How Stuff Works@ Discovery
by R. Thomas Umstead -- Multichannel News, 12/16/2007 5:00:00 PM MT
Life On Planet Zaslav, Year 1
-
Profits Up $80 million
-
Stock Price Up 70%
-
Management Overhauled
-
Stores Shuttered
-
Ownership Restructured
-
Next Targets: Other Countries and Cyberspace
“A force of nature.”
That’s how recently named Discovery Channel president and general manager John Ford describes former NBC Universal executive David Zaslav and the effect he has had on Discovery Communications in the first year he has been its CEO.
While it’s not unusual for an employee at any rank in an organization to praise the boss, the characterization reflects the hurricane-like velocity with which the 47-year old Zaslav has retooled Discovery since taking over the top spot on Jan. 2.
In the space of 11 months, Zaslav has overhauled top management, turned losses into profits, boosted ratings and — until the stock market overall turned down in the last month — doubled the value of the company’s shares. With U.S. operations on track, he expects now to rationalize the company’s operations abroad, in the 173 countries where it already delivers its brand of nonfiction fare such as The Discovery Channel series Deadliest Catch.
| MIXED BAG: Discovering Ratings Again | ||||
|---|---|---|---|---|
| Discovery’s namesake channel is resurgent. But its smaller channels are still struggling. | ||||
| 2001 | 2003 | 2005 | 2007 | |
| Thousands of viewers watching at any given point in primetime. SOURCE: Nielsen Media Research |
||||
| Discovery Channel | 1,335 | 1,136 | 999 | 1,297 |
| Animal Planet | 551 | 635 | 566 | 544 |
| TLC | 1,005 | 1,243 | 726 | 933 |
| Discovery Times | NA | NA | NA | 127 |
| Discovery Health | NA | 113 | 245 | 216 |
Here’s the state of Planet Zaslav:
Financial wind at its back. Profits reached $246.1 million in the first nine months of his tenure — a jump of nearly 50% from the same time last year. Revenue is up 9% — and the company’s stock was sitting at $27 at press time, up 68.8% from a year ago.
Climbing viewership. Discovery’s two highest-profile networks are posting big ratings gains over last year. Discovery Channel — through high-profile events such as this past spring’s miniseries Planet Earth and reality series such as Dirty Jobs — is averaging 1.3 million viewers in primetime through Nov. 18. That’s up from the 1.1 million viewers last year and 1.0 million two years ago. TLC (known originally as The Learning Channel) has seen its viewership grow in primetime to 933,000 viewers this year from 816,000 in 2006, according to Nielsen Media Research, on the back of successful reality shows such as fashion series What Not to Wear and tattoo-based Miami Ink.
Exploring cyberspace. Zaslav took the company into online services in a big way in October, with the $250 million purchase of Web site HowStuffWorks (www.howstuffworks.com), and the $10 million acquisition in August of TreeHugger (www.treehugger.com). The popular online services will help extend the reach of networks Discovery Channel, which satisfies curiosity, and its Planet Green, which tries to deal with the health of the Earth, in years to come.
Consolidating ownership. Zaslav successfully simplified Discovery Communications’s ownership structure, overseeing the $1.3 billion sale in May of Cox Communications’ 25% interest to co-owners Liberty Media and Advance/Newhouse Communications, and last week’s merging of Liberty and A/N shares into an as-yet-unnamed, publicly traded company.
How has Zaslav done it?
By doing the “dirty job” of reducing overhead and redundancies, to start.
In his first three months on the job, Zaslav cut about 1,200 jobs — nearly 25% of the Discovery Communications workforce. He showed the door to former Discovery Networks U.S president Billy Campbell, Animal Planet Media general manager Maureen Smith and Discovery Networks International president Dawn McCall. In November, he replaced Discovery Channel general manager Jane Root with Ford.
He shuttered the company’s 110 Discovery Channel Stores stores and pretty much pulled the plug on Cosmeo, the programmer’s direct-to-consumer homework-helper service.
He’s in the process of examining the company’s $1 billion international operations in an effort to more effectively offer Discovery’s content on 111 channels it operates in 173 countries.
Tough decisions to be sure, but ones that have made Discovery leaner and more profitable — and better positioned to become as big a brand in a “multiplatform” world as it is on TV.
Through the third quarter of 2007, the network has generated $246.1 million in net earnings, up from $167.1 million in the same time last year.
And that get-tough attitude, coupled with an energetic passion to continually take the Discovery brand in new directions and to greater heights, has endeared Zaslav to Discovery’s rank and file, according to 20-year Discovery veteran Bill Goodwyn.
“If the world is changing around you, you have to change. I think we all understand that,” said Goodwyn, who is currently Discovery’s president of domestic distribution and enterprises.
“Ultimately, these [cuts] weren’t due to him not liking people or we have to change 15 [executives] because we’re cutting costs. He got rid of redundancy, he got rid of layers. He empowered people, he gave more decision-making to groups.”
Now under Zaslav’s regime, Discovery’s top executives — such as Goodwyn and Ford — have more control. They have final responsibility for the revenue and profit (or loss) of their respective divisions. That’s a contrast to the approach of the previous regime under Judith McHale, who took a top-down approach to executive decisions.
“The people that are still here and now, they have more decision-making authority and they are accountable for their actions, where as in the past you may have had three or four people involved in a decision, but no one was really accountable,” said Goodwyn.
With consumers now seeking entertainment and enlightenment on the Web, on mobile phones and other media platforms, Zaslav said it is imperative that the company is able to extend its brand on whatever platform on which its audience is watching Discovery’s programming.
“The business we’re in now is at least 100% more intensely competitive than it was five years ago on every front, so our game has to be strong not only on the TV front, but on VOD, online and in other new media,” added Ford.
In fact, Zaslav says all of the mojo he’s developed over the year has been focused on making Discovery the preeminent creator of nonfiction content to video screens around the world, whether they are TVs, computers or handheld devices.
“I’d say when I got here, Discovery was a domestic and international cable programming company,” he said. “A year later, we’re well on our way to being a full-fledged content company that takes full advantage of our content and our brands on all platforms.”
That was something that the previous Discovery regime, which built a successful brand with Discovery, was slow to develop, according to Goodwyn.
“We should have been farther along in terms of a new-media strategy, and I think what he’s done in a short amount of time, between TreeHugger.com and HowStuffWorks, we now have the assets,” Goodwyn said.
In particular, Zaslav says the purchase of HowStuffWorks, a how-to site which provides information on everything from how to pick a lock to how to make great pizzas, was defining for the company. The acquisition helped push Discovery beyond its normal operating zone of just creating and distributing content for cable television.
HowStuffWorks “was probably the transaction that most leads to the fact that we’re not just a cable company anymore,” Zaslav said. “We have an ownership position on cable, but as viewers now start to go to all other platforms to satisfy curiosity, we need to be there.”
By combining Discovery Channel with a popular brand such as HowStuffWorks and its 38 million unique visitors per month, the company gets a double play. Discovery can align the site’s articles, charts and photos on such topics as sharks with the network’s vast library of shark-related video culled from two decades worth of “Shark Week” programming stunts. This will expose more eyeballs to the Discovery content on a whole new entry point.
And this will also expose more advertisers. Zaslav envisions a scenario where an automaker such as Ford or Toyota could pitch a hybrid car by running multiple ads on the site, tied into a series of articles, photos and videos surrounding the subject.
The ad on the introductory page for hybrid cars could feature a picture of the auto company’s latest model car. The next click could show the various colors; a third click could reveal the car’s fuel/electric efficiency. By the eighth or ninth click, the ad could feature an auto dealer’s “no-money-down” introductory sales offer.
“When people go to HowStuffWorks, they are very close to point-of-purchase,” explained Zaslav. “They’re going into an area that they’re curious about and therefore more engaged. If they hit 'shark,’ they’re not looking to buy a shark, but if they go in and they hit 'hybrid cars,’ there’s a good chance they may be interested in buying a car.”
| PLANET ZASLAV: The First Nine Months | |
|---|---|
| Revenue is up 9%; earnings up 47%. | |
| Amounts in thousands January through September SOURCE: Discovery Holdings quarterly reports |
|
| Discovery Revenue: | |
| 2007 | $2,241,238 |
| 2006 | $2,061,036 |
| 2005 | $1,900,549 |
| 2004 | $1,672,483 |
| Net Income | |
| 2007 | $246,090 |
| 2006 | $167,139 |
| 2005 | $142,886 |
| 2004 | $116,741 |
BUTTER, ON ROLL
While Discovery chases fresh revenue on the digital side, its bread and butter remains its television networks.
From that standpoint, Zaslav has Discovery’s cable, satellite and telephone network services on a roll with regards to drawing viewers and staying on brand.
Zaslav has revved up ratings for the company’s staple Discovery Channel by pushing spectacular events such as its 11-hour miniseries Planet Earth — which drew 65 million viewers, all told, between March 25 and April 29 — and adventure-nature series such as Dirty Jobs, about work few would do, and The Deadliest Catch, about fishing for king crabs on the high seas.
As a result, the 95 million-subscriber network averaged 1.18 million viewers in November, up 18% from 1.01 million households that watched the network during the same period last year.
No American Chopper here.
“I think we’ve been pretty disciplined about keeping the content on-brand, and we’ve shown progressive and strong ratings growth throughout the year,” Zaslav said. “So I think we’ve solidified Discovery, and we have it on-brand, which is a huge deal.”
But the viewership momentum doesn’t stop with Discovery. Virtually all the networks within Discovery’s stable are posting increases or holding their audience compared to last year. Only Discovery Health Channel is noticeably down from two years ago, by about 30,000 viewers in primetime to 216,000.
And Zaslav is really bullish about the viewership and distribution growth potential of the company’s stable of “emerging” digital networks, including Discovery Times Channel, Military Channel, Science Channel and Discovery Home.
Two of those networks will be renamed and rebranded in 2008: the documentary-based Discovery Times Channel will add more investigative and forensic content to its lineup under its new moniker, Investigation Discovery. The network hopes to take advantage of a void in investigative and forensic dramas left by A&E Network and Court TV (set to relaunch next month as TruTV). Both have largely abandoned the genre for more reality fare.
Zaslav also hopes to capitalize on the environmentally-friendly movement by converting Discovery Home into Planet Green in 2008 and investing $50 million in “green” programming.
He has similar hopes for The Science Channel, which he believes can be the next The History Channel. Zaslav is looking for a high-profile cable programmer to run it — someone with skills like History Channel’s general manager, Nancy Dubuc — to take the 53-million subscriber network “to the next level.”
“We have six channels that are in between 50 and 68 million homes — that’s beachfront real estate, so we have to figure out how do we make something really breakthrough and meaningful out of each of those channels,” he said.
WHAT’S NEXT?
Zaslav is confident he can keep building Discovery and growing earnings in his second year at the helm. Early indications are that he will do just that in 2008.
After shutting down the Discovery Stores — which he said had posted losses for a decade — Zaslav said the company’s online sales effort has thrived.
The Web sales unit, known as Discovery Commerce, nearly doubled revenues for the big Nov. 27 Cyber Monday online-shopping blitz — without any help from the stores.
On that day, sales of everything from Planet Earth DVDs to remote-controlled toy bugs on Discovery.com jumped to $2.4 million this year. That compares to $1.4 million a year ago.
“I think we’ve made a full transition — we’re out of the store business and into the e-commerce business,” Zaslav said. And Discovery will move aggressively, he said, to get its products back into stores, just not its own.
For instance, the company currently has a deal with Toys 'R’ Us, which operates roughly 600 stores nationwide, for distribution of its mechanical dinosaurs, science microscopes and other products aimed at satisfying the curiosity of kids.
On the international side, Zaslav said he wants to harness the strength and appeal of the various domestic Discovery networks to create a “virtual factory” of content such as Planet Earth from Discovery and Meerkat Manor from Animal Planet that all the international channels can take and tailor for their local audiences — rather than spending precious money to create new programs from the ground up.
With more networks sharing original content, Zaslav hopes to improve on the 10% profit margin that Discovery achieves on its nearly $1 billion a year of international business.
Discovery president of global business and operations Mark Hollinger said Zaslav’s commitment to building the international business is clear: In the last six months, he has spent a significant amount of time with Discovery’s team in Latin America and Europe, and has a trip planned to Asia in the first quarter of 2008.
“He views international as one of the top one or two big future opportunities for the company to take a good opportunity and make it better,” Hollinger said. “He’s willing to put his time and energy behind growing the business, which in turn energizes the employees to perform well.”
And now Zaslav will answer only to the board and shareholders of a company that includes nothing but Discovery’s operations. Last week, the company announced that the non-Discovery assets held in Discovery Holding Co., specifically Ascent Media, will be spun out; and Advance/Newhouse and Liberty Media’s respective 33% and 66% stakes in Discovery Communications will give them ownership of a yet-to-be-named entity focused on the programmer.
In effect, Zaslav, at the outset of 2008, will be in charge of a “pure play” in Discovery. What remains to be seen: Exactly where and how far the “force of nature” takes it in his second year.
Leo Headlines for Green
07/20/2007Discovery’s Zaslav: We’re Back on Track
07/14/2007Zaslav Puts Mark on Discovery
02/11/2007
