Discovery Communications is evaluating a direct-to-consumer move in the US, in light of its DPlay and Eurosport Play D2C initiatives in Europe, which could deliver as much as US$100 million in additional revenues if targets are reached.
“I think it’s early days, but we do have a lot of flexibility here in the US to make a move if we want to and we’re looking at it,” Discovery president and CEO David Zaslav (pictured) told analysts after the company’s third quarter results announcement.
He added that the company has 200,000 international D2C subs already, and if it can hit its one million target that would deliver about US$100 million in additional annual revenues.
Discovery has been linked to a move for Channel 4, and Zaslav was also asked whether Discovery would make additional moves for free-to-air nets internationally. “Because we’re in 220 countries and we have, on average, ten channels, we have a fair amount of synergy. We’re always looking opportunistically, but we don’t need any additional assets,” he said.
“We do think that we’re probably the best buyer for a lot of assets because we have knowledge in the marketplace, we have infrastructure and we have synergy, but we don’t need anything,” he added.
His comments came as Discovery’s Q3 results were hit by currency effects in the third quarter. The cable giant turned in revenues of US$1.6 billion, down 1% year-on-year.
Excluding currency effects, the pay TV broadcaster’s revenues grew 8%. Adjusted OIBDA was down 9% to US$576 million, and down 1% excluding currency effects. Eight-per -cent revenue growth in the US was offset by a 9% decline internationally, due to the currency impact.
US OIBDA growth of 4% was more than offset by a 21% decline from international networks.
Credit ratings agency Moody’s put Discovery on review for downgrade in the wake of the results, noting the amount being allocated to share buybacks and the financial implications of the SBS and Eurosport deals increase the company’s debt-to-EBIDTA level.
“This shift in policy is occurring in the context of an industry under pressure, evidenced by the broad market experiencing declining video subscribers and flat to weak ad revenues,” Moody’s said in a note.
In terms of the quarterly results, US networks revenue growth was driven by distribution and advertising growth of 12% and 6% respectively. Excluding the consolidation of Discovery Family, distribution revenues grew 7% and total revenues grew 4% over the prior year’s third quarter.
Internationally, distribution revenues grew 8%, excluding the impact of the Eurosport acquisition and currency effects, mainly from increased subscribers and rates in Latin America as well as increased subscribers in the ‘CEEMEA’ region.
Advertising revenues, excluding the impact of Eurosport, SBS Radio and currency, were up 12%, primarily due to higher volume and prices in Latin America and higher ratings, prices and volume in southern Europe.
Other revenues, excluding the impact of Eurosport, SBS Radio and currency, decreased US$2 million, primarily due to lower programme sales. For the full year ending December 31, 2015, Discovery expects total revenue excluding currency effects to grow in the 9-10% range, Adjusted OIBDA excluding currency effects is expected to grow in the mid-single digit range.
Discovery upped its share buyback programme by US$2 billion in October, taking the remaining authorisation to US$2.4 billion, with an expiry date of 2017. The company has bought back 30% of its outstanding shares since the repurchase programme was authorised five years ago.