Discovery CEO Zaslav tees off on retransmission fees and sports, pushes for entertainment-only bundle

Discovery Communications CEO David Zaslav speaks at Investor Day 2015
Discovery Communications CEO David Zaslav.

Discovery CEO David Zaslav used his company’s third-quarter earnings call to offer a fairly extended analysis on how broadcast retransmission consent fees, especially for sports, are putting pressure on the U.S. pay TV industry.

Zaslav pointed out that the U.S. is the only broadcast television market that has retransmission consent, which he said is quite good for broadcasters but not so much for consumers and distributors that have to eat that cost. He also said it’s the only market where sports channels use their leverage to require full carriage of all their sports channels.

“Together with the fact that most sports channels are owned by the retrans broadcasters, you have a combustible combination,” said Zaslav, adding that the U.S. is also the only market with regional sports networks. “Sports has essentially been hyper-extended here to the point of ‘Are you serious?’”

Zaslav said those are the reasons Discovery believes the pay TV market is down 3%, but said that the good news is that an entry-level package for pay TV is likely on the way because that’s what consumers want.

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Zaslav admitted that Discovery is attempting to grow subscribers in Europe through rights acquired by Eurosport but argued that it is not a sustainable strategy. He said that’s because most programmers that are packaging in so many extra channels have agreements that require carriage on traditional distribution but not on OTT.

“So you’re likely to see the breakup in over-the-top and then it will accelerate back as consumers start to buy broadband and over-the-top service without sports. And then the distributors, the big sports guys, will be forced to take the hit in the next round,” Zaslav said.

But as of right now, Zaslav said that for broadband customers, the only real nonsports entertainment options are SVODs like Amazon, Netflix and Hulu.

“And that’s really silly. If there are 40 million broadband-only subscribers who want to buy something, they buy Netflix because there’s not anything meaningful that we’re offering them. We’re working to remediate that and so are some others and I think it will happen,” said Zaslav, adding that Discovery is agnostic and willing to do an over-the-top direct with a bunch of others in a package, with the existing cable operators, or with existing mobile and satellite providers.

“And you’re going to see as there’s subscriber decline, a lot of [operators] are trying to figure out what can they do to serve the customers. They’re looking at that decline and saying ‘Hey, I don’t like that. Why is Netflix gaining and we’re losing? Is there a product we can offer?’” Zaslav said.

He said Scripps gives Discovery more strong channels and that puts the combined company at about 20% of the view, but only at about 7% or 8% of the money.

“That’s not something to brag about. It means we’re not getting paid a lot of money and there’s an opportunity to pay us more, and is it really worth having an argument over so many good channels when the price increase is a fraction of what you’re paying to one regional sports networks?” Zaslav said.

Zaslav’s comments arrived immediately after Discovery’s third-quarter earnings report that saw the company boost its revenues by 6% while posting flat earnings and a 5% decline in subscribers across its channel portfolio.