Q2 2016 – Discovery Communications Earnings Call Summary

Discovery

Below are my key takeaways from the Discovery Communication Q2 2016 Earnings Call on Aug 2:

Summary:

CEO David Zaslav’s opening statement: “Discovery Communications had another quarter of strong operating and financial results as we remain focused on maximizing our global linear TV business, strengthening our position on digital and direct to consumer platforms and controlling our cost base.   A key element of Discovery’s growth profile is our continued success in securing long cycle distribution agreements that provide for steady and predictable revenue growth and the optionality for windowing our content on existing and new and platforms

Total revenue in the quarter grew 3% to $1,708MM, but up 6% when excluding negative effects of currency.  The increase was mainly due to US Distribution and US Advertising. International revenues fell 1% to $790MM, but when excluding currency effects and the sale of SBS Radio, revenue was actually up 8%.  International distribution growth is returning to a double digital increase for full year 2016.  US and international affiliate revenues represent 50% of total revenue – growth is locked in for the near future.

Signed a 4 yr deal to have the first ever exclusive live Bundesliga matches, 40 in total, on Eurosport (a pan-European television sports network, owned and operated by Discovery) in Germany on Friday nights. This is the equivalent of obtaining Monday Night Football rights in the US.  Eurosport also secured Wimbledon rights to become the only broadcaster to show live coverage of all four Grand Slams in the UK.  Renewed Long-Term, Comprehensive Distribution Partnership with Liberty Global, a multi-platform agreement that spans 12 markets in Europe and the entire portfolio of Discovery and Eurosport Networks, including first-time ever full and unique coverage of Olympic Games beginning in 2018.

OWN Network is #1 channel for african american women and top 10 cable network for all women. Shark Week was down this year, due to an earlier launch – will go back to normal timeframe next year.

In digital, Discovery Virtual Reality (VR) launched a year ago and already has 1.4MM downloads and 60MM streams.  (Click to watch 360 degree Discovery YouTube videos – I recommend it).  Partnered with Toyota to release the car company’s first-ever scripted virtual reality short-form miniseries, entitled The Satchel (click to watch the 360 degree video).   Touted their authenticated streaming service DiscoveryGO and two of their digital networks, Seeker (Seeker Trailer) and Sourcefed.

They have flexible cost structures and are not locked into long term syndication deals. Own the majority of their content and control it across all platforms, which gives them plenty of options as the industry evolves.

In the quarter, began voluntary buyouts that may eventually lead to layoffs.  Expected to pay out $40-60MM in severances and other expenses, which could save as much as $120 million per year as a result of the cuts.

Financials (In millions) Q2 2016 Q2 2015 % Diff
Total Revenue  $1,708  $1,654 3.3%
 – US Networks  $873  $814 7.2%
 – International Networks  $790  $801 -1.4%
 – Education and Other  $46  $40 15.0%
Adjusted OIBDA  $706  $680 3.8%
Net Income  $408  $286 42.7%
Free Cash Flow  $301  $313 -3.8%
Diluted EPS  $0.66  $0.44 50.0%
Adjusted EPS  $0.71  $0.49 44.9%

 

List of Key Properties:

Forward Thinking:

  • Will raise 3yr financial growth commitments due to 3 reasons: Global affiliate growth rates, controlling costs, and downward trend in book and cash tax rates
  • Gave 2nd season order for Oprah’s Queen Sugar on OWN Network
  • See Europe and linear sports deal with tremendous upside
  • Expected Q3 ad revenue to be down due to the Olympics

Links to Company Website:

Please comment below if there are data points from Discovery Communications you’d like me to include in their next Earnings Call Summary.

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