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Discovery Q3 profit falls 22%, revenue stays flat

MUMBAI: US and global infotainment, lifestyle and kids broadcaster Discovery has reported third quarter 2016 results.

Revenues of $1.5 billion were flat versus last year (increased by 3 per cent excluding currency effects) as two per cent growth at US networks and 19 per cent growth at Education and Other were offset by a three per cent decline at international networks, primarily due to currency effects.

Net Income decreased by 22 per cent to $219 million (decreased 23% excluding currency effects).

This was primarily due to a $50 million (or $0.08 per share) after-tax impairment charge related to the Lionsgate investment and higher equity-based compensation, partially offset by a decrease in taxes, currency-related transactional gains and higher contribution from equity investees income.

“While we faced challenging but expected headwinds this quarter, Discovery is well positioned for long-term growth driven by our well-defined global brands, differentiated content and favorable distribution agreements. We have continued to strengthen and maximize our traditional pay-TV offering with robust new programming while aggressively exploiting new opportunities to leverage our content across numerous digital platforms around the world. Amid an ever shifting global media ecosystem, Discovery is evolving to reach more consumers on more screens and platforms than ever before,” said Discovery president, CEO David Zaslav.

Adjusted Operating Income Before Depreciation and Amortization (OIBDA) decreased by two per cent to $562 million, as three per cent growth at US networks was more than offset by a 16 per cent decline at International Networks, partially due to currency effects. Excluding currency effects, total company revenues and Adjusted OIBDA grew by three per cent and one per cent, respectively.

International: International Networks’ revenues for the third quarter decreased by three per cent to $720 million and Adjusted OIBDA decreased by 16 per cent to $183 million.

Changes in foreign currency exchange rates reduced third quarter International revenues and Adjusted OIBDA growth by five per cent and seven per cent, respectively.

Excluding currency effects, total revenues increased by two per cent. Distribution revenues, excluding the impact of currency effects, grew 8 per cent mostly due to higher affiliate rates in Latin America, Northern Europe and CEEMEA as well as higher volume in Latin America.

Ad revenues, excluding the impact of currency effects, declined by two per cent, primarily due to lower ratings and pricing in Northern Europe, partially offset by higher volume in Southern Europe. Other revenues declined 24 per cent excluding currency effects primarily due to lower Eurosport sub-licensing revenues.

Operating expenses increased by three per cent, or six per cent excluding the impact of foreign currency exchange rates, primarily due to increased sports content and production costs. Excluding the impact of foreign currency exchange rates, adjusted OIBDA decreased by nine per cent, reflecting revenue growth more than offset by higher operating expenses.

The US: US networks’ revenues in the third quarter of 2016 increased by two per cent to $793 million, driven by seven per cent distribution growth, partially offset by a three per cent decline in advertising.

Distribution revenue growth was primarily driven by higher rates, partially offset by a slight decline in subscribers. Advertising revenues decreased by three per cent primarily due to expected ratings declines, partially offset by higher pricing and inventory management.

Operating expenses decreased by one per cent mainly due to lower content amortisation, partially offset by higher marketing costs. Adjusted OIBDA increased by three per cent to $458 million due to higher revenues and lower operating expenses.