Discovery, Inc.’s U.S. ad revenue dropped 20% in April as the COVID-19 panic took hold but May and June look sbetter. The highly international company’s board will be looking carefully at acquisition opportunities around the world. And CEO David Zaslav put the blame for subscriber erosion on linear TV squarely at the feet of bundles jammed with costly sports.
In a wide-ranging investor call following strong quarterly earnings, Zaslav and CFO Gunnar Wiedenfels discussed Olympic advertising (its Europsort subsidiary has European broadcast rights); surging ratings for its brand of cooking, DIY and comfort programming; this year’s odd upfront; continued work with cable operators on a DTC product; and restarting production. On the latter, Discovery brands have developed 350 hours of fresh homemade programming during the crisis it’s in no hurry to restart traditional production after several employees become infected in the early days of the pandemic.
“Those were 14 of the toughest days of my life,” Zaslav said, recalling the daily updates. “You feel it because they got sick coming to work. “We don’t want to push anyone back into the field. … We aren’t in any rush to get back to those calls, because we couldn’t breathe.” The employees recovered, he said.
On sports, Zaslav urged “a rationalization of the market, particularly at the moment we are in a recession,” noting that much cheaper bundles are available in many other countries. “If you took sports out, you could very easily do that here” and “we would likely see a turnaround in the issue of subscribers losses.” Today the offer is, ‘Take it for $80 take if for $100 or don’t take it at all,” he said. “Give America a chance to buy what it wants with out stuffed sports.”
That said Discovery is hurting like next guy from the cancellation of live sports, which the lifeblood of EuroSport. It carries cycling outside the U.S., where it’s also a partner with PGA. Advertisers have pulled back “but we expect momentum to continue whenever play resumes,” Zaslav said. “Having no sports is harmful for all of us.”
But in terms of costs Zaslav said that “90% of the company’s deals have force majeure provision or provisions specifically about not paying for content we don’t get.”
Having the Summer Olympics in Tokyo postponed for a year will bring one benefit – Discovery can bundle the summer and winter Games for advertisers since they’ll only be months apart, and has a long lead time to do it.
On the advertising front, sales that were down 20% in April are looking up slightly for May and June, although Wiedenfels cautioned that cancellations are coming in on a rolling basis so investors should take the outlook “with a grain of salt.”
Internationally, Wiedenfels said April advertising was down 40% on average – with some countries down 30% and some falling as much as half. He indicated stability in Asian markets like China, Taiwan and Korea, but noted that’s a small portion of Discovery’s revenue.
Asked during the Q&A about potential deals following the purchase of Scripps, Zaslav said he’s open and that the company’s board – including heavy hitters from John Malone to the heads of Advance/Newhouse – “are fully engaged in looking at our balance sheet [and looking] around the world.”
“I think this is a very unique moment … there are companies out there with great assets that are facing some difficulty.”