Market Insight

Discovery partners with VS Media and Tabilabo to accelerate growth in Asia Pacific

May 04, 2017  | Subscribers Only

Kia Ling Teoh Kia Ling Teoh Senior Research Analyst – Advertising & Television Media, IHS Markit

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Discovery Networks Asia Pacific has announced two partnerships with Asian online companies: Chinese multichannel network VS Media and Japanese digital media company Tabilabo.

Having acquired a minority stake in VS Media in August last year, Discovery is launching TAN BA, a new digital brand targeting millennials. VS Media’s operation focuses on mainland China, Taiwan and Hong Kong. It now hosts 500 content creators and has more than 120 million subscribers and 320 million video views a month. This partnership will see VS Media source content from Discovery’s portfolio and localise for the Chinese market via social media and online video platforms.

Tabilabo, established in 2014, engages in digital (mobile) media including VR as well as advertising production and sales. The deal will enable Discovery advertisers to target Japanese audiences by using Tabilabo’s ad technology and formats across linear and digital platforms. 

Our analysis

From the programming point of view, the partnership will give VS Media and Tabilabo access to one of the richest content libraries of factual lifestyle programming. Discovery has more than 10 channels including Discovery Channel, TLC and Animal Planet; the content matches VS Media and Tabilabo’s user profile and concept of lifestyle and new learning. 

 

Discovery’s US revenues grew 4.9% from $3.13 billion to 3.29 billion last year, whereas international revenue dropped 1.7% from $3.09 billion to $3.04 billion. Excluding currency effects and the impact of the SBS Radio sale, international revenue increased 6%. Distribution revenue was lifted by higher affiliate rates in Europe and Latin America as well as higher subscribers in Latin America. Advertising revenue was partially impacted by lower pricing, volume and ratings in Asia Pacific.

Our analysis of Discovery’s M&A activities in 2016 found Asia Pacific to be the second most targeted region, after the US. The channel operator acquired interests in Turmeric Vision (an Indian TV company) and VS Media, as well as funding Rugby Pass, a New Zealand-based sports video platform.

China and Japan are the biggest online ad markets in Asia Pacific. IHS Markit forecasts these two markets to take up 63% of the region’s total online ad revenue by 2021. Online ad revenue accounted for 55% of China’s total ad revenue in 2016, and 28% in Japan.

The two partner companies are relatively young in terms of age and content they offer; that fits into Discovery’s digital-first initiative. The partnership with VS Media will allow Discovery content to be distributed to the most popular online video and social media platforms in China such as Youku Tudou (owned by Alibaba), QQ and WeChat (owned by Tencent). Besides the ad tech capability Tabilabo brings, Japan’s highly-structured advertising infrastructure will further streamline Discovery’s expansion and bolster its declining ad revenue in Asia Pacific.

Discovery has been upping his game in the digital video business. According to IHS Markit's Advertising M&A Market Monitor, 70% of its global investments target online video companies including content producers, video platforms, and solution providers. It recently partnered with Snap to create short-form video together for Snapchat’s Discover platform.

Asia Pacific is a huge mobile-first region; though in many markets internet connectivity is still weak. We expect to see more online video investment from Discovery in this region as the infrastructure improves, especially India, which now has 1.16 billion mobile subscribers. 

Research by Market
Media & Advertising
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