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Discovery Says Agreements Limit Subscriber Losses

At a time when the pay TV world is concerned about how cord cutting will affect subscribers and the amount of revenue they generate, Discovery Communications says that it made deals that make it difficult for distributors to drop its network or push them onto less-popular tiers.

During Discovery’s earnings call with analysts on Tuesday, CEO David Zaslav noted that operators have been reporting that subscribers are stabilizing, which means subscriber revenue should be better than it has in its financial plans.

“For us, the good news is we're very protected on the bundle,” Zaslav said. “We could've gotten more price and structured deals where there was more flexibility to move some of our channels. We opted to have the maximum security for our channels, and get price, and so we will track pretty closely what the universe estimates are because we did build into our deals over the last four years less flexibility to move around our channels.”

In a cord-cutting world, Discovery sees opportunity in going over-the-top and direct to consumers itself. Its Eurosport unit has a direct to consumer app that Zaslav says has been growing meaningfully.

“The exciting thing about the Eurosport app is that we're growing our direct-to-consumer business, but it's not coming at the expense of the linear channel.,” he said. “In fact the linear channel grew more than 15% in the past quarter. So people are signing up for the U.S. Open and they're watching maybe a choice of 18 courts. Most of it is when they're outside the home and then when they're in the home, they're watching one of the three Eurosport channels in most cases. So we're finding that it's additive.”

Going OTT could be an option in the U.S. because Discovery owns the content it shows on networks like Discovery and TLC. “it's early days, but we do have a lot of flexibility here in the U.S. to make a move if we want to and we're looking at it. We're looking at it,” he said.

Discovery was also upbeat about the ad market, having posted at 6% increase in domestic ad revenue during the third quarter. Some of that gain came from consolidating Discovery Family, which had been The Hub joint venture with Hasbro.

CFO Andy Warren said that if you take out the effect of consolidating Discovery Family, doemestic ad revenues were up “4.5%,. The growth was driven by solid demand, solid pricing.,” Warren said. The fourth-quarter market is similar, he added. “we expect our ad sales to be up solidly year-over-year.”

With ratings up in the third quarter, “we even actually cut back a little bit of inventory to drive a better viewer experience,” Warren said.

Jon has been business editor of Broadcasting+Cable since 2010. He focuses on revenue-generating activities, including advertising and distribution, as well as executive intrigue and merger and acquisition activity. Just about any story is fair game, if a dollar sign can make its way into the article. Before B+C, Jon covered the industry for TVWeek, Cable World, Electronic Media, Advertising Age and The New York Post. A native New Yorker, Jon is hiding in plain sight in the suburbs of Chicago.