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There Is No Limit to Discovery to Limit No Is There DISCOVERY DISCOVERY 2017 ANNUAL REPORT 2017 ANNUAL REPORT ANNUAL There is no limit to Discovery GLOBAL LEADER IN REAL LIFE ENTERTAINMENT ONE DISCOVERY PLACE | SILVER SPRING MD | 20910 ©2018 DISCOVERY, INC. Dear Shareholders, AtWe Discovery, serve a global we know audience that oftruth passionate is stronger enthusiasts than fiction. with real-life stories that inspire, inform and entertain. From distant lands to the comfort of home and the drama of the playing field, our heritage lies in helping people exploreAs our their industry world throughrapidly evolves, stories theywe are love accelerating and the brands our commitment that matter. to great content and the innovation to ensure that our viewers can enjoy our stories across every screen, service and format, whenever and wherever they choose. We also are delivering new ways for advertisers and Asdistributors a global leader to reach in real-life highly targeted entertainment, audiences we atdifferentiate scale. ourselves in a crowded and competitive marketplace which is primarily focused on shareholders by bringing high-quality content to viewers through trusted high-cost scripted productions. We create exceptional value for our brands that resonate globally. position ourselves for success in a changing industry, while driving growth 2017 was a historic year for Discovery. We took significant steps to from our traditional linear business and accelerating our investments in areas like digital and mobile to reach viewers on every screen. GlobalBelow is Leader a summary in Real of our Life achievements Entertainment: for the full year. Chief among our achievements in 2017 was our agreement to acquire Scripps Networks Interactive, home to leading brands including HGTV, Food Network, Travel Channel, DIY Channel, Cooking Channel and Great American Country. more dynamic media company with a global content engine that can be Our goal in acquiring Scripps is to create a stronger, more flexible and optimized and monetized across our combined networks, products and in real-life entertainment across multiple categories, accounting for nearly services. Together with Scripps, Discovery aims to become a global leader 20% of ad-supported cable viewership in the U.S.; approximately a 20% share of female viewers on ad-supported primetime cable; and three of the 2017 ANNUAL REPORT DISCOVERY top five networks for women in total day viewing on ad-supported cable. The combination is expected to present significant growth opportunities outside the U.S., by extending Scripps Networks’ brands, programming and talent to a broader international audience through Discovery’s best-in-class global distribution, sales and languaging infrastructure. We also anticipate significant financial benefits from our acquisition The transaction is expected to be accretive to adjusted earnings per share of Scripps Networks, including a minimum of $350 million in cost synergies. and freedom to quickly pay down debt, return cash to shareholders and and free cash flow in the first year after close, allowing us greater flexibility invest in growth areas that will ensure our continued success and long-termEnthusiast growth. Storytelling: Discovery Channel was once again the #1 non-sports cable network for men in the U.S. in primetime and home to cable’s #1 unscripted series ratings momentum across several of our networks, including ID, which was for men with GOLD RUSH. Passionate female viewers continued to drive the #1 cable channel for women in total day and delivered its best year ever in both total day and primetime. OWN was the #1 cable network for resurgence continued in 2017, gaining 12% in primetime and total African-American women on several nights of the week and TLC’s ratings day Theviewing. momentum extended to our international business, notably at ID, which grew its international viewership by 13% and at TLC, which Eurosport, which saw an 18% increase in full-year audience reach, as our increased 8%. Our greatest international ratings success for 2017 was at investmentA Sports in deeplyChampion: loved sports programming continues to pay off. We marked the start of 2017 with Eurosport becoming the official home PyeongChang, South Korea, our rights give us the opportunity to reach over of the Olympic Games in Europe. Starting with the 2018 Winter Games in 700 million people across Europe and serve as a clear testament to our focused strategy in European sports and commitment to elevating the Olympic Games in Europe yet, airing the entirety of the Games on Eurosport, Eurosport brand. We also set out to deliver the most digitally accessible through sub-licensing agreements and by streaming the Games on the Eurosport Player. 2017 ANNUAL REPORT DISCOVERY we also gave advertisers and marketers unprecedented new ways to measure Beyond redefining the Olympics viewing experience on every screen, measurement tool called Total Video, capturing free-to-air, pay-TV, online its reach and impact. Ahead of the Olympics, Discovery unveiled a new in serving our advertising partners with more relevant and actionable and social across all platforms and devices. This is an important step forward viewership data. Discovery renewed distribution agreements with partners including Diversified Distribution: continued to expand the reach of our content beyond the traditional TV Sky in the U.K. and Germany and Verizon in the U.S., during 2017. We also screen through new digital distribution agreements such as with Philo in the United States, which offers an entertainment-only “skinny bundle” partnership with Amazon to stream Discovery Channel and Eurosport, service in which we are also an investor. Additionally, we forged a including the Olympic Games and other content, as part of an add-on serviceEvery to Amazon Person, Prime Every subscribers Screen: in the U.K., Germany and Austria. growth areas: ad-supported on-demand and streaming video, including our In 2017, we further refined our digital strategy to focus on three specific GO TV Everywhere apps; paid direct-to-consumer subscription video; and through investments in mobile-first short- and mid-form content. Our GO product, which launched nationally in the U.S. in 2016, began to Bolstered by new original content and companion series for our linear deliver measurable results, with significant contributions to our ad growth. franchises, GO is helping us reach younger audiences, nearly half of whom are ages 18-34. We extended our ad-supported video strategy outside the U.S., advertising video on-demand (AVOD) service which brings together nine partnering with Germany’s ProSiebenSat.1 to create a subscription-based, of the most popular channels in Germany including our own free-to-air channelsOur direct-to-consumer DMAX and TLC. businesses also continued to gain momentum, season pass model to more effectively attract and engage viewers around led by the Eurosport Player. We also began deploying a sport-specific, sports with deep viewer affinity, such as soccer, tennis and cycling. 2017 ANNUAL REPORT DISCOVERY venture with TEN: The Enthusiast Network, comprised of leading consumer In the U.S., we formed a new automotive-focused enthusiast joint online brands including Motor Trend, Hot Rod and Automobile, as well as is already a promising direct-to-consumer business in its vertical with more our Velocity television channel. The Motor Trend OnDemand video service than 100,000 subscribers. Finally, in the area of mobile-first short-form, our joint venture partnership has emerged as one of the leading digital media companies, delivering with Group Nine Media, in which we are a significant minority investor, approximately five billion monthly streams across deeply loved digital brands including The Dodo, NowThis and Thrillist. Group Nine is helping Discovery build relationships and content for digital-first platforms like example, Discovery and Group Nine partnered with Snapchat to create Facebook Watch and Snapchat as well as our own GO platform. As just one exclusiveCloud Eurosport Content: content around the 2018 Winter Olympics. Staying true to our legacy of innovation, in 2017 we transitioned all (Internet Protocol) public cloud environment and began the same process 13 of our U.S. networks from a linear broadcast infrastructure to an all-IP across our international markets. This is an industry first and offers myriad benefitsThe including Road Ahead: greater speed and operational efficiency. Backed by an enhanced portfolio of trusted brands that matter and supported by our talent, technology and management, Discovery is to drive real value from our robust linear businesses and are accelerating uniquely positioned to grow in the rapidly evolving industry. We continue our efforts to become a direct-to-consumer company reaching global enthusiast viewers on every screen. Finally, with Scripps, we are redoubling our commitment to great content and creating a new leader in real-life storytelling. Together, our future is just beginning. DAVID M. ZASLAV ROBERT J. MIRON 2017 ANNUAL REPORT DISCOVERY ROBERTBOARD OF J. MIRON DIRECTORS DAVIDEXECUTIVE M. ZASLAV OFFICERS Chairman, President & CEO Discovery ADRIA ALPERT ROMM S. DECKER ANSTROM Chief Human Resources & Landmark Communications Former President, BRUCEGlobal Diversity CAMPBELL Officer ROBERT R. BECK Chief Development, ROBERTIndependent R. Financial BENNETT Consultant DAVIDDistribution C. LEAVY & Legal Officer Managing Director, Chief Corporate Operations & Hilltop Investments PAUL A. GOULD JEAN-BRIACCommunications PERRETTE Officer
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