Discovery CEO Touts Ad Trends, Digital Revenue Upside

David Zaslav says "we haven't done a great job" monetizing digital viewers and talks about potential direct-to-consumer service launches and what stronger-than-expected recent pay TV subscriber trends mean.

Discovery Communications management on Tuesday touted advertising market strength in the back-half of the year, upside in terms of revenue for its online viewership and the possible upside from better-than-expected pay TV subscriber trends. It said it continues to weigh a possible U.S. launch of direct-to-consumer video services.

CEO David Zaslav and CFO Andy Warren spoke on the company's bullish third-quarter earnings conference call. Zaslav touted "record scatter volume" and strong pricing that led to "very strong" U.S. advertising revenue in the third quarter. The momentum was helped by stronger ratings than at peers, he said.

Asked about the fourth quarter, Warren said that "the market is similar to what we saw in the third quarter," adding: "We expect our ad sales to be up solidly year-over-year" in the fourth quarter. But Zaslav said it was too early to say whether the ad momentum would continue beyond this year and whether it was any sign of a fundamental turnaround.

Zaslav said third-quarter pay TV sub trends have been "very encouraging," adding that they could provide “meaningful upside” for the company because it has assumed bigger sub declines. The CEO said the reported trends so far are "better" than planned by Discovery in its financial outlook, but said only time would tell where trends go. "We’ll just have to see," he concluded, adding that subscriber trends typically only find their way into payments after several months.

Zaslav also said Discovery was just getting started with direct-to-consumer offers, lauding its Eurosport app and Dplay streaming service in Europe. “We’re learning a lot,” he said, adding that both services are “growing significantly” in terms of direct subscribers.

Discussing Eurosport further, its digital growth has not come at the expense of the linear networks, he emphasized. “We’re finding that it’s additive,” Zaslav said.

Will that mean the launch of similar direct-to-consumer services in the U.S.? "We have a lot of optionality,” Zaslav said. “It’s early days, but we do have a lot of flexibility here in the U.S. to make a move if we want to. And we are looking at it.”

Zaslav also touted Discovery's more than 200 million views a month on digital networks, saying 50 million of them come on Facebook alone. "We haven't been great at it," he said about digital monetization, saying there was "significant" upside over the next two to three years. "We haven't done a great job in monetizing that ... And we look at the overall effort, it's about break even with all the efforts that we have made." He also singled out Vice Media as an example of a company that has done well in terms of getting revenue out of its digital reach, adding that Discovery was changing its sales approach.

Discovery Digital Networks participated in the NewFronts for the first time earlier this year in what was seen as another sign sign that Discovery was focusing on improving the business' financial performance. It has seen viewer growth on the likes of YouTube, Facebook and iTunes.

Asked about Discovery's interest in acquiring more free-to-air networks abroad, Zaslav said the company would continue to look at deal possibilities. But he emphasized: "We don’t feel we need to do anything."

Zaslav on Tuesday also lauded the "enduring value" of the company's brands and content. The Discovery Channel had the best ratings quarter in the key demo, Zaslav said. ID was the top cable network for women in total delivery in September, he added.