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Discovery Communications, Inc. (NASDAQ:DISCA)
Q1 2018 Earnings Conference Call
May 8, 2018, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Discovery Incorporated First Quarter 2018 Earnings Conference Call. [Operator instructions] As a reminder, this conference may be recorded.

I would now like to turn the conference over to Mr. Andrew Slabin, Executive Vice President, Global Investor Strategy. Sir, you may begin.

Andrew T. Slabin -- Executive Vice President, Global Investor Strategy

Good morning, everyone. Thank you for joining us for Discovery's 2018 first quarter earnings call. Joining me today is David Zaslav, our President and Chief Executive Officer and Gunnar Wiedenfels, our Chief Financial Officer. You should have received our earnings release, but if not, feel free to access it on our website at corporate.discovery.com.

On today's call, we will begin with some opening comments from David and Gunnar, after which we will open the call up for your questions. Please try to keep to one or two questions so we can accommodate as many folks as possible.

Before we start, I would like to remind you that today's comments regarding the company's future business plans, prospects, and financial performance are forward-looking statements that we make pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are made based on management's current knowledge and assumptions about future events and may involve risks and uncertainties that could cause actual results to differ materially from our expectations. In providing projections and other forward-looking statements, the company disclaims any intent or obligation to update them.

For additional information on important factors that could affect these expectations, please see our annual report for the year ended December 31, 2017 and our subsequent filings made with the U.S. Securities and Exchange Commission.

And with that, I'd like to turn the call over to David.

David M. Zaslav -- President and Chief Executive Officer

Good morning, everyone and thanks for joining us today. The first quarter was a transformational period for Discovery marked by a number of important milestones that will to further differentiate our strategy from the rest of the marketplace, enhance our portfolio of quality trusted brands, and position us for our next generation of growth.

In addition to reporting solid operating momentum across our businesses, we closed on our Scripps transaction and quickly began integrating the two companies. And, thus far, I can unequivocally say we love this combination even more now than when we first announced it. As Gunnar will detail, our combination is exceeding expectations on every level, which you will see reflected in our upwardly revised synergy target. And we are continuing to drive more synergy value off of this base and look forward to updating you in future quarters.

In short, we feel really good about where we are operationally, financially, and strategically. We see multiple areas where we can create meaningful, long-term value. Behind this momentum, we are ahead of plan to rapidly reduce our debt levels and now plan to be around 4X net debt to pro forma adjusted OEBITDA by the end of this year.

I'd like to share a few thoughts on the state of our industry, our differentiated position as the global leader in real life entertainment, and why we are increasingly confident in our strategy. Let's start by looking more closely at the current state of our business. Despite the challenges of the ecosystem, our existing business continues to show real growth. Net growth continues at the same time we are investing meaningfully across the company in new opportunities like direct to consumer, new technology that we expect to bear fruit, and give us meaningful growth in the years ahead.

We have a steady financial and operational tailwind and a model that provides a strong, visible free cash flow generation. We are a free cash flow machine. Indeed, our free cash flow is like a moat in turbulent times. It's a distinguishing strategic asset for Discovery. That free cash flow will, over time, provide us with a loaded gun, giving us flexibility to deploy that free cash flow like bullets wherever we see opportunity to drive shareholder value. Whether it's investing in content, IP, platforms, products and services, extending our content onto all bundles and services whether linear, digital, mobile, or direct to consumer, or just buying back our stock, we will have the cash to decide.

Our focus on cost efficient, real life entertainment leveraged across all formats, regions, and methods of delivery gives us another distinct advantage over our peers. We're not caught up in the increasingly competitive and high cost scripted content game that has captured so much of our industry's attention and resources over the past several years. We don't just do shows. We curate passion brands for enthusiast audiences who, in a world where they can watch anything, seek us out because our content provides them with something special and useful for their daily life. From cooking dinner to designing their dream home or car, we engage our viewers with content that entertains and inspires while also providing real everyday value and utility.

We don't have just viewers, either. We have superfans -- consumers who trust our brands and believe in our talent. And, we have families who feel safe and entertained while watching our content. We're also not renters. We own the vast majority of our content across regions, platforms, and formats, and have the flexibility to take it wherever we want. As more and more viewers turn to their mobile devices, our strategy around global IP ownership married to our portfolio of high quality, passion brands and utility content gives us a distinct edge. We're different than everybody else.

And finally, we aren't just in the U.S. We are truly international with our sales teams and relationships with consumers, and our creative teams, in over 220 markets. It's a marketing platform that can light up any show or brand in any market with our portfolio of world class free-to-air, broadcast, and digital assets facilitated by an industry leading cloud-based IP platform. We know better than anyone how to take content around the world in multiple languages and we're just getting started with the Scripps IP.

I believe these distinctions make us more differentiated relative to our peers as ever before, and increasingly well positioned to grow and deliver value as our industry evolves. Additionally, I remain confident in our ability to gain further penetration in skinny bundles and virtual MVPDs. However, here in the U.S., despite a number of promising advances, our industry still isn't fully meeting the needs of its viewers. The vast majority of skinny bundles domestically are still by and large anything but skinny. At $35.00, $60.00, $90.00 or more a month, they're inflated by the heavy costs of retransmission consent and sports.

Given that nearly half of all households are either light or nonviewers of sports, and that about 25% of all audiences never watch any sports at all, the industry should be able to find a better way to accommodate what consumers really want. The tolerance of consumer subsidizing all that sports content is waning and weighing on the U.S. sub growth. The good news is the market is now beginning to respond to consumer sentiment and demand for non-sports real skinny bundles. Many paid TV and mobile companies have announced they're going to do non-sports skinny or entertainment heavy bundles, and new virtual providers have started to provide these offerings to try and meet consumer demand.

As these offerings gain a stronger foothold -- which I believe they will -- the skinny bundles will go a long way to improving the stability of the U.S. ecosystem, even maybe gaining some traction against subscriber declines. These bundles present a terrific opportunity for content providers like Discovery. It's our sweet spot. I have been saying for years, "Time's up." It's time for the U.S. to begin to look like every other market in the world.

Turning to our transformation process with Scripps, Gunnar and I will provide more detail. At this point in the process, we feel good and we feel like we are in full command and control, drilling and driving forward every day, trying to optimize our company, Discovery and Scripps, full potential.

Turning to our combined efforts, we introduced the new Discover to the marketplace here in the U.S. at numerous upfronts over the last few weeks to a very strong response from the advertising community. We're off to a good start. The upfront, which feels healthy, presented us with the first opportunity to showcase our full and unique offering, and what we mean when we call ourselves the global leader in real life entertainment -- a marketplace position that has great scope and reach, a deep endemic advertising base, and category leadership across key quality brands -- food, home, science, crime, Oprah, and cars to name a few.

Because we own and produce all of our own content, we have unique flexibility as we face the advertising market. Our portfolio accounts for 20% of ad supported cable viewership in the U.S., and we have four of the top seven networks for women in total day viewing on all of ad supported cable -- I think the first time a company has accomplished that. We couldn't be more excited about this year's upfront as we go in as the new Discovery, with trusted quality brands and a strong comprehensive menu of demos and very broad reach across our networks. We believe we will be very successful for our advertising partners, the agencies, and most of all in creating more value for the new Discovery.

I'd also like to share a few highlights from our digital businesses where many of the initiatives we carefully seeded over the past few years are beginning to report meaningful user traction and revenue contribution as we expand our competency in building direct to consumer products and services. Our TV Everywhere business comprising our GO apps continues to provide meaningful contribution as a source of higher CPMs and incremental revenue and audience share, delivering more than 25 million streams monthly.

We recently extended GO with the creation of an OWN app, and we anticipate adding HGTV and Food Network in short order. We think all of that will create more value and stronger demos in the future. Internationally, the Eurosport Player continues to benefit from the broad exposure it received on the back of the 2018 Winter Olympic games. As we collect a greater share of data and insights from each sporting event and season, our dialogue with sports superfans becomes even sharper, allowing us to better target subscribers for upcoming events -- such as cycling and tennis at the moment -- and ultimately how to better manage churn from sports that are rolling off.

The Motor Trend Group, our digital automotive joint venture, is another great example of how we are taking our expertise in nourishing superfans in niche genres to a key consumer vertical where we can become the multiplatform leader. The Motor Trend app, our OTT SVoD product, already has nearly doubled its subscriber base from when we came together last September, and is quickly becoming a leading digital destination globally for auto fans. As a next step, we will rename the Velocity Network to Motor Trend Network this fall, reinforcing our linear and digital car franchises under a common brand.

Going forward, you can expect us to expand on this strategy in other key verticals, such as food and home, where our category leadership with Scripps presents numerous opportunities. For example, how do we own the kitchen with advertisers and e-commerce companies across multiple platforms and formats?

In sum, we love our hand. Our differentiated position where our IP ownership, aggregation of quality brands, and focus on nourishing our enthusiast audiences with content they love and seek out in a cluttered content world, will continue to open up new and exciting ways to connect with our fans. With the integration of Scripps moving swiftly forward, we are defining our future as the new Discovery with a broader strategy, portfolio of assets, and a financial profile that we believe will allow us to deliver great upside to our shareholders this year and in the years ahead.

Thanks for your time this morning. I'll now turn it over to Gunnar.

Gunnar Wiedenfels -- Chief Financial Officer

Thanks, David, and thank you, everyone, for joining us today. As David expressed, this is an incredibly exciting time for us and I cannot be more optimistic about the opportunities ahead of us in transforming the new Discovery.

I will first provide a brief overview of our first quarter results followed by an update on our integration and transformation efforts, and will close with our outlook for the second quarter and fiscal year 2018.

My commentary today will focus on our constant currency pro forma result unless otherwise stated, which differ materially from our reported results given. Reported actual results only include 26 days of Scripps as of the merger's close on March 6th, whereas proforma results are more effective of our underlying trends. Please also note that pro forma results include the operations of Scripps as well as OWN and Motor Trend, formerly the Enthusiast Network, as if all had been owned since the beginning of 2017. Please refer to our earnings release filed earlier this morning for all of the detailed cuts for our first quarter results.

Now, let's delve into the numbers on a constant currency pro forma basis, first quarter total company revenues grew 10%, driven by 2% domestic growth and 26% international growth, while adjusted OEBITDA was down 6% with 1% U.S. growth and a 30% decline at international, largely driven by the timing of the Olympic games, as we had highlighted on our fourth quarter call.

Note that Discovery stand-alone first quarter adjusted OEBITDA was down 9%, better than what we had guided to due to strong cost controls across the board. And also note that, excluding the impact of the Olympics, both Discovery stand-alone adjusted OEBITDA as well as pro forma adjusted OEBITDA were positive.

Looking at each operating unit, first quarter U.S. revenues grew 2%, led by 2% advertising growth and 2% affiliate growth. The 2% advertising growth was driven by continued monetization and integration of our GO platform and digital offerings as well as higher volumes, partially offset by lower linear delivery. Let me add that, on a stand-alone basis, Discovery nets grew organic advertising 4%, in line with our guidance of low to mid-single digits, while Scripps was modestly positive, primarily due to higher pricing offset by lower delivery.

The 2% distribution growth was primarily due to increases in affiliate rates, partially offset by declines in subscribers. Again, the Discovery stand-alone growth was in line with our previous guidance at 2%. Delving further into the drivers of U.S. affiliate and looking at the pro forma sub trends, subscribers for our combined portfolio were again down 5%, consistent with the trend over recent quarters. More importantly, subscriber decline for our combined fully distributed networks was again 3% with some positive impact from HGTV and Food.

With respect to affiliate fee trends, as we have previously noted, we renewed our Fios deal at the end of 2017. So, while the deal was very successful, it impacted a smaller number of subscribers so there was less of an overall pricing lift versus prior years. Pro forma first quarter U.S. adjusted OEBITDA increased 1%.

Turning to the international segment, all of my commentary will be on a pro forma constant currency basis, though it is worth highlighting that, given the weakening dollar, currency was a very nice tailwind on both reported revenues and adjusted OEBITDA. Pro forma total first quarter internal revenues were up 26%, driven by 11% advertising growth, primarily due to the successful delivery of the Olympics across Europe as well as strength at TBN in Poland, partially offset by weakness in Asia and Lat Am due to lower pricing in the first quarter.

Pro forma affiliate growth was 9%, driven by 10% growth at Discovery, in line with the fourth quarter, and 1% growth at Scripps, which is a much smaller business, at around 5% the size of the legacy Discovery affiliate business given Scripps' limited historical paid TV presence outside the U.S.

Looking at the drivers of our first quarter affiliate growth by region, in Europe we had another quarter of solid growth driven by higher digital revenues from the Eurosport Player, due to the Olympics and another quarter of Bundesliga as well as increases in contractual rates. In Latin America, we also saw healthy growth. We continue to see lower subscribers, particularly in Mexico and Brazil, but this was more than offset by higher pricing.

And in Asia, our smallest market, we continued to be impacted by overall linear declines, given lower pricing as affiliate deals for new. However, on the positive side, we had another quarter of strong contributions from our mobile content licensing deal as we had highlighted on our year end call. We also saw significant growth in first quarter other revenues internationally from sublicensing part of the Olympics IP.

Turning to the cost side, pro forma operating costs were up 44% in the first quarter, driven primarily by sports rights and production costs, most notably from the Olympics. Adjusted OEBITDA was down 30%, primarily due to the timing of revenues versus cost recognition of this year's Olympics, which as we had previously called out, requires that all content and production expenses be recognized during the quarter in which the games are aired while certain associated revenues are spread out pre and post the games.

Having reviewed the highlights of our first quarter results, let me now provide some color on our second quarter expectations. Again, I will focus on pro forma constant currency growth. We expect second quarter U.S. advertising growth to be up low single digits. Trends remain consistent with our previous quarters, with lower delivery offset by monetization of digital. And we expect second quarter U.S. affiliate growth to be again up in the low single digit range.

Second quarter international advertising is expected to be up low single digits as well. We expect the solid pricing and delivery in key European markets to continue and trends in Lat Am, particularly in Brazil, are picking up, while trends in Asia remain soft. Finally, second quarter international affiliate is expected to be up in the mid-single digit range, driven by continued growth in Europe and Lat Am for legacy Discovery's nets and continued low growth of Scripps as legacy affiliate business, partially offset by overall declines in Asia.

And now I would like to share an update on our integration of Scripps. With our deal now having closed, we are in full transformation mode. As David mentioned, this is more than an integration of two combined companies. We are fully engaged in reshaping the business and positioning it to best address our industry's challenges and opportunities. To that end, we have identified dozens of work streams and around 1,000 initiatives, examining how to best maximize the potential of the new Discovery, touching upon and refining virtually all of our core competencies, including content creation, advertising, and global distribution of IP. All of our initial progress is extremely encouraging.

With that, I am pleased to provide an update on our cost synergy target. We are raising our cost synergy target from the initial $350 million run rate within two years that we had laid out, and now expect to achieve at least $600 million of run rate cost synergies alone within the first two years of close, or by March 2020, with an eye toward additional cost savings as we dig deeper and more broadly into the transformation.

So, where is this all coming from? From a high level, key areas of focus include 1.) head count across virtually the entire combined company, 2.) real estate consolidation, 3.) marketing, as we see room for more efficient spending across our broader portfolio, 4.) supply chain efficiency, where we see upside from coordinated global procurement, 5.) content spend at our networks, where for example, we have just begun to layer in legacy Scripps content across some our international nets, ultimately allowing us to reduce costs while becoming less reliant on required content.

Let's look at costs to achieve. In the first quarter, we booked $56 million of Scripps stand-alone integration costs and $241 million of restructuring costs, including a reserve for severance and content impairments in the Nordics, where we look to increasingly leverage Scripps content versus previously acquired content.

While a lot of the transformation activity is still being refined and restructuring impact is difficult to estimate at this point, we currently expect that we could see as much as roughly another $200 million for the second through fourth quarters of 2018 or early '19. We will know more when our plans firm up and will provide details as we progress. Of the total restructuring costs for 2018, we currently anticipate that around two-thirds will impact our 2018 free cash flow. Note that first quarter free cash flow included roughly $70 million of cash restructuring and legacy Scripps transaction and integration costs.

We are equally excited by the revenue synergy potential and enhanced growth prospects we will enjoy from the combination. We see them falling into several buckets. First and foremost is our combined U.S. upfront. We see real near-term opportunity from driving our domestic wallet share of paid TV advertising around his year's upfront with negotiations having just begun following our well received presentations to Madison Avenue. We have also identified additional near and mid-term revenue synergy potential to stem from greater focus on global distribution of Scripps networks content and networks. Ultimately, while the revenue opportunity here may indeed be the largest of all, this of course will take some time to unfold.

We are in early innings, having just completed an analysis which identified several thousand hours of legacy Scripps networks content that will roll out internationally throughout the year as our content teams assess the strategic fit within their portfolios. The initial wave includes multiple paid TV networks and free-to-air channels in Poland, the Nordics, Latin America, and EMEA.

Further, we are moving forward with our analysis and strategic plan to identify the market opportunities from launching Food and HGTA branded networks in certain territories. For example, in Latin America, we will use the Scripps network's lifestyle content on a number of our networks, initially at our home and health channels, in addition to finalizing a rollout strategy for launching new brands across the region.

Having walked through our updated synergy expectations, let me now turn to our outlook for the full year 2018. We expect pro forma constant currency OEBITDA growth to be in the mid-single digit range, whereas 2017's pro forma adjusted OEBITDA of $4.055 billion, even with the Q1 Olympics impact and with continued investment in digital initiatives like our goal platforms and the Eurosport Player. Please keep in mind that our full year reported adjusted OEBITDA will be roughly $250 million lower than pro forma since we are only including Scripps in our reported numbers from March 6th on.

Turning to taxes, we expect our full year book tax rate to be in the mid-20% range and our cash tax rate, excluding PPA amortization, to be in the low-20% range, with full year total intangible asset amortization expected to be around $1.2 billion. As we have stated, the combined company will continue to generate significant cash flow. We expect full year reported free cash flow to be in the $2.3 billion range after the cash costs to achieve I previously noted. Please note that these numbers will depend on the timing of our synergies. Again, we will update you as we progress throughout the year.

We will continue to allocate virtually all of our free cash flow toward paying down debt and now expect to have leverage of net debt to pro forma OEBITDA of around 4X by the end of the year. Note that in this number we are currently not anticipating any additional material asset sales other than the recently closed sale of our education business for $120 million.

I will also again quantify the expected foreign exchange impact on our 2018 results. At current spot rates, FX is expected to be a nice tailwind and will positively impact revenue by approximately $200 million and positively impact adjusted OEBITDA by approximately $50 million versus our 2017 reported results.

In closing, as we continue to transform the new Discovery, we remain extremely optimistic about this powerful combination, which will allow us to accelerate the transformation of our business, drive free cash flow, and ultimately generate significant long-term value for our shareholders.

...

Thank you again for your time this morning. And now David and I will be happy to answer any questions that you may have.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question will come from the line of Drew Borst with Goldman Sachs. Your line is now open.

Drew Borst -- Goldman Sachs Group, Inc. -- Analyst

Great. Thanks for the question. I wanted to ask about the synergy target. Thanks for the update. Do you anticipate that the $600 million -- do you anticipate reinvesting any of that back into growth initiatives for the business?

Gunnar Wiedenfels -- Chief Financial Officer

If you look at what we said previously, we continue to make investments in our business for future growth a priority. And we have already budgeted for a significant investment in our digital activities around the entire global footprint. So, that will continue to happen. We do believe that the $600 million is going to be a net impact that's going to fall to the bottom line.

David M. Zaslav -- President and Chief Executive Officer

Drew, as we look at the synergy simplistically, Discovery itself was at about $1.4 billion in free cash flow, and Scripps was at eight. We look at the cost synergy that we have. We have 600 now in hand, that we believe we can fully execute on, and we still have a number of buckets that we're looking at -- another 40 or 50 workstreams, which we'll get back to you on. But our target is, we really think that there's no reason why we shouldn't better than double our free cash flow. One of the main reasons for this transaction was all the strategic elements that we'll talk about and how this grounds us as maybe the leading IP global media company in the world.

But, when we look at our $1.4 billion, together with our synergy, we think we can get to $3 billion. So, getting to $3 billion, for us, is a target, but we're going to be relentless about it. We also think there's some upside to that as we look at revenue opportunity moving our content around the world and seeing how the great portfolio works with the advertising market. So, that's our target.

Drew Borst -- Goldman Sachs Group, Inc. -- Analyst

Great. Thank you. I wanted to ask about the legacy Scripps business. I don't want to dwell on this too much because it was obviously a transition quarter with the deal closing in March. But, based on the numbers you presented, it did look like the U.S. networks EBITDA for Scripps legacy was down a little bit, maybe low single digit -- 3%. Could you just spend some time talking about what happened there in the quarter? And, maybe more importantly, what do you see for the remainder of 2018 at the legacy U.S. networks for Scripps?

David M. Zaslav -- President and Chief Executive Officer

Generically, as a big driver, is the ratings of food and HG. One of the values of putting these companies together is not only the global scale that we have, but the portfolio that we have in the U.S. We're never going to be in a position where all of the business -- all the channels are growing at the same time. A year and a half ago, TLC was down 25%. We said to you we're going to focus on who the audience is and how we grow it. We said we thought we could continue to drive ID. We thought we could get Science going and Velocity. Discovery has been down. Food and HG are down.

And one of our big priorities is focusing on those audiences. In the case of HG and Food, the actual household audience is quite strong. We really need to continue to refresh those two channels and grow them. We have a great team. One of the reasons we were so attracted was the quality of the leadership there. We were convinced, in spending more time with Kathleen Finch and her team, that we have a great team.

But we are doing a lot of work on who the audience is and how we continue to nourish them. It's what we do for a living. But, we also have been much more aggressive in getting our authenticated GO apps out. We're generating 25 million streams. It's primarily people under 30. That's something that wasn't being implemented at HG and Food. So, a piece of this is trying to innovate those platforms by getting the content authenticated on all devices, to as many people as possible as quickly as possible. We think that will generate some growth. But then, really digging in and -- like we did at TLC, like we've done at ID, like we did at Discover and we need to do again to continue to grow.

We look at the marketplace and we think it's really a function of us. There's an opportunity for us, despite what's going on in the marketplace, to grow these channels. We just have to do as good of a job as we can in creating quality content.

Gunnar Wiedenfels -- Chief Financial Officer

Drew, from a financial perspective, one thing to keep in mind is that Scripps essentially created a plain vanilla budget for the year, knowing that we were coming up on closing the transaction. So, the Q1 "Scripps stand-alone result" is driven by increasing content and marketing expenses to safeguard the asset. When I talked about the mid-single digit OEBIDTA growth for the entire year earlier, for the combined entity, that obviously includes the performance of the Scripps portfolio in the first quarter. When it comes to an outlook for the rest of the year, clearly all those cost elements are part of our transformation initiatives and we will look at everything. But, it's all baked into that mid-single digit growth guidance for OEBITDA.

Drew Borst -- Goldman Sachs Group, Inc. -- Analyst

Great. Thanks. I really appreciate that. It's helpful.

Operator

Thank you. And the next question will come from the line of Jessica Reif with Bank of America Merrill Lynch. Your line is now open.

Jessica Jean Reif Cohen -- Bank of America Merrill Lynch -- Analyst

Thanks. On the international, can you -- Gunnar, you went so fast. It sounds like the opportunity is rolling out Scripps content and then also rebranding channels or creating new channels? I hope you can give us more color on that. And, are you planning on shutting down any channels? Can you size the opportunity and timing?

The second question is, David talked a lot about how the industry is changing, which we all know. So if your leverage comes down to roughly the 4X range by year end 2018, our number is 3-3.5X year end '19, at what point would you consider making acquisitions or -- how do you think about the changing landscape? Do you build or buy as your asset mix evolves?

Gunnar Wiedenfels -- Chief Financial Officer

Thanks, Jessica. On international, you exactly pointed out the two most important levers. One is just lighting up the content in our global footprint. As I've said, we've been starting to create language versions for literally thousands of hours of content. We've put some stuff on air, but it's very, very early days. But there will be different waves of rolling this out across the global footprint throughout the rest of the year. We'll keep you updated.

Also, programming teams in virtually all of our territories are looking at their programming strategy right now. For example, in Lat Am, there might be an opportunity to launch additional networks, create additional formats, across territories. It's early days still. We're doing everything to get the stuff on air as quickly as possible. But, it's really too early to come up with any very specific numbers here.

On your question regarding leverage and capital allocation, we will continue to follow the same logic that we have followed. 1.) The determination of our optimal leverage target range. That continues to be the 3-3.5X leverage range. 2.) We will then evaluate investment opportunities. We will continue to take a rigorous approach to make sure that we're getting good returns. But, we will make it a priority to grow the business. 3.) We will continue to return excess capital to our shareholders through buybacks. Those will continue to be the priority. As you rightly say, we're at 4X by the end of the year, so we should be breaking through the 3.5X number during 2019. That is exactly the logic that we will apply.

David M. Zaslav -- President and Chief Executive Officer

And, we are on a mission in terms of speed. We think having that free cash flow in hand, and that flexibility, is very important. We like our assets, but we want to get down to a point where we do have that flexibility of investing more, of buying more stuff, of buying back more of our stock -- just having the full flexibility to use that, figuratively, the bullets that we have as a result of being a company that's generating so much free cash flow. We do feel like pace is important. With things moving in the marketplace, we could uniquely acquire, invest, or take advantage of what we see as an opportunity, even within our own company.

Jessica Jean Reif Cohen -- Bank of America Merrill Lynch -- Analyst

Thank you.

Operator

Thank you. And our next question comes from the line of Vijay Jayant with Evercore. Your line is now open.

Vijay Jayant -- Evercore ISI -- Analyst

Thanks. I wanted to follow up on your comments, David, about the digital opportunity. Scripps is on Sling and Hulu, that Discovery's not on. I think you have a casual deal with Dish this year. How optimistic are you given the relationships Scripps has there to get the Discovery channels on that? And, as you look to deliver the balance sheet, some of your nonstrategic assets -- like you get TV and lines -- are those potentially for sale to expedite that process? Thanks for much.

David M. Zaslav -- President and Chief Executive Officer

Thanks, Vijay. We don't comment on deals, but we think that we have very strong quality channels. We think Scripps does, too. As some of these over the top bundles develop, we think we really are in the sweet spot. Based on every survey of what people want, whether it's Discovery's number one or between ID, Food, and HG they tend to be one, two, or three, or three of the top five channels that people want. We're moving toward this point of, instead of stuffing these bundles with what gets leveraged in through retrans and sports, to thinking about what's going on everywhere else in the world, which is the way you build a product. What do people want? And we have a lot of the great content that people want and we're investing in making it better.

The other piece that's important as we look at where we are versus the marketplace is, you look at one side of the business with scripted and movies and executing with exceptional storytelling. They have attracted some of the best producers are writers. But, it's getting a lot more expensive. It's getting a lot more crowded. And, when you look at -- what are the offerings if you're a consumer and you want to spend $10.00-15.00? What could you get aside from traditional cable? You get Netflix, movies and scripted. You get HBO, movies and scripted; Starz and Showtime, moves and scripted; Amazon Prime, movies and scripted.

So, when we look at what we have, we see all of that as over there. I've said before, that's the ball at my kid's soccer game and everybody's running over there. You look at the rest of the field and say, if you're here in the U.S. or anywhere in the world, and you want to have -- as Reed said years ago, "Netflix doesn't have everything, but if you go there there's some good stuff that you're going to like and it's going to nourish you." If you just put together our entire portfolio, which we own globally, and you said that we were going to offer that platform alone, we could do it with others, with a few others, with one of the broadcasters, with a broadcaster in each market -- but, let's assume we did it just ourselves globally. What other company could offer a multitude of 18 brands, ten of them that people know everywhere in the world, and offer it for less than any of those channels.

And, have content, whether you're in Brazil, Mexico, Italy, Poland, the U.S., or Canada -- you look at that content and you say, there's loads of characters, stories, and brands that I love. And so, when we look at the marketplace, we say -- it was announced two weeks ago. There are two players with over 100 million subscribers -- Netflix and Amazon -- and there's a hunt, including with Disney -- fantastic company. They're going to try -- who's going to be the next one to get to 100? I believe the next one to get to 100 is not going to be another scripted and movie player. There are just too many of them.

Oh, another one of those? What's the difference? Who has what scripted series? What we have is different, it's quality, and what mom around the world wouldn't say that they -- and it's safe -- that they would want what we have to offer. So, as we look at how we go direct to consumer, going global or going regional -- doing something with one of the big fang companies, doing something ourselves -- all of that looks attractive to us because we think the marketplace is very crowded and that the understanding of what each of those means is melding together. You're starting to see a lot of the same stuff, and we're different.

Vijay Jayant -- Evercore ISI -- Analyst

Thanks so much.

Operator

Thank you. And the next question comes from the line of Rich Greenfield with BTIG. Your line is now open.

Rich Greenfield -- BTIG, LLC -- Analyst

Hi, thanks for taking the question. As we look at the consolidation wave -- maybe consolidation battles might be a better way of shaping it -- there's going to be a bunch of big companies that don't win out on assets they're trying to buy. While you've talked about potential growth for Discovery, I'm also wondering -- given that everyone seems focused on expanding outside of the slowing U.S. market into the attractive overseas markets, what's Discovery's appetite to actually be consumed by one of these larger players?

And then, on AT&T Watch, during the trial a few weeks ago, Randall Stephenson essentially announced a product that's coming, a sportsless bundle, that's going to be free for probably 15-20 million AT&T Wireless subscribers. David, is this the watershed moment for Discovery and the other non-sports cable network groups that you've been waiting for?

Gunnar, you've mentioned that U.S. cable networks were actually helped a little bit by Food and HGTV. Is there any way to look at what the organic growth rates were for the core Discovery networks?

Gunnar Wiedenfels -- Chief Financial Officer

Let me start with that last question. That was related to my comment on subscriber trends. On a consolidated full portfolio basis, same pattern as in previous quarters with 3% sub decline for the fully distributed nets, and then 5% for the full portfolio. You can think about it this way. Food and HG have been contributing positively to that 3% decline for the fully distributed nets. And for Discovery stand-alone, if you look at the old legacy Discovery portfolio, the trend has been back in line with what we've seen in previous quarters.

David M. Zaslav -- President and Chief Executive Officer

On the question on AT&T, I don't really want to comment on any specific company. AT&T is a great company. There are a lot of very strong multichannel to the home companies, and they are listening to their consumers every day. I can't predict whether the moment is now, but the moment is coming. Consumers can't subsidize these massive sports rights anymore. It's not fair and we're suffering from it. The idea that you have to pay so much money in order to get the bundle, it's something that I've been saying for years. I think it's going to end. It will either be driven by one or two players moving quickly and then others following, or it'll be driven by some of the entrepreneurial companies that are already popping up.

But, there's no question in my mind because it's an outlier. You look at all the countries in the world and the skinny bundles, and you see the ecosystem there, and most countries are healthier than we are. We don't have an offering for somebody that doesn't have a lot of money. We don't have an offering for someone that goes to college. Their only choice is to get Netflix. It's not sensible that we have all of these broadband subscribers and that the only product that they're offering now is Netflix. Why aren't they offering products that they helped develop or they invested in for all of these years?

I think sensibility will come to the marketplace. More importantly, consumers are going to get what they deserve, which is an entry level ability to have multichannel cable without subsidizing sports and paying a massive amount to get an entry.

One the point of what's happening in the marketplace, we love it. We've been hanging out outside the U.S. for the last 25 years. It's where I spend most of my time. In Europe, we're the largest paid TV media company in the world. We have infrastructure, sales, content, and marketing know-how. Every country in the world -- our brands are everywhere. This has been a conviction driver of John Malone and of Bob Myron from the New House family, before I even got here. It's the heritage of our company that we're taking these quality brands everywhere in the world.

There have been times when it's been lonely. There have been times, as we have been investing and growing our free-to-air and our brands and building our infrastructure all around the world -- when we went into sports in Europe, people said, "What are they doing that for?" Now, we're the leader in sports. We've had so much success with the Olympics. We invested in kids in Latin America, where we're bigger than Disney in Brazil. We've been doing that all with an eye toward where's the ball going to be. We think having this very big international business was quite clever, and owning all of this IP everywhere in the world globally is clever.

So, when we see people fighting over Sky, that looks to us like, "Hey, we've been there." We're in business with Sky. We compete with Sky. We're bigger than Sky on the content side in Italy. And it looks to us like the market is coming our way. When great companies like Disney and Comcast are looking for scale, they're going to look around and find there are very few companies that have scale. Our goal is to stay as we are right now because we think we can generate huge free cash flow. We think that we're right about these affinity brands that we own, that we can make the turn, that people are going to want to buy it -- whether it's the big global companies or the regional companies.

We saw it with T-Mobile. They're starting to offer Netflix. When mobile companies around the world want to offer something special to decommoditize their platform, we have a whole menu. Having said that, there's nothing different that we would be doing as we look to create broad shareholder value and execute on this free cash flow machine that would be different. Whether it's a year from now or four years from now, if we're the leader in sport -- if we're the leader with an international infrastructure and free cash flow and EBITDA, and if we're the leader in kids, those are things that would be very attractive to us in terms of shareholder value. But it also would be on a parallel basis very attractive because I don't know that there's another company that has that basket.

Rich Greenfield -- BTIG, LLC -- Analyst

Sounds like it's going to be a fun summer.

Operator

Thank you. And the next question will come from the line of Alexia Quadrani with JP Morgan. Your line is now open.

Alexia S. Quadrani -- J.P. Morgan Securities LLC -- Analyst

Hi. Thank you. Scripps has historically been able to achieve relatively strong pricing in their flagship networks. Is there any color you can provide about how that may compare with some of your key networks and the opportunity to leverage that strength? Is that what you're leveraging, at least in part, when you're talking about already seeing some revenue synergies in this coming upfront?

Gunnar Wiedenfels -- Chief Financial Officer

Sure. Alexia, that was one of the most important points for us when we looked at Scripps last summer. If you look at the performance of the two portfolios, Scripps certainly has had a strength in their monetization of their ratings. If you look at it from a power ratio perspective, many people have done the math. They were at a 1.1 versus a 0.8 for us. That's certainly something that we're helping to be able to get some benefits out of. As David said, the upfronts so far have been positive for us, from a feedback perspective. It's still early days from a negotiation perspective. But, we do see a lot of interest and we have full confidence in Jon Steinlauf, who has taken over the combined ad sales team. That's why I said I do think there is a nearer term revenue opportunity here. Again, way too early to put some hard numbers against it, but we're optimistic.

David M. Zaslav -- President and Chief Executive Officer

There are some broad reach comparisons with cable versus broadcast that, when you look at them, they just feel out of whack with broadcast getting $45.00-50.00 CPMs and cable really in the $10.00-20.00 CPM. And then you take a look at our ability to deliver across our women's networks on any given night, a three rating. Or, on a good night, a four rating or a five rating -- the differentiation from the perspective of the advertiser was the ability to generate scale and to be able to have reach that's compelling.

We now have some very strong reach and we have some ability to really give detail on demographics, and people that maybe arguably are more engaged with our platforms than they are on a broader platform. So, we think that there's some opportunity to make the argument that we have a very -- that our audiences are even more valuable. It's an argument that we would've been making before and it's an argument that we'll make now.

Alexia S. Quadrani -- J.P. Morgan Securities LLC -- Analyst

Well, thank you very much.

Operator

Thank you. And the next question will come from the line of Steve Cahall with Royal Bank of Canada. Your line is now open.

Steven Cahall -- Royal Bank of Canada -- Analyst

Thanks. Good morning. David, you've talked for a few quarters now about the global rights opportunity. I think it's one of those issues where investors remain a little suspect until there's a deal on the horizon. Can you give us any indication of whether or not you think you might be able to do a global deal here in the next year or two?

And then, Gunnar, just on the free cash flow side of things, there are a few areas -- just because you ran through a lot, I want to make sure I understand. As we're thinking about the bridge into next year, can you help us with how much of the restructuring you'll have this year versus the future years? Also, how the savings stack up between 2018 versus the years beyond. Thanks.

David M. Zaslav -- President and Chief Executive Officer

Thanks, Steve. It is a work in progress. We are IP long. We own all of our content on all platforms. As much success as we had with the Olympics -- and we had a lot of success -- we really expected that most of the mobile players across Europe would -- we have the rights to the rings, so we could provide the rights for mobile players to affiliate with the rings year around. We could've provided a lot of exclusive content to different providers in the marketplace. It wasn't quite right yet. But, the idea that we own the Olympics for the next nine years, and we've had -- from the date that we did the deal -- 11 years to build around it. For us, it's a successful formula, we think.

Outside of the Olympics and Eurosport, we own all of our content globally. We look at it really more in the long-term. But, one of the big successes we had with the Olympics was generating half a million subscribers paying for the Olympics in less than ten days, and being able to build a platform that got top ratings and generated over 3,000 hours of streaming, and the ability to navigate and curate within that platform to very good reviews. At the same time, to provide content in over 20 languages and linear and on cable.

So, we certainly, more than any other company, know how to provider content in every language on multiple platforms. What we learned about the Olympics is on a parallel track to what we've learned with the Eurosport Player. People seem to be willing to pay and not care a lot on things that they're really passionate about. So, for people that love the Olympics, they really want it. It's one of the reasons why we've gone from the buffet, which we still offer, to this idea -- just like you buy a magazine for tennis or for cycling, we give you much more dense, much more IP, short form, long form within a specific area.

So, we pass on a load of stuff, but we are on the hunt now with food, home, cars, and we're looking at what other opportunities are there globally to own IP for the long term, that we can not only build a global platform, but monetize it. And we'll be focused on what we pay for that IP, to make sure that we can generate global IP, but global IP that, if we can get the turn -- either through a global player or a regional player -- we can generate real value.

Food and HG and travel are three that we think we can globally take advantage of, but we are looking at loads of opportunities, but we've passed on a lot of them because we're looking for the right ones.

Gunnar Wiedenfels -- Chief Financial Officer

Steve, on the free cash flow, a couple of clarifying comments on this synergy ramp up. I want to make sure that you guys understand what we see as the potential -- the $600 million plus. The timing of that is still in flux. The delta is going to be, are we going to be able to get those numbers earlier or later. And that's why I don't want to give any very specific guidance for our fiscal year, which is a bit of a random cutoff. If you look at the comments I made earlier, we're looking at mid-single digit OEBITDA growth for the year. That is, to a large extent, synergy driven and could be on the lower end if we're slower and on the higher end if we're faster. But, either way, the lion's share of the synergy is going to hit in 2019.

So, if you go back to the free cash flow guidance, I said $2.3 billion after the cash restructuring expenses. We've already paid out $70 million in the first quarter. As I said, we do expect a slightly higher total restructuring number than we originally guided to, so let's say maybe $400 million. I would encourage you to put in about two-thirds of that for the cash impact on 2018.

Steven Cahall -- Royal Bank of Canada -- Analyst

Gunnar, if I understand that, we should have a pretty nice bridge in terms of synergy plus restructuring tailwind as we move into 2019. Is that correct? Am I thinking about that right?

Gunnar Wiedenfels -- Chief Financial Officer

I agree.

Steven Cahall -- Royal Bank of Canada -- Analyst

Okay. Thank you.

Operator

Thank you. And the next question will come from the line of Michael Nathanson with MoffettNathanson. Your line is now open.

Michael Nathanson -- MoffettNathanson LLC -- Analyst

Thank you. David, I have two for you. One is on average ads and one's on the Olympics. When you look at Scripps, one of the most amazing things was they had a really high commercial load per hour versus your own networks that were very low. So, how do you see a balance of raising commercial loads maybe at your core networks versus reducing them at Scripps? How do you think about the right way to blend commercial minutes per content?

And then, I wondered, now that you've had the Olympics on the air, how you feel about buying more soccer rights? You don't really have a 9-year or 11-year hold in licenses. So, can you contrast your sports appetite for maybe short-term soccer rights maybe some rights that don't have those short-term cycles?

David M. Zaslav -- President and Chief Executive Officer

Thanks, Michael. I don't know if you timed this in some kind of a special way, but I think this is the second year in a row that I have to wish you a happy birthday.

Michael Nathanson -- MoffettNathanson LLC -- Analyst

Yes. Thank you, David.

David M. Zaslav -- President and Chief Executive Officer

I'll call you later with my wish and you can give me your wish. On the Scripps side, their commercial load was very high and their promo load was extremely low. We were the opposite. We have now the ability to promote across all of our networks. So, this idea that on any given night we're getting a three or a four or a four-and-a-half in women, for instance -- we now have the ability to use the promo, not only to promote a particular network, but if we have a great show to be able to go across ID, OWN, TLC, HG, Food -- and, in fact, HG spent a lot of money buying local time on ID trying to get people to come over.

And so, we're going to try and understand promo in the traditional sense, our unique ability to do promo across our channels, to move people around -- both to save dollars, but also to maximize the movement of audiences -- and then the importance of fully monetizing our platform. We've also developed a lot of analytics that are quite important. We're seeing, for instance -- when we go on our GO platform and we can quantify the viewership in terms of length of view and age, we can get a dramatic increase in CPM. With some of the analytics that we have in place now, we have an ability to get higher CPMs and we look at what Viacom is doing. We're doing a similar thing. Maybe there's an opportunity. We're talking to them about maybe doing something with them.

So, the net net is we're going to put it all together and we'll figure out how we'll maximize growth of our channels, taking advantage of the unique ability we have that no one else has to reach across all of our platforms and let people know. We're even looking at this idea of not just promoting. But, if somebody's watching on HGTV and the next show coming up is a show they don't want to watch, what would normally happen is they would go to their other five or six favorite channels. But, can we alert people that are watching HG, "Here's what's coming up on Food. Here's what's coming up on ID, TLC, and OWN." We're doing it on a pilot basis, but we think that reach could be successful for us -- or unique at least. We're trying to figure out how we use it.

On the Olympics, I think it's a great model for us. We are on all platforms for over a decade. We can build expertise. If we have half a million subscribers in direct to consumer this past time, what worked with Snap, with Facebook? What's the feeling? Can we get a million next time? Can we get two million? How would we get it? What would we do differently? So the ability to iterate is very, very important. For us, I think it's unlikely that you'll see us competing in these three-year cycles of football. To the extent that we do, it'll be because we have some unique opportunity.

But the Bundesliga was difficult for us. In that case, we paid almost no increase and it was difficult for us. So, it was a good experience and led us, with better IP, to get into this joint venture with ProSieben. But it also taught us a lesson in what we do and what we can do. So, I think it's unlikely, particularly when you're competing with platform companies that are trying to build asset value on the back of that IP and are willing to lose money on it. I think we're going to stick to our knitting, which has led others pay a lot for that kind of IP. And, if we can own all the other sport at low single or reduced rates, or high single in some cases if we think the IP is great for extended periods of time -- and that's what we've been doing -- much, much longer renewals, because we have something very unusual with Eurosport. We're the only pan European player.

That's where we're going to go. And the Olympics just added to that patina. The IOC couldn't have been happier. So, is there an opportunity for more Olympics in the future? Maybe. Our relationship with Bach is extremely strong. Is there an opportunity to get more IP? Well, if anybody was thinking, "Who should I be in business with in Europe in sport," there are more and more leagues and IP owners that are saying they want to be in business with us.

Steven Cahall -- Royal Bank of Canada -- Analyst

Thanks, David.

Operator

Thank you. And our last question will come from the line of John Janedis with Jefferies. Your line is now open.

John Janedis -- Jefferies LLC -- Analyst

Hi. Thank you. David, in the past you talked about improved monetization as your revenue driver for ID. Are you at a point now where it starts to accelerate with Scripps? I think in the past, you've talked about an opportunity in the hundreds of millions. Does that still hold?

David M. Zaslav -- President and Chief Executive Officer

We were on a mission before Scripps with ID. It's the number one cable channel in America for women. Just to take a victory lap for Henry Schleiff and his team, the last fully distributed top ten network in America was History, and I was on the board of that, and Fox News. Seven or eight years later, we launch ID and then Henry and his team come on board and is now the number one cable network in America. It's loved. It's length of view is the same length of view or more than Fox News. So, we have been on a mission for the last couple of years to say that we should be getting more value for that great audience and for the type of audience that we generate in daytime, in late night, in prime. And the numbers only keep growing.

So, now, as we have a bigger menu and we're going into the marketplace, and we have a Jon Steinlauf running our operation, who had an ability to generate higher CPMs across the board at Scripps -- got a better power ratio than we did -- we hope that some of his know-how, his relationships, and his unique approach will help ID as well as the rest of our channels.

John Janedis -- Jefferies LLC -- Analyst

Thank you.

...

Operator

Thank you. Ladies and gentlemen, thank you for participating in today's conference. This does conclude your program. You may all disconnect. Everyone, have a great day.

Duration: 67 minutes

Call participants:

Andrew T. Slabin -- Executive Vice President, Global Investor Strategy

David M. Zaslav -- President and Chief Executive Officer

Gunnar Wiedenfels -- Chief Financial Officer

Jessica Jean Reif Cohen -- Bank of America Merrill Lynch -- Analyst

Alexia S. Quadrani -- J.P. Morgan Securities LLC -- Analyst

Michael Nathanson -- MoffettNathanson LLC -- Analyst

John Janedis -- Jefferies LLC -- Analyst

Rich Greenfield -- BTIG, LLC -- Analyst

Vijay Jayant -- Evercore ISI -- Analyst

Drew Borst -- Goldman Sachs Group, Inc. -- Analyst

Steven Cahall -- Royal Bank of Canada -- Analyst

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