Trouble & Attitude 1/Trouble and Attitude - Issue 01.iso/pc/pctext/bizhen.txt

Text File | 1995-06-02 | 18.3 KB | 392 lines

JOHN HENDRICKS
Discovery Communications, Chairman / CEO
with Larry Yu

John Hendricks conceived of The Discovery Channel in
1982 as a new cable television service devoted to
documentary programming. Despite skepticism from many
in the industry, The Discovery Channel was launched in
1985 and has quickly grown to be the fifth largest
cable network in the country.
Discovery also transformed itself from a distributor
of existing documentary on cable into one of the
world's largest documentary producers, as well as
distributors via cable, satellite, and home video.
This corporate evolution continued with the formation
of the Discovery Multimedia unit in December of last
year. This division was launched to further leverage
existing documentary footage and titles into new
products and product lines for home computer and
CD-ROM users.
Discovery released its first CD-ROM in October 1993.
Twelve new titles are expected in 1995, focused on
three product categories: family reference, children's
and real world adventure games.
Discovery Communications operates the Discovery
Channel, The Learning Channel (acquired 1991), and
four new channels which will appear in1995: Animal
Planet (nature); Quark! (science); Time Traveler
(history); and Living (home). Additionally, Your
Choice TV is a wholly owned subsidiary of Discovery,
which is developing an innovative video-on-demand
system being tested in several U.S. communities.

As technology changes how media is brought into the
home, how do you see the entertainment industry
evolving?
JH: From the macro view, as we step back
and look at what's happened over decades (rather than
this or that month), I see a third step in the
evolution of the television business.
We started with the invention of the medium, which
brought us television on demand back in '39. We then
had three networks - ABC, CBS, and NBC - and we had
three choices. The consumer really had no control; you
got the news when they decided they wanted to give you
the news. But it was great, we had sight and sound
on demand. It was a marvel.
Then, in '75, cable was allowed to provide not just
re-transmission of those broadcast services, but for
the first time the laws let it provide other products.
HBO was born, and Gerry Levin at TIME (whom I actually
spent time with today) came up with the idea of a
satellite delivered movie channel. You weren't
dependent on the networks scheduling a movie, you had
a whole movie channel. So we had genre of
television-on-demand, or genre-on-demand, when the
movie channel was born.
Then Ted Turner said, "Why not get a news channel?",
and of course there was a sports channel, ESPN. In
1982, when all this was going on, I said, "Well, why
not a documentary channel?" So that's what we've been
doing: providing a genre, or niche-on-demand. And that
was the second evolutionary step.
I think what we're witnessing now is the dawn of the
third step, which is simply programming and
content-on-demand; letting people take full control
over their choices. That means getting not just a
movie channel, but a particular movie; not just a
documentary channel, but that great documentary you
missed, whether it was a National Geographic special,
a Discovery original, or 60 Minutes.
That's this next step, and I think there will be large
scale consumer spending on video-on-demand. The two
dimensions of video-on-demand will be movies-on-demand
and television shows-on-demand. That will drive the
platform. And then, once you can do that, you can do
all kinds of things; you can do everything we do now
in multimedia. The infrastructure will permit file
servers that, two years from now, will hold all of our
CD-ROM content. So rather than having to pay $39 for a
CD-ROM, you will have that content formatted on
regional file servers that can then be interacted with
over the wire. It will be very economical. YOu might
pay an access fee or a monthly charge for Discovery
On-Line, for instance. Multimedia would be one of our
menu items.
The consumer right there in the home, I think, will
still have two platforms. Largely, the entertainment,
the more passive viewing platform, will be the
television. People use television differently than
they use the personal computer. Usually, when you're
watching TV, you're tired; you want to be more
passively entertained or informed. When you're sitting
in front of the computer, you're in more of an
engaged, almost work role. It's more interactive.
We found that out in our early CD-ROM's. People didn't
really want to sit still in front of their computers
and watch a two-minute documentary or a two-minute
piece; they were too impatient for that. So our
multimedia products have really evolved over the last
year: they're much more engaging, much more text-rich
and content-rich, and let people really explore for
hours. Trying to create something linear on that PC
platform doesn't work. There's a different expectation
level there, I think.

What do you see as Discovery's role in terms of
content or delivery?
JH: I don't ever want to be trapped by misdefining our
business. I think the railroad companies have
misdefined their business. They said, "We're in the
railroad business", when they really should have said,
"We're in the transportation business." Otherwise,
today we might be getting our packages from N & W.
I think the broadcasters in '75 - much to my amazement
- also misdefined their business. They said, "We're in
the broadcast business, not the cable business". So,
basically, they left the whole news niche to Turner;
they left the documentary niche to us, the sports
niche to ESPN. Then, they had to buy it all back. ABC
finally bought ESPN at high value to get back into it.
So what I try to define our business as, for our
people, is: We're in the business of satisfying
curiosity. I want to define it as broadly as possible,
so that it works ten years from now, and forty years
from now. We will satisfy that curiosity by all
available media; we had our roots in cable, but now
we're international. We're no longer just a cable
network, we're in DBS now, and we're on multimedia
platforms. So whatever device or media is created in
the future, we want to be there, to satisfy that
curiosity. That way - by defining it broadly - I think
we'll be okay. We won't miss opportunities.

With funding for public broadcasting under attack,
Discovery is increasingly held up as an example of how
documentaries and educational programming should not
require federal funding. Are you comfortable being
held up in that position?
JH: My view is, I'm a long-time supporter of PBS, and
I think there is a strong rationale for PBS. Cable and
DBS, which carry this wonderful array of programming,
reach 63 million homes; not the full 95 million homes
in America. So there are 32 million homes that don't
have these wonderful cable alternatives like C-SPAN,
CNN, and Discovery. So I think the nation needs to
have public broadcasting available.
What's happened over the years is that public
broadcasting has become almost self-sufficient; I
think they get 86% of their funding from non-federal
sources. With a little belt-tightening there, they can
be erased off the federal payroll, off the federal
dole, without a diminution in their quality. But I
think PBS should exist.
What we have demonstrated is that that type of
programming can be supported by the private sector
through advertising; also, through cable billing. A
lot of folks on Capitol Hill I saw testifying last
night on C-SPAN, were saying "Oh, if we cut funding
for PBS, Bert and Ernie will go away. We'll lose
Barney." Nothing could be further from the truth.
Those are very valuable products that The Learning
Channel, for instance, would pick up in an instant.

Those products are self-sustaining anyway, with all
the collateral material they produce out of that.
JH: Yes, they won't go away.

Do you expect public broadcasting to take similar
initiatives, and create multimedia products to
leverage their own stuff:
JH: Oh, I think so. And I think they will even be
newly eager to look at that: exploiting home video
more fully, merchandising, CD-ROM and other types of
activities. To make up for what appeared, yesterday,
was kind of a gradual phase down of federal funding. I
don't think anybody's going to lop off everything this
year. It appeared to me, from the testimony, that
Congress is envisioning a phase down of that14%
subsidy by 3% a year, or whatever.

Moving on to your multimedia products and the
multimedia division, when did you first start thinking
about Discovery Multimedia products? What initially
developed your interest?
JH: Well, we've been playing with it in R & D for five
to six years. The available platform to experiment on
was laser discs that were hooked up to computers. The
market was not at critical mass, of course. Of 100,000
schools in the country, there were about 5000 that had
laser disc technology and computer labs. If you link
those together, you can have the multimedia
experience; so we developed some of those products
primarily for research and development, to at least
see what the school market found useful.
But we kept all of that, and then we dumped that
formatted material on to our first CD-ROMs, which were
In the Company of Whales and Beyond Planet Earth. So
basically, those first CD-ROMs were the result of our
laser disc experiments. They have evolved since that
time - Normandy, and now Wings, and our new products
like Professor Iris, have been tailored exclusively
for the more advanced CD-ROM application and beyond.

Will Discovery Multimedia primarily create products
based on existing content, like your footage, or are
you going to move into new areas?
J.H.: No, we have to move on. Because while we want to
take advantage of a lot of footage, we also want to
take advantage of consumer awareness of the brands
that we create, like Wings, Professor Iris, or
Normandy. There's a great deal of value to that. When
people walk into Babbages or somewhere to look at
CD-ROMs, we want our titles to be known to them.
Connections, which we'll be doing with James Burke,
will be a known CD-ROM title. If there's an interest
where there is not a TV show, we may go out and do
something. But we like to tie in with the networks. We
like the cross-promotion. We like, as a show, to be
able to promote not only the video, but also the
CD-ROM.
What I'm encouraging all of our managers
across all the department lines to think about is five
years from now, we want the ten, fifteen or twenty big
brands that people know, to be Discovery's. You come
up with a brand and a premise, whether it's a brand
for new astronomy effort or whatever; then, think "How
does it materialize on television?" and then on
CD-ROM, books and all kinds of allied material.

So a potential multimedia market impacts your
decision-making when you're developing your television
programming?
JH: Yes it does, because of what it
allows us. Here's the fundamental advantage of getting
into these new media: if I had only to deal with my
Discovery Channel advertising and cable subscription
economics, I couldn't afford more than $190,000 an
hour to put it on the screen. The bigger budget
documentaries cost between $500,000 to $1 million an
hour, or more. So that's what all these ancillaries
can do.
I'm very confident that I can put $800,000 to $1
million an hour on these projects, because I can count
on $190,000 an hour for Discovery Channel advertising,
but I can also count on 40,000 units of video sales
for $29.95. Right there is a huge part of that
revenue.
And now we can factor in two other areas:
multimedia sales (and we can project those) and
international. We have Discovery now running in Asia,
Latin America, Europe and Canada, and they are all
contributing toward these documentaries. So the whole
goal at Discovery is to put on million dollar an hour
productions, that are supported by all of these
activities. It's very powerful, I think. What we've
created here, is a documentary engine that I don't
think anyone now can match in the world.

What other delivery media are you looking at, beyond
the CD-ROM?
JH: CD-ROM, right now, is at critical mass. We're
playing with that as aggressively as possible. We know
that there'll be advances in disc storage that will
come out. There's laser disc, and there are the two
industry groups developing a new platform for movie
delivery, which can deliver other materials as well.
So we'll be in that marketplace.
I think CD-ROM is going to be pretty durable; but
ultimately, that will transition into large, regional
file server storage of a lot of advanced multimedia.
Consumers can just go on-line and get Encarta from a
file server, where the whole community is basically
supporting the cost of massive computational power and
storage. We'll be there with our products as well.
'95 will probably be the year we introduce our own
on-line service. We are menu items on Prodigy and
America On-Line right now, so you can get a Discovery
on-line service today, but it's not ours; you have to
go through those other gateways. So what we're
developing is our own gateway service. We're in
research and development on that right now.

Would that be through the Internet's World Wide Web?
JH: I think they're looking at the World Wide Web, and
they're also looking at participating in these tests
of more advanced systems with file servers at the
heart of them, both by telcos and cable companies in
1995.

Will these products further leverage your existing
footage and material?
JH: Yes, that's the one thing we don't have to do: we
don't have to go out and pay a very expensive price
for this footage. That's the advantage of original
production - I don't have to make a phone call to ask
someone, "Can I have the interactive rights for this
CD-ROM?" If I call any of our major suppliers and say,
"By the way, I want to produce a CD-ROM off that
product we acquired from you," they don't know what
they're giving away, so the price is astronomical.
Basically, what I'm observing in the industry now is,
that it's focusing all the major networks - Turner,
Discovery, ABC, all of us - to do more and more
original owned material outright, because these
interactive multimedia rights have enormous residual
value. And it's just too difficult, many times, to
negotiate these rights.

Who do you see as your main customer for multimedia
products today?
JH: The main customers today, for our particular
products, are the buyers for whom CD-ROM might be
their introduction to the world of computers. Our
products are very easy to use, they're brand names
people are familiar with, and they're largely
reference-oriented. But we're getting more into games
elements, so that we can also entice more of the
younger buyers. We're seeing adults who are buying
this for more of a family experience; I can play with
it, and my kids can play with it, too. So that's who
we're going after.

What about in ten years?
JH: I think it will be much more widespread at that
time. This CD-ROM platform is taking off like none of
us anticipated. So we're thinking maybe 30 million
homes with multimedia devices, in perhaps three years.

What about the educational market, where it looks like
you're really stressing product?
JH: I'm putting together a unit this month called
Discovery At School. Their whole role in life will be
to put together a menu for schools. I think that, as a
result of the telecommunications legislation that will
come down this year, telecommunications companies and
cable companies will develop incentive, some way or
another, to get classrooms wired. Kind of as a major
exchange for deregulation, there will be some kind of
public responsibility put on them.
When that happens in the classrooms, the school
districts finally will be able to, I envision,
subscribe to multimedia services. If this is done
right, in four to five years, classrooms across
America will have a big monitor in the front. It will
have a main menu that's poised whenever the teacher
wants to exploit it. That main menu will have four,
five, six services; I'm sure Bill Gates will do
Microsoft School. We'll be there with Discovery At
School. And I'm sure Scholastic will be there.
But it'll be a great competition, and we're looking
forward to that as a real business; because looking at
the educational business, and what this country spends
on textbooks and other materials, if just10% is spent
as new money (and perhaps some cannibalized money from
textbook spending), that's an enormous amount of
money.

A few final words on what Your Choice TV is?
JH: Well, we saw this demand for units of TV. We had
50,000 people send us $20 for a tape of In The Company
of Whales four years ago, and that was my wake-up
call. If people were willing to spend $20 and wait two
weeks for delivery, what would they spend if new
technology could deliver it right now?
That started all of us first thinking, about packaging
all of our products at Discovery and Learning, and
then it transitioned into thinking about documentary
product. Well, somebody's got to package television
product to make it easy to find.
That was the birth of Your Choice TV, as the first
packager of television video-on-demand product. We
knew someone had to get in the middle, and solve all
the rights issues, work with the customers, the
operators and telephone companies, so that when they
were ready to offer video-on-demand they had a movie
selection they could offer. Also, television shows
we're testing now in markets across the country, with
all three of the major networks participating - CBS,
NBC, and ABC. And we have the major cable players as
well.

What multimedia products do you use personally?
JH: I use both Prodigy and America On-Line at work for
e-mail. At home, I use CD-ROM, generally for
information and entertainment. I don't do that much
work at home. I finish the day here and it's just an
option for my time at home, along with TV and reading.
And now, multimedia has come into my life.