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WHEN: Today, Wednesday, July 10, 2019
WHERE: CNBC's "Squawk Box " – Live from the Allen & Company conference in Sun Valley, ID
The following is the unofficial transcript of a CNBC interview with Discovery Communications CEO David Zaslav and CNBC's Julia Boorstin on CNBC's "Squawk Box" (M-F 6AM – 9AM) today, Wednesday, July 10th live from the Allen & Company conference in Sun Valley, ID. The following is a link to video from the interview on CNBC.com: https://www.cnbc.com/video/2019/07/10/watch-cnbcs-full-interview-with-discovery-ceo-david-zaslav.html.
All references must be sourced.
MIKE SANTOLI: Media moguls have gathered in Sun Valley, Idaho for the annual 'Allen &Company' conference. Julia Boorstin joins us now with one of those players. Hi, Julia.
JULIA BOORSTIN: Hi, Mike. Thanks so much. I'm joined now by David Zaslav, CEO of Discovery. Thanks so much for coming and talking us to us so early this morning.
DAVID ZASLAV: Hi Julia. How are you?
JULIA BOORSTIN: I'm good. Well, so, here in Sun Valley, people are talking about the streaming wars. Just yesterday, WarnerMedia, AT&T's WarnerMedia announced HBO Max is going to be its new service. With so many players in this space, who do you think is going to win the streaming wars?
DAVID ZASLAV: Well, I think it's going to be a street fight. And the good news for us is we think we have kind of side stepped it. You have the greatest media companies all chasing the same ball—scripted series and scripted movies. So, you have Netflix, Hulu, Comcast and NBC are launching, Randall and Stankey with HBO Max. But they all kind of look the same. Apple is doing it. Scripted series, scripted movies. Great companies are going to fighting over that market share. Price of content going up. It's great to watch. I think it's great for consumers. But it's incredibly crowded and it's incredibly expensive. And none of them have enough. And so, we're -- our strategy is let's step to the side of that. 50 to 60% of the content that people consume is not scripted series or scripted movies. So, for us, it's Home, Food, Discovery, Oprah, Crime, Chip and Joanna Gains. We own most of the golf in the world, most of the cycling. So, we see, 'Okay, people love that kind of entertainment, but we have almost all of that other great quality content. And we own it everywhere in the world. So, we have quietly turned ourselves into a passion driven IP company and they're fighting over the same producers, over the same talent, while we get all of the great talent in food and home. We did a big deal where we bought the BBC library so we own almost all of the science and natural history, Planet Earth. And so, we feel like we're in a good position and we'll watch as they see the market and fight to get scripted series and scripted movies for six, eight, ten, $18. It's going to be a very difficult fight.
JULIA BOORSTIN: So, we have seen Hulu invest more in food content. That was sort of a big feature of their Upfront this year. We could see Netflix invest more in the documentary space. And so, what happens when those companies decide that they want to go after your viewership? Especially when you have a company like Netflix which is spending billions and billions of dollars. What if they shift into your space?
DAVID ZASLAV: Look, we're pretty secure in our space. We have the top four channels, for instance in America with women, with HGTV, Food, ID, and TLC, and number one for women with Oprah. And people could watch anything, but when they want to watch food, they come and they spend all their time with the great chefs that we have and the great content. And most of the producers that produce well in the food area or the home area, Natural History or Crime – we have been doing business with them. And so, and more importantly, people aren't buying Netflix to watch a home show. They're not going – so, for us, we think we have something very differentiated and people come to us for it. They come to us for it on all platforms in all languages. And so, they're almost seeding the marketplace a little bit and training people to pay for content. And IP and content is becoming more and more valuable. Because people are spending more time-consuming talent.
JULIA BOORSTIN: But they may be training people to pay for content a la carte, but they also may be getting people to cut the cord. And people are mostly watching your content, at least here in the U.S., on live TV.
DAVID ZASLAV: Well, first, the traditional business is in secular decline. But our business globally – we're generating about $3 billion in free cash flow and we have a low to mid-single digit growth company, having nothing to do with all of the global IP that we own. And we have said that we think it's sustainable that we can grow low to mid-single for the next several years. So, we do have decline, but the advertising market is strong, the upfront was very strong. And as we look at our traditional business, we feel that we have a nice growth business. But we're investing in this global IP and we are going direct to consumer with golf, with cycling, with natural history. And we're the leader in women in America and we have all that that we can bring direct-to-consumer.
JULIA BOORSTIN: I want to hear more about the advertising business. But first, in terms of your direct-to-consumer businesses it is really more about the passion products. You're asking people to subscribe for a golf or a cycling service here in the U.S. and then you have a broader, something more similar to ESPN.
DAVID ZASLAV: Golf everywhere but the U.S.
JULIA BOORSTIN: Golf everywhere, and then also cycling. So, my question is as there's this proliferation of direct-to-consumer services people are only going to subscribe to a limited number of them. They can't subscribe to all of them. So, does the fact that there are so many new players in the market just in the next year mean that that's more competition and it's going to raise the bar to make it harder for you to add subscribers to your services?
DAVID ZASLAV: I think it is going to be harder for them because they're doing all the same thing. They all have scripted series and scripted movies. And the scripted – and the movies are – it's becoming more and more commoditized. You see the same movies – you see the same movies on each of these platforms. And so, if you want scripted series and scripted movies, you can go to Showtime, HBO, Amazon Prime, Netflix, Apple TV, HBO MAX. But, you know, if you think about when you were younger and you waited for a magazine, if you love golf, we have all of the golf in the world outside of the U.S. We have almost all of the natural history and science in the world. We're dominant in food, most of the great chefs domestically and around the world work for us. The great home designers. And so, we do think quality IP is important. That's why we did a deal with Oprah. That's why we did a big deal with Chip and Joanna Gaines. That's why we did Scripps, because we think people that love food are always going to come to food, people that love home are always going to come to home. So, we think that this is an ecosystem that will work together. Everyone -- it's almost like a soccer field. Everyone went running to that big shiny ball. And –
JULIA BOORSTIN: But there's nothing to keep them from deciding that they want to chase your success in that area of home and food, and stuff like that.
DAVID ZASLAV: Well, one, we have the great characters and personalities in each of those areas. It's pretty difficult to chase us in natural history. We own the entire BBC library everywhere in the world. We have the Discovery library, the Science library, Animal Planet. We are the biggest producer of natural history in the world, so I think it's hard for them to come into our space. And it's unlikely that they would because those are broad entertainment services. But people still come home and they want -- they love golf, they love science and natural history. They love food. So--
JULIA BOORSTIN: Yeah.
DAVID ZASLAV: So, I think they're going to coexist. And we believe that we're going to be the big beneficiary because we own all of this passion-driven diversified content.
JULIA BOORSTIN: And so, what about M&A? Does that mean that you think that maybe some of the big companies that are not in your space are going to be interested in buying a Discovery? Who are you in talks with now?
DAVID ZASLAV: Well, right now our -- we're driven to make our content better and grow our market share and continue to grow. You know, right now it's low to mid. We want to push it more to mid and see if we can continue to generate more and more cash. But one thing has changed over, Julia, over the last two years. And that's that each of the players that are chasing that ball, that are doing scripted series and scripted movies, they're chasing IP and none of them have enough. None of them have enough. And so, all of them are looking over and saying, 'I need more. Who has great differentiated content.' So, all of them are talking to us, saying, 'Can I have some of your stuff?' And we are saying, for now, we're going to keep our stuff and we're going to see what -- we think that we could generate our own assets. And we think in the long-term owning that quality content globally ourselves unencumbered -- and that's a big differentiation.
JULIA BOORSTIN: But with three mega media deals that have closed in the past year, Disney, Disney buying Fox, Comcast buying Sky and also AT&T closing on its Time Warner deal, your rivals are bigger than ever. Do you need to merge with another player of your size or do you need to sell to one of those giants to ultimately really be competitive?
DAVID ZASLAV: Well, we're the largest independent media company. And we think some of the assets we have that we're the largest media international company, we're in 200 countries. We're the largest player in sports. So, we think that in our area that we're big enough. We're the biggest player in golf, we're the biggest player in cycling, biggest in natural history. But in the long run if we're wrong, then we have the biggest assortment of great IP in affinity groups that people love and we're in every language around the world. We think that we're going to win either way. We'll be more valuable.
JULIA BOORSTIN: So, are you having any deal talks right now?
DAVID ZASLAV: No, most of the discussions that we're having are around getting our content direct-to-consumer or we're pushing off each of these players and saying, 'We're not ready to sell our content to you.'
JULIA BOORSTIN: Joe has a question. You want to jump in here.
DAVID ZASLAV: Good morning, Joe.
JOE KERNEN: Good morning, David. I'm just wondering if there is a number for you that you'd go, I mean it would be expensive to buy you. Take a pretty big player.
DAVID ZASLAV: Well, look, right now we're trading from our perspective incredibly cheap. We are at about eight times free cash flow. We are generating about $3 billion in cash and we think we have a sustainable low to mid growth company. But we're being penalized. We're spending a few hundred million. The fact that we own all of the golf, we own all the natural history, we own cycling, we own – we're in big business with Chip and Joanna Gaines. The street is not giving us credit for that. So, if we're right and if we can turn all of that content direct-to-consumer, and we have a sustainable traditional business but then we own all of the differentiated IP and we can get it into the hands of people on every device. Which we're starting to do, and we've been doing that the last couple of years. As that starts to scale then we could be a hell of a company and we could have a hell of a run and I could be here in ten years talking to you about the strategy of quality content and not scripted series and scripted movies.
JULIA BOORSTIN: I want to ask you about advertising. You mentioned the Upfront was strong and I'm wondering if that's because you're appealing to advertisers as a place for safe premium content as an alternative to Facebook and Youtube which have been struggling with issues around brand safety. Is that something that you're talking about with advertisers and have their issues and challenges benefited you?
DAVID ZASLAV: Well, it -- that's benefitted the whole TV market. There's two or three things that have happened. One is the shiny gloss on the big digital companies has at least for the moment toned down a little bit because of the ability of -- to give clear measurement and what are you next to and the overall view of those brands have diminished a little bit. But more importantly, advertisers have found that if they want to move product, being on TV, doing a 30 or a 60 second spot with an engaged audience on TV is a much more powerful way to move product. So, more money came back to traditional TV and cable this year in the Upfront. That's number one. Two is we're the number two or three TV company in America and we have audiences that come to us and stay with us. So, whether it's Food or Home or ID. So, we went in to the Upfront with the top four cable channels for women. And with length of view on each of the channels in a meaningful way where most of the other cable channels, people came for a scripted series. And so, we think we went with an advantage. Quality brands and a differentiated and scale audience. And, so we did very well in the Upfront. I think everybody in TV did well this year, better than last year and scatter has been strong. And so, we are in a market that around the world is in slight decline. But, you know, not only do we have a low to mid-single digit growth business but outside the U.S., subscribers are still growing a little bit, where they're declining here. But there's no question people are spending less time on traditional TV and that's why we have made it our business to own all of our content so we can take it to every platform.
JULIA BOORSTIN: Melissa, did you have one last question here?
MELISSA LEE: Actually, yeah, I did. I wanted to know what David thought of the role of the likes of an Apple or an Amazon or an Alphabet in the media landscape in that they're all creating their own original programming. So, is that driving up content and the costs overall and can you see them ultimately being a buyer of a smaller content company?
DAVID ZASLAV: Well, look, they have an extraordinarily powerful platform. You know, the cable business started with these franchises and you tried to build the business out of a county and then eventually you owned the state. They own the world. They're above the globe. And the ability to go above the globe and offer IP is compelling. They haven't figured it out yet but their strategy is our strategy. The reason why we own all of the golf in the world is because we think that when you go above the globe with golf or natural history or Oprah or the Gaines, you could build a hell of a business. The rest of media is still mostly owning their content because it's so expensive. They're owning it for the U.S. and then they're selling it off in other markets. But eventually, we're going to want to, as -- the real market cap appreciation is going to go to the companies that can take their IP and go above the globe and say 'Who everywhere in the world wants to see cycling? Who wants to see natural history and Planet Earth?' and be able to draw from the entire planet. That was never possible. And that's what Apple can do. That's what Amazon can do. That's what Google. And that's what Facebook could do. So, we all have platform envy but they need IP to attract people to their amazing platforms.
JULIA BOORSTIN: Global platform envy. That's a future battle. David Zaslav thank you so much for joining us in Sun Valley. We really appreciate it. Guys, back over to you.
DAVID ZASLAV: Thank you.
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