Discovery.com Takes Hit, Slashes Staff

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Discovery.com, the online division of Discovery Communications Inc., laid off 40 percent of its 200 employees last week, signaling that the ills besetting the Internet content community have spread to cable networks.

The company plans to focus its online efforts on education, health and travel, and to more closely align itself with the content of Discovery's seven basic-cable networks. The new site will debut early next year.

"We're cutting some of our Internet investment to align the content and strategy with the TV networks," said Michela English, president and chief operating officer of Discovery.com. "We're not looking at it as a stand-alone business strategy."

In addition to the full-time staff cuts, another 150 contingency workers were also let go. Although Discovery.com doesn't release financial results, English confirmed the division plans to spend about $60 million in 2001, less than it spent in 2000.

Some Internet analysts weren't surprised.

"Discovery claimed to have a 'cohesive brand' that would avoid that problem by focusing on the themes that most resonate with Discovery-travel, learning, health," said

Emily Meehan, senior analyst with the Yankee Group. "However, when you think about the myriad of travel, learning, and health destination sites already out on the Web, Discovery's notoriety in these categories becomes diluted in the Web world.

"So in the end, Discovery's 'cohesive' strategy is not really cohesive at all for Web purposes."

Discovery began the year hoping to create a wholly owned subsidiary from its burgeoning Web assets focused on health, travel, kids, animals and pets, lifestyle issues, school and the Discovery networks, English said. The company also added a customized browser to its site to help its viewers explore the Web.

But the dot-com bubble burst, and along with it scores of business plans, including Discovery.com's IPO vision. English said that despite the cutbacks, the Web site posted strong numbers in 2000.

"We invested in content and marketing to build traffic and to grow ad and e-commerce revenue," English said. Visits, page views, and ad and electronic-commerce revenue have all doubled this year, she said.

Currently, about 70 percent of Discovery.com's revenues are derived from advertising, the other 30 percent from e-commerce.

The trick now will be to keep page views and revenue on the upswing while lowering costs, English said. She isn't sure what effect, if any, the retrenchment will have on traffic or revenue.

Discovery.com plans to use TV network cross-promotion to drive Web traffic, as it reduces outside advertising spending. "We drove considerable traffic with our 'Watch the World' series," she said.

Aligning with the TV networks also will allow Discovery.com to sell converged advertising packages, through which sponsors receive TV and Internet exposure, she said.

"A year ago, we thought e-commerce revenue would grow very, very fast and we're not as sure at this point," she said. The new streamlined online structure also puts Discovery's mail order, store and e-commerce functions under one umbrella.

"Media companies can wield the Web in four ways," Yankee's Meehan said. "To build and enhance brand, to enhance the viewer experience by complementing TV- or radio-based programming with an interactive component, to understand viewer perceptions through use of community applications and to generate new programming ideas through Web-based viewer feedback."

English denies that Discovery.com's closer alignment with its TV networks is a backward evolutionary step.

"We've been active on the Net going on six years now," English said. "We have a pretty good track record. This won't be network brochureware. We'll offer enhanced viewing experiences."

English said Discovery.com's TV tie-ins, like its current
Inside the Space Station

project, plus games, interactive chats and live cam features are all popular. What's more, they serve as an entry point to the broadband world.

In addition to retooling the site in 2001, English said Discovery.com would look at expanding its broadband content.

Discovery.com doesn't yet showcase a large amount of broadband content, English said, since penetration stands at 4 percent of all U.S. households.

"We have a limited number of streaming features on our site. But we anticipate doing more of that," said English. "We believe broadband applications will grow quickly over the next two to three years."

Discovery's more prudent Internet course could bring it to profitability sooner than what executives thought a year ago, English acknowledges. And with a strong company behind it, Discovery.com isn't in danger of going out of business tomorrow.

But given today's Internet marketplace, analysts remain cautious on the costs associated with broadband-content development. "First of all, no media company should embark on a broadband content path without a clearly defined vision as to how this will be used, and without some serious financial deep pockets," Meehan said.

"That said, when you're talking about broadband and interactivity, the costs start to escalate, so everyone should move forward with a prudent and sound strategy for rich media integration," she added. "Media companies need to be highly selective when picking and choosing appropriate broadband content for their sites, because hosting rich content is expensive, the addressable market is only at about 4 percent today, demand for this content is virtually unknown and so, naturally, the business models have not been worked out."

Clunky broadband flashware won't cut it, Meehan said. "Consumers like having the option to 'upgrade' their experience," she said. "Give them that option."

She also said companies shouldn't do much broadband showcasing the experimental stage. Instead, they should dedicate investment toward scalability in preparation for the future.

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