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Discovery eyes $10 bn cash in next 5 years, 3 bn subs base by year end

MUMBAI: US infotainment major Discovery Communications has set a target of $10 billion in capital in the next five years and a worldwide subscriber base of three billion by the end of this year.

Discovery president, CEO David Zaslav said that with an average of 10 channels across more than 220 markets, Discovery is well positioned for near- and long-term growth. “The company stands out in the marketplace due to our efficient global content model; unrivalled international infrastructure run by local teams; and a strong growth position in the US. We are confident in the long-term outlook for our business and foresee continued growth in the years ahead, which we expect will produce significant free cash flow and value for shareholders.”

The company hosted its first ‘Investor Day’ in New York City where global leaders from Discovery’s management team discussed their strategies to drive growth and create shareholder value with over than 300 attendees, including investors, financial analysts and industry journalists.

Strong financial outlook

Talking about the company’s strong performance across verticals this year, Discovery CFO Andrew Warren said, “Third-quarter results are on track, highlighted by strong US advertising growth. We are pleased that we are delivering on our 2015 commitments and are confident that we are well positioned to continue to grow adjusted EPS in the long term. In addition, our model generates significant free cash flow, and we expect to have approximately $10 billion in available capital over the next five years.”

For the full year, Discovery’s constant currency revenues is expected to be up 9–10 per cent, while constant currency AOIBDA is expected to be up mid-single digits, and free cash flow is expected to be up low-single digits.

“Year over year currency impact is now expected to be approximately $460 million, $180 million and $0.24–0.29 to revenues, Adjusted OIBDA and Adjusted EPS, respectively,” Warren said.

Additionally, the company also set forth the long-term financial guidance of low double-digit constant currency-adjusted EPS compound annual growth rate (CAGR) from 2015 to 2018 and low double-digit free cash flow CAGR from 2015 to 2018.

A differentiated model to create value

According to Zaslav, the company would reach three billion cumulative worldwide subscribers by the end of the year.

He also highlighted five key differentiators for Discovery’s growth potential—the company’s unique portfolio of assets; ownership/control of a growing and diverse portfolio of content and IP; a leading international distribution platform; a cost-flexible, stable US business that yields continued free cash flow growth; and a strong financial outlook, highlighted by, for the first time, three-year guidance metrics.

The company’s chief development, distribution and legal officer Bruce Campbell gave an overview of Discovery’s global digital portfolio and platform opportunities, highlighted by its direct-to-consumer products in Europe including Eurosport Player, the No. 1 sports OTT service across Europe, and DPlay, featuring diverse entertainment content and live events.

Campbell also announced the upcoming launch of an authenticated TV Everywhere offering for Discovery Kids in Latin America, called Discovery Kids Play.

Sports and Olympics to propel growth

Eurosport CEO Peter Hutton talked about the company’s strategy to grow the Eurosport brand and plans to leverage sports to meaningfully drive revenue across the entire portfolio.

Explaining the differences between European and US sports rights, Hutton said that Eurosport is not dependent on any single franchise and that it has locked in long-term rights at low inflation levels.

Commenting on Discovery’s acquisition of the exclusive, multiplatform rights to the Olympic Games across Europe, Hutton said that Eurosport’s programming schedule is nearly 50 per cent Olympic sports, giving it the opportunity to tell stories about the characters and events all year long.

He said that the Olympic Games will be profitable and cumulative cash flows will be positive for Discovery over the term of the agreement, with sublicensing fees covering 70 per cent of the economics. Hutton also noted that talks have already begun with traditional and new distribution partners, such as mobile and digital.

Leading international distribution platform

Discovery Networks International president Jean-Briac (JB) Perrette focused on Discovery Networks International’s three-part strategy—grow audience and share; own and control must-have IP; and create and expand powerful and loved brands.

Perrette described how Discovery’s unique global and local infrastructure with a low-cost model will support the division’s continued growth, including continued meaningful increases in pay TV global subscribers and more earnings for multichannel advertising.

Additive growth across Europe

Discovery Southern Europe MD Marinella Soldi described the diversity of the European media landscape and how Discovery has used local teams and tailored strategies to propel growth and outperform competitors, even in challenging economic environments.

She explained the three types of markets in terms of pay TV: ‘Mature but stable’ with distributors finding new ways to grow; ‘Growth’ markets where pay TV subscribers are growing; and ‘Low penetration’ markets where a large number of households have never seen pay TV, which created the opportunity for Discovery to launch ‘thematic’ free-to-air channels programmed with its global content engine.

Soldi also explained how the legacy big broadcasters in markets across Europe continue to lose viewing share to themed channels and how Discovery is benefitting from this trend in terms of gaining its ‘fair share’ of ad revenue.

Discovery India

While the India business was not discussed on the Investor Day, India happens to be one of the most important markets for Discovery Communications’ international business. Discovery recently completed 20 years of operation in India and has widened its footprints.

The broadcaster operates in six genres through 11 networks and reaches out to a cumulative 240 million homes in five languages (Hindi, English, Tamil, Telugu and Bangla).