Discovery’s new effort, announced last night, to cut jobs and other costs is designed to “make our company more efficient,” and provide additional resources for programming and digital initiatives, CEO David Zaslav told analysts this morning in his quarterly earnings call.
The programmer said that it expects as much as $60 million in severance costs and expenses. But the annual benefit “will be 2X-plus that,” CFO Andrew Warren said.
Indeed, Discovery raised its financial guidance for the year, telling analysts that adjusted earnings per share and free cash flow would grow by “at least high teens” percentages on a constant currency basis — including potential charges from its job cuts.
Zaslav says the belt-tightening “isn’t related” to weakness at some of his channels including Animal Planet and TLC. He acknowledged, though, that in Q1 Discovery was “hurt a little more than others by the news networks” including CNN and Fox News that collectively were up about 38% as they fed audiences’ fascination with this year’s unusual presidential election campaign.
“A lot of that energy came out of our non-fiction channels,” Zaslav says.
On other matters, the CEO says he’s open to the possibility of providing channels to skinny bundle offerings — including Hulu’s planned live streaming service — that might challenge cable and satellite providers.
“We are talking to everyone,” Zaslav says. Discovery’s channels would be “extraordinarily” valuable to anyone creating a non-sports package. And in any event, “it’s difficult to have a compelling package without us.”
He says his 14 channels account for 12% of cable viewing, but just collect 5.5% of distributors’ outlays. Discovery’s top six networks represent 83% of the domestic affiliate revenues.
More broadly, “we as an industry need to make some compromises” by agreeing not to force distributors to carry all of their channels. “The smaller bundles that are working around the world have 20 or 30 channels, a best-of bouquet…I like the skinny bundle. I was interested in what Apple was doing.”
If that’s the case, then why isn’t Discovery on Dish Network’s Sling TV streaming service? Zaslav says that’s just because his carriage deal with the satellite company hasn’t expired yet. Terms with Sling would be part of that negotiation.
Like other TV network chiefs, the CEO says he’s optimistic about the upcoming upfront ad sales. The market is “robust” and “feels quite good,” he says.
“I love the fact that [CBS chief Les Moonves] is talking about double-digit” growth, Zaslav says. “If broadcast gets 9% [growth] maybe we get 8%.”
The Discovery CEO says that advertisers who were attracted to digital platforms should return to TV. Most deals involve just the first three days of viewing, and when you look at delivery after that period “we leave 14% of viewership on the table.”
What’s more, he believes that advertiser fears that a huge wave of pay TV customers will cut the cord are subsiding. With rising payments from distributors “even if the universe declines, and it looks like it has stabilized, we’ll still have a very significant U.S. growth market,” Zaslav says.
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