Special Report: The Fittest Survive

NEW YORK It is perhaps the most ARRESTING image in an 11-hour panoply of arresting images, a moment of crisis that is at once starkly isolated and yet one that seems to serve as a portent for the entire planet and everything that creeps and breathes and thrives upon its molted surface.

In the sixth installment of the Discovery Channel’s epic documentary series Planet Earth, a polar bear, standing uncertainly on an ice floe in the Arctic, begins to lose his footing as the sheet begins to break apart into the surrounding sea. With his world literally crumbling to pieces around him, the bear has little choice but to swim for the next tenable landmass, which turns out to be some 60 miles distant.

While the polar bear’s plight never improves—in a desperate bid for sustenance, he takes on a herd of walruses; after that tactic fails, the wounded and starving bear ultimately dies off-camera—the overall tone of the series is celebratory. In documenting the rich pageantry of the natural world, not only did Planet Earth stir up massive ratings for Discovery, averaging 5.16 million viewers and 2.4 million adults 25-54 over the span of its five-week run—it also marked a return to the channel’s roots.

The culmination of an ambitious, five-year project conceived by Discovery Communications founder and chairman John Hendricks as a means to document natural history with the most advanced technology at the network’s disposal, Planet Earth also serves as a shining reminder of the company’s commitment to HD.

Over the last two months, all of Discovery’s original network content has been shot in HD and the company has begun the arduous process of upconverting its archives. Discovery’s going to need all the HD content it can get; in the fall, it plans to launch four new HD channels, offering subscribers high-def simulcasts of the flagship net as well as Animal Planet, TLC and The Science Channel. Two additional HD channels will follow by the first quarter of 2008.

“Having established first-mover advantage in the HD space with Discovery HD Theater, this is a step toward growing that leadership,” says Discovery president and CEO David Zaslav, adding that the simulcasts will also be available in Discovery’s international markets.

Since emerging as the nation’s first 24/7 HD network in June 2002, Discovery HD Theater has functioned as a showcase for marquee fare like Planet Earth and the ongoing, 30-part series Discovery Atlas while offering exclusive destination and wildlife programming.

The introduction of the new HD nets will “change HD Theater significantly,” Zaslav says, as the Discovery Channel simulcast will emerge as the high-def flagship.

With projections anticipating at least one HD set for each of 65 million American homes by 2010, Zaslav says that the time is right for Discovery to go all-in on the format. “We have to drive ourselves toward really becoming a new-media company with all that entails rather than just sitting back and continuing on as a traditional cable company,” he says. “HD is the new analog tier.”

For Hendricks, the promise of HDTV is not just in the clarity and resolution of the picture; rather, it’s an opportunity to bring people together again in a fragmented entertainment universe.

“The key tension, which is defining the task ahead for all of us, is that we need to recognize that the large-screen format is the way we tell each other our stories, and that is going to stay centered in the home,” Hendricks says. “That’s where people are through being interactive for the day and want to go straight into that storytelling mode. Huddling together for a story—it’s genetic.”

Hendricks was so enthralled by the potential of HD that even five years ago, when the format was still in the larval stage, he planned to have an entire documentary series produced with the new technology.

“I insisted that it was to be done in high-definition, and back then it was a hugely daunting proposition,” Hendricks says. “Beyond the expense, we couldn’t even say for certain that the cameras would work out in the field given the temperature extremes. At the time, no media company could have undertaken a project of this magnitude on its own.”

The joint production, which was shouldered by both Discovery and the BBC, was budgeted at $25 million, more than $2 million per episode. “There were difficulties when you looked at the cost involved, but you have to have a fundamental faith in the project if you’re going to see it through,” Hendricks says. “These big-budget HD series are very important to us in that they create an event that each week people will gather around to watch … And they’re a great way to promote all of our coming attractions.”

In a sense, the success of Planet Earth and the blue-chip investment Hendricks made in the series is emblematic of the direction the company has been moving in since November 2006, when former NBC Universal executive Zaslav was tapped to replace outgoing Discovery president and CEO Judith McHale. Renowned for his business acumen, having taken on every aspect of the cable business from affiliate sales to the oversight of NBCU’s ambitious digital-media initiatives, Zaslav is guided by a hyper-accelerated process of natural selection. In order for the herd to thrive, the weak must be culled.

The first winnowing came in February, a little more than a month after Zaslav moved into his new digs at Discovery’s Silver Spring, Md., headquarters. In a five-page missive to staffers on Feb. 5, Zaslav broke down his three-point plan for growth, including a call for the elimination of an entire layer of senior management. By the end of the day the memo was sent, Discovery Networks U.S. president Billy Campbell, who had overseen the company’s domestic programming assets, was gone, Zaslav having eliminated his position entirely.

Letting Campbell go was both a strategic and a symbolic move in that it removed any dotted lines at the highest levels of Discovery’s reporting structure, granting full authority for programming decisions to the heads of the five network brands while freeing Zaslav to go about the business of, well, business.

A second round of layoffs began April 9, resulting in 200 employees being let go, most of them coming from the networks, as well as the education and Discovery Studios units.

Education was the first area to begin downsizing. In December 2006, Discovery began a number of adjustments to the education division, letting go of some 84 employees in order to shift resources over to the company’s direct-to-school distribution platform, UnitedStreaming. A similar review has begun with respect to the commerce division, which houses Discovery’s 100-plus retail outlets and e-tailing operation.

Some have suggested that education is particularly vulnerable to further cuts, given that it’s generally seen as a holdover from the McHale era. But Hendricks counters that the unit shows “a great deal of promise in terms of growth and … UnitedStreaming has been just terrific.” The founder added that Discovery will spend less on its consumer-products offerings, noting that the commerce and retail review is not yet complete.

“David is leading the charge there and he’s doing a great job,” Hendricks says. “He’s got great instincts.”

Zaslav says UnitedStreaming is now in more than 70 percent of the nation’s classrooms, giving Discovery a direct feed to millions of kids. As such, Zaslav has been mulling over the possibility of serving as a distribution partner to other content players looking to tap into that huge, captive audience.

“The question is, should we be the only one that reaches that asset, or should we be the Comcast of the classroom, where other people piggyback on top of us to get into that screen? We haven’t scratched the surface yet,” he says.

The importance of education only serves to underscore just how opaque the inner workings of Discovery have been to Wall Street and beyond, given the knottiness of its overall corporate structure.

In July 2005, Liberty Media poured its 50 percent stake in Discovery into the newly created Discovery Holding Co. Following Cox Communications’ divestment of its 25 percent stake in the company in late March, Discovery Holdings now owns 66 percent of Discovery Communications, with the remaining 33 percent under the control of Advance/Newhouse. Adding another layer of complexity, although DHC owns the majority of the networks group, it cannot make any major business decisions without the consent of 80 percent of its shareholders. Thus, Advance/Newhouse continues to have a hand in all decisions that come to a vote.

The Cox deal is expected to be finalized sometime over the next two weeks.

In a note to investors last month, Pali Capital media analyst Richard Greenfield said he believed Advance/Newhouse may ultimately decide to consolidate its interest to DHC. Should that be the case, it would free Discovery management “to communicate with the investment community (something that has not been possible since the creation of DHC),” Greenfield wrote. “We believe greater transparency beyond quarterly filings will result in a substantial increase in investor attention paid to DHC.”

While Discovery executives say they do not anticipate Advance/Newhouse will look to sell its stake, investors have already begun getting a better look at the inner workings of the company since Zaslav took over.

“He’s much more proactive, much more adept at getting the message out there,” says one executive who’s had dealings with both Zaslav and his predecessor. “There hasn’t been any lag time with the guy. He comes in, he starts making moves … There’s no mystery as to what’s going on.”

One of the more populist Wall Street watchers, CNBC’s Jim Cramer, praised Zaslav’s gimlet-eyed approach to business management during a recent episode of his evening financial program Mad Money.

Leaping full-bore into his hyperbolic hedge-fund-manager-with-Tourette’s delivery, Cramer called the new Discovery a “brutal, cut-throat and most brazenly capitalistic cable channel,” telling viewers to invest in what is “becoming a real money-making machine.”

Shareholders have responded to Zaslav’s first few months on the job in kind. Since the year began, Discovery shares have shot up nearly 24 percent, closing on May 1 at $21.56.

While the next several months will find Zaslav juggling a number of different projects—including the HD launches and an effort to define the so-called green channel initiative he first announced during last month’s upfront presentation—he’s not taking his eye off the resurgent flagship net.

Thanks to Planet Earth, Discovery ended April as the No. 5 ad-supported cable net in prime time, growing its average nightly audience 38 percent to 1.59 million viewers while upping its delivery of adults 18-49 by 32 percent and adults 25-54 by 26 percent.

MPG CEO Charlie Rutman says the Discovery slate manages the tricky feat of “combining what is most certainly a commercial venture with doing good, bringing awareness to things that normally don’t get a lot of play on television … They have a terrific mixture of stuff.”

Jane Root, executive vp and general manager, Discovery and Discovery Science, says she’ll build on the recent ratings boom by focusing on serving the core of the brand. “Right now it’s very sexy to be smart, and that has something to do with how new media has taken over the world,” she says. “If we modernize our content, offering our viewers a chance to increase their knowledge in an immersive, energetic environment, we’re going to be able to keep our momentum.”

Next up on the flagship: the previously unannounced mini-series spinoff of Deadliest Catch, which steams out of port May 29. Hosted by Mike Rowe, the four-episode After the Catch will offer fans of the sea-tossed reality series an even more intimate look at the men who make their living fishing for crabs in the freezing waters of the Bering Sea.

While Deadliest Catch and Planet Earth have been stellar ratings draws for Discovery—the April 3 season premiere of Catch lured 3.1 million viewers, a 30 percent increase over the season-two opener—big audience numbers aren’t always greeted with a chorus of huzzahs.

While the net stirred up an enormous amount of controversy with the March 4 documentary The Lost Tomb of Jesus, which brought in 4.1 million viewers, Root says she doesn’t regret airing the program.

“We want to be a network in the present tense, to be a part of the global conversation,” she says. “We have a really strong sense of where we’re going.”

As does Zaslav, who says he’s already settled in to his new life in Silver Spring after 20 years at NBC.

“This is chapter two for me,” he says. “I wanted new music playing in my ear and some different scenery, and that’s what I have right here.”