Discovery Communications put Wall Street, and cable operators, on alert about some potential head-butting — especially beginning around June when the programmer’s carriage deal with Comcast expires. All eyes will be on the negotiations after Discovery challenged the No. 1 cable operator’s planned acquisition of Time Warner Cable.
“As we all know Comcast is the largest cable company, a key platform for any independent programmer of which Discovery is the largest,” CEO David Zaslav said this morning in his quarterly earnings call with analysts. “With our deal coming up we are hopeful that Comcast will negotiate in good faith like all of our other distributors have over the last several years.”
Last week, Discovery renewed its carriage deal with Cablevision, and Zaslav says it is about to announce a new one with Mediacom.
The outcome of the Comcast talks will be important: Discovery told analysts to expect that its revenues from pay TV providers will accelerate in 2015, but the forecast is contingent on the outcome of the negotiations.
They start with a chill. In November, Zaslav said that Comcast’s high broadband market share in 17 of the top 20 markets “raises real issues that all of us are looking at in the business.” In September, Comcast said Discovery had engaged in “extortion” by demanding network carriage and contract concessions in exchange for supporting the deal.
In addition to the Comcast warning, Zaslav put cable operators on notice to step up their introduction of TV Everywhere streaming services. If they don’t then “it will require all of us to go directly to the consumer, because the cable guys aren’t getting it done.” Discovery says it’s learning a lot from European properties including EuroSport about how it can use the Internet to sell programing directly to consumers.
Programmers feel growing pressure to raise their revenues from pay TV. CFO Andrew Warren characterized this year’s ad market as “tepid.”
Discovery has said that this year it will scrap the splashy presentation for upfront ad buyers that it used to hold at NYC’s Jazz at Lincoln Center. “We weren’t getting the buyers who make a difference in the upfront,” Zaslav says. Ad sales president Joe Abruzzese felt that “going to the offices of the actual buyers will be stronger.”
Meanwhile, Zaslav took some shots at Nielsen, which many programmers say shortchanges them by failing to count people who watch shows on digital devices. “It’s a monopoly here in the U.S.,” the Discovery chief says. “It is a real chaallenge. There’s no question they’re undermeasuring…. It is what it is. They’ll fix it over time. But it’s a problem.”
Discovery shares opened down 2.2% this morning after it reported weaker than expected Q4 earnings and warned that weakening overseas currencies could hurt 2015 results.