The shake-up started early. Discovery Communications Inc. laid off 84 people in its under-performing education division in December, one month after naming David Zaslav president and CEO, but ahead of his formal accession in January.

That initial tremor was a prelude to major quakes occurring after his arrival, as Zaslav moved quickly to streamline management, refocus programming around Discovery’s core brands and cut costs — and staff — to free resources for new programming and digital initiatives, including a $50 million makeover of Discovery Home network into an eco-friendly lifestyle channel under the broad PlanetGreen initiative. The cuts, which Zaslav acknowledges will continue, included layoffs of 200 workers, announced April 9, mostly from its U.S. networks group, Discovery studios and corporate affairs and communications departments, plus additional staff from Discovery Education. That was about 4% of the 5,000-person workforce. On May 17, it issued pink slips in the future for some 1,000 employees as Discovery’s 103 U.S.-based retail stores are shuttered during Q3, per Zaslav’s order.

Were these moves routine housecleaning by a new chief executive, a prelude to going public or the start of a significantly different direction for Discovery? It’s too early to say. In an interview in late April, Zaslav said the staff cuts reflect his belief that Discovery’s brands need to become multifaceted businesses, much like ESPN’s brands, which have diversified from cable programming to radio, magazine and book publishing, themed restaurants, video games and even golf schools. "My first surprise in coming here is that I viewed Discovery as a traditional cable company," Zaslav says in the interview. "We’re really not…We need all of our brands to be more than just cable channels. We need to build businesses around them." [Scroll down for our interview with Zaslav.]

"They’ve got to look beyond just the operators as to what their future will be," notes Bruce Leichtman, president and principal analyst, Leichtman Research Group. "When you look at Discovery, or any of the programmers, they are definitely looking beyond the MSOs and the DBS providers about how to make money." In fact, well before Zaslav’s arrival, at least two Discovery channels were building businesses around their brands, including Travel Channel and Discovery Health Channel [see related stories in CableWorld, Aug. 14 and Oct. 9, 2006, at: cable360.net]. Of course, strengthening Discovery’s core networks and preparing for multi-platform distribution makes sense for DCI, but could be a double-edged sword for cable MSOs: Discovery will become a stronger programming partner, but may reduce its dependence on cable operators.

Evidence of Discovery’s Transformation

It seems the lightning pace and depth of personnel cuts signal Zaslav’s intent to firmly establish DCI as the world’s largest nonfiction media company — producing and owning content from a strengthened set of core brands, each with global appeal and a range of digital distribution channels, including but not limited to cable. It’s a good time to do it. DCI was returning to form prior to Zaslav’s appointment. It enjoyed a rebound in ratings at key networks last year — including flagship Discovery Channel and TLC — and a corresponding upturn in earnings. Yet Zaslav almost immediately began retooling the $3 billion company to fulfill what he says is his vision. Within weeks he thinned executive ranks, including excising Discovery Networks U.S. president Billy Campbell. Among the purged: Dawn McCall, head of Discovery Networks International, veteran HR chief Pandit Wright and Animal Planet’s leader Maureen Smith. The moves streamlined the more centralized structure of Zaslav’s predecessor Judith McHale, while December layoffs gutted Discovery Education, one of her signature initiatives.

In February he flattened the executive org chart by having the heads of the U.S. networks report directly to him. "While the significant shake-up could potentially cause some disruption in the near term," Merrill Lynch media analyst Jessica Reif Cohen wrote in a February research note, "we believe the new management could be a positive…providing creativity and new energy…while instilling a financial discipline to the creative process."

More evidence of Zaslav’s intent to transform DCI into a global, digital media company unfettered by its cable roots came in March when it simplified ownership with the buyout of Cox Communications’ 25% stake for $1.3 billion in cash plus the Travel Channel. Zaslav says this will provide a "more efficient operating structure," while Wall Street sees it as a step closer to DCI becoming a public company. Dr. John Malone’s Liberty Media now owns 66% of Discovery, up from 50%; Advance/Newhouse owns 33%; Discovery founder John Hendricks retains a 1% stake.

Building the TLC Brand for Women

Zaslav’s moves were not limited to personnel cuts. He also shuffled the deck at DCI programming almost immediately, attempting to sharpen the "on brand" focus. Again, however, what seem like radical moves must be viewed in context. Zaslav sent Discovery Channel’s popular series American Chopper packing, depositing the tattooed bikers at TLC. While a significant action, it was a coup de grâce, emphasizing Discovery Channel’s return to its heritage of exploring science and anthropology that president Jane Root began some 12 months ago.

A far more dynamic move was Zaslav’s announcement at upfront on April 5, when he called for an ambitious makeover of Discovery Home as part of the company’s multi-platform PlanetGreen Initiative.

Again, it’s too soon to know whether other parts of his management reshuffling are merely that or are important strategic moves. As is the custom with many senior executives, Zaslav recruited colleagues from his previous gig, at NBC Universal. Longtime confidante Bruce Campbell was named to head new media, emerging networks and business development. Perhaps Zaslav’s most notable hire is Angela Shapiro-Mathes, former president of Fox Television Studios, tapped to run TLC from Los Angeles. In addition to establishing the Silver Spring, Md., company’s first outpost in Hollywood, the move seems to signal Zaslav’s willingness to spend money to bolster programming and sharpen TLC’s focus on women who, drawn by style and home decorating programs such as What Not to Wear, Flip That House and Trading Spaces, make up 60% of the network’s audience. Shapiro-Mathes oversaw ABC’s daytime schedule and was a key architect of Disney’s SOAPnet. Some see her hiring as a shot across the bow at Lifetime, Oxygen and WE tv. But TLC isn’t a female channel 24/7, as its Turbo Thursday Night lineup includes American Chopper, American Hot Rod, Overhaulin’ and Rides.

Content Without Borders

Boding well for Zaslav’s push to transform Discovery from a lumbering giant into a nimble new-media company is its global reach — its channels reach 171 countries. Its wholly owned content tends not to be specific to American culture and thus needs less localizing for distribution overseas.

"Animal Planet works as well in Finland and in Egypt as it does in the U.S.," Zaslav says.

"The path to power is in global programming assets," argues Kaufman Brothers media analyst Todd Mitchell. "It may be a mature market here, but if you can sell Discovery to every Indian or every Chinese, ultimately that’s where the growth opportunities are."

And though he remains uncertain about the revenue models for new media, Zaslav is looking to the digital future for growth. He cites ratings hits like Deadliest Catch (Discovery) and Little People, Big World (TLC) as candidates to break out of the linear lineup onto video on demand, iTunes and other broadband and mobile platforms.

"Consumers are now more than ever before able to pull down content whenever they desire rather than having it pushed to them by the major media companies," says Aryeh Bourkoff, vice chairman of UBS’ Telecom, Media and Technology (TMT) Investment Banking Group. "Having the ability to make quick decisions with a flat management structure is paramount in the current environment."

Though it’s clearly thinking beyond U.S. MSOs with its global and new media strategies, Discovery’s efforts mirror those of cable operators that are less dependent on programming as they become broadband and telephone suppliers, notes Leichtman. "They will remain partners for a long, long time," he adds. "But the operators have more on their plate than they ever had before, and programmers like Discovery have to look out for themselves as well."

Global Programming: A Q&A With David Zaslav

In a late April interview with CableWorld columnist Michael Grebb, David Zaslav spoke of Discovery as far more than a cable programmer. In addition to touting Discovery’s global reach in more than 170 countries, he stressed the advantages of owning most of the content shown on its channels, enabling it to move nimbly between platforms. An edited transcript follows; for more from their interview, watch our 2-part video interview here and here.

CableWorld: You’ve been at Discovery a short time but you’ve made some big changes. What’s your vision?

David Zaslav: My focus really has been to figure how we take all the different assets that Discovery has and position us to grow.

CW: What do you see as your advantages?

DZ: We own almost all our content, [although I admit that] it’s higher risk because we have to create it. But we can take that content and put it on a series of platforms. We could offer it to cable operators on VOD. We could offer it on mobile, on broadband.

CW: And your global business?

DZ: Discovery Communications has a great international platform that reaches 171 countries. So we could decide to simultaneously put [Discovery Channel’s] Deadliest Catch in 171 countries and then take that content and play with it. So the focus is: How do we make sure our content is great and our brands are strong? That’s really the center spoke of our strategy.

CW: Do you want to be more of a U.S.-based network or more of a global company?

DZ: Both. One of the key advantages we have as a media company is that we have probably the best international platform of any media company in the world. We’re in 171 countries. That’s a business that has a dual-revenue stream. The ad market is developing, although slowly and sporadically. But if you look at our aggregate global business, it’s very strong. Also, when you look at our product, we have this unique opportunity. There are some channels in the cable business that have very domestically [focused], U.S. cultural programming. But Animal Planet works just as well in Finland and Egypt as it does in the U.S. When I was at NBC, we did quite well with CNBC, but we had to fire up studios all over the world to cover local markets. Here, we hit a button, and Deadliest Catch is everywhere. So you’ll see us probably push a little bit harder on global to take advantage of the fact that we have a great platform.

CW: Tell us about the $50 million, multi-platform, multi-network PlanetGreen initiative announced at your upfront.

DZ: When you look at the heritage of Discovery, from the beginning, the globe has been in our corporate logo. That was created by Discovery founder John Hendricks years ago. It stands for his commitment to really focus on the environment, to inform people about what’s going on around the world and [determine] how we can make a difference to make it better. It’s central to our mission. It’s also a moment in time in which green really means something to people. It’s not a lefty notion. It’s really about being responsible and thinking about how we live our lives in a responsible way so that the next generations have a real opportunity to enjoy the planet. And so we’re trying to create a comprehensive and deliberate strategy.

CW: As part of that, you’ll convert Discovery Home into a green living channel. What else?

DZ: We have a chance to make this into the centerpiece of a 50 million sub service in the U.S. and then all these tent poles. Tom Brokaw might do a piece for us on Animal Planet that might be a five-part series, but then we’ll go deeper on our traditional green living channel and online. In addition, we have an opportunity to take it global.

CW: You’ve already instituted one round of layoffs, and you’re expecting to conduct another round of restructuring soon. With ratings up at Discovery lately, why come in now and start making these changes?

DZ: The first focus was to get on brand. At the end of December, we decided that we were going to take everything off Discovery that wasn’t core Discovery. And there was a real debate internally, with a lot of feeling — internally and externally from advertisers — that if you take American Chopper programming or if you take off the forensics programming, Discovery’s ratings are going to go down. Well I, and a number of us here, including John Hendricks and our board, think [the ratings are] going to go up. We haven’t been reorganized in 10 years, so to start to look at where we have people and where we spend money — there’s a fair amount of inefficiency, particularly if you want to grow and you want to spend more on programming. We did this as a team. So the exercise is not at all about reorganizing to get money for our partners. It’s more about getting more money for us to put against growth initiatives.

CW: But Education, which has been closely aligned with the Discovery brand, was hit hard by restructuring. What’s the thinking?

DZ: In Education, we’ve pruned that back in order to be leaner and more aggressive to grow. But we have some really fantastic assets. We have one called [Discovery Education] unitedstreaming that’s in 70% of the classrooms in America. So we’re going to put more resources against that because it’s unique, and [we will] evaluate how to use that to really drive growth in the education sector. We could take [11-part series] Planet Earth now — the best pieces of Planet Earth — and get that into the classroom. We could hit a button, and that’s in more than 70% of the classrooms in America.

CW: There’s going to be at least another restructuring round. What’s still on the table?

DZ: We’re still taking a look at the global business outside the U.S. We’re focused on ad sales. We just came out of our upfront very strong. But every media company needs to innovate, and [president, ad sales] Joe [Abruzzese] was in my office this morning saying, "What else can we do for the clients? How do we change the way we go to market to take advantage of more of our original content?" Because we have so much original content, we could do product integration. So that’s Joe’s innovation. And he’s really pushing this train of how do we reinvent the ad sales team, how do we reinvent the approach so that we stay ahead and continue to offer unique products to the advertising community. —Michael Grebb

 

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