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Discovery’s Zaslav and Netflix’s Sarandos: Content Rules

Discovery Communications CEO David Zaslav said that as distributors across the country move toward offering a quad-play of voice, video, data and wireless service, they face a dilemma in adding value to the dumb pipe, and content is one way to do it.

As more and more consumers get their content from a single “dumb” pipe, distributors are faced with a dilemma: how to make their transport service more attractive to customers, Zaslav said at the UBS Media and Communications conference.

Mobile alone won’t do it, the Discovery chief said, because the only way to gain mobile market share is to drop prices.

“The aggregation of pipe doesn’t decommoditize it,” Zaslav said. The difference, he added, is content.

Other distributors, especially in Europe, have begun buying up sports rights, like BT (formerly British Telecom) buying rights to UEFA Champions League soccer. In the U.S., Zaslav said AT&T’s pending $108.7 billion purchase of Time Warner Inc. is a move to decommoditize the telco’s transport service.

Zaslav said there are two ways to decommoditize the dumb pipe: Obtain intellectual property by buying media companies, or reach exclusive programming deals with content companies.

Buying media companies is easier in the U.S. than in Europe, Zaslav said, because the content market is fragmented — there are few pan-European programmers. Reaching exclusive content deals is currently prohibited in the U.S. (although the incoming presidential administration could change that).

“The rules across Europe and Latin America are not like here,” Zaslav said. “If you’re a mobile operator in Latin America, we can give you some exclusive Eurosport IP, we can give you an exclusive Science app, we can give you some of Discovery exclusively, and the only way to get it is, you’re with BT, or Telenor or Deutsche Telekom or Telefónica. It’s not like the U.S.

“We believe the IP is for the screen, but we also believe the IP is to decommoditize this pipe that is very quickly moving into the home as a pipe that is going to have [a] real price and [a] real commoditization challenge,” he said.

Netflix chief content officer Ted Sarandos said at the same conference that he doesn’t particularly want to be part of a larger entity because that could force him to sell shows to rivals. The subscription video-on-demand service has become a major player in original content — it plans to double its original series slate next year — and wants to keep its content to itself.

“Just think of one company that has one division buying programming and another division making programming and they can’t sell to each other,” Sarandos said. “That happens a lot. We don’t have any of that conflict. Even as we build Netflix Studios, I have no intention of building it and selling our content to other people. I want it as a production entity for Netflix.”

Netflix currently has about 30 original scripted series in production or in release this year. Next year’s lineup will include about 20 unscripted reality shows, including Sylvester Stallone’s Ultimate Beastmaster.