3D Market Hasn’t Met Expectations, Discovery CEO Says

The demand for 3D TV programming hasn’t developed yet and has grown slower than expected, Discovery Communications CEO David Zaslav said during the company’s Q2 earnings teleconference. “3D, candidly, has been slower than expected.” The market will be driven by the penetration of 3D TV sets into consumer homes and how quickly consumers adopt them, Zaslav said. “The good news for us is that we've gotten a lot of experience with it,” through Discovery’s joint venture with Sony and Imax, he said Thursday.

Discovery will “be there” if demand for 3D TV programming becomes robust and if it “transitions to a technology where you don’t use glasses,” Zaslav said. For now, some multichannel video programming distributors simply want 3D programming just so they can say they have it, he said. “There are a number of markets where distributors feel like they need to hedge even though the consumer demand isn’t significant yet.” They feel that “from a branding perspective, it’s important for them to have 3D or to be a leader in 3D,” he said.

The market for 3D TV hasn’t yet developed and it’s hard for TV programmers to say when it will, Zaslav said. “It would probably be the consumer electronics crew or the technology crew that can give you a better sense of if it will.” Still, Discovery is making sure if 3D becomes popular, it will have place on MVPDs’ platforms, including overseas, he said.

Discovery’s deals with MVPDs outside the U.S. often guarantee it an HD channel position if that distributor doesn’t already offer HD, Zaslav said. Discovery is building 3D clauses into those international carriage agreements, he said. “As we go around the world and renew our deals, whether we do a [linear 3D] channel or just some 3D content, we have [standard] channels, HD and 3D."

Discovery is looking meanwhile to its international networks for sustained growth as pay-TV penetration abroad begins to catch up with domestic levels, executives said. In regions such as Latin America, Russia and India, where pay-TV growth is particularly strong, Discovery is accelerating its investments, they said. “We do have a targeted growth strategy where we look at the higher growth markets and we lean in,” Zaslav said. Though Western Europe’s pay-TV penetration growth has slowed, and the region is facing its own set of economic problems, Discovery is hopeful it can increase revenue in that market through higher ad sales and affiliate fees, he said. “We're continuing to take advantage of the fact that we have real market share and scale in markets like Western Europe."

In the U.S., Discovery’s investments in original programming are paying off in higher ratings, richer ad sales and soon, higher affiliate fees from distributors, Zaslav said. “We don’t have any large [distribution] deals that come up before 2012, and then they are staggered, so we do have some time.” Discovery’s networks draw far more viewers now than they did during the last round of carriage talks, he said. “The stronger the channels are, the stronger our hand is when we sit down and have that discussion when our deals are up."

Discovery increased its share buyback program by $1 billion. The company bought back about $210 million of its shares during the second quarter. Q2 sales gained 11 percent from a year earlier to $1.07 billion. Profit more than doubled to $254 million.