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Discovery Communications Inc. Posts Lower Q4 Profits

By Demitri Kalogeropoulos - Feb 18, 2016 at 9:34AM

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But the media giant fared better than rivals this quarter.

Discovery Communications (DISCK) announced fourth-quarter earnings results on Feb. 18, and while the TV network giant wasn't immune to the weak industry trends that pinched rivals Disney (DIS 3.69%) and Time Warner (TWX), it posted encouraging growth in some areas.

Here's how the broader headline figures compare against the prior-year period:

 

Q4 2015 Actuals

Q4 2014 Actuals

Growth (YOY)

Revenue

$1.65 billion

$1.68 million

-2%

Net Income

$219 million

$250 million

-12%

EPS

$0.34

$0.38

-11%

Source: Discovery's financial filings.

What happened this quarter?
Sales overall fell by 2% as a solid increase in the U.S. division was swamped by a big decline in international markets, which now account for more than half of Discovery's business. Key highlights of the quarter include:

  • A 6% sales bounce in the U.S. market was comprised of 7% higher distribution fees and 5% higher advertising revenue (advertising rose by 6% in the prior quarter). That compares well to rivals like Time Warner, whose Turner networks ticked up by 2% in Q4. Disney fared better with 8% growth in its media division, but the House of Mouse still suffered a sharp slowdown from the prior quarter's 12% gain .
  • Discovery's U.S. profits edged higher by just 1% as programming costs rose faster than revenue. Consequently, profitability slipped to 52% of sales from 54% (Disney and Time Warner last week each reported falling margins for their media businesses as well).
  • International networks posted an 8% sales decline and 20% lower earnings as profit margin slumped to 32% of sales from 37% a year ago. But excluding currency effects, Discovery saw adjusted sales spike by 11%. Adjusted profit fell slightly as the company continued investing heavily in building out its global network with expensive additions like Eurosport.

What management had to say

Source: Discovery.

For 2015, Discovery "continued to build momentum with our unmatched worldwide brands and leading multiplatform distribution network," CEO David Zaslav said in a press release. "We surpassed 3 billion cumulative viewers, launched more new networks and increased audience and market share," he continued, "all of which helped to drive steady global growth and strong financial results."

Management believes the company's competitive advantages will help it succeed even as the media industry continues to undergo huge shifts. "Propelled by our category leadership, broad rights ownership and content and brand expansion across platforms, Discovery is well positioned to thrive in the rapidly evolving media landscape and to drive continued shareholder value in the years ahead," Zaslav said

Looking forward
Like everyone in the media industry, Discovery faces the fundamental challenge of programming costs that are rising at a faster rate than sales. That negative dynamic helps explain why Disney, Time Warner, and Discovery's P/E ratios are all at multiyear lows right now. Yet as this week's results show, Discovery's broad portfolio of popular content helps protect it from at least some of the profitability decline that other media giants are suffering.

Discovery has the broadest international broadcast distribution platform around, which it plans to use to exploit its deep collection of intellectual property for years to come. In the meantime, management is looking to build up its digital streaming muscles through initiatives like its 90 YouTube channels that collectively attract 200 million monthly views. Discovery will need to compete effectively on many platforms as TV watching continues shifting away from traditional linear television viewing.

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Stocks Mentioned

Warner Bros. Discovery, Inc. Stock Quote
Warner Bros. Discovery, Inc.
DISCK
The Walt Disney Company Stock Quote
The Walt Disney Company
DIS
$97.78 (3.69%) $3.48
Time Warner Inc. Stock Quote
Time Warner Inc.
TWX

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