Discovery's Profit Soars, Driven by Lower Costs and Licensing Growth
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
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
The company said that during this quarter, its portfolio of
cable channels were the highest rated among women throughout the
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
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
(END) Dow Jones Newswires
November 07, 2019 11:10 ET (16:10 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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