UPDATE: Discovery decided in the recent upfront ad sales market to bet that pricing will improve, CEO David Zaslav told analysts this morning. The company’s upfront sales grew by mid-single-digit percentages vs last year. “We held inventory back” to maintain the price it charges for each viewer reached, he said. “The volume was not as strong as it was last year” although pricing in the scatter market remains healthy. Zaslav is determined to close what he says is a cost gap between the prices Discovery commands vs other companies’ networks. “In the long term getting the value we deserve for the quality audience we provide is how we’ll get meaningful growth.” He’s sensitive to the market changes because in the past “we think we left some money on the table.”
On other matters, the CEO says he expects to establish new relationships with subscription VOD providers in the next few months. And he kept his options open when asked about the consolidation taking place in media. “We’re thinking hard about it as all content owners are.”
PREVIOUS, 4:13 AM: CEO David Zaslav’s globalization efforts paid off in Q2 as Discovery Communication’s overseas operations helped to cover for weaknesses in the U.S. businesses. The company reported net income of $379M, +26.3% vs the period last year, on revenues of $1.61B, +9.8%. The top line was a hair above the $1.60B in the Street’s consensus estimate. Earnings at $1.09 a share were well above forecasts for 95 cents.
Many analysts expected more from the U.S. Networks where revenues fell 2% to $777M, with cash flow down 1% to $466M. Ad sales — which have shown anemic growth across the board in Q2 reports out so far — were up 5%. But distribution revenues fell 8% in comparison with last year when the company benefited from SVOD licensing deals. If you take them out of the equation, then distribution would have been up 6% and total revenues +4%, Discovery says.
But the International Networks picked up the slack with revenues +23% to $802M and cash flow +19% to $297M. Ad sales increased 23% and distribution revenues were +19%. If you factor out the acquisition of Eurosport, then ad revenues would have been up 17%.
The company told investors to expect full year revenues of as much as $6.525B with net income potentially hitting $1.275B. “Going forward, investing in compelling programming remains a priority as we integrate our recent acquisitions and build new avenues of growth so we can deliver additional long term value to our shareholders,” Zaslav says.
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