“To compete, survive and grow, Discovery must continue to change as well,” David Zaslav, the company’s chief executive, said in an email to employees Tuesday morning. “At the center of our new blueprint is New York. New York always has been home to the global media industry. Our ad partners on Madison Avenue, investors and analysts on Wall Street, many of our creative and production community and, increasingly, our content partners, are based in New York.”
Discovery is in the process of buying Scripps Networks Interactives, the owner of HGTV, Food Network and the Travel Channel, in an $11.9 billion deal that is expected to be finalized in the coming months.
Once the deal is complete, Discovery plans to house its back-end operations at Scripps’ current headquarters in Knoxville, Tenn. It will keep some departments — government relations, for example — in Maryland, although not necessarily in Silver Spring, and plans to expand its technology hub in Sterling, Va.
“It became clear that, pending closure of the Scripps transaction, we could not operate three large facilities in the U.S.,” Zaslav said in the email. “Since the announcement of the deal, we have evaluated the strengths, capabilities and advantages of the Knoxville, Tennessee, campus, which houses the major Scripps brands and creative digital teams along with corporate functions.”
Zaslav is one of the most highly-compensated people in the country, earning $341 million in cash, stock and other benefits over the company’s fiscal years 2012 through 2016, according to Equilar, an executive data firm.
The company’s stock price was down about 3 percent on the news, closing Tuesday at $21.65 a share.
Discovery’s move comes at a time when the cable industry faces stiff competition from online video and streaming services like Netflix, Hulu and Amazon Video. An estimated 5.5 million Americans cancelled their cable subscriptions in 2017, according to analytics firm eMarketer, creating new challenges for traditional cable companies.
The company, founded in 1982 by John Hendricks, is one of Montgomery County’s largest employers and has been instrumental in the county’s efforts to revitalize downtown Silver Spring. In the decades since, the company has emerged as a media powerhouse, with a growing international business that includes European broadcasting rights for all four Olympic Games between 2018 and 2024. Its annual revenue has nearly doubled since it went public in 2008, while profits have grown more than four-fold.
It is also one of four Fortune 500 companies headquartered in the state — the others are Lockheed Martin, Marriott International and Host Hotels & Resorts.
County and state officials said they had offered Discovery financial incentives to stay. Last year, Discovery received a $375,000 grant from Montgomery County and the promise of a $625,000 loan from the state to help fund a $10 million renovation of its Silver Spring headquarters. The loan, which a state spokeswoman said was never disbursed, required the retention of 1,200 employees at the site.
Bob Buchanan, chair of the Montgomery County Economic Development Corporation, said Tuesday that the county had little chance of retaining the headquarters after the merger. Montgomery hoped to persuade Discovery to keep several hundred back-office jobs in place, but it lost them to Tennessee, where costs were lower. (He wouldn’t say how many back-office jobs were lost.)
“Once the merger happened, it was obvious that the headquarters was focused on moving to New York City,” he said. “We were hopeful that the back-office consolidation would be here, instead of Tennessee. It boils down to the cost of living, and of doing business in one area versus another.”
The departure quickly became a political issue that could surface in both the Maryland governor’s race and the Montgomery County executive’s race this fall. The Maryland Democratic Party, which is hoping to unseat Larry Hogan (R), slammed him for “being the first Maryland Governor to lose a Fortune 500 company to a rival state since at least 1996.” But the party did not blame the all-Democratic Montgomery County government for Discovery’s decision to leave.
Hogan said the decision largely boiled down to the Discovery’s acquisition of Scripps and the company’s consolidation.
“Discovery has been a good company in the state of Maryland,” Hogan said. “We’re disappointed, but the CEO assured me that it didn’t matter what incentives we tried to provide.”
He went on, “in the grand scheme of things, it’s not the end of the world.”
Montgomery County Executive Isiah Leggett (D) said the incentive package put together by the state and county over the last year to keep Discovery in Silver Spring was one of the largest, if not the largest, offered in his decades in local government. He said it was common for those sorts of packages to include tax incentives and job retention credits, though he would not go into specifics about what was presented to Discovery.
“We felt that our package was good,” Leggett said. But, he added, “when we looked at the business model and what was happening, we realized this was going to be a very tough decision.”
Discovery has spent the past decade building its presence in New York, which is already home to channels like Animal Planet and Investigation Discovery, as well as the company’s advertising sales, investor relations and business development teams. Zaslav spends much of his time at the company’s Midtown Manhattan offices, and a spokesman said the company plans to consolidate its Manhattan operations into a new location in the second half of 2019.
The announcement comes less than a year after BET Networks, the country’s largest cable network for African American audiences, moved from Northeast Washington to New York.
Shares of Discovery stock have fallen more than 17 percent in the past year. On Thursday afternoon, they inched down about 1 percent to $22.19. In 2016, the company reported a profit of $1.03 billion on $6.4 billion in annual revenue.
Staff writers Robert McCartney, Rachel Siegel, Ovetta Wiggins and Thomas Heath contributed to this report.