Discovery Well-Positioned to Withstand TV Ad Downturn, Ratings Agency Says

David Zaslav - Getty - H 2020
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Fitch forecasts a "significant near-term advertising pull-back in 2020, followed by an ongoing advertising recession into 2021."

Fitch Ratings on Tuesday cited Discovery, which is led by CEO David Zaslav, as a market leader positioned well to take advantage of increased U.S. TV viewing by stay-at-home Americans during the COVID-19 crisis.

The ratings agency also cited the media giant's "strong liquidity" for Discovery to withstand a coming advertising recession as brands cut their spending during the coronavirus outbreak.

"Despite the significant uncertainty surrounding the advertising market's performance in light of the coronavirus pandemic, Discovery's rating and stable outlook are supported by the company's leading market position driven by strong niche brands and programming, which was bolstered by the 2018 acquisition of Scripps Network Interactive," Fitch said as it affirmed Discovery's BBB-rating with a stable outlook.

The ratings agency said Discovery had a strong balance sheet, with $2.1 billion in cash on hand as of Dec. 31, 2019, and access to a $2.5 billion revolving credit facility, from which it drew down $500 million on March 12.

Discovery will be tested, however, by a coming advertising recession set to mirror the downturn in the wider global economy as the COVID-19 pandemic continues.

"Although it is too early to quantify aggregate advertising declines and how quickly revenue growth will turn positive following the effects of pandemic, Fitch is adjusting its expectations to include a significant near-term advertising pull-back in 2020, followed by an ongoing advertising recession into 2021," the ratings agency said in its forecast.

Discovery last week pointed to improved TV ratings in global markets as viewers self-isolate amid the coronavirus outbreak. But the media giant added that the "unknown impact" of the pandemic on its financial results and the Tokyo Olympics postponement had forced it to retract its full-year 2020 performance outlook.