Discovery preps channel, focuses on UK, German growth

Discovery Communications will launch a new free-to-air channel in the UK alongside other new services in Britain and Germany.

CEO David Zaslav said yesterday that a new carriage deal with Sky in the UK and Germany, which came about after a bitter standoff between the channel operator and pay TV platform, gave it greater flexibility to launch new products in both countries.

“Our new agreement with Sky in the key UK and German markets includes new opportunities to launch new channels and services,” Zaslav told analysts in the wake of the company’s full-year results.

“So, we will be helped with more growth in the two biggest media markets in Europe. We will be launching new services, including a second free-to-air channel in the UK, leveraging our strong existing IP to reach more viewers in the UK market, and the new free-to-air channel will make money for us this year.”

Discovery currently has twelve pay TV nets in the UK. The upcoming free-to-air offering will join its only other free TV channel, Quest, which has shows including Salvage Hunters (pictured, above).

Sky said Discovery wanted almost £1 billion (US$1.24 billion) for its portfolio of channels, and while Discovery strongly disputed that figure, the latter yesterday said higher affiliate fees have driven growth in international markets.

Looking ahead it said improved carriage fees will generate over US$215 million throughout this year.

Specifically, the Eurosport net (left) helped Discovery grow international affiliate fees. Costs were also up at the sport channel as it moved for a wider portfolio of rights.

Discovery chief Zaslav said 2016 was a pivotal year for the business, and yesterday’s results showed over revenue and profit growth, but decreases at the international division, blamed on currency issues and the disposal of the SBS Radio unit.

The results also revealed a US$20 million-plus write-down relating to programming at Discovery’s Nordic operation. It has recently overhauled management in the region and Zaslav said the new team is “rethinking the way we operate”.

The launch of HBO and Netflix in the region has impacted Discovery’s operations in the Nordics, Zaslav said, and contributed to a 20% decline in viewing numbers to Discovery-owned channels. These channels will now look to move away from US programming and to local content.

“We now have a new management team in place that is rethinking the way we operate in that region,” he said. “They are laser-focused on rightsizing the cost structure and restructuring the content portfolio.”

Discovery also notched increases in affiliate fee revenue in the US. As operators look to reduce the size of their channel line-ups, the focus shifts to the big must-have channels. Discovery said 85% of carriage fees come from its five biggest nets.

With the more niche nets such as ID and Velocity squeezed, Discovery was keen to highlight its investment in direct to consumer, TV Everywhere and OTT services.

Discovery reported group-wide revenues of US$6.5 billion, a 2% increase year-on-year. Revenues at the international division were down 2% at US3 billion. Overall profit was up 1% at US$2.4 billion, and down 12% at the international division, which posted a profit of US$848 million.