Discovery Eyeing Streaming Service Aggregating "All of Our Content in the U.S.," CEO Says

The company, led by CEO David Zaslav, on Thursday reported better-than-expected third-quarter financials and "another record-breaking quarter" at TLC.

Cable networks company Discovery on Thursday posted better-than-expected third-quarter earnings driven by U.S. and international growth.

Asked about the company's growing direct-to-consumer business abroad and the U.S. streaming wars, CEO David Zaslav said on an earnings call that Discovery was "starting to explore a new opportunity" in the U.S. that would aggregate all of the firm's programming. "You have some of these platforms launching with eight series, 10 series or a bunch of movies and series to come," he said. "We have hundreds of thousands of hours that people grew up on. ... We are looking now at whether we should just aggregate … all of our content in the U.S. and having something that looks very different, is very deep, has great personalities, great brands to curate through."

Zaslav described the effort as "stepping up" to launch "a full attack" on those who are not pay TV subscribers with the company's content that he said differentiates the firm from the scripted space, highlighting that Discovery owns and controls all its content globally and adds about 8,000 hours of original programming per year. The exec said the company would make decisions and announcements about this in the next several months.

Asked by an analyst if Discovery has the rights to use its content for such a service under its pay TV carriage deals, Zaslav said: "We have an ability whatever we want, but we are probably the most, we have been the most friendly company in terms of the existing ecosystems, and we are looking to continue. We are talking to existing distributors. ... We want to preserve the existing ecosystem" and also go after people who are not pay TV subscribers.

Zaslav also reiterated past comments that Discovery loves staying away from the "rock’em, sock’em" scripted entertainment streaming area, saying it was "crowded, aggressive, expensive and risky." He added that his team believes that out of seven or eight players, only three or four companies are "going to make it" in that space. "It is going to be a lot of carnage," the CEO concluded, also lauding his team for "facing disruption head-on."

Discovery, which last year closed its $14.6 billion acquisition of Scripps Networks Interactive, reported earnings of $262 million, or 35 cents per share, or adjusted earnings per share of 87 cents. The result compared with a year-ago profit of $117 million, or 16 cents a share, or adjusted earnings of 79 cents per share. Earnings rose on primarily "higher operating results, lower restructuring and other charges and to a lesser extent, lower interest expense, partially offset by the impact from a non-cash goodwill impairment charge in our Asia-Pacific region."

Third-quarter revenue rose 3 percent to $2.68 billion and was driven by an increase in the U.S., including a gain of 3 percent in U.S. advertising revenue. Distribution revenue in the U.S. rose 6 percent. International advertising revenue jumped 10 percent and distribution revenue increased 8 percent, excluding foreign-exchange impacts.

In the U.S., growth in advertising was "primarily driven by increases in pricing and to a lesser extent, the continued monetization of digital content offerings and inventory, and partially offset by lower overall ratings and the impact of audience declines on the linear networks." Growth in distribution was "primarily driven by increases in contractual affiliate rates and additional carriage on streaming platforms, partially offset by the impact from a decline in overall subscribers."

Discovery said its total portfolio subscribers for September were 4 percent lower than in September 2018, while subscribers to its fully distributed networks were down 1 percent.

"TLC delivered another record-breaking quarter as the No. 1 ad-supported cable network in primetime among women 25-54 and women 18-49, with delivery up 16 percent and 10 percent, respectively," Discovery touted.

The company, led by Zaslav, has been building out its direct-to-consumer streaming business, including via partnerships with European broadcasters, such as ProSiebenSat.1 in Germany for streamer Joyn and Poland's Cyfrowy Polsat.

Discovery earlier this year also struck a deal with the BBC for natural history and other factual programming, which will help power a new global subscription VOD service set to launch by 2020, after signing a strategic alliance with the PGA Tour to create a global home for golf fans, which includes video streaming service GolfTV.

And in October, the company launched the entertainment streaming service dplay in the U.K. and Ireland as an advertising-supported offering, taking its reach to 10 markets. The streamer includes content from Discovery’s free-to-air channels in the region, namely Quest, Quest Red, DMAX, Food Network, Really and Home.

"Discovery once again delivered strong financial results across our portfolio, generating healthy revenue growth in the U.S. and internationally, and significant operational efficiencies from our ongoing transformation efforts," Zaslav said Thursday. "We also made progress in the buildout of our digital ecosystems that leverage our owned programming and brand strength. With a solid financial profile and strong balance sheet, we are able to invest meaningfully in our business and create additional value for shareholders."