2016 Annual Report

Discovery Communications

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Dear Shareholders,

Discovery is driven by a singular mission: to tell remarkable stories about our world and its unique communities that inspire, inform and entertain. We engage passionate viewers around the globe with great content and brands they care about. This focus has fueled our growth and ambition for more than 30 years, and never more so than in 2016.

As the media industry rapidly evolves, our commitment to igniting curiosity and connecting people through universal stories is more important than ever. With that in mind, we have aggressively responded to important questions facing our business and its enduring success: How does Discovery’s portfolio stand out when people have unlimited choice? How do we ensure that the superfans of our specialty genres, as well as our advertisers and distribution partners, continue to value our brands and programs amid a proliferation of content?

In 2016, we renewed our mission to deepen the connection with our most important audiences, strengthening our brands and diversifying our offerings in genres including sports, automotive, true crime and kids to attract and engage these passionate fans.

We are convinced that our success will be determined by the grounding principle that great content always rises to the top.

Our content-first strategy is already paying off. For 2016, Discovery reported record revenue, profit and free cash flow, while investing in new types of content and technology to ensure we reach viewers across every platform and screen. Our strategic initiatives have proven successful and our key accomplishments are outlined below.

2016 Highlights

Content Our Fans Crave: We continued to fortify our nonfiction, sports and children’s brands with high-quality, premium content. Global brands Discovery Channel, Animal Planet, TLC, Investigation Discovery, Science Channel and Velocity/Turbo deepened their connections with their fans, while Eurosport and Discovery Kids continued to bring new viewers into our portfolio.

Discovery Channel was the #1 non-sports network for men in the U.S., and OWN ended 2016 as the #1 network for African-American women. ID continued its remarkable success and ascension as a global media brand. In the U.S., ID was the #2 network in all-day delivery for women during 2016 and the #1 network for length of tune in all of TV, driven by strong female viewership. Internationally, ID’s viewership increased 18% during 2016.

Passionate female viewers are also driving our biggest momentum story, as TLC reported a return to ratings growth in the U.S. in the fourth quarter. Discovery Kids and Eurosport helped drive more attractive distribution agreements in Latin America and Europe, respectively, and are promising genres for our direct-to-consumer products.

A Sports Champion Across Europe: Fueled by a stronger brand and more premium, more exclusive and more locally popular sports rights, Eurosport posted double-digit viewership gains in key markets across Europe. In the fourth quarter alone, viewership increased 23%, and in January 2017 we reported record viewership for the Australian Open, where we have exclusivity in the majority of our markets. Our focus on sports is paying off, helping drive constant currency international affiliate revenues by 10% in 2016. We expect that strong growth will continue, as our enhanced portfolio continues to resonate with viewers and drive value to our distribution partners.

We marked the start of 2017 with Eurosport as the official home of the Olympics, and we are well on our way to airing the 2018 Winter Games in PyeongChang, South Korea. Our rights to the Games give us the opportunity to reach over 700 million people across Europe. We also will be the exclusive home of the Games in Sweden and Norway, where winter sports are hugely important, as well as in Germany, the continent’s largest market, across all of our owned platforms and services: free-to-air, pay-TV, digital and over-the-top.

The rights to the Olympic Games are a clear testament to our focused sports strategy in Europe. The values upheld and advocated by the Olympic family are mirrored in our grounding principles and focus: stories of human endeavor, performance and innovation. Together with our other sports rights, including premium soccer in select markets, all four Grand Slam tennis tournaments and all of cycling’s most important races, the Olympics strengthen our position as the #1 sports destination in Europe.

Diversified Distribution: Discovery Communications renewed strong distribution agreements with partners including Liberty Global, Telenor and AT&T in 2016. We also continued to expand our distribution beyond the traditional TV screen on a more direct-to-consumer basis, highlighted by subscriber-authenticated streaming apps in the U.S. and Latin America.

Every Person, Every Platform: As the media ecosystem continues to evolve, we remain focused on driving our multi-pronged digital strategy to ensure our content reaches every person, on any platform and at any time.

First, in the U.S., our TV Everywhere GO apps are now available to nearly 80% of pay-TV subscribers, or to over 150 million people. GO is also proving a great vehicle for engaging younger audiences, with about 40% of our viewers on the app ages 18 to 34 and averaging one hour of viewing.

Internationally, our Discovery Kids Play TV Everywhere app is now available in Latin America across 12 countries with 24 providers, helping solidify our role as the region’s #1 destination for kids’ content.

Second, we are focused on being a part of the channel packages offered by online video providers, and are to date included in Sony’s PlayStation Vue, Sky's NOW TV and AT&T’s DIRECTV NOW offerings.

Third, on the direct-to-consumer front, we see significant opportunities to expand into niche genres and verticals where we have a distinct brand advantage, as highlighted by the strong success of our recently launched dedicated Amazon SVOD channels, True Crime Files by ID and Destination Unknown, as well as Eurosport Player, which is targeted at European sports fans.

We continue to enhance our Eurosport Player streaming service through a long-term investment and joint venture with BAMTech, a subsidiary of MLB Advanced Media. BAMTech Europe is a new digital technology provider dedicated to working with content owners, broadcasters and over-the-top platforms to enhance their digital capabilities, reach and performance. BAMTech Europe will provide Eurosport Player with a world-class digital technology platform that allows for more scale and functionality as we expand our direct-to-consumer model across European markets.

Lastly, we also took an important step to become a leader in short-form and mobile-first content, through the creation of Group Nine Media, a new digital media holding company comprising NowThis, the #1 video news publisher on Facebook, as well as Thrillist, The Dodo, and Discovery’s own Seeker. Now a top-five digital-first media company in the U.S. in terms of monthly video views, Group Nine is helping us attract and monetize younger audiences across mobile and short-form video.

Destination Innovation: Underscoring Discovery’s commitment to innovation and pioneering new technology storytelling formats such as HD, the company launched Discovery VR in 2015 and Eurosport VR in 2016. Since then, there has been more than 115 million streams and over three million downloads for Discovery VR. These numbers continue to grow, exceeding our expectations for this new way to engage fans.

Cost Diligence: Discovery remains focused on controlling our non-content cost growth and we made real progress in lowering our effective tax rate. These efforts helped drive AOIBDA, EPS and free cash flow last year.

Backed by brands that truly matter, Discovery is uniquely positioned to grow and deliver value to shareholders for years to come. We are maximizing the value in our linear business; bringing world-class content to superfans around the globe; and making smart investments on mobile and digital platforms. The steps we have made to deliver great content across a world of seven billion screens, enriched by our talent, brands and management, show there really is no limit to Discovery.

David M. Zaslav
David M. Zaslav
Robert J. Miron
Robert J. Miron

Board of Directors

  • Robert J. Miron
    Chairman,
    Discovery Communications
  • S. Decker Anstrom
    Former President,
    Landmark Communications
  • Robert R. Beck
    Independent Financial Consultant
  • Robert R. Bennett
    Managing Director,
    Hilltop Investments
  • Paul A. Gould
    Managing Director,
    Allen & Company, LLC.
  • Dr. John C. Malone
    Chairman,
    Liberty Broadband Corporation,
    Liberty Expedia Holdings,
    Liberty Global, plc,
    Liberty Interactive Corporation,
    Liberty Media Corporation
  • Steven A. Miron
    CEO,
    Advance/Newhouse Communications
  • M. Lavoy Robison
    Director,
    The Anschutz Foundation
  • Susan M. Swain
    Co-CEO & President,
    C-SPAN
  • J. David Wargo
    President,
    Wargo & Company, Inc.
  • David M. Zaslav
    President & CEO,
    Discovery Communications

Executive Officers

  • David M. Zaslav
    President & CEO
  • Adria Alpert Romm
    Chief Human Resources & Global Diversity Officer
  • Bruce Campbell
    Chief Development, Distribution & Legal Officer
  • Paul Guyardo
    Chief Commercial Officer
  • David C. Leavy
    Chief Corporate Operations & Communications Officer
  • Jean-Briac Perrette
    President & CEO, Discovery Networks International
  • Kurt Wehner
    Chief Accounting Officer
  • Gunnar Wiedenfels
    Chief Financial Officer
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