Discovery to Take Write-Down Due to 'Honey Boo Boo,' 'Sons of Guns' Cancellations

TLC

CEO David Zaslav also discusses the impact of new regulations in Russia and news of online-only video services from HBO and CBS

Discovery Communications is planning to take about $20 million in impairment charges in the fourth quarter for recently canceled shows Here Comes Honey Boo Boo on TLC and Sons of Guns on the Discovery Channel.

CFO Andy Warren made the announcement on the cable networks company's earnings call Tuesday.

He said Discovery's financials for the current fourth quarter would include "$20 million of anticipated fourth-quarter content impairment charges mostly associated with our recently announced cancellations of Honey Boo Boo and Sons of Guns, as well as the nominal benefit of our now consolidating the Discovery Family Channel, which for the past many quarters had reported largely break-even results."

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Warren on Tuesday also discussed Russia, which the company on Tuesday cited as a headwind on its future earnings due to its geopolitical situation. He said Russia accounts for less than 2 percent of the company's global revenue, with most coming from distribution revenue rather than advertising. The Russia-related financial impact amounted to about $20 million in the third quarter, he said.

While advertising revenue in Russia will fall away starting next year due to a recent law banning advertising on pay TV, Discovery CEO David Zaslav said that "for the near term, the subscriber growth in Russia is quite strong."

At the end of 2016, a new law in Russia is expected to limit the ownership stakes that foreign companies are allowed to hold in media companies.

"We expect it will probably happen," Zaslav said Tuesday when asked about that, but said things could still change. He said the company is present in other markets with similar restrictions and gets "meaningful" licensing revenue from its "powerful" content in those markets. Concluded Zaslav: "We are optimistic that we can get some significant work-arounds" in Russia.

On the earnings conference call, Zaslav also discussed recent news of online-only, or over-the-top, video services from HBO and CBS. "There has been a lot on the news lately on consumer disruptions to the video marketplace and the emergence of more over-the-top video options," he said. "Through all the innovation and press releases, we believe there remains one constant: It is a great time to be in the content business. Despite shifting behaviors and new digital offerings, more and more viewers are gravitating to high-quality content. And we still believe there are many years of sustainable organic growth from the continuing global rollout of pay television, as well as more new opportunities to display our content than ever before."

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Asked about the likelihood of a broader unbundling of the pay TV bundle, Zaslav said: "I just don't see it happening." He said he expects no significant impact in the coming years despite likely more announcements in the near future. If things move that way after all, he said Discovery would do well because it owns all its content.

Citing over-the-top (OTT) services Dplay in the Nordics and Eurosport Player in Europe, he said the company has developed new revenue streams in those markets and has the ability to analyze the usage data to better understand OTT trends.

"We are having some concerns," Zaslav also said Tuesday about the planned Comcast-Time Warner Cable merger, which he has raised questions about before, adding that the company continues to look at the deal and its implications closely.

Email: Georg.Szalai@THR.com
Twitter: @georgszalai

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