Discovery Sees 5% Ad Gains, Distribution Fees Flat

Cable network group Discovery Inc. reported its core third-quarter U.S. advertising revenues inching up 5%, although distribution fees were flat. This came on a pro forma combined basis, which adjusts for the Scripps Networks acquisition.

The company says the ad gains came from pricing hikes and to a lesser extent, volume dollar gains. In addition, it says there are gains from “continued monetization of digital content offerings.” There were also lower ratings on its linear TV networks.

Todd Juenger, media analyst for Bernstein Research, writes: “Advertising was the key source of good/bad news.” He say it beat consensus estimates for growth in the period.

“Domestic advertising sequentially re-accelerated. It moved from a 4% hike in the first quarter; 1% gain in the second quarter; and now back to a 5% hike in the third quarter,” he notes.



He says revenue trends are consistent with audience trends. They are down 9% in the first quarter, falling 14% in the second quarter; and then slipping 5% by third quarter. Juenger estimates the fourth quarter will see audiences down 10%.

Adding in its Scripps Networks Interactive deal -- which closed in March -- more than doubled overall advertising volume at Discovery, from $407 million to $991 million. When including Scripps, distribution revenue grew 60% to $644 million.

Total Discovery U.S. network revenue doubled to $1.67 billion; with overall company-wide revenue growing 57% to $2.6 billion.

Discovery continues to be hit by lower subscribers at its networks. While there were affiliate rate increases, overall distribution revenues remained “consistent.” Total subscribers declined 5%, with subscribers at fully distributed networks sinking 2%.

International TV networks' revenues were up 15% to $916 million; distribution fees up 6% to $508 million and advertising growing 26% to $374 million.

Discovery Inc. was 3% higher in Thursday morning trading to $33.98.

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