Discovery CEO Threatens Cable With OTT

Despite being one of the programmers most adamantly against streaming its content online just a few years ago, Discovery Communications is now weighing the option of creating a direct-to-consumer Internet video service in the US.

"I think mostly in the U.S., if TV Everywhere doesn't develop the way that it should, which would be a positive for all of us... it will require all of us to go directly to consumers, because the cable guys aren't getting it done," Discovery Communications Inc. (Nasdaq: DISCA, DISCB, DISCK) President and CEO David Zaslav declared Thursday.

Zaslav uttered those fighting words during Discovery's fourth quarter earnings call yesterday (transcript provided by Seeking Alpha) at the same time that the company reported less-than-stellar financial results. Net income for the quarter fell more than 13% year-over-year.

This assertion by Discovery's CEO follows recent announcements by other programmers planning to take their content over the top. Home Box Office Inc. (HBO) is scheduled to launch an OTT service this year, while Showtime Networks Inc. has said it is committed "fairly definitively" to doing the same. (See HBO Will Go OTT in 2015 and Shomi & Showtime & Sony, Oh My!)

Want to know more about OTT video? Check out our OTT content channel on Light Reading.

Zaslav also argued in his earnings presentation that video measurement isn't keeping up with new TV viewing habits. "We are working with Nielsen, all the programmers are. The problem is it's a monopoly here in the U.S," he said.

Discovery began reporting ratings results this week using The Nielsen Co. 's Live + 3 system. In the fourth quarter of 2014 alone, the shift from reporting only Live + Same-Day ratings garnered Discovery as much as a 23% increase in viewership for some programming segments.

As TV distribution continues to move on-demand and online, Discovery is struggling to find the best way to update its business plan. The network has relied heavily on the dual-revenue model of advertising and licensing fees. However, with live viewership on the decline and new challenges emerging to the traditional cable bundle, Discovery may need a new strategy for success.

On the near horizon, Discovery will also have to negotiate the tricky proposition of a new content licensing deal with Comcast Corp. (Nasdaq: CMCSA, CMCSK). The current agreement is slated to end in June.

— Mari Silbey, special to Light Reading

mendyk 2/23/2015 | 3:17:40 PM
Re: Sports Still the Tipping Point This strategy has certainly changed the music industry. The problem with disintermediating the middle man is that sometimes you end up disintermediating the money as well.
kq4ym 2/23/2015 | 2:50:47 PM
Re: Sports Still the Tipping Point It does seem to make sense though to head out to get directly to customers. Withoiut cable operators offering ala carte programming choices, the content producers can just do an end run around cable/satellite and go directly to consumers.
mendyk 2/23/2015 | 12:38:36 PM
Re: Sports Still the Tipping Point What's amusing about this story is that the Discovery Channel CEO seems to think that cable operators are somehow responsible for propping up his company and its outdated "business model." If Discovery were to take its content over the top, what kind of revenue would it get? Probably not enough to support any CEO kind of lifestyle.
Phil_Britt 2/23/2015 | 12:01:06 PM
Re: Sports Still the Tipping Point It would be difficult to underestimate viewers' intelligence. How else could Housewives of (pick the place), most sitcoms and a ton of the other garbage on TV ever find an audience. Newton Minnow's "vast wasteland" (that dates me) just keeps getting larger.
mendyk 2/23/2015 | 11:48:57 AM
Re: Sports Still the Tipping Point Could it be that the nation's appetite for cheap TV shows featuring exhibitionist morons is on the decline? It's not just "cable" that isn't getting it done -- it's also the people who've systematically degraded their content channels and their viewers' collective intelligence.
Phil_Britt 2/23/2015 | 10:43:10 AM
Sports Still the Tipping Point While I will agree that cable isn't getting it done, and that OTT is a more compelling option as more program providers move in that direction, cable will still control most viewers until more sports moves to OTT.
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