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Opening Channels All Over the Globe

As Discovery Communications heads into 2011, international operations will once again likely be one of the company’s brightest spots. With 20-plus networks reaching more than 1 billion cumulative subscribers outside the U.S., Discovery International’s revenue jumped 13% to $893 million—nearly one-third of the company’s total—in the first nine months of 2010. Even better, international operating income before depreciation and amortization (OIBDA) jumped by 30%, much faster than the 9% growth seen by Discovery’s U.S. networks in the same period.

“There are certainly a lot of international markets where growth rates will be higher than in the U.S.,” notes Mark Hollinger, Discovery International president and CEO. “So we think a substantial portion of the company’s growth overall will come from international markets.”

While Hollinger has been running Discovery International for only about a year, the 19-year Discovery veteran has been with the company almost from the start of its global expansion. After getting his law degree in 1985, Hollinger cut his teeth in entertainment law working at the prominent law firm of Paul, Weiss, Rifkind, Wharton & Garrison, but he and his wife eventually decided they wanted to move out of New York City. “Since I wanted to stay in the entertainment industry but didn’t want to be in L.A., that really limited the options,” he recalls.

Fortunately, in 1991 a job opened up at Discovery in Maryland and Hollinger joined as just the third lawyer in the legal department. While Discovery was a much smaller company in those days, it had big international ambitions and was one of the first U.S. programmers to go global, bowing a European channel in 1989. Soon after Hollinger joined, Discovery bought out the joint venture partner of its European channel; in 1993, the board approved an aggressive plan to roll Discovery out all over the world. In

1994, Hollinger volunteered to get the Asian service off the ground, spending six months in Hong Kong to launch Discovery Asia. After his return to the U.S., he kept his hand in international markets, working on deals that brought Discovery into Japan, India, Germany, Italy and a number of other markets.

As Hollinger rose through the ranks in the 1990s and 2000s, becoming general counsel and eventually COO, the company launched many of its other channels internationally and developed region-specific services.

That has made global distribution increasingly important to Discovery’s programming development, with some projects from international channels making their way into the U.S., and funding from international channels allowing Discovery to develop even bigger projects.

“Roughly two-thirds of what we air on the Discovery Channel internationally has been a coproduction with the U.S. channel,” notes Hollinger. “It gives us a great aggregated funding model….If Discovery U.S. knows that 40% of the programming budget can come from international, the math works great for them, and great for the international channels as well.”

That programming model, combined with highly efficient operations that deliver more than 100 feeds in over 40 languages from only three network transmission centers, has produced some of the highest international channel margins in the business, Hollinger says.

With growth in affiliate fees having slowed, gaining only 6% in the first three quarters of 2010, Hollinger’s team has embarked on a major push to both strengthen affiliate relations and expand ad sales, which grew by a 34% clip. “We see a lot of headroom on the ad sales side, which is one of the reasons why we are putting a lot of emphasis on a bigger, stronger mix of channels” targeting a range of demographic groups, he explains.

To that end, Discovery has launched a major effort to expand the female-skewing TLC service internationally to complement its male-targeted brands. “TLC is already in 50 million homes, and we have targeted reaching 100 million outside the U.S. by the end of next year,” Hollinger says.

The new OWN service will have distribution in Canada, but Hollinger says it’s too early to talk about other international plans for OWN.

All of Discovery’s channels are customized for local markets with original fare, and Hollinger is planning to expand international production even further. This fall, Discovery created a new international production and development unit and announced plans to signifi cantly expand the amount of programming it produces in Russia, where it will have seven networks when TLC launches there in 2011.

The company is also continuing to expand its HD feeds, already available in more than 80 markets, and is looking for ways to take the lead in 3D programming. Discovery’s joint venture with Sony and IMAX to launch a 3D channel applies only to the U.S.; Hollinger is currently exploring international options for both linear and VOD offerings. In the U.K., for example, Discovery has already sold 3D content to cable operator Virgin Media, which will begin airing the shows on demand in early 2011.

When not traveling for work, Hollinger admits that his family’s favorite activity is to, well, travel. So far, Hollinger, his wife and their three sons have focused on Europe and the U.S. But he notes that his sons have been lobbying to go to Asia, where he got his start internationally. “It could be our next big trip,” he says.

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