Discovery Communications CFO Discusses Digital Licensing, OWN, Euro Deals

Andrew Warren also sees longer-term ad revenue and carriage-fee growth in the U.S., but says some networks aren't conservative enough about making content available online.

Discovery Communications CFO Andrew Warren on Monday touted the cable networks operator's recent European acquisition deals and its growth outlook in India, while also predicting more advertising and carriage fee upside in the U.S.

Asked at a Morgan Stanley investor conference about digital deal opportunities, he said Nielsen's plans to expand its measurement of digital viewership will help the company monetize its content further. While Discovery is striking conservative digital licensing deals to protect the current TV ecosystem, he said "in some cases" industry peers don't. Warren didn't say which competitors he was referring to.

"We feel very good about OWN," Warren also said at the Morgan Stanley Technology, Media & Telecom Conference in San Francisco, adding that all but one major carriage fee deals are struck, with fee revenue coming in this year. He predicted the network would be a top 20 channel in the U.S. over time.

Discussing the recent $1.7 billion deal to acquire ProSiebenSat.1's SBS business in Scandinavia and why the company is doubling down in Europe, Warren cited the Discovery's "great leadership teams" and ad sales operation. He also cited cost and tax synergies "that we're working through now," emphasizing that the deal will "absolutely be accretive day one." It will also be a key part of the Discovery free cash flow and other growth story, he said.

But profit margins will be dragged down this year, with the longer-term growth potential being "meaningful," he said.

Asked about the addition of Eurosport in Europe, Warren said that "we are not moving away from nonfiction" programming. "We are broadening our offers," demos and ad sales base. "We have more local ad sales, they have more pan-European sales," he explained. "There are a lot of synergies, a lot of opportunities."

Warren said Discovery participated in its first Eurosport board meeting last week and hopes to use an option in two years to take control of the sports network in the first part of 2015 as long as Discovery learns positive things about the business and continues to feel good about it.

Asked about continued ratings growth, Warren said: "We believe in the content model. … We do believe that great content can win the game."

Discovery continues to expect high-single-digit percentage ad growth in the U.S. in the first quarter. Plus, carriage fee growth via higher fees for established networks and broader distribution for younger channels like ID remain a key goal, the CFO said. Carriage revenue will not see huge growth in 2013, and Discovery remains focused on reaching deals rather than argue, Warren said, emphasizing that -- unlike other network group -- "we have never gone dark."

Asked about Latin America, Warren said "it generally is a big growth driver," with Brazil recording subscriber growth last year of more than 30 percent.

In Asia, Discovery has seen "good" sub growth in India and is launching new channels in Korea and elsewhere. "We are broadening our offerings and taking TLC across the region like in Europe," Warren said. Last month's Oprah Winfrey interview with Lance Armstrong was the top nonsports program in Australian history, he said in one example for the upside in the Asia and Pacific region.

In India, cable operators were mandated recently to migrate to digital., which helps in the fight against piracy, Warren said. "We are very bullish on India," where Discovery has seen double-digit growth.


Twitter: @georgszalai