The deal firms up Discovery’s single-largest source of affiliate fee revenue for the next few years. AT&T, meanwhile, secured rights to Discovery nets for its DirecTV Now streaming service that is poised to launch in the fourth quarter.
For Discovery, the pact “removes one obvious overhang and potential negative catalyst” for Wall Street’s assessment of the company’s long-term prospects, according to media analyst Michael Nathanson of MoffettNathanson. However the immediate response to the deal, announced before the market opened, was muted with Discovery shares were up only about 1.2% in trading Thursday to close at $25.38. Discovery shares have been hit during the past year amid broader concerns about the health of the pay-TV business.
Nathanson noted that the new pact for Discovery nets across AT&T’s DirecTV and U-verse platforms appears to shield Discovery from the earnings-eroding effect of affiliate fee reductions and less advantageous distribution deals for the less popular of its 13 domestic channels. At the same time, the new pact gives AT&T’s platforms expanded streaming, VOD and TV Everywhere rights to Discovery content.
“We are pleased that we were able to get a win-win deal done with the largest distributor in the country,” said Eric Phillips, president of domestic distribution for Discovery Communications. “Our agreement greatly expands the AT&T platforms that will distribute our award-winning content, including future distribution on DirecTV Now for our portfolio of brands.”
Dan York, chief content officer for AT&T, made it clear the company is focused on lining up top-tier content for DirecTV Now.
“By adding the Discovery networks to the growing DirecTV Now lineup, we are continuing to build a streaming service for the connected generation that we believe will be second-to-none in the industry,” he said.
(Pictured: Discovery Channel’s “Gold Rush”)