Discovery outlines “Sports Netflix” strategy for EuroSport, signs UK deal

Discovery Communications and Sky in the UK recently resolved their quarrel over a carriage renewal deal, and this week the fruits of a new relationship are blossoming as Discovery announced it will be launching its second FTA (free-to-air) channel in the UK, plus similar plans with Sky Deutschland, with more joint ventures to come on the horizon.

There have been widespread suggestions that a giant company of some shape or form should step up and buy Discovery Communications, but although the company is not seen as a particularly major force in the US, its European prowess is on the up and the company looks likely to make a tidy fortune. Discovery’s recent profit uplift and big ambitions could put the possibility of a takeover out of reach, with a current market cap of $11 billion.

Discovery’s current FTA channel Quest is shown on Sky, Virgin and Freeview, but details on the new channel have not been released yet.

The launch of a new FTA channel builds on the initial agreement for Sky to continue distributing 12 of Discovery’s channels to its UK and German customers. The standoff began when Sky argued that Discovery was charging over the odds for channels with poor viewing figures, reportedly demanding around £1 billion ($1.25 billion).

Discovery’s crown jewel at the moment is EuroSport, its sports channels group, which boosted Discovery’s revenues by 10% in 2016, and EuroSport viewership was up by 23% in the fourth quarter of last year.

EuroSport has picked up some exclusive rights including those to show 45 German Bundesliga soccer matches a year, and Discovery paid $1.44 billion for most of the European broadcasting rights to the Olympic Games between 2018 and 2024, excluding UK and French rights for the 2018 Winter Olympics and 2020 Summer Olympics. Discovery and Eurosport will develop a dedicated Olympic TV channel across Europe. In addition, Discovery’s second largest shareholder is Liberty Global – the John Malone empire which has recently added Formula One to its armory.

Discovery CEO David Zaslav spoke on an analyst call this week about emulating Netflix with a “sports Netflix strategy” for EuroSport Player, powered by the video streaming technology from BAMTech, which it signed a deal with back in November. Zaslav noted that a dedicated team is currently building country-by-country business plans, and pointed out promising early test results for various consumer packages, including a 150% subscriber increase in the UK.

If shareholder Liberty Global repurchases the broadcast F1 rights from current holders in Europe, then the possibility that Discovery could position EuroSport Player as a major direct to consumer live and VoD subscription service would suddenly become more realistic.

In the UK, a day pass for EuroSport Player costs £5.99 ($7.50), and is currently offering a discounted year-long pass for £19.99 ($25). As it gathers pace and picks up more valuable rights such as soccer and Formula One in Europe, EuroSport will be able to charge a higher price point.

Meanwhile in the US, Discovery claims that its TV Everywhere Go suite of apps are now in more than 80% of pay TV households in the US – reaching some 150 million people. Total Discovery revenues for Q4 2016 came in it at $1.67 billion, up 2% year-on-year and for 2016 $6,497, also up 2%.

Zaslav commented on the deal: “our new agreement with Sky in the key UK and German markets includes new opportunities to launch new channels and services. 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.”