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Discovery empire Original Source Link: (May no longer be active)
http://www.time.com/time/magazine/article/0,9171,1101030303-425864,00.htmlhttp://www.time.com/time/magazine/article/0,9171,1101030303-425864,00.html
Sunday, Feb. 23, 2003
TV's Unlikely Empire
Now that the little Nature Channel has become a big cable power, can Discovery stay real--and on top?
By DANIEL EISENBERG | BETHESDA
Peering at the sharp, crystal-clear images of an episode of Insecticide on a massive, 60-in. plasma high-definition TV (HDTV), John Hendricks looks for all the world like a kid with a bug under a microscope. Except in this case, the kid is 50 years old, and the "microscope" is his fast-growing, unlikely cable empire, Discovery Communications.
If you've done any channel surfing over the past two decades, you've probably encountered Hendricks' pioneering brand of reality TV (he prefers the term real-world TV). Once an odd little documentary network making an occasional wave with shows like Shark Week, Hendricks' flagship Discovery Channel reaches 231 million homes in 155 countries and has become one of the most respected, popular cable channels around--and a powerful media brand whose global reach is matched only by the likes of MTV and CNN. It is also the foundation of a privately owned cable empire that generates $2 billion a year in revenue and includes channels like TLC (formally the Learning Channel), with its hit show Trading Spaces; Animal Planet, featuring The Crocodile Hunter; the Travel Channel; and Discovery Health, whose weight-loss face-off Body Challenge has become a hit.
To anyone who remembers the pre-cable heyday of National Geographic documentaries or Wild Kingdom (which now airs on Animal Planet) on broadcast TV, it may seem surprising that Discovery has so quietly become a cable powerhouse. That may just be a consequence of a 500-channel universe. But now that cable is entering the digital age, Hendricks is hoping to give Discovery a much higher profile. He has already started the nation's first 24-hour HDTV subscription service, which provides a variety of Discovery programming in high definition for $8 a month. And he will soon announce plans to spend $65 million over five years on Atlas HD, an ambitious series of 30 two-hour, high-definition documentary specials on countries. The first episode, on India, is scheduled to air on Discovery and its HD service in 2005.
Considering that the cable-TV industry is just emerging from an advertising slump and that only a few hundred thousand cable viewers tune in to HDTV, it's a risky bet. But it's the kind that Hendricks has always relished making. A laid-back, soft-spoken Southerner who first became interested in documentaries when ordering them for his professors at the University of Alabama at Huntsville, Hendricks "is a schoolteacher at heart," says John Malone, chairman of Liberty Media, a principal shareholder of Discovery, along with Cox Communications and Advance/Newhouse Communications. "Like Ted Turner," Malone says, "Hendricks has a childlike enthusiasm about new ideas that is infectious." (His latest passions include the Women's United Soccer Association, a league he co-founded, and the small plane he pilots above his ranch in western Colorado.)
As a kid growing up in the shadow of NASA's Marshall Space Flight Center in Huntsville, Ala., Hendricks was as fascinated by the stars over his head as by the insects at his feet. After earning a degree in history, he became a university fund-raising consultant outside Washington, where Discovery is based today. Then in 1985, at a time when the TV documentary had been written off as an idea past its prime, he enlisted the moral support of Walter Cronkite (whom he cold-called) and the financial muscle of media-investment firm Allen & Co. to help him launch the Discovery Channel. About his penchant for gambles, Hendricks, who owns 3% of the company, says, "Sometimes you need a little naive confidence."
Valued by Wall Street at between $10 billion and $20 billion, Discovery is an impressive collection of assets with earnings expanding 20% or so annually and a prime position in fast-growing markets like China, India and Mexico. It also includes a growing roster of fledgling, niche networks available on digital cable. Celebrating everything from aviation and kids to home and leisure, the networks rank among Hendricks' many recent gambits that were met with industry skepticism. There are some who think Discovery has grown too fast, diluting the quality and appeal of its biggest brand by launching so many channels and other ventures, including a flagging chain of 154 retail stores. Then, too, competition is heating up, and not just from the new breed of reality-TV shows like Joe Millionaire and The Bachelorette. National Geographic recently joined forces with Rupert Murdoch's Fox Cable Networks to start a competing, eponymous adventure channel that reaches about 40 million U.S. homes.
Still, nearly every major-media company would love to buy Discovery. Not only does Hendricks have a loyal, upscale audience and relatively low production costs, but he also controls a vast library of recyclable content that travels easily across most cultural and political boundaries--and is tailor-made for video-on-demand, a service that cable operators are starting to roll out. And he has Judith McHale, a veteran of the early days of MTV, who, as Discovery's president, runs the firm day to day. McHale is a savvy dealmaker who "has an underlying respect for people that you don't often see in this industry," says her friend and former MTV colleague Geraldine Laybourne, ceo of Oxygen Media.
There's no indication, however, that the big shareholders want to sell--even if some analysts say cable networks have hit their peak--and neither Hendricks nor McHale would be likely to stick around if Discovery did go public. They both relish the fact that since they don't have to answer to Wall Street, they can plow earnings back into long-term investments. "When you construct a 10-year deal with them, it's not a ridiculous discussion," says Rupert Gavin, CEO of BBC Worldwide, whose upstart cable channel, BBC America, is distributed by Discovery.
Over the next five years, Hendricks plans to spend nearly $1 billion on new, original programming, part of a bid to make the channels more regular viewing destinations than channel-surfing rest stops. Next month Hendricks will relaunch the digital channel Discovery Civilization as Discovery Times, the result of a $100 million partnership with the New York Times that will feature the newspaper's reporters and columnists in shows that examine issues of the day. He will soon announce an agreement to produce, air and release feature-length documentaries by major directors such as Michael Apted, Barbara Kopple and D.A. Pennebaker as well as start airing a news-oriented documentary on Discovery each month.
In tackling more edgy issues like terrorism that have typically been the domain of PBS and A&E, Discovery risks creating an identity crisis. Two new top executives, Joseph Abruzzese in advertising and Billy Campbell in programming, are seasoned veterans of broadcast networks and Hollywood studios, which has some observers arguing that Discovery's uniqueness is fading--that "some of the missionary zeal has been lost," as a former employee puts it.
Campbell certainly has work to do. Discovery Channel viewership has slowly but steadily dropped over the past year, and though its costly, one-time productions, like Blue Planet and James Cameron's Bismarck, continue to draw millions of viewers, the channel has always had trouble holding an audience from one show to the next. It's Campbell's job to get viewers to think of Discovery as more than a nature channel. But by delving into more shows like the offbeat Trading Spaces, the hit interior-design reality show on TLC that some see as faddish, he risks cheapening Discovery's reputation.
Hendricks says he doesn't worry too much about ratings at one channel as long as his total audience grows, as it has continued to do. With that growth, Discovery has recently been able to sell big advertisers like Procter & Gamble, General Motors and Taco Bell on the kind of multichannel deals previously reserved for big players like Viacom, News Corp. and Disney. "We've got all the elements in place, and I think we're ahead of the game," says Hendricks. And as always, he thinks defying the conventional wisdom is the real way to win.
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