE_2: like they wandered off a little bit

MALE_2: into your field right now,

MALE_2: between the Attenborough nature thing that

MALE_2: they just did, Marie Kondo,

MALE_2: they've got that thing going, look, it's no HDTV,

MALE_2: I'm the world's biggest HDTV fan,

MALE_2: don't, don't get me wrong.

MALE_2: But like, it obviously I don't

MALE_2: think has you in a cold sweat,

MALE_2: but doesn't it bother you like

MALE_2: a little bit that they're sort of veering there now?

MALE_1: No, because 50 percent of what people

MALE_1: watch on TV is scripted series and scripted movies.

MALE_1: I love the fact that they're all on

MALE_1: that side of the field at that ball.

MALE_1: The other 50 percent is what we do and it's open field.

MALE_1: And so yes you might get a great cooking show on Netflix,

MALE_1: but, but we have the number one channel in

MALE_1: that space with all the greatest chefs

MALE_1: and people hang around with us all day long.

MALE_1: Like in natural history,

MALE_1: we did feel the need to beef up.

MALE_1: We have Discovery Animal Planet and Science,

MALE_1: we have all Global and we have that Global Library.

MALE_1: But we felt like you know what?

MALE_1: We have to- we wanna be dominant,

MALE_1: we wanna have the greatest

MALE_1: natural history library in the world,

MALE_1: because we think that's a real differentiator.

MALE_1: Every family may want HBO and Showtime and Netflix,

MALE_1: but what family wouldn't want

MALE_1: the greatest stories of the planet that we live in?

MALE_1: And so we did this deal with BBC,

MALE_1: the biggest deal they've ever done,

MALE_1: for the next 10 years we

MALE_1: own the majority of the BBC library,

MALE_1: which includes all the great titles

MALE_1: that people saw all around the earth.

MALE_2: Yes.

MALE_1: So it's Planet Earth, Frozen Planet, uh,

MALE_1: Walking with Dinosaurs, uh,

MALE_1: Woolly Mammoth, no, for us

MALE_1: that's our Star Wars and our Marvel library.

MALE_1: So while Iger is looking to build on the,

MALE_1: on the, on the Marvel and,

MALE_1: and Star Wars library,

MALE_1: we're going to be building on these

MALE_1: great titles that have been in

MALE_1: every language and inspired

MALE_1: every family around the world.

MALE_1: And we think that what family wouldn't want that

MALE_1: for three or four dollars to be

MALE_1: able to see this great blue chip content,

MALE_1: and then be able to dig down and

MALE_1: learn everything they want about the moon,

MALE_1: about Saturn, about the enda- endangered species.

MALE_1: And we're going to document the Earth, so I mean,

MALE_1: to us it's these baskets Natural History,

MALE_1: Oprah, Chip and Joanna Gaines.

MALE_1: You know, when you- when when,

MALE_1: when my folks were growing up,

MALE_1: it was Julia Child,

MALE_1: then it was Martha Stewart.

MALE_2: Yeah.

MALE_1: But [OVERLAPPING] there is no body,

MALE_1: there's nobody in that space

MALE_1: now that Chip and Joanna are going after,

MALE_1: which is, the garden, the home,

MALE_1: redoing your office, faith, family,

MALE_1: food, and so we think they could be very big,

MALE_1: home is big, food.

MALE_2: Yep.

MALE_1: You know, so we're in

MALE_1: these baskets that are very- nobody's in our lane.

MALE_1: So the question is can we make our lane?

MALE_2: Right. And the question is-

MALE_1: Mobile and transactional.

MALE_2: And, and here's my next question for you,

MALE_2: or maybe my last question,

MALE_2: which I think you'll take it's a high compliment

MALE_2: and then also not want to answer. All right?

MALE_2: When you look at CBS,

MALE_2: and they're looking for

MALE_2: a leader who could really take that to the next level,

MALE_2: and your name is constantly

MALE_2: bandied about as one of the best operators,

MALE_2: and you've been acquisitive and you've done transactions,

MALE_2: do you think to yourself ever,

MALE_2: the next leg for us to do would be to have a network,

MALE_2: would be to have a station group,

MALE_2: would be to be part of a CBS and run the whole thing?

MALE_2: Is there, is there a mega deal that you think is

MALE_2: out there waiting for you beyond

MALE_2: what you've done with scripts?

MALE_1: There could be deals out there and we're going to be-

MALE_1: our goal is to be generating

MALE_1: 3 billion or more in free cash flow.

MALE_2: Yes.

MALE_1: We're generating a lot of free cash flow right now,

MALE_1: and we'll be looking to buy additional assets,

MALE_1: probably more likely IP, like we- the,

MALE_1: the golf deal we own

MALE_1: all the cycling in Europe, we own the Olympics,

MALE_1: Chip and Joanna, that's an- they will look- that's a,

MALE_1: a, a deal where we're buying IP.

Speaker 2: More of the rear view mirror is free to air channels.

Speaker 2: You know, we're already

Speaker 2: the third largest TV company in America.

Speaker 2: We're almost twice as big as CBS.

Speaker 2: You know, we have 18 channels.

Speaker 2: Outside the US, we're a big

Speaker 2: free to air broadcaster all across Europe.

Speaker 1: Mm-hmm.

Speaker 2: So [NOISE] picking up

Speaker 2: more free to air to us, that's what we do.

Speaker 2: I don't know that that helps us that much.

Speaker 2: The question is, what

Speaker 2: IP does that free to air channel own,

Speaker 2: and how compelling is it?

Speaker 2: And can you transfer it from

Speaker 2: just the TV set to

Speaker 2: devices either in that country or all over the world?

Speaker 2: You know, were we

Speaker 2: designing our entire company to be different

Speaker 2: than everyone else in the second area which

Speaker 2: is we're a global IP company.

Speaker 1: Mm-hmm.

Speaker 2: We are- we are a full on global IP company.

Speaker 2: And so we have- we now have a menu.

Speaker 2: You know, do you want food, do you want home.

Speaker 1: It- it- it.

Speaker 2: Do you want natural history?

Speaker 1: It- it- it's-

Speaker 2: You want [OVERLAPPING].

Speaker 1: You- you- you talked this morning with- with

Speaker 1: our friend Maria about how it's

Speaker 1: a people business and how the day after

Speaker 1: you closed the Scripps transaction,

Speaker 1: um, you know, you got on the phone,

Speaker 1: you got on a plane and went to the-

Speaker 1: the Gaines family to kind of get them

Speaker 1: to re- you know, re-signed up, right?

Speaker 1: It seems like it's a lot of your management team and

Speaker 1: the executives that you- the way

Speaker 1: you did these virtual MVP details.

Speaker 1: How much is Discovery about

Speaker 1: the management team that you've built and what do you

Speaker 1: do to put in the water so that you've been able to do

Speaker 1: this against people that are conglomerated

Speaker 1: and owned by cable companies?

Speaker 2: Well, I think we had a great team.

Speaker 2: Ken Lowe at Scripps built a fantastic team.

Speaker 2: And so we looked at buying Scripps as- as getting

Speaker 2: toget- put together two of

Speaker 2: the greatest management teams around.

Speaker 2: But ultimately we can't forget,

Speaker 2: we're about the content.

Speaker 2: So we might be in

Speaker 2: business with the PGA Tour everywhere in the world.

Speaker 2: We might- we might be in business with the European tour,

Speaker 2: but ultimately, we need the players,

Speaker 2: we need Tiger [LAUGHTER] and we need the players.

Speaker 2: That's who they tune in for.

Speaker 2: They tune in for Oprah.

Speaker 2: Uh, they tune in for Chip and Joanna.

Speaker 2: They tune in for the Property Brothers.

Speaker 2: You know, they- they- so we're about people.

Speaker 1: Yep.

Speaker 2: And you know that's why Chip and

Speaker 2: Joanna was so important to us.

Speaker 2: That's why Tiger is so important to us because ultimately

Speaker 2: people tune in to hear stories from people.

Speaker 2: They wanna see people and they

Speaker 2: wanna hear their stories and they wanna be inspired.

Speaker 2: And that's kind of the core of what we are.

Speaker 1: Well, we'll leave it there. Congratulations on

Speaker 1: a day of amazing announcement, David.

Speaker 1: Thank you for sitting with us.

Speaker 2: Thank you.

Speaker 1: Back to you guys at the Stock Exchange.