Finance

Discovery’s Olympic Anchor in Europe

Raises ITS Game With Continent-Wide Rights Buy For Eurosport 7/06/2015 8:00 AM Eastern
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Discovery has made its Eurosport channel a major player in European sports, striking a $1.4 billion deal for continent-wide Olympics rights.

Discovery Communications moved into the big time in European sports, striking a $1.4 billion rights deal with the International Olympic Committee for exclusive European television rights for the 2018-2024 Olympic Games, securing its first major pan-European sporting event and giving the IOC a strong partner for its Olympic Channel.

 

As part of the complicated deal, Discovery, owner of the Eurosport cable channel, gains the rights for all platforms, including free-to-air television, pay television, Internet and mobile devices in all languages across 50 countries and territories on the European continent for the 2018-2024 Games.

 

The deal covers the XXIII Olympic Winter Games in PyeongChang, South Korea; the 2020 Summer Games in Tokyo; and the Winter and Summer Games in 2022 and 2024, for which host cities haven’t been determined.

 

The deal does not include rights to televise games in the Russian Federation, and Discovery will not have broadcast rights in the United Kingdom and France for the 2018 and 2020 Games. The BBC and France Télévisions had earlier worked out deals for those rights.

 

‘GAME-CHANGER’ DEAL

 

The agreement means that more than 700 million viewers across the European continent will have access to the Games, according to Discovery.

 

In keeping with local market requirements, Discovery has also agreed to broadcast a minimum of 200 hours of the summer Olympic Games and 100 hours of the Olympic Winter Games on free-to-air television during the Games period.

 

Discovery also plans to sublicense the Olympics to other free-to-air broadcasters, including the BBC in the U.K., and in parts of Europe where it does not already own a free-to-air network.

 

Discovery CEO David Zaslav called the deal a “game-changer” for Discovery and Eurosport.

 

“Clearly there is no other sporting event or programming event like it in the world,” Zaslav said. “The global reach, the fan engagement, the thrilling stories, the volume of content, the integrity of the [Olympic] rings. There is no rival in sheer global or mass appeal.”

 

The IOC, which has never given European TV rights to the Games to just one company, may have been incented by Discovery’s willingness to distribute the organization’s fledgling Olympic Channel.

 

The channel, expected to launch next April in time for the 2016 summer games in Rio de Janeiro, will include archival footage and some international sports coverage.

 

Discovery-owned Eurosport, which already offers games and matches from several Olympic-type sports, seemed to be the logical fi t. Via Discovery, the Olympic Channel gains access to Eurosport’s popular online destination — Eurosports.com — and its over-the-top video service, the Eurosport Player.

 

“We can see with this agreement that we are reaching more people across Europe than ever before,” IOC president Thomas Bach said during the conference call.

 

Discovery bought controlling interest in Eurosport last year and has been on a quest to beef up its reach and its influence. In several public events over the years, Zaslav has touted Eurosport as the ESPN of Europe, and has been snapping up rights to help it gain that status, offering pockets of sports programming in specific areas akin to regional sports networks in the U.S.

 

Discovery is “able to tailor the product to better meet the appetite of the viewers and consumers in those markets and how they differ, versus having peanut butter spreading across the entire region, where you get pockets of popularity depending on which sport you’re taking about,” Discovery Networks International president Jean-Briac Perrette told Multichannel News in January. “We like that companion of a multinational pan-regional network, and then an RSN model at the local level.”

 

Whether that means that Eurosport will become a major sports rights player or not remains to be seen. Zaslav has hinted in the past that the network could bid for marquee sports like Premier League Soccer. According to reports in the U.K. press at the time, Discovery was talking to potential partners about launching a joint bid for Premier League rights, but backed away. And while the Premier League’s price may be a little rich even for deep-pocketed Discovery — Sky and British Telecom paid about $4.7 billion for Premier League rights for the 2013-14 and 2015-16 seasons — Discovery could at least help raise the future bidding prices higher.

 

The deal also highlights the importance of Discovery’s international business, which for the first time accounted for more than 50% of total revenue in 2014.

 

OVERSEAS TREASURE

 

International networks have been a cash-flow growth engine for Discovery. In 2014, adjusted operating income before depreciation and amortization (OIBDA) at its International Networks division was $1.12 billion, up 18% from $949 billion a year earlier. For its domestic networks, 2014 OIBDA was $1.68 billion, down 2% from $1.71 billion in 2013. On the revenue side, U.S. Networks were flat in 2014, while international revenue increased 28%.

 

The sluggish U.S. advertising market has forced several programmers to look to overseas markets for growth. While revenue growth is a little brighter in Europe — according to SNL Kagan, cable-network revenue rose about 3.1% in the U.K. and 4.5% in Germany in 2014 — European programmers face the same competitive and cost pressures as their U.S. counterparts.

 

“One key theme running across multiple markets, which is consistent with the market in the U.S., is that the ad market is soft but sports rights and original programming costs continue to escalate rapidly, putting pressure on cash-flow margins,” Kagan observed in a research note. “This trend is unlikely to reverse anytime soon, which will likely cause more contentious carriage battles between multichannel operators and cable networks.

 

“This is one reason that we are seeing a lot of M&A activity in Europe. The more networks a media company has under its banner, the more leverage it gains with multichannel operators.”

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