In 1985, John Hendricks, founder, chairman and ceo of Discovery Communications Inc. (DCI), invited U.S. cable viewers to explore their world. Just 12 years later, DCI sits on top of it.
Hendricks has built the Discovery Channel from just another cable network into the brand leader of non-fiction television. It has grown from an initial launch of 156,000 homes into a multichannel, international brand that reaches over 110 million homes in over 145 nations worldwide.
In July, the Bethesda, Maryland-based network surpassed cnn to rank behind only TBS Superstation as the cable network with the highest penetration in the U.S. (71.4 million homes).
Discovery and its sister network, The Learning Channel, rank as the top two television brands in overall quality, according to a 1997 Equitrend study. The same survey ranks Discovery third in overall quality among all brands.
Discovery’s operations now reach into such areas as motion pictures, retail, home video, publishing, online and multimedia. And there’s no sign that the company won’t adapt to whatever new technologies come along.
Leading the charge has been Hendricks, who conceived the idea of a non-fiction programming channel in 1982 and would see it take root three years later. ‘Non-fiction for a long time was regarded as programming for a minority audience,’ Hendricks says. ‘What we’ve proved and what cable tv has proved is that it’s really for a majority audience.’
Building a global brand
DCI’s growth has been a textbook case of assessing the needs of the marketplace, filling those voids with product that could not be found elsewhere, backing it up with aggressive marketing, and then expanding into other new areas and niches not adequately served.
The success of Discovery Channel begat the acquisition and relaunching of the Learning Channel as a complementary service in 1991, and the creation of Animal Planet in 1996. The launch of DCI’s four digital services, Discovery Kids Channel, Discovery Science Network, Discovery Travel & Living Network and Discovery Civilization: The History and Geography Channel, further extends genres that have built a faithful following on DCI’s analog networks, and plants the seeds for its next wave of digital expansion.
Currently, DCI’s domestic networks generate the majority of its revenue, but Hendricks foresees a time in the near future when revenues from Discovery Networks International (DNI) will surpass them.
‘There’s such a huge untapped market internationally, so our efforts are equally divided,’ says Hendricks. ‘We will continue to take advantage of expanded capacity here in the U.S. to develop new services, which may lead to international expansion, depending on the programming we line up and the success we have in the U.S.’
The company has used its domestic blueprint to grow as a global brand. DNI consists of 19 different feeds of 15 separate Discovery networks transmitted in 18 languages and reaching into all parts of the world, from Europe to Africa, Latin America to Asia.
When launching a new service abroad, DCI tries to employ a programming strategy that incorporates equal parts library, acquired and locally produced product.
Indigenous production is the vital element to making DCI’s overseas channels work.
‘To be successful, we need our service in India, for example, to be thought of as a service emanating from there,’ explains Hendricks. The combination of local production with acquired product ensures that two-thirds of what airs on international channels has a local feel.
The volume of original production on the international networks increases as the size of each market grows (see chart). A start-up Discovery network is likely to have more acquired and library product than original production in its first few years. That balance shifts as revenue builds from advertising and subscription support.
‘It’s generally the point when we’re about 70% of the way to recovering our cost,’ says Hendricks. ‘As we get closer to the monthly break-even point, we feel more comfortable about investing in original productions.’
Discovery Channel U.S. reached that point three years after its launch. Internationally, that point will probably take four to five years in most territories.
DCI fills in the blanks with library and interstitial programming to make sure that international affiliates have the look and feel of the Discovery brand.
Having a common thread that links all Discovery networks is essential to drawing global advertisers like ibm and Microsoft, which look to affiliate their international commercial messages with dependable quality programming that plays across many markets.
Thus anchored, Discovery can afford to invest in big-budget documentary productions because it is able to amortize the cost of its library product across all international markets.
A lurking fear persists that a company could lose sight of its original mission when it expands into so many different areas of business.
Hendricks believes that Discovery has avoided the temptation to stray. ‘The biggest risk that we face is trying to accomplish too much under one network,’ he maintains. ‘If you lose the dependable niche promise that you’ve made to the multichannel subscriber, you lose a lot of your reason for being.’
When the company wants to tinker with different types of programming, the experimentation will occur on a new service.
The idea of fictional programming and movies on Discovery or Learning has been discussed for many years internally, but with those two networks’ identities firmly established, the company turned to its newest service, Animal Planet, as its platform to incorporate these programming genres. ‘We felt more comfortable experimenting with that on a new service, because if we try that on the Discovery Channel, we may weaken the reliable nature of our programming to the consumers,’ and, says Hendricks, ‘that would be a big mistake.’
DCI has moved aggressively to establish a beachhead in the growing digital universe with the launch of its four digital services. Hendricks says it is important for networks wanting to hold on to their audience shares in an expanded channel environment to lock in as many of the available spaces as possible early on.
‘It’s a mistake if we don’t program all available television platforms that present themselves,’ he affirms.
Hendricks cites statistics from test cable systems that indicate that ratings for individual networks decrease 30% to 40% in homes with over 75 channels. Over the next decade, the number of homes that will have that capacity will increase dramatically.
‘Companies that program have two options – either sell now and cash out before the fragmentation occurs, or pursue a strategy where you attempt to seize all of the available shelf space, so if viewership for some of your analog services becomes fragmented, you recapture those viewers on the expanded capacity platform.’
Internationally, Discovery is securing its position and exploring growth via an exclusive partnership with BBC Worldwide Limited, the commercial arm of the bbc.
The planned joint venture would couple the world’s two biggest producers of non-fiction television to spend in excess of $500 million to create new programming and seek multichannel opportunities in America and around the world.
Talks between the two companies began last September and a deal may be done by the fall.
‘If we combine our efforts rather than compete against each other, we will enjoy greater success in some of the international marketplaces,’ says Hendricks. ‘Rather than trying to support two infrastructures for developing a channel, it makes much more sense to find a partner with a similar mission and similar programming values, and team up to share those initial capital costs that in the long term will pay off.’
Surviving in a Brave New World
More channel space and more international markets mean more competition from established networks and new players which enter the fray having studied Discovery’s success.
Hendricks says the services that will survive in the long term are the services that can spread out the cost of quality documentaries or non-fiction tv specials (which range from us $600,000 to us$1 million per hour) over multiple outlets, be it in one market or across international territories.
‘It’s very difficult to have only a single network in
one market, even if it is the U.S., and then try to amortize the cost of expensive documentary production over that market,’ he says. ‘So it pays to be international.’
Even though Discovery Channel reaches into over 71 million American households, Hendricks says the combination of ad revenue and licence fee support seldom adds up to more than $400,000 for a first-run exposure. It’s only when international licence fees are added in that the production cost is met and exceeded.
Over the next 10 years, Hendricks points to digital services, global expansion and retail to be the strongest growth areas for his company.
DCI’s four digital services may splinter into five (Travel & Living would split into two services) when additional shelf space becomes available. The company is also looking at the possibility of a health and medicine channel.
Internationally, the proposed partnership with the bbc, and the growth of digital platforms overseas ensures continued expansion into new territories.
Hendricks sees the potential growth of Discovery Retail as ‘huge.’ The company currently owns over 130 outlets consisting of The Nature Company, Scientific Revolution and Discovery Channel Stores.
In the fourth quarter of 1997, the company opens the first of two Discovery Channel Destinations stores at the new MCI Center in Washington d.c. (the other will be in San Francisco). The 25,000-square-foot facility will combine educational and interactive destination themes with similar retail product.
Hendricks says the store takes the Discovery Channel experience from the tv set and expands it in all forms.
‘When we launched the service in 1985, I was focused on whether we could make it in the U.S. marketplace,’ Hendricks recalls. ‘I thought that maybe, potentially, we had markets outside the U.S., but at that time, it was just enough of a challenge to get on cable systems here.’
When Discovery launched in 156,000 households 12 years ago, well-established giants like cnn and espn were seen in 35- 40 million households. Today, Discovery is the most carried cable network in America. From his vantage point as king of the hill, John Hendricks spies the globe and sees plenty of new worlds to explore.
Also in this report:
-RealScreen asked the industry what impact Hendricks’ Discovery has had on documentaries: