Discovery Rises On Advertising, Higher Affiliate Fees


Discovery Communications (NSDQ: DISCA) usually holds its Q2 earnings in the days after its flagship channel’s annual Shark Week hit programming series, which served once again as a nice intro for another positive quarter. Profits, affiliate fees and ad revenues, particularly in the scatter market were up. In the case of the one weak area, the fledgling OWN channel. With Oprah Winfrey having just taken over as CEO of the Discovery joint venture, David Zaslav, Discovery’s president and CEO, told investors during the earnings call, “We are optimistic about the long-term ratings potential at the network.”

The company is doing so well, it decided to reward investors with the announcement of a $1 billion increase to its stock buyback program.

Discovery’s 11 percent revenue increase to $1.07 billion was fueled by a 20 percent rise in international networks, where TLC launched in several western European markets, and 6 percent growth at its U.S. channels. U.S. ad dollars were up 10 percent, thanks to higher pricing. International ad revenue surged 25 percent.

With all the talk of cord-cutting these days, Zaslav argued that pay TV is still in its adolescence and has yet to reach maturity. In other words, there’s still tremendous growth ahead in terms of adding subscribers — and that means greater ad opportunities. Discovery’s main focus is taking its TLC network “around the world,” which appears to be paying off.

When it comes to packaging its content for online distribution, Discovery has tended to focus on offering short clips as promotional tools instead of long-form. But that could change, Zaslav indicated during the call.

“There’s never been a better time to be in the content business — when you own your own content that is” he said. “We have a 20-year library, and there’s a number of outlets that are interested in it: Apple (NSDQ: AAPL), Netflix (NSDQ: NFLX), Amazon (NSDQ: AMZN) and now Wal-Mart (NYSE: WMT). It’s encouraging that there are new players there. We’re talking to all of them.”

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