DISCA

Discovery Communications, Inc. (DISCA)

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Discovery Communications, Inc (DISCA)

March 05, 2013 9:30 am ET

Executives

David M. Zaslav - Chief Executive Officer, President, Director and Member of Executive Committee

Analysts

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Presentation

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Sorry we're starting a couple of minutes late. Very pleased have with us David Zaslav, President and CEO of Discovery. Thank you very much for coming.

David M. Zaslav

Thank you, Doug.

Question-and-Answer Session

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

So I thought it would be good to start with a high-level view. How does management look at driving value at Discovery?

David M. Zaslav

Well, for us, it's really about taking advantage of the fact that I think we're the best platform media company in the world. We've talked about a lot. But when I got to Discovery 6.5 years ago, we were in about 200 countries, we had between 6 and 11 channels and we had 14 channels here in the U.S. But we only had one great channel and that was Discovery, and it was a little off brand and had lost some of its momentum. So I think what you've seen over the last 6.5 years, and in particular with a lot of momentum in the last 2 years, is a big play to gain market share, reinforce our brands around the world and then take that market share growth and monetize it both with advertisers and distributors. So for instance, in the U.S., 6.5 years ago, our market share was about 4% of cable. Today it's close to 10%. And as we look around the world, we've grown from about 200 countries to almost 220, we've launched a ton of additional channels around the world and as a company, 6 years ago, we were making about $720 million as a company and our international business was about $120 million. Last year, we made $720 million in our international business, so we made as much internationally as we did as a company. And I think that really has everything to do with the fact that our content is working around the world and its growing. So in the fourth quarter, our international market share grew 25% and our ad sales were up 18%. And that spread is really compelling and that there are more people spending more time watching our channels in the U.S. and around the world, and we're finding really substantial growth even when a lot of those markets are finding some economic trouble. So for us, that's really our #1 mantra, grow our brands, take our content around the world, and if we can continue to grow our market share, I think you're going to see a very, very high growth company for a long time.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

So of that, I guess one thing I've always tried to separate out is how much is organic and how much is inorganic. When you look at organic growth that you've been enjoying globally, how much do you think is left and also how you deal with growth in some of the slower growing regions?

David M. Zaslav

What we're seeing right now, we're seeing substantial market share growth again in the first quarter. And as a company, we've been able to grow over the last several years, part of that has to do with the fact that, I think, Discovery is getting stronger. And when Discovery gets stronger in the U.S., it gets stronger around the world. So when you saw Discovery up 15% in the fourth quarter and it's up 15% in the first quarter, there's a little bit of hesitation in terms of timing, but we're starting to see that, that spreads around the world. So part of it is Discovery and Animal Planet and Science have gotten stronger. Those are kind of our core channels where we're able to use our content all around the world, where 70%, 80%, 90% of that content works. And a fair amount of growth is the fact that we've been successful in moving TLC around the world and that was really driven by -- when we hit a recession here in the U.S., it was very helpful for us to have a strong male channel with Discovery a top 5 Channel, but what we had a top 5 female channel with TLC. And as a result of that, our ad sales team saw all the advertisers and we were able to come through that very difficult year with our ad sales up, we never were down. And we took note of that and thought if we could have a strong female channel around the world, we'd be a lot stronger. So some of the market share comes from the fact that we launched TLC in the last 2 years to over 150 countries and we now reach over 150 million more subscribers with a very strong female channel, and that was profitable year 1 and it's continuing to grow. And we've also launched ID, our crime and investigation channel, we've launched that to over 120 countries. So it's both the growth of our core brands and the fact that crime and investigation, together with our women's channel, are resonating.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

And I think we'll come back with some more details around the organic growth internationally, but obviously you had a couple of M&A announcements in one case the Nordic region, which seems, to us, all little bit slower growing. Why do an acquisition in an area of the world that's a little bit slower growth than the pay TV side?

Read the rest of this transcript for free on seekingalpha.com