Discovery CEO: "The Skinny Bundle in the U.S. Is a Fiction"

Courtesy of Discovery Communications
David Zaslav

David Zaslav says time will bring really low-priced limited bundles like in international markets over time as current offers are "overstuffed turkeys" that are "going to end up being a challenge from a consumer perspective."

Discovery Communications, the company behind such cable networks as the Discovery Channel, TLC and OWN, on Tuesday reported lower first-quarter earnings that fell below Wall Street estimates.

Asked about the rise of digital pay TV services and skinny bundles and the outlook for Discovery's traditional, sports and other content on them in the U.S., Discovery CEO David Zaslav said ultimately the consumer always helps determine how products looks.

"Outside the U.S., there have been very successful skinny bundles. We are on all of them," Zaslav said, citing Latin America and Europe as examples, where he said such offers are low-priced, even when sports is to some degree included. "Sports is just hyper-extended here in the U.S., reflected in regional sports, traditional sports, retransmission consent, the integration of sports with other channels. This is a bit of a stuffed turkey here," he said of some services that have been described as skinny bundles.

He continued: "I see the skinny bundle in 200 countries. There is no skinny bundle here. The skinny bundle in the U.S. is a fiction." With such bundles costing $40 or so on top of broadband service fees, "the skinny bundle is $60 or $70, so it's really not a skinny bundle," Zaslav said. "It's a bundle that may be attractive to a small group of people. But in the end, I think the market will be rationalized."

He said Discovery's channels are available on such new digital pay TV services as DirecTV's and Sony's, but added: "Ultimately, there should be a bundle, like everywhere else in the world, that's $8, $10, $12 and I believe that will happen. I think these overstuffed turkeys are going to end up being a challenge from a consumer perspective. And the consumer is going to say I would like to have an opportunity here."

Zaslav also said in this context that "we as an industry need to complement" Netflix and Amazon with "a quality offering that is a true skinny bundle," and that will happen, "but it is just a question of when."

The company reported first-quarter earnings of $215 million, down 18 percent from the year-ago period. Quarterly earnings per share fell 5 cents to 37 cents when including a charge for tax extinguishment. Adjusted earnings per share reached 41 cents, compared with 46 cents per share in the year-ago period. Wall Street had on average forecast earnings of 45 cents per share.

First-quarter revenue of $1.61 billion was up 3 percent from the year-ago period but also fell below analysts' expectations. The company said revenue rose 5 percent at its international networks and 3 percent at its U.S. networks.

U.S. advertising revenue rose 1 percent, "primarily due to higher pricing and continued monetization of our Go platform, partially offset by lower delivery," and a digital deal, the company said. U.S. distribution revenue increased 5 percent, "driven by higher rates partially offset by a slight decline in subscribers." 

"Improved ratings across many of Discovery's key distinctive programs and brands, coupled with strong global distribution growth, led to solid organic growth in the first quarter," said Zaslav. "Beyond our linear business, we continue to focus on new strategic partnerships and investments to help drive our multi-platform growth strategy and ensure that we reach our global super fans on every screen."

On the earnings call, Zaslav reiterated that the company has focused on "strengthening our global content portfolio" with a focus on super fans. He lauded TLC for continuing to build ratings momentum and said Discovery Channel again was the top non-sports cable network for men in the first quarter.

Asked about the advertising market and the outlook for the upfront, Zaslav said that "the advertising market feels steady," with scatter ad market pricing up in the mid- to high-teen percentages over the upfront. And he said he felt good about the company outperforming the broader industry in terms of ratings year-to-date. 

Zaslav on the call also again touted the company's push into short-form video content, including via a recent deal that formed Group Nine Media.