Inside Discovery's $2 Billion Euro Deals Binge (Analysis)

The Associated Press, Friday, December 21, 2012, 1:27pm (PST)

The Hollywood Reporter -- This story first appeared in the Jan. 10, 2013, issue of The Hollywood Reporter magazine.

Forget Honey Boo Boo. TLC owner Discovery Communications sees its future in Vikings and French soccer. In a move to counter sluggish U.S. growth, Discovery is betting big on faster-growing international TV, signing a $1.7 billion deal Dec. 14 to buy 12 channels in Scandinavia from Germany's ProSiebenSat.1 group and laying out plans to spend about $221 million for a 20 percent stake in pan-European sports network Eurosport. The Eurosport deal includes an option that could see Discovery take full control of the network from France's TF1 in two years.

PHOTOS: THR's 2012 Biggest Rule Breakers: 'Walking Dead,' Psy, Tarantino and 7 Others Who Rocked the Status Quo Pending regulatory approval, the deals will make Discovery the leading international broadcast group in Europe -- shooting past Viacom. U.S.-based Viacom generated $741 million in revenue from Europe in 2012, according to U.K.-based group Digital TV Research, while Discovery earned $570 million from the region. SBS Nordic, the network of Scandinavian channels Discovery bought from ProSiebenSat.1, earned about $626 million in 2011. The deals also represent a sea change for Discovery. For the first time, the nonfiction giant will own networks with scripted and general entertainment as well as sports programming. The SBS channels are major players in Scandinavia, accounting for nearly 30 percent of the TV ad market in Norway and more than 15 percent in Denmark and Sweden. Eurosport, which has seen ratings rise this year thanks to such events as the London Olympics and the Euro 2012 soccer tournament, looks primed for growth. In a conference call, Discovery CEO David Zaslav said investing in Eurosport offered more attractive margins than trying to buy into the more expensive U.S. sports market.

PHOTOS: 6 Top Female Dealmakers on Industry Diplomacy, Clients and Competition Discovery's international business now accounts for slightly more than a third of its annual sales, and Zaslav clearly sees a global future. Recent overseas deals include the company's $150 million purchase of the remaining 50 percent share in Animal Planet from BBC Worldwide and the acquisition of a 20 percent stake in French pay TV company Televista. Zaslav also has said Discovery plans to take minority stakes in French niche pay channels TV Breizh, Histoire, Ushuaia TV and Stylia. One look at Discovery's balance sheet explains the global push. Its third-quarter revenue was driven by international channels, which saw 7 percent growth, compared with a 4 percent drop in sales at the company's U.S. networks. Discovery paid a premium for SBS Nordic; most analysts expected a price nearer $1.6 billion (&euro1.2 billion). But they have welcomed the deal. “We expect [Discovery] to earn solid returns despite the acquisition cost,” said Michael Senno of Credit Suisse, who forecast a 20 percent increase in Discovery's international operating income next year -- and an 8 percent overall boost -- as a result of the SBS deal.

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