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Discovery Eyes OTT, European Style, in U.S.

While speculation continues to mount that Discovery Communications might want to buy U.K. free-to-air broadcaster Channel 4, the content provider clearly is interested in importing its European over-the-top strategy to the U.S.

Reports in the U.K. press have put Discovery in the mix with a handful of other possible bidders for Channel 4. Others include telecom giant BT and a consortium of financial players led by former Channel 4 chairman Luke Johnson.

After months of denials that the ad-supported public broadcaster could be for sale, U.K. Prime Minister David Cameron said privatizing the network was being considered. Some reports put the value of the channel at about $1.5 billion.

Owning a free-to-air broadcaster in the U.K. would help Discovery, especially as its Eurosport networks won the European rights to the Olympic Games from 2018-2022; Eurosport is required to fulfill a free-to-air commitment. Discovery CEO David Zaslav seems to be downplaying the idea, though.

Zaslav said during Discovery’s third-quarter earnings call the company already has relationships with free-to-air broadcasters in Europe, and recently launched its own FTA channel in Turkey.

“We do think that we’re probably the best buyer for a lot of assets because we have knowledge in the marketplace, we have infrastructure and we have synergy, but we don’t need anything,” Zaslav said.

Credit Suisse media analyst Omar Sheikh said Channel 4 would likely command more than $1.5 billion in a sale. Discovery could not buy it, still go through with plans to repurchase stock and stay within leverage targets, he said in a research note.

Zaslav instead keyed in on the European OTT strategy. Discovery launched a Eurosport app about 18 months ago and in June launched streaming service Dplay. Already, the services have about 200,000 customers and the push is to get to 1 million subscribers as fast as possible.

“If we can get to a million [subscribers] at $6 to $8 a month, we could generate close to $100 million in revenue, which I think gets our whole company’s attention in terms of culture,” he said.

A version could be launched at some point in the United States. Discovery, Zaslav added, owns most of its content, so it doesn’t have to negotiate for digital rights.

“We have a lot of optionality,” Zaslav said. “It’s early days, but we do have a lot of flexibility here in the U.S. to make a move if we want to and we’re looking at it.”