An Empire Built on Curiosity

In New Book, Discovery Founder Looks Back, Ahead And Offers Lessons

Discovery Communications founder and chairman John Hendricks had just been punched in the gut, figuratively speaking. After years of fretful financing on a shoestring and, literally, down to his last dollar, the young entrepreneur was thrown a lifeline in 1986 — a capital infusion for his struggling cable network.

And then, in a moment, it was gone. As he waited anxiously at the Four Seasons Hotel in Washington, D.C., he learned in a phone call that the Chronicle Publishing Co. board didn’t approve the deal.

The rest of the story is history, of course, as Hendricks famously drew in John Malone, Bob Miron and other cable investors to save the Discovery Channel. Today, Discovery Communications is a $4.5 billion enterprise that serves 2 billion subscribers in 223 countries around the globe, with some 162 networks worldwide, including Discovery Channel, TLC, Animal Planet, OWN, ID and the Hub.

Hendricks, still a soft-spoken kid at 61, has the luxury now of looking back. In his new book, out this week, A Curious Discovery, out this week, he tells his own story of self-discovery as he recounts the building of Discovery, including the early days of cable, the birth of “Shark Week” and his pact with Oprah Winfrey. Hendricks attempts to decode the traits required of a successful entrepreneur, but the book is best when describing Hendricks’ early cable days, living paycheck to paycheck, fueled only by an idea — and curiosity. He spoke with Multichannel News editor in chief Mark Robichaux about the stories in his new book.

MCN: Why write this book?

John Hendricks: I wanted to focus on that curious moment that starts you on an entrepreneurial path. And then it has to lead to passion. But ultimately, it’s got to get even beyond that. You’ve got to get what I call this constructive obsession, which all of us have gone through in those two to three just absolutely miserable years to make it happen.

MCN: I sensed that you really wanted to pass along some lessons.

JH: I’ve learned something about myself, I’ve learned something about others who have made this journey, coming to it from the outside. If you’re on the inside, you really do have all these barriers.

I remember people who were in television production who were intimidated by the prospect of doing a 24-hour cable channel. At the time I was doing my business plan, the final stages, CBS Cable had just started out [with] 2 [million] or 3 million subs, and they killed it.

They killed it, and that was a break for me. But the other [break] was [the] National Geographic [Society]. They would spend a lot of money to do these specials that would come out quarterly. And that was so much work, so how possibly could you do something 24 hours a day?

Again, they knew too much of the difficulties. So it took someone from the outside, like me, just naively thinking, “I’ll get the BBC, get at their archive and build the network.”

MCN: What was the single toughest moment looking back?

JH: It was the drive home from the Four Seasons Hotel [in 1986] when … we’re closing on a new investment from Chronicle Publishing on a Tuesday. All my creditors were ready to cut me off , you know, no more programming, no more satellite time — you go dark. So it was like going from this ecstasy of knowing we’re going to close on $6 million and I’ll be able to get a quick $100,000 off to the BBC, a quick $100,000 here, pay a couple months of transponder bills, and going from that expectation of going to … You never go to a closing and it doesn’t close. I mean this is unheard of, but it happened.

Gut-wrenching. What are we going to do now? I mean, it was over … Cable was still regulated and the [Cable Act] had passed, but you couldn’t raise your rates until ‘87. This is January. So we still have a license fee.

So nobody was interested in investing in cable programming. Our investment banker said, “John, you’ve got to get your head around going [into] bankruptcy.”

To hear your banker get to that point — that we’re out of options — and then that drive home and going to the office and all the people waiting for you [there]. As an entrepreneur, you’re responsible for all those people leaving other good jobs and trusting you for their mortgage payments that they’re making every month. You have this enormous sense of responsibility.

I think about going home and Maureen [Hendricks’ wife] … I mean, just the expectation being so high: Oh my gosh, you’re going to get the second round of financing done. And then we were both personally liable for all the debt, and so that meant —

MCN: You’re breaking out into a sweat right now just talking about it.

JH: I know. It was tough. And then one of the reasons I love John Malone is I was just thinking on the way to work the next day, like, OK, what are we going to do now? Who in the world could respond?

One of the trade magazines — maybe Multichannel News — had just done an interview with John Malone, and I remember the comment he made in an interview: “Well, you know, January of ‘87 we’ll be able to start adjusting our rates to match the market demand. And we just need to remember people don’t get cable for the cable, they get it for the content, so we need to think about reinvesting or investing in content.”

So I just remembered that and then when I got to work, my first phone call was to Dick [Crooks] at [investment bank] Allen & Co., and I said, “Dick, does anybody know John Malone?” As luck would have it, Paul Gould at Allen & Co. had done deals with Malone in the past.

Dick called back and said, “Yeah, Paul knows him. He just got off the phone with Malone, and Malone told him, ‘We can’t let anything happen to the Discovery Channel.’ He was like this savior.”

And before we even signed any paperwork, I said, “John, I’ve got to have money for payments.” He said, “Well, how much do you need?” And I said, “If you can, just send me half a million dollars right now.” They wired the money the next day. We hadn’t even done paperwork. And that’s what John was known for — a handshake deal — and it was basically done.

MCN: Let’s talk about today. Discovery has enjoyed truly incredible revenue and stock performance. One notable statistic from the early days you cited was you were selling 40% of the company for $6 million; is that right? How much is that worth today?

JH: We’ve been as high as $30 billion at the peak of the market, so 40% would be $12 billion. Think of that.

MCN: Who passed on investing in Discovery in the early days?

JH: Disney, Universal, Coca-Cola Entertainment.

MCN: When does [Discovery Communications CEO] David Zaslav get his soul back, because I’m pretty sure he’s traded it to get this kind of performance.

JH: What? (Laughter.) I’m gonna tell him that you said that!

Well, I’ll answer this one. I knew David was going to be transformative. I used to sit in the TiVo board meetings with David, and remember thinking, “He doesn’t need to be working for NBC, he needs to be working for Discovery.”

He’s got this powerful combination of energy — boundless energy, just unbelievable — and just passion for getting things done and getting the whole organization going.

We’ve got this scale and we had this wonderful self-syndicated network. We own and control it and we can use the economics of each territory to support these expensive productions like North America and Planet Earth.

MCN: Discovery has changed brands for channels more than most cable companies. The original Discovery Health became OWN. Planet Green became Destination America. Is that a good or a bad thing? Does that confuse people?

JH: It could. When digital was going to be a reality, you didn’t want to be one or two channels in a world that could be 200 channels or 500 channels. So we went out with a compressed amount of services.

Over time, we’ve had this shelf space, but if we’ve had a channel that consistently can’t break out of a 0.2 [rating], then the consumers are telling us something. Is there a better use of that shelf space? So then looking at the ratings, [and] what [consumers are] watching, is there another category that we could program for?

It’s always caused some challenging discussions with our cable operators who had a distribution agreement that says, “We gave you a carriage commitment for the Health Channel and it’s free, by the way, and you’re asking us …” But we’re not seeing a huge appetite for it, and we think there is a bigger potential to serve the audience with a partnership with Oprah [Winfrey]. So, it’s a risk, but again that’s gonna be a gamble that’s going to pay off , for example on OWN, in a big way for us.

MCN: Given the broad range of networks and shows in the Discovery family now, does any programming make you wince because it’s so far from the original vision?

JH: There were times in the past where I called it a wince factor. And there was a wince factor for me around one forensics show that was just blood all over the place. I thought, “God, this is the Discovery Channel and there’s kids, 12 years old, watching this.” I was just kind of uncomfortable with it. And there were these things that were ghosts, like Ghostbusters, that were being peddled as science, and I had a wince factor about that.

It’s been more in the past because today, I’m comfortable. We’ve got a portfolio. And so Henry Schleiff ’s challenge in life is to make Investigation Discovery and crime programming as mysterious and as engaging and storytelling-based as he can make it. So we’re comfortable with his programming mission.

MCN: What’s the biggest challenge facing the company now?

JH: The chief challenge is, “How do we keep existing revenue streams intact? You know, that license fee from those multichannel distributors that send us a check each month and the advertising support, how do we keep that intact and growing?”

We have some comfort in the international diversification because we know the world is continuing to go multichannel. In a lot of respects, the world is like where the U.S. was in the late 1990s or mid 1990s, so we have a lot of growth internationally. But we have this evidence that the consumer — and we’ve known this for a long time — if they have a platform and they have the opportunity to watch programming when they want to watch it, they will gravitate toward that. And if they can skip commercials or watch it without commercials, they will do that.

Since we know the viewer is going to migrate, we’ve got to be there to catch them and service them. So we’ve got to play in that game but at the same time continue to grow and nourish the revenue streams that got us here, that brought us to the dance.

We’re doing that very cautiously and carefully. Like with Netflix and some of the [Internet-based] providers, we’re looking at programming 18 months and older. We don’t want that consumer to say, “Gee I’m getting satisfied by Discovery,” and it works this way because we want to avoid cord-cutting at all costs.

MCN: What’s the next chapter?

JH: I’m interested in education worldwide and so we’ve made some progress with our Discovery Education Partnership. Here we have this wonderful content, and we know it’s life-changing for people, especially in the third world.

One of the things that just woke me up [was] when I realized that kids in Nigeria had never seen a cheetah. So it’s just the magic of television, being able to show them the Shuttle launch or chemistry in action and things like that. Television and multimedia have a huge role in education, so that’s one of the areas I’m going to keep looking at.

MCN: What do you think about the cable industry’s position right now?

JH: That is a fire hose of data coming in to the back of your TV set, and as long as it’s seamlessly integrated with what I want to do at the moment on the Internet, that’s a very powerful position. That doesn’t mean that there [won’t] be alternatives and other ways to chip at that, but that’s a powerful legacy position to be in.