Discovery CEO Forecasts Growth For Ads, Affiliate Fees, And Digital

In a conference call with analysts this morning Discovery CEO David Zaslav sounded a bit like Friday Night Light‘s Coach Taylor trying to boost the morale of a football team that’s losing at half time. Discovery shares opened down more than 5% after it reported weaker than expected Q2 earnings. But Zaslav assured the Street that he sees growth ahead in the challenged mainstays of the pay TV business — advertising and affiliate fees — as well as new digital opportunities.

To that end, Discovery raised its earnings per share forecast for the year, saying that it will increase by a low double digit percentage.

With ad sales, the second quarter “was OK,” CEO David Zaslav says. But Q3 “seems to be accelerating….It feels good right now.”

The company also crowed about its recent carriage renewal deal with Comcast. Some analysts wondered whether the cable giant would retaliate at the bargaining table for Discovery’s criticisms of Comcast’s aborted effort to buy Time Warner Cable.

But Discovery says that the new terms, which take effect on January 1, include a “healthy” step up plus annual increases tied to “the strength of our brands and market share.” Earlier terms with cable and satellite companies were linked to the inflation rate.

Added to other carriage deals, Discovery expects U.S. affiliate fees to increase by a high single digit percentage each year. Although Zaslav calls the U.S. cable business “a mature market that’s showing some decline,” he says “we’ve stabilized it and put ourselves in a position for growth.”

The CEO doesn’t fear being left out as cable and satellite companies explore options to offer so-called skinny bundles, with fewer channels and a lower price than the expanded basic package.

“Almost all of our deals require that all of our channels be offered to a high percentage of subscribers,” Zaslav says.

On the digital side, Zaslav disclosed that Discovery will contribute to Verizon’s mobile video streaming service, which it plans to launch before the end of the summer. The programmer will offer “long and short form content” that will include full episodes of shows, excluding those in the current season. The agreement “adds another source to our U.S. distribution revenue stream,” he says.

Verizon has been tight lipped about the planned offering, which is says will stand out from the pack of streaming services that offer traditional TV fare. It has disclosed that contributors will include its recently acquired AOL, DreamWorks Animation’s AwesomenessTV, Vice, ESPN, CBS Sports, and Scripps Interactive Networks.

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