Ratings fell after the company, eager to avoid running up against the Rio Olympics in August, scheduled its popular annual shark-related programming earlier than usual, in late June and early July.
“We got it to a whole different level over the last two years, and we dropped off,” Zaslav says. “We made a mistake….It was too early. A lot of people are still working.” In July and August “we get a huge boost in day and late night; people are just hanging out. It’s the dog days of summer.”
Not surprisingly, he says, Shark Week will return to late July and August next year.
Generally speaking, the company is upbeat about its prospects following a stronger than expected Q2 — which helped lift Discovery’s stock price by 6.7% in early trading.
Discovery raised its earnings growth guidance for this year to at least 20% from high teens citing what it calls its “increased visibility” about its global prospects, cost controls, and declining tax rates.
Discovery says that in the just-completed upfront sales season its prices for each 1,000 viewers increased by a high single digit percentage over last year.
“The advertising market feels strong,” Zaslav says. “Scatter is better than double digit above last year.”
But the company warned that its Q3 results won’t reflect that with ad sales likely to fall by a low single digit percentage vs. last year. That will be partly due to competition from the Olympics.
In addition, “we have been hurt in the U.S. by the strength of the news networks,” Zaslav says. “They’re up almost 100%. A lot of the viewership going to those networks is coming from some of our channels. …Both our male and female channels are getting hurt a little bit. So we’re looking forward to the Olympics being over, and the elections to be over.”
He adds that many advertisers who shifted dollars from TV to digital platforms “were’t able to move as much product.” As a result, “more money has moved back to TV….That whole in-vogue of digital has worn off a bit.”
Discovery disclosed that its channels lost about 2% of its subscribers across all of its channels in Q2, an acceleration from the 1% drop in Q1.
The decline reflected a combination of cord cutting and cord shaving, CFO Andrew Warren says.
Execs crowed about Discovery’s just-announced distribution renewal deal with Liberty Global. The pay TV distributor — which, like Discovery, is largely controlled by Liberty Media’s John Malone — serves Austria, Belgium, Czech Republic, Germany, Hungary, Ireland, Poland, Romania, Netherlands, Slovakia, Switzerland and the United Kingdom.
The deal also includes digital rights.
But Discovery’s struggling to grow its overseas businesses.
“We’re fighting difficult economies around the world,” Zaslav says. “Almost every country in Latin America or Europe [is] either flat or down. And advertising tends to follow GDP. The reason we’re still growing is because our share is growing. We have some efficiency and are able to get some market power as we’ve gotten bigger. But we don’t see the economies improving any time soon.”
The UK’s Brexit vote to leave the European Union is creating problems, although only 5% of Discovery’s revenues come from the UK and it’s hedged against big swings in currency values.
“We are working through all of the potential implications,” Warren says, adding that “we have not yet seen a recovery in the UK ad market that we expected if the vote had gone the other way.”
Execs also sought to reassure investors that Discovery’s investments in overseas sports rights will pay off. For example, in June Discovery’s Eurosport agreed to a four-year deal to offer 40 live Bundesliga soccer matches per season.
“Eurosport does not, and will never, have negative margins,” Warren assured investors.
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