M+E Daily

Discovery Communications continued to see growth from mobile and over-the-top initiatives in the first quarter (ended March 31), according to CEO and president David Zaslav.

But shares in the company were down 2.66% at $26.52 in afternoon trading May 9 after it reported revenue grew 3% from a year ago, to $1.6 billion, but profit fell 18% to $215 million, much of which it blamed on solar investments. U.S. networks revenue grew 3% to $829 million, driven by 5% distribution growth and 1% ad growth despite what it said was a “slight decline” in subscribers.

The company’s results were “disappointing” on the bottom line, Pivotal Research Group analyst Brian Wieser said in a research note. He added: “Although management reiterated the company’s current year financial targets we think the quarter’s outcome and commentary about the quarter ahead encouraged doubts among investors given what looks to be a challenging second quarter amid ongoing concerns about the longer-term health of the cable network sector.”

Discovery made “distinct progress in growing our digital and direct-to-consumer businesses,” Zaslav told analysts on an earnings call. “As the media landscape continues to evolve, we are focused on strengthening our global content portfolio and positioning it to reach” fans of Discovery programs “every way they consume content,” he said.

“We continue to make significant headway on our strategy of maximizing our existing linear business, while simultaneously driving growth and investing in areas like mobile and OTT” services, he said. In mobile, that includes short-form content that he pointed out is especially popular among younger viewers.

Since the beginning of this year, Discovery expanded several of its digital initiatives, including its Amazon subscription video on demand channels, he said. It also made “demonstrable progress” with its Eurosport Player OTT service all-access pass to sports events in Europe, he said.

The company’s Discovery GO TV Everywhere apps, meanwhile, are “growing rapidly” in the U.S., where they are now available to 80% of households, he said, adding he expected that, by year-end, the apps will be available on 115 million connected devices including the PlayStation 4, Apple TV, Xbox consoles and Roku devices. GO is “driving awareness and engagement for our linear brands,” he said.

Discovery also has several Snapchat channels that he said helps it reach younger viewers. The company will start creating “premium” Snapchat content around “marquee” Discovery brands starting this summer, he said.

Outside the U.S., there have been some “very successful skinny bundles,” and Discovery is “on all of them,” he said during the Q&A with analysts. But he said that that due to factors including the large number of sports networks included with most OTT services in the U.S., “there is no skinny bundle here.” He added: “The idea that you have a $40 offering filled with” all kinds of sports plus consumers must then “buy broadband on top of it,” jacking the price up to $60-$70, makes the idea of a true skinny bundle in the U.S. “fiction.”

He went on to say of the U.S. skinny bundle: “It’s really not a skinny bundle. It’s a bundle. It’s a bundle that may be attractive to a small group of people. But, in the end, I think the market will be rationalized.” All of the “overstuffed turkeys” that qualify as skinny bundles in the U.S. now are “going to end up being a challenge from a consumer perspective,” he said, adding that in the U.S., we still need an $8-$12-a-month “quality offering that’s a true skinny bundle in the spirit of what’s working around the world — and I think that’ll happen; it’s just a question of when.”