Discovery's Profit Soars, Driven by Lower Costs and Licensing Growth

Date : 11/07/2019 @ 4:25PM
Source : Dow Jones News
Stock : Discovery Inc (DISCA)
Quote : 29.985  -0.53 (-1.74%) @ 6:39PM

Discovery's Profit Soars, Driven by Lower Costs and Licensing Growth

Discovery (NASDAQ:DISCA)
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By Benjamin Mullin 

Discovery Inc. said its third-quarter profit more than doubled thanks to lower costs, higher operating results and advertising growth, as the company turns its efforts to building direct-to-consumer streaming services.

Net income at Discovery, whose channels include Food Network, TLC and HGTV, was $262 million, or 35 cents a share, for the quarter ended Sept. 30, compared with $117 million, or 16 cents a share, a year earlier. The sharp increase resulted partly from lower restructuring costs compared with a year ago, when Discovery was reorganizing after its $11.9 billion purchase of lifestyle TV giantScripps Networks Interactive. The company said it spent just $8 million on restructuring its operations this quarter compared with $224 million in the same period last year.

Discovery said earnings per share on an adjusted basis were 87 cents, beating analysts' consensus of 82 cents.

Discovery shares were up more than 5% in early morning trading.

In response to an analyst question about Discovery's video-streaming strategy during Wednesday's investor call, Chief Executive David Zaslav said the company was evaluating a new opportunity in the U.S. that could feature much of the company's TV library. He said the proposed service wouldn't conflict with Discovery's existing pay-TV business in the U.S.

"We think that we have the ability to attack everyone that doesn't subscribe to cable and watch the great content they grew up watching," Mr. Zaslav said.

Revenue grew 3.3% to $2.68 billion. In the U.S., advertising revenue rose 2.8% to $1.02 billion, and distribution revenue increased 5.7% to $681 million, reflecting an increase in the amount that pay-TV distributors and video-streaming companies were willing to pay Discovery to license the company's programming.

Discovery Chief Financial Officer Gunnar Wiedenfels told analysts that Discovery expects U.S. advertising revenue to grow in the low single-digits in the fourth quarter, with U.S. affiliate revenue growing between 3% to 5% in the next quarter.

Advertising revenue from the company's international networks, including Eurosport, DMAX and TVN, grew 5.3% to $394 million, and distribution revenue rose 2.4% to $520 million.

Like most TV programmers, Discovery has continued to see traditional TV ratings decrease as many consumers cut the cable cord and turn to video-streaming alternatives like Netflix Inc. and Amazon.com Inc.'s Prime Video. The company said the decrease in TV ratings weighed on its third-quarter ad revenue, which was buoyed by higher pricing and increased digital advertising sales.

Mr. Zaslav reiterated Discovery wouldn't launch streaming services featuring scripted entertainment as some major companies have done, adding that he thought only "three or four" of those services "are going to make it."

"It's going to be a lot of carnage," Mr. Zaslav said on the call.

The company said that during this quarter, its portfolio of cable channels were the highest rated among women throughout the day.

Discovery is beginning to offer consumers video-streaming options of its own. The company launched Food Network Kitchen in the third quarter, a video-streaming app that allows consumers to take video classes from celebrity chefs and purchase ingredients through integrations with Amazon Fresh and other food-delivery services.

It also has plans to launch streaming products for a new cable network based on home improvement gurus Chip and Joanna Gaines, and it is readying a nonfiction streaming service that will feature its natural-history content.

 

(END) Dow Jones Newswires

November 07, 2019 11:10 ET (16:10 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.

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