Discovery Q3 results buoyed by international revenues

MUMBAI: Discovery Communications President/CEO David Zaslaw has been quite clear about what's going to drive revenues at the company: international expansion. He has stated that more than once and he did so at the industry's leading get together MipTV in Cannes in 2013. If one goes by the financials for the broadcaster for the third quarter ended 30 September 2013, he seems to be living up to that statement.

Discovery Communications' international betworks’ revenues climbed 59 per cent to $ 620 million, as advertising revenues were up 127 per cent to $282 million and distribution revenues were up 29 per cent to $322 million. Overall, international revenues almost equaled US domestic revenues which grew a snail like 10 per cent to touch $733 million. Ad revenues grew 12 per cent to account for $383 million of that, while distribution fees went up 10 per cent to touch $329 million.

Overall, Discovery saw a 28 per cent increase in revenues to $ 1,375 million; adjusted OIBDA rose 20 per cent to $ 597 million and net income climbed up by 24 per cent to $ 255 million. And while these numbers were lower than the Q2 2013 of 1,4

On the international front, distribution revenues, excluding newly acquired businesses, in local currency terms grew 14 per cent mainly from increased subscribers, most notably in Latin America, and from higher rates, particularly in Latin America and Asia Pacific, as well as from additional contributions due to the consolidation of Discovery Japan.

Zaslav had this to say on the occasion of the results: “As we continue to build new avenues of growth across the more mature US business, the bigger opportunity remains the potential of our international portfolio, where we are diligently applying our targeted investment approach to exploit our unparalleled market position and capitalise on those areas with significant upside from the evolution of pay television and the developing global advertising landscape.”

International advertising revenues, excluding newly acquired businesses, were up 29 per cent in local currency terms, primarily due to increased viewership in Western Europe and higher pricing in Western Europe and Latin America.

“Discovery's thoughtful investment over the last two decades in securing distribution and establishing relationships with key affiliates, suppliers and advertisers in each market has given us a huge head start internationally. But it's the additional steps we have taken over the last several years to take advantage of our market position that is driving such strong results today and will allow us to continue to grow even as pay-TV penetration growth begins to slow eventually,” Zaslav added.

Adjusted OIBDA increased 34 per cent to $232 million on a reported basis and was up 17 per cent excluding newly acquired businesses and foreign currency fluctuations, reflecting the 18 per cent revenue growth partially offset by a 19 per cent increase in operating expenses. The higher operating expenses were primarily due to increased content amortisation, personnel costs and marketing expense as well as costs related to consolidating Discovery Japan.

As markets have developed, Discovery Communications has aggressively opened new offices in key countries, like Turkey, the Ukraine and India, to closely connect with an evolving middle class. At the same time, it has established in-house sales functions in markets where the revenue opportunity dictated a more hands-on approach, such as Russia, Colombia and Argentina.

On the content side, the network has increased its programming spend internationally by over 80 per cent since 2010 to capitalise on market opportunities, including broadening the reach of its female flagship, TLC, into over 165 countries, making TLC the most distributed women's brand in the world from a standing start 24 months ago.

It has also been expanding the footprint of its successful investigative and forensic channel Invesitgation Discovery (ID) into 150 countries, and expecting to approach 180 countries in the year ahead; or launching the kids network recently across Asia. All in, over the last three years, the network has launched over 60 new feeds and five new languages to satisfy the growing demand for its content, and the strong revenue growth Discovery Communications is delivering currently is certainly due in a large part to the targeted investment.

“While it is certainly difficult to predict how the various international markets will perform going forward, we remain optimistic about our long-term growth prospects, given the platform we have built; the investments we have made and the growth we are delivering today, despite a relatively slow economic climate in many of the countries we operate in. As we continue to invest in our organic growth initiatives, we're also making significant strides integrating our recent SBS Nordic acquisition. The joint ad sales team we've assembled is closing deals in the spot market, while preparing upfront presentations to message during the first quarter that lay out the compelling content offering and value proposition we can deliver to ad clients,” expounded Zaslav.

Zaslav had in July 2013 downgraded its revenue expectations for the full year from 5.58-5.70 billion to $5.55-5.63 billion, following Discovery said it expected 2013 revenue of $5.55 billion to $5.63 billion, below its previous forecast for $5.58 billion to $5.70 billion. The company blamed unfavorable currency fluctuations and costs from its $1.7 billion acquisition of Scandinavian media company SBS in December 2012, apart from the 20 per cent investment in European sports network Eurosport.

But it is quite likely that it is these very investments which will start adding oodles of revenue and cash to its bottomline going forward. We can only wait to discover if that will happen.

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