Discovery Inc. posted a dip in profit for the first quarter as the company grapples with international headwinds, stagnant advertising sales and subscriber losses at its U.S. cable networks.
Discovery reported revenue of $2.7 billion for the quarter, which was flat year over year, and $1.1 billion in adjusted operating income, down 4%. Net income for the quarter came in at $377 million, compared to $384 million in the year-ago quarter.
Discovery CEO David Zaslav told investors during the earnings conference call that Discovery has been dealing with the impact of coronavirus shutdowns since December at some of its international outlets. He also emphasized that Discovery’s lifestyle and how-to brands are well positioned to connect with viewers at a time of stay at home orders.
“Many of our networks are reaching all-time highs,” Zaslav said, citing triple digit growth at HGTV and Food Network. “We really like our hand.”
Zaslav said the quick adjustment to work at home orders for Discovery employees has gone smoothly. He noted the number of Discovery channels that have delivered remotely produced programs, including the preview of the new Magnolia Network digital outlet led by former HGTV stars Chip and Joanna Gaines, which delivered a blockbuster 2.3 million viewers for DIY network on April 26.
“Our business has not missed a beat,” Zaslav said, noting that company operations and production of its unscripted series were easily adapted to remote working because of Discovery’s investments in technology and cloud-based work networks.
Discovery disclosed that its portfolio of TV brands has lost 6% of its total subscribers since March 2019. Among Discovery’s biggest channels — including the Discovery, TLC, Food Network and HGTV — the drop is about 4%.
Domestic ad sales was flat at $1 billion while distribution revenue for domestic networks ticked up 2% to $708 million. Discovery said cancellations began to increase toward the end of March as the coronavirus crisis accelerated.
International networks saw a 4% decline in ad sales to $376 million and a 1% gain in distribution revenue to $527 million. Excluding currency fluctuations, ad sales would have been flat.
The move of the 2020 summer Olympics to 2021 will be a hardship for Discovery’s Euro Sport channels in Europe in terms of lost programming this year. Zaslav told investors that Discovery “did a good job” in structuring its sports rights contracts to ensure it doesn’t have to pay for events that are not delivered.
Zaslav was pressed by analysts on Discovery’s plans for expanding its streaming footprint in the U.S., following the lead of other major content owners. Zaslav indicated that any effort would be done in conjunction with the largest MVPD players that deliver so much of the company’s underlying revenue and profits.
“We are in discussions with all of them. We have this great package of content,” Zaslav said.
Zaslav didn’t name names but he also took aim at programmers with big regional and national sports holdings, citing the high cost of sports channels that MVPDs are passing on to consumers.
Zaslav said the practice of “bundling, forcing, leveraging and jamming” sports channels in basic MVPD service packages has spiked the price of cable TV service in the U.S. much higher than it is in other countries, where a la carte channel purchases are more common.
(Pictured: Chip and Joanna Gaines)