Business

Discovery CEO: Company Continued to Make Strides on Digital Strategy in Q3

Discovery Communications continued to make strides on its various digital initiatives in the third quarter (ended Sept. 30), according to David Zaslav, Discovery Communications CEO and president.

The company saw “steady performance” from its linear TV channels in the quarter, “enhanced by our growing suite of digital products,” he said Nov. 2 on an earnings call with analysts. Discovery is “enjoying healthy momentum across our top channels,” he said, adding: “As subscriber declines continue across the pay-television landscape, we continue to pursue our strategic pivot – to take our content to consumers across every screen and service.”

Discovery will also “only get stronger” as a result of its recent decision to acquire Scripps Networks Interactive, he predicted.

Running down the list of Discovery’s various digital offerings, he said its Discovery Go and TLC Go on-demand offerings are “helping to augment our linear business” and “delivering valuable first-hand insights about our audience and reinforcing the fact that our content resonates with younger, digital-first viewers.”

Discovery also recently launched a joint premium entertainment streaming on-demand service with ProSiebenSat.1 in Germany, he noted. That Hulu-like service is initially offering nine popular channels, but was “structured to support additional content and joint venture partners in the future,” he told analysts. “If successful, we could look to expand this offering and create a template for future deals in key markets,” he said, adding: “We are very excited about the level of interest and prospects we have seen so far.”


Discovery’s direct-to-consumer pay subscription video business, meanwhile, “continues to gain traction, led in large part” by its Eurosport Player on-demand sports service in Europe, he said, adding: “We are starting to gain real traction. We’ve learned a lot and we have seen solid subscriber growth” as “overall brand awareness of the Player throughout Europe continues to build.” Discovery is seeing good momentum on it heading into the 2018 Winter Olympic Games in South Korea and the company plans to offer “every minute of the events” there across linear TV and digital, he told analysts, adding Discovery remained “on track with our internal estimates for third-party distribution sales.”

Also on the direct-to-consumer front, he noted that Discovery recently signed a streaming deal with Amazon for the U.K., Germany and Austria.

In the U.S., Discovery’s channels are on the Sony PlayStation and DirecTV “skinny” over-the-top (OTT) streaming services, but not on the other skinny bundles, including those of Hulu and YouTube, although Discovery was “continuing to talk to them and work on that,” he said.

The U.S. remains “the only market that doesn’t have” a low-priced TV service bundle without sports, but he told analysts: “We’re having some constructive discussions with distributors and some constructive discussions with other programmers, and over-the-top provides a significant opportunity to attack that. We see a meaningful market for that everywhere else in the world.” The fact that the U.S. has only “very expensive all-sports and retrans packaging” is what’s causing Discovery subscriptions to decline 3%, he said.

But he expressed optimism that can be turned around: “We’re agnostic. We would do an over-the-top direct [deal] with a bunch of others in a package. We would do an over-the-top with the existing cable operators. We would do an over-the-top with existing mobile or satellite providers.” As traditional pay TV subscriptions continue to decline and Netflix continues to gain subscribers, those traditional services will become more flexible to keep customers, he predicted.

Discovery reported Q3 revenue grew 6% from a year ago, to $1.65 billion. But profit dipped to $223 million from $225 million.

Revenue was slightly better than expected, Pivotal Research Group analyst Brian Wieser said in a research note. “Meaningful synergies should be realized by the pending transaction to buy Scripps,” he predicted. But, he said, “the strategic advantages of this combination should not be overstated.” Although the merged company would “present a broader array of programming to distributors,” it’s not going to be much more than either company would have alone because “no programming from either of the two would be considered as crucial to distributors as, say, network groups with significant volumes of top-tier sports-related content,” he said. The merged company will have “a greater volume of content to offer in a direct-to-consumer OTT offering,” but he said: “They are not much further ahead in positioning themselves to offer a successful, scaled sports-free bundle than they might have been if they co-operated as independent entities.”