BENGALURU: An overall 4.1 per cent decline in advertising revenue for the quarter ended 30 September 2016 (Q3-16, current quarter) vis-à-vis the corresponding year ago quarter resulted in flat revenue for Discovery Communications Inc., (Discovery). The company reported overall revenue of $1,556 million for the current quarter versus $1,557 million in Q2-15. Overall Advertising revenue declined in Q3-16 to $670 million as compared to $699 million in Q2-15.

Discovery’s other major revenue stream – Distribution, reported 3.9 per cent year-over-year (y-o-y) increase in the current quarter at $806 million as compared to $770 million. Discovery’s ‘Other’ revenue declined 2.4 per cent y-o-y to $80 million from $82 million.

Operating income declined 9.3 per cent y-o-y in Q3-16 to $458 million from $505 million. The company’s adjusted Operating Income before Depreciation and Amortisation (OIBDA) declined 2.4 per cent in the current quarter to $562 million from $576 million.

Geographical breakup:

US Networks

Discovery’s US Network’s revenue increased 1.5 per cent y-o-y in Q3-16 to $793 million from $781 million.  US Networks adjusted OIBDA improved 3.4 per cent y-o-y in Q3-16 to $458 million from $443 million.

US Networks distribution revenue in the current quarter increased 6.7 per cent y-o-y to $458 million versus $443 million. US Networks advertising revenue declined 3.4 per cent y-o-y to $396 million in the current quarter from $410 million. US Networks ‘Other’ revenues in Q3-16 increased 14.3 per cent y-o-y to $16 million from $14 million.

Discovery says that Distribution revenue growth was primarily driven by higher rates, partially offset by a slight decline in subscribers. Advertising revenues decreased primarily due to expected ratings declines, partially offset by higher pricing and inventory management.

US Networks Operating expenses decreased 1 per cent mainly due to lower content amortization, partially offset by higher marketing costs. Adjusted OIBDA increased due to higher revenues and lower operating expenses.

International Networks

Discovery’s International Revenue in Q3-16 declined 2.7 per cent to $720 million from $740 million.  International Networks OIBDA declined 16.1 y-o-y per cent in the current quarter to $183 million from $218 million.

International Networks Distribution revenue increased 1.4 per cent y-o-y in Q3-16 to $425 million from $419 million. International Networks Advertising revenue in the current quarter declined 5.5 per cent y-o-y in the current quarter to $273 million from $289 million. International Networks ‘Other’ revenue in Q3-16 declined 31.25 per cent y-o-y to $22 million from $32 million.

The company says that changes in foreign currency exchange rates reduced third quarter International revenues and adjusted OIBDA growth by 5 per cent and 7 per cent, respectively. Distribution revenues, excluding the impact of currency effects, grew 8 per cent mostly due to higher affiliate rates in Latin America, Northern Europe and CEEMEA as well as higher volume in Latin America.

Advertising revenues, excluding the impact of currency effects, declined, primarily due to lower ratings and pricing in Northern Europe, partially offset by higher volume in Southern Europe. Other revenues declined primarily due to lower Eurosport sub-licensing revenues.

Education and Other

‘Education and Other’ revenues increased 19.4 per cent y-o-y to $43 million in the current quarter from $36 million. ‘Education and Other OIBDA improved by 80 per cent to a loss of $1 million from a loss of $5 million.

The company says that Education and Other revenues for the third quarter increased by $7 million primarily due to higher production deliveries at the Studios production business and increased international revenues at the Education business. Adjusted OIBDA improved primarily due to higher revenues, partially offset by additional investments in the Education business.

Other Developments

On October 13, 2016, Discovery announced a plan to contribute $100 million and its digital network Seeker and production studio SourceFed in exchange for a 39 per cent minority interest in a new holding company, Group Nine Media. Group Nine Media includes digital companies Thrillist Media Group, Now This Media, and The Dodo. Discovery has the option to buy a controlling stake in Group Nine Media in the future. The transaction is expected to close in the fourth quarter of 2016, subject to customary closing conditions.

Company speak

“While we faced challenging but expected headwinds this quarter, Discovery is well positioned for long-term growth driven by our well-defined global brands, differentiated content and favourable distribution agreements,” said Discovery president and CEO David Zaslav, “We have continued to strengthen and maximize our traditional pay-TV offering with robust new programming while aggressively exploiting new opportunities to leverage our content across numerous digital platforms around the world. Amid an ever shifting global media ecosystem, Discovery is evolving to reach more consumers on more screens and platforms than ever before."