Discovery Misses Q3 Earnings Expectations; Forges European Alliance With BAMTech

Discovery Communications’ Q3 earnings, out this morning, fell short of Wall Street expectations which the company said was partly due to the strong dollar and an unspecified $50 million impairment charge “related to [its] Lionsgate investment.”

Shortly after the earnings announcement, Discovery also said that it has forged a “long-term partnership” with Major League Baseball’s technology arm, BAMTech, to create BAMTech Europe. It will offer streaming services on the continent, with Discovery’s Eurosport Digital its first client.

Disney, which owns ESPN, recently agreed to pay $1 billion for 33% of BAMTech, and has an option to take full control later.

As for the Q3 results, Discovery reported net income of $219 million, down 21.5% vs the period last year, on revenues of $1.56 billion, virtually flat. That was just slightly short of the $1.57 billion that analysts anticipated.

But earnings at 36 cents a share were well below expectations for 41 cents.

“While we faced challenging but expected headwinds this quarter, Discovery is well positioned for long-term growth driven by our well-defined global brands, differentiated content and favorable distribution agreements,” CEO David Zaslav says. “We have continued to strengthen and maximize our traditional pay-TV offering with robust new programming while aggressively exploiting new opportunities to leverage our content across numerous digital platforms around the world. Amid an ever shifting global media ecosystem, Discovery is evolving to reach more consumers on more screens and platforms than ever before.”

The U.S. Networks unit struggled with falling subscriptions and ratings in the period. Revenues increased 2% to $793 million as rate hikes to cable and satellite distributors offset what the company calls a “slight decline” in the number of homes reached. Ad sales fell 3% as higher prices couldn’t overcome what Discovery calls “expected ratings declines.”

But the International Networks took a big hit with the company’s preferred profit measure — adjusted operating income before depreciation and amortization — falling 16% to $183 million on a 3% decline in revenues to $720 million. If you take out the effect of weakening overseas currencies vs the U.S. dollar, then revenues would have been up 2%.

Ad sales declined 6%, and still would have fallen 2% without the currency effects, which the company says was “primarily due to lower ratings and pricing in Northern Europe, partially offset by higher volume in Southern Europe.”

As for the BAMTech Europe deal, Zaslav says that it “accelerates Discovery’s long-term strategy to bring our premium content to more viewers across more screens than ever before.”

In addition to offering games Eurosport currently licenses, the partnership with BAMTech will look for “joint acquisitions for other compelling European sports rights, from across the globe, for Eurosport’s digital platform,” the companies say..

MLB President, Business & Media. Bob Bowman says that with Eurosport’s rights to popular games including the Olympics, the partners will develop “new models for delivering content in the best interests of customers.”

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