Worldwide Subscribers Expected to
Reach 3 Billion by Year End
Company Updates Guidance for Full Year
2015; Sets Strong Three-Year Financial Outlook
Authenticated TV Everywhere Offering
“Discovery Kids Play” to Launch in Latin America
NEW
YORK, NY – September 29, 2015 – Discovery Communications (Nasdaq: DISCA, DISCB,
DISCK) (“Discovery”) today hosted its first Investor Day in New York City. More
than 300 attendees, including investors, financial analysts and industry
journalists, joined global leaders from
Discovery Communications’ management team who discussed their strategies to
drive growth and create shareholder value.
“Discovery
Communications is like no other media company in the world, with an average of
10 channels across more than 220 markets and we are well positioned for near-
and long-term growth,” said David Zaslav, president and CEO, Discovery
Communications. “The company stands out in the marketplace due to our efficient global
content model; unrivaled international infrastructure run by local teams; and a
strong growth position in the U.S. We are confident in the long-term outlook
for our business and foresee continued growth in the years ahead, which we expect will produce significant free
cash flow and value for shareholders.”
In
addition to Zaslav, the event featured presentations and comments from: Andrew
Warren, Chief Financial Officer; Jean-Briac (JB) Perrette, President, Discovery
Networks International; Bruce Campbell, Chief Development, Distribution &
Legal Officer; Peter Hutton, CEO, Eurosport; Rich Ross, Group President,
Discovery Channel, Animal Planet & Science Channel; Henry Schleiff, Group
President, Investigation Discovery, American Heroes Channel and Destination
America; Bob Scanlon, General Manager of Velocity and Automotive Content;
Fernando Medin, General Manager, Brazil and Southern Cone; Marinella Soldi,
Managing Director, Southern Europe; David Leavy, Chief Communications Officer;
and Jackie Burka, Vice President, Investor Relations.
The
event also was highlighted by comments from Oprah Winfrey discussing the
creative and financial success of OWN: Oprah Winfrey Network, operated in partnership
with Discovery.
A
Differentiated Model to Create Value
Zaslav highlighted five key
differentiators for Discovery’s growth potential: the company’s unique
portfolio of assets; ownership/control of a growing and diverse portfolio of
content and IP that uniquely positions Discovery for the changing media
landscape; a leading international distribution platform that will continue to
benefit from positive global trends; a cost-flexible, stable U.S. business that
yields continued free cash flow growth; and a strong financial outlook,
highlighted by, for the first time, three-year guidance metrics. He also
revealed that the company would reach 3 billion cumulative worldwide
subscribers by the end of the year.
Campbell gave an overview of
Discovery’s global digital portfolio and platform opportunities, highlighted by
its strong direct-to-consumer products in Europe including Eurosport Player,
the #1 sports OTT service across Europe, and DPlay, featuring diverse
entertainment content and live events. He also announced the upcoming launch of
an authenticated TV Everywhere offering for Discovery Kids in Latin America,
called Discovery Kids Play.
Leading International Distribution
Platform
Perrette focused on Discovery
Networks International’s three-part strategy: grow audience and share; own
and control must-have IP; and create and expand powerful and loved brands.
Perrette described how Discovery’s unique global and local infrastructure with
a low-cost model that leverages content around the world will support the
division’s continued strong growth, including continued meaningful increases in
pay-TV global subscribers and earning more for multichannel advertising.
Sports
and Olympics to Propel Growth
Hutton
described
the company's strategy to grow the Eurosport brand; expand the audience and
reach of Eurosport; and plans to leverage sports to meaningfully drive revenue
across the entire portfolio. Eurosport's leadership position on air, online and
over the top is unrivaled, giving Discovery a unique advantage and opportunity
to drive growth. Hutton explained the significant differences in European
sports rights versus the U.S. and how Eurosport is not dependent on any single
franchise and has locked in long-term rights at low inflation levels.
Commenting
on Discovery's acquisition of the exclusive, multiplatform rights to the
Olympic Games across Europe, Hutton explained that Eurosport's programming
schedule is nearly 50 percent Olympic sports, creating the opportunity to tell
stories about the characters and events all year long. The Olympic Games will
be profitable and cumulative cash flows will be positive for Discovery over the
term of the agreement, with sublicensing fees covering 70 percent of the
economics. Hutton also noted talks have already begun with traditional and new
distribution partners, such as mobile and digital.
Additive Growth Across
Europe
Soldi
described
the diversity of the European media landscape and how Discovery has used local
teams and tailored strategies to propel growth and outperform competitors, even
in challenging economic environments. She explained the three types of
markets in terms of pay-TV: "Mature but Stable" with distributors
finding new ways to grow; "Growth" markets where pay-TV subscribers
are growing; and "Low Penetration" markets where a large number of
households have never seen pay-TV, which created the opportunity for Discovery
to launch "thematic" free to air channels programmed with its global
content engine. Soldi also explained how the legacy big broadcasters in markets
across Europe continue to lose viewing share to themed channels and how
Discovery is benefitting from this trend in terms of gaining its "fair
share" of ad revenue. She highlighted Italy, where Discovery is now
the third biggest media company in terms of share, and how this scale has
driven value and growth through an improved power ratio.
Early
Leadership Position in Latin America Drives Double-Digit Growth
Medin
gave
an overview of the Latin America region, which has some of the fastest growing
pay-TV markets in the world. Discovery was an early entrant in Latin America,
and has an established leadership position with leading genre categories,
including male nonfiction, lifestyle and kids, which presents a unique
opportunity for multiplatform growth. Medin highlighted Brazil, where Discovery
has a portfolio of 11 channels and is very well positioned, and where Discovery
Kids is both the #1 channel for kids and the number #1 pay-TV network overall,
because of the cultural differentiator of high co-viewing. Medin said he
expects Discovery will continue to outperform across Latin America in terms of
subscriber growth, subscription revenue growth and advertising growth.
Cost
Flexible/Stable U.S. Business Model
Warren discussed the
cost-flexible nature of Discovery’s U.S. business, with 79% of the segment’s
content spend, its single largest expense, involving contracts of less than 12
months. Warren also spoke to the U.S.’s stable financial profile and ability to
continue to drive AOIBDA growth.
Several
of Discovery’s network leadership team showcased the strong position of the
company’s U.S. flagship brands; the global appeal of its networks and genres
highlighted by Discovery Channel, ID and Velocity; the company’s unique content
and IP ownership position; and its cost-efficient structure and success in
monetizing its category-leading genres globally.
Ross discussed Discovery
Channel’s growing audience and creative momentum, its recent record-breaking
success, including its #1 ranking this summer among M25-54, and previewed
several new series and specials that exemplify Discovery Channel’s excellence
in nonfiction series, tent pole events, limited scripted series and blue-chip
documentaries, most notably the anticipated global premiere of the acclaimed
film RACING EXTINCTION.
Highlighting
ID’s strong brand, global distribution advantage, and industry high volume of
over 650 hours of original production at an industry low cost per hour, Schleiff
noted that ID is the #3 cable network for women in the U.S. and boasts the
longest length of tune in all of television. Schleiff also noted the
global appeal of the crime and mystery genre has helped the network – available
in just 44 markets at launch - grow to 163 markets today and over 200 million
households, with expectations to reach 220 markets in the next five
years.
Scanlon
shared
Velocity’s dominance in the car category. Called Turbo internationally,
Velocity is the only network serving automotive fans and has grown to become
Discovery’s next global flagship brand. The network ranks #1 network for M25-54
in U.S. homes under 70 million subscribers and #1 in U.S. cable subscriber
growth overall. Globally, Turbo is now available to 126 million subscribers in
53 countries and is projected to grow to 220 million subscribers in 163
countries by the end of the decade.
Strong
Financial Outlook
Given
Discovery’s strong performance across the business so far this year, Warren
provided the following update to the company’s full year 2015 financial
outlook:
- Constant
currency revenues is expected to be up 9 – 10%
- Constant
currency AOIBDA is expected to be up mid-single digits
- Constant
currency Adjusted EPS is expected to be up low double digits
- Free
Cash Flow is expected to be up low single digits
- Year
over year currency impact is now expected to be approximately $(460)
million, $(180) million and $(0.24) – $(0.29) to revenues, Adjusted OIBDA
and Adjusted EPS, respectively
Given
strong prospects for future growth, the company also set forth the following
long-term financial guidance:
- Low
double digit constant currency adjusted EPS Compound Annual Growth Rate
(CAGR) from 2015 to 2018
- Low
double digit free cash flow CAGR from 2015 to 2018
Warren
added: “Third quarter results are on track, highlighted by strong U.S.
advertising growth. We are pleased that we are delivering on our 2015
commitments and are confident that we are well positioned to continue to grow
adjusted EPS in the long-term. In addition, our model generates
significant free cash flow, and we expect to have approximately $10 billion in
available capital over the next five years.”
Presentation
material and a replay of the live video webcast will be available on the
Investor Relations page of Discovery’s corporate website at https://corporate.discovery.com/, reachable on the
main page or by navigating to the Investor Relations page option on
the left side drop-down menu. The “Presentations and Events” section will have
information for the webcast, which began at 8:15 am Eastern Standard Time and will
be archived on the site following the event.
For
other updates from today’s event and news from Discovery, follow @DiscoveryComm on Twitter.
About
Discovery Communications
Discovery Communications (Nasdaq: DISCA,
DISCB, DISCK) is the world’s #1 pay-TV programmer reaching nearly 3 billion
cumulative subscribers in more than 220 countries and territories. For 30 years
Discovery has been dedicated to satisfying curiosity and entertaining viewers
with high-quality content through its global television brands, led by
Discovery Channel, TLC, Animal Planet, Investigation Discovery, Science and
Turbo/Velocity, as well as U.S. joint venture network OWN: Oprah Winfrey
Network. Discovery controls Eurosport, the leading pan-regional sports
entertainment destination across Europe and Asia-Pacific. Discovery also is a
leading provider of educational products and services to schools, including an
award-winning series of K-12 digital textbooks, through Discovery Education, and
a digital leader with a diversified online portfolio, including Discovery
Digital Networks. For more information, please visit www.discoverycommunications.com.
NON-GAAP FINANCIAL MEASURES
Adjusted
OIBDA, Adjusted EPS and Free Cash Flow
In
addition to metrics used in accordance with U.S. generally accepted accounting
principles (“GAAP”), this release discusses Adjusted OIBDA, Adjusted EPS and
free cash flow. The Adjusted OIBDA is defined as operating income excluding:
(i) mark-to-market equity-based compensation, (ii) depreciation and
amortization, (iii) amortization of deferred launch incentives, (iv)
restructuring and other charges, (v) certain impairment charges, (vi) gains and
losses on business and asset dispositions, and (vii) certain inter-segment
eliminations related to production studios. Adjusted EPS is defined as
earnings excluding the impact of amortization of acquisition-related intangible
assets per diluted share. The Company defines free cash flow as cash
provided by operating activities less acquisitions of property and equipment.
CAUTIONARY
STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This
release includes certain statements relating to future results, which are
forward-looking statements as that term is defined in the Private Securities
Litigation Reform Act of 1995. These forward-looking statements are based on
beliefs of Company management, as well as assumptions and estimates based on
information currently available to the Company, and are subject to certain
risks and uncertainties that could cause actual results to differ materially
from historical results or those anticipated, including those factors discussed
in the Company’s Annual Report on Form 10-K filed February 19, 2015 and
subsequent filings with the SEC. Should one or more of these risks or
uncertainties occur adversely, or should underlying assumptions or estimates
prove incorrect, actual results may vary materially from those described.
These events and uncertainties are difficult or impossible to predict
accurately and many are beyond the Company’s control. The Company assumes
no obligation to publicly release the result of any revisions that may be made
to any forward-looking statements to reflect events or circumstances after the
date of such statements or to reflect the occurrence of anticipated or
unanticipated events. Additionally, you should carefully review the GAAP and
“as adjusted” financial statements included in the Company’s Form 10-K and the
notes thereto for an explanation of our financial statement presentation.
###
CONTACTS:
Media
Catherine Frymark
SVP, Corporate
Communications
Catherine_Frymark@discovery.com
240-662-2934
Investors
Jackie Burka
Vice President, Investor
Relations
Jackie_Burka@discovery.com
212-548-5642