Discovery and Sky go to war over channels

Discovery risks seeing its channels go dark in the UK – its most important international market – amid a dispute over fees with Sky.

The channels will come off the Sky platform at the end of the month if a new carriage fee deal isn’t agreed, and the current situation is described as an impasse”.

Discovery claims Sky is abusing its position as the biggest pay TV operator in the UK, and noted there is a risk this situation will worsen following a recent deal that saw National Geographic channel owner 21st Century Fox move for control of Sky.

“We are concerned that with the recently announced Fox transaction, Sky’s market strength and incentive to disadvantage independent TV content providers will only increase,” Discovery said.

Speaking on an analyst call in the wake of Sky’s latest results, CEO Jeremy Darroch moved to deny the Fox deal had any influence on the Discovery situation.

“I don’t think this has got anything to do with the approach by 21st Century Fox,” he said. “We have been talking to Discovery since April last year. We have extended deals with a whole range of companies.”

Sky also denied its sport and film investments have led to it seeking cost savings elsewhere and pledged to redeploy the money it would have spent on Discovery nets “into content our customers value”.

Sky said that many Discovery nets are linear only, although Discovery claims that is in most cases because of the contracts it has with Sky preclude it from offering a wider array of digital and streaming offerings. The US-based channels group has made a concerted direct-to-consumer play elsewhere in Europe, but only has its Eurosport Play app available in the UK.

Negotiations over a new carriage deal between the pair have officially “reached an impasse”, with Discovery claiming the pay TV platform is refusing to pay a fair price.

Discovery said talks with Sky are ongoing and that it remains committed to securing carriage on Sky for its channels. On-air trails across all of its nets are running twice an hour and telling viewers they risk losing the channels if a solution is not found.

in the meantime, a war of words has broken out. “Discovery has announced that ‘enough is enough’ over Sky’s retail platform strategy, a strategy that Discovery fears is limiting consumer choice and hurting independent broadcasters,” the US-listed channel operator declared in a strongly-worded statement issued last night (GMT).

Losing carriage on Sky would be a severe blow for Discovery. It does not break out revenues by territory, but the UK is known to be its single largest operation outside the US, and Sky is by far the largest pay TV operator in the UK.

Discovery, which has a sizable base in west London, has already discussed the effect of Brexit on its business, and a carriage dispute with Sky presents it with another headache in the country.

Independent analysts said Discovery has more to lose than Sky in the current stand-off. “Keeping content costs down is a priority for Sky, highlighted by its carriage-fee dispute with long-time channel partner Discovery,” IHS analyst Ted Hall told TBI.

“Discovery has more to lose than Sky in this scenario, risking a big hit to its UK advertising revenues, and Sky will not want to show weakness to its other content partners – also seeking more favourable carriage deals – by caving to Discovery’s demands.”

If the dispute is not resolved Discovery’s full 12-strong bouquet of channels – which includes the core Discovery offering as well as the likes of TLC and sports net Eurosport – will come off Sky and its lower cost Now TV service.

Discovery says Sky is still paying 2006 rates for its bouquet of channels. Sky responded that Discovery’s expectations for carriage fees were unrealistic. “We have been overpaying Discovery for years and are not going to anymore,” a spokesman said.

Speaking today, Darroch added: “One thing we will ask for is performance from our partners. The fact is [Discovery’s] share of viewing on linear [TV] has been in long-term decline. When you look to the on-demand world, Discovery performs at best a third it does in linear. They are not hitting big shows people pay for.”

Discovery boss David Zaslav has said the company is pushing for higher carriage fees internationally as it invests in programming and channels. It has had disputes with operators in the Nordics – since resolved – and Russia over fees in recent time.

Susanna Dinnage, who took control of Discovery’s UK and Ireland operation after Dee Forbes’ exit last year, said Sky was using its position as the UK’s largest pay TV operator in the carriage dispute.

“We believe Sky is using what we consider to be its dominant market position to further its own commercial interest over those of viewers and independent broadcasters,” Dinnage said. “The vitality of independent broadcasters like Discovery and plurality in TV is under threat.”

Discovery its share of viewing on the Sky platform has increased 20% over the last ten years and that it has added new channels and original content. It claims that half of all viewing in the factual category on Sky is to Discovery nets.

Sky has invested a huge amount in UK Premier League football rights, is ploughing cash into original shows for its own nets, and also has multi-million dollar series and movie deals in place with the Hollywood studios. Alluding to Sky’s sport and movies deals, Discovery said: “Pay television needs to be about more than just films and football”.

Sky is also a joint venture partner in A+E UK, which operates several of the major rival channels to Discovery including History, Lifetime and Crime and Investigation.