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.
