Can pay TV programmers relax about the threats of cord cutting and lost distribution for channels left out of cable and satellite skinny bundles? Discovery seems to think so.
“There seems to be a change in the universe dynamics,” CEO David Zaslav told analysts today in the company’s quarterly earnings call.
Pay TV subscription trends have improved since September, when the company told Wall Street that it expected subscriptions to decline about 2.5% per year, CFO Andrew Warren says.
And Zaslav believes that’s no fluke. “Most consumers seem to want the big [pay TV ] bundle,” he says.
Discovery’s contracts with distributors limit their ability to unpack its channels. Although “maybe there could be a little bit of that,” it will take “several years before there’s a big change” that could allow cable or satellite companies to just offer a few of the company’s networks in a skinny bundle that would cost less than the expanded basic package.
“The skinny bundle noise seems to have dissipated,” Zaslav says. As a result, he considers the U.S. to be “a meaningful growth business.”
The company said it expects U.S. ad sales to end up growing by a mid-single-digit percentage in the current quarter. That pace probably will slow in Q3 when Discovery and other programmers compete with the Summer Olympics in Brazil taking place in August.
Meanwhile, Discovery wants to promote cable and satellite TV Everywhere offerings — a collection of initiatives that has begun to “tilt in a positive direction” after a slow start, Zaslav says. It’s “a great platform that we can monetize.” Results from the company’s Discovery Go app, introduced in December, have been “quite good.”
Although she’s “very engaged,” Zaslav says Winfrey has staged puts on her shares that — if she wants — could require Discovery to buy her out over several years.
“If we have an opportunity to own more of the channel, that’s only a good thing for us,” the CEO adds. “We’re very confident in it. It has a great niche and strong IP. If over time as our interest grows, if we have an opportunity to consolidate it, that would be very favorable for us. But in the meantime it’s a 50-50 venture.”
OWN last year repaid $85 million of the more than $500 million that Discovery initially loaned the venture. The repayment, which comes from the channel’s cash flow, was $20 million higher than in 2014, Warren says. The outstanding loan now is down to $380 million and “we expect that loan to be fully repaid over the next several years.”