Discovery, Inc. CEO David Zaslav on Closing Scripps Deal

March 7, 2018

Discovery's acquisition of Scripps Networks is now complete and the company has rebranded as Discovery, Inc. Cheddar CEO Jon Steinberg spoke with the company's CEO David Zaslav on what the deal means for the company's position in entertainment.

"We own all of our content globally," he told Cheddar. "But we'll resell that IP onto different devices. We might be selling it to Facebook, to Amazon, to Apple, to the mobile players."

Through this deal Discovery, Inc. now reaches 20 percent of women watching prime time pay-TV. "People are consuming more content than they ever have," says Zaslav. "The real question is, aside from the traditional ecosystem, who is going to be dominant? Who is going to have a strong seat at the table when it comes to content that is consumed on all these other platforms?"

Zaslav says the bigger play for Discovery is taking Scripps' IP around the world to reach consumers when and where they view content.


MALE_1: All right.

MALE_2: Our first visitor.

MALE_1: I know. [OVERLAPPING] I love it. This is incredible. So 19 cable networks, HDTV my favorite, discovery TLC food network, rebranded the global leader in real life entertainment, and you've stressed, non scripted global IP ownership. I like your bet. I liked your bet because it's my bet. But talk me through global IP ownership, and this whole non scripted focus.

MALE_2: Okay. So there's really two elements right now to our strategy. One is that we own all of our content, globally on all platforms. The only exception to that is Eurosport, where we own all of Europe. But, you know, as opposed to a lot of the other sports players in the marketplace when we buy IP, whether it's the Olympics, or tennis, or cycling, or winter sports, we buy it for all platforms. So we're IP long, and we really think as the ecosystem is able to, it's people are consuming content on more platforms. That what you'll see over the next couple of years is a, is a healthy traditional ecosystem. But we'll resell that IP on to different devices, we might be selling it to Facebook, to Amazon, to Apple, to the, to the mobile players. So, owning our IP globally. And even the chance to do a deal with a Facebook, an Amazon, a Google, and we're one of the few companies that uh we may be the largest owner of IP, after this deal and we can, we can, we can drive it everywhere in the world, in every language.

MALE_1: So let's talk about this real life unscripted thing. I like your comment in The Wall Street Journal, you had a little, you had a little dig there. You said, we look at that side, the expensive scripted, and say good luck with that. That's not what we do. We don't do red carpet. You don't do Netflix and Amazon, right?

MALE_2: Well look I think that, um th- th- the industry used to be one ecosystem and it's kind of broken into two. Ah Eh, So, on the right side is scripted movies some scripted series. Uh and, the companies on that side are exceptional companies, and they're doing a great job. It's just that there's a tremendous amount of disruption, and competition. So, at the traditional level, you've gone from 200 scripted series, to 520 over the last three to four years. Um, but the disruption really comes from the fact that, Netflix and Amazon, have come into the market with a lot of scale, global scale. And they're, they're valued differently. So media is valued at a multiple on free cash flow or EBITA, 7, 8, 9, 10. And the way that Amazon and Netflix is their multiple is, dramatic, you know, triple digit.

MALE_1: Yeah.

MALE_2: And so they could afford, to spend a lot more money, as long as they continue to grow, Prime will continue to grow subscribers. So, you see right now, 8 and 6 billion, 14 billion on top of scripted movie. And, and, and that- that piece in the marketplace unscripted series. That's causing a real uh disruptive disaggregation. When you see Rupert raising his hand, on a fantastic asset like 21st Century Fox, you know, I'm also on the board of Lionsgate, it just says to me that Lionsgate is a great great company, that uh, that marketplace is tightening. You know there's more people bidding for the movies, more people bidding for series, the cost of the content is going up. So when we look at that side, we say there's a lot of great competition there. It's going to get more and more aggressive. Um. We're glad we're just glad we're not there because there's less controls on that side.

MALE_1: And what does it mean that you're going to be independent, I mean Dr. Malone, talking to Faber a few weeks back, he said with the Scripts deal, we're much closer to the gravitational center of nonsupport independent content guys. And so you know I think we have a good shot. That- that's what he said. What does it mean to be independent, and in a separately focused area from all of these conglomerated players?

MALE_2: Well I mean figuratively, we see the marketplace it's like a soccer field. And if you, if you go to your kid's soccer game, everyone's around the ball.

MALE_1: Yeah.

MALE_2: They're 10 or 12 years old. [OVERLAPPING] everyone's around the ball. That's the scripted, series and scripted movie piece of our business. We own the majority of the rest of the field everywhere in the world, for all devices. And so we really like our hand, because we're different. The other thing is that, the content that works, the fight here, the reason that media is under pressure in terms of terminal value, is not because there's a question of the long term value of IP. People are consuming more content than they ever have. The real question is, aside from the traditional ecosystem, who's going to be dominant, who's going to have a strong seat at the table when it comes to content that's consumed on all these other platforms. And as we look at it, we've been at it for a long time with sports in Europe, direct to consumer. The kind of content that people consume on other devices. You know the Crown has a fantastic service [OVERLAPPING].

MALE_1: Yeah. But you're not going to watch it on your phone.

MALE_2: But I don't think someone's going to watch it on their phone. We have now, we have, we have content that's functional, we have content, we have content that relates to an affinity group that's a super brand that loves it. People love science. So, people love food [OVERLAPPING] they love cooking, they love they love homes. And so, and we also do our content in long form and short form, with a leader in, with group nine in short form content. On Facebook, we do over 8 billion streams a month. So, we have a whole menu of content in the area of cars. Oprah. Number one for African-American women here in the U.S. but an iconic figure around the world. Food, cooking, HG, discoveries about curiosity. We own crime, almost everywhere in the world with ID. So, we really like this idea that, the other side is a big movie that you have to open with marketing or big series that you have to get everybody excited about again. But you say anywhere in the world discovery. And people say, you know, I love that, that's the that's the thing I really want, that's the thing that really matters to me, HG or food.

MALE_1: I like, I like the soccer field metaphor. So you're in your spot on the soccer field, right. You're now gonna have.

MALE_2: At most of the rest of the field.

MALE_1: Okay fine. So you're going to have 20 percent share of advertising supported pay-Television in the U.S.

MALE_2: If you think about this, on a Tuesday night, in the U.S.

MALE_1: Yeah.

MALE_2: Say uh, on the Oprah Winfrey Network, let's say we're getting a two, on HG and food, maybe we're getting between the point eight and a one, on TLC we're getting a one, on I.D. We're getting 1 5.

MALE_1: Right.

MALE_2: You add it all up. We've got a 6.

MALE_1: [OVERLAPPING] And my number, that's 20 percent share of women. [OVERLAPPING]

MALE_2: Well that's the aggregate. At any at any time there's more than 20 percent of people watching one of our 18 channels. But, from a scale perspective, the ability to sell across our five, we have five top networks for women. But then we have others like travel, if you add up all of our networks, that lean female, you know, on any given night in prime, it's a four, it's a five, it's a six, it's a seven rating. And it has all these different affinity groups, which is compelling in the sense that as we go to the upfront, we have. Not only do we, can we bring, can we do one ad across all those channels and deliver a five or six, which a broadcaster can't do, but, we have, we have viewers that are passionate and engaged with our, with our brand. So for instance, id, food and HG have the longest length of view of any cable network for women on, on TV, because people love those, the people who are watching it, it's their favorite channel. For African-American women, it's owned. So, to be able to go to advertisers and say, yes, we're more than 20 percent of viewership, but, we have the ability to move audiences between our brands, but we also have an ability to aggregate them. Which I think is, it's really valuable traditionally in terms of revenue opportunity, the bigger play for us, is, taking that IP, scripts never took their IP [OVERLAPPING] around the world.

MALE_1: Right.

MALE_2: We roll it out globally, but we, we're really in the business of taking that IP, and getting it in everybody's hand, every lover of food, every lover of Discovery, should be able to consume some of our content, on any platform, anywhere in the world. And that's our advantage.

MALE_1: And, the Wall Street Journal article that covered the merger lead with your notion of, of a direct to consumer, discovery scripts bundle, which would basically, if you think about getting dramas and comedies from Netflix, news from somebody else, then you get all of your other entertainment from that bundle and you want to price it the way that it's been priced in Europe, you know, [OVERLAPPING].

MALE_2: Well look, I think, the uh the best way for us to, to play in the U.S, would be the way it works everywhere else in the world, which is that there's a skinny, an entry level skinny bundle that's, 10 dollars 15 dollars, 20 dollars, because the you, and what we see almost everywhere in the world, is we see a pretty steady, not a big growth, but a pretty steady media marketplace, and in a few markets, we still see some meaningful growth. What you're seeing here in the U.S, this decline of about 3 percent of subscribers. It's because, when my son graduates from college, he's going to get broadband, you get broadband, it's more important than dinner. But cable used to be a lot more important. It's more important everywhere else in the world than it is here because, if you can get it for 20 bucks, you're like, I'll take that. If it's, if it's a hundred dollars, or eighty dollars, I it's too, so, because it's overstuffed, it's the only market in the world where all of the sports is in there, and this retrends. And so, it's just too heavy of a package. So, the discussion that I was having, this idea of offering a global, Direct to consumer product, we're they, we're. We're the only company that could do it. We would probably do it with others. We would add some other content that would make us more compelling, or we'd had a partner that would make us more compelling. We have that ability to do it. We're also trying to really drive the marketplace so that the marketplace creates these skinny bundles, because, we've seen them. In Brazil there's a skinny bundle 20 channels, and we have six of them. The viewership of our channels on that skinny bundle, went way up. And even though we had 12 channels, we said, we'll do it, we'll, we'll only, you can, you can carry just six of ours. So, we think the skinny bundle could really help the ecosystem here in the US.

MALE_1: Take your son graduating from college. He gets broadband, he maybe gets Netflix or Amazon, and then he potentially gets, you know it's I mean he's not your son. If he gets this. [OVERLAPPING]

MALE_2: He's getting cable, because I'm making him get cable.

MALE_1: But maybe he gets this new discovery bundle which has the food and the lifestyle the cars and all that stuff.

MALE_2: Look, what we have, conceptually now, is we have, we're different, we have big scale. We have most of the quality brands in in America. We have most of the quality brands that people know and love, around the world. So if we aggregate those, we can aggregate those with the existing distributors, we can work with them on skinny bundles which is the best way to do it, we can decide on our own to say let's offer this globally, or we can decide with others to say let's do this in the U.S, let's do this in Europe, it just gives us great optionality. Ultimately, we have to be on those two billion screens. We have to be on all devices. That's our ambition.

MALE_1: There time I got wrap it. I've got to ask the question that's already on everybody's mind. Okay. How many vests do you have? [LAUGHTER] What is the story with the vest? [OVERLAPPING]

MALE_2: [OVERLAPPING] This doesn't say discovery. [OVERLAPPING] So I'm paying for this vest.

MALE_1: But your coms people tell me that it's been covered, I follow you extensively. I've not heard the story about the vest. What's with the vest?

MALE_2: It's a, it's very warm for the core. You can put your. You got pockets to put your glasses, you put your phone, [OVERLAPPING] you put all your stuff, and it's, here's the key, it's a slimming garment.

MALE_1: It's a slimming garment.

MALE_2: It's a slimming garment. That's it [OVERLAPPING].

MALE_1: [OVERLAPPING] Do you have any brands that could, could sell a vest? I mean I'm trying to think, you know, I mean maybe TLC can do a vest show.

MALE_2: No no no. But, but Milan has QVC, and they sell a lot of those.

MALE_1: There should be a zas vest. All right. David Zaslav, a pleasure to be here in the the Food Network kitchens on the first day of the merger. Thank you for joining us.

MALE_2: Slimming garments.

MALE_1: I have vests. But not as many of you, but I have vests. A pleasure. Thank you so much David. Back to you guys at the stock.