Discovery ad sales growth softens as ratings sink

Flagship network's demo deliveries drop 25 percent

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David Zaslav.
David Zaslav. Credit: Illustration by Ad Age; composite images: Bloomberg

Ratings challenges across the Discovery portfolio are beginning to have a diminishing effect on the company's advertising growth, as significant losses at the flagship network and other key brands in the fourth quarter resulted in a sequential decline in sales revenue.

On a pro forma basis, calculated as if the Discovery-Scripps merger had been completed a year ago, fourth quarter ad sales revenue increased 3 percent to $1.04 billion, up from $1.02 billion. The adjusted improvement marks a bit of a downward shift compared to Discovery's third-quarter results, in which ad sales grew 5 percent year-over-year.

Analysts expected Discovery to post a 5 percent increase in ad sales revenue over the last three months of 2018. On Dec. 3, Discovery President and CEO David Zaslav warned attendees of the annual UBS Global Media and Communications Conference that the company's fourth-quarter sales would come in "a little less" than anticipated, a disclosure that triggered an 8 percent plunge in the company's stock price that same afternoon.

Speaking to investors Tuesday during the media company's earnings call, Zaslav allowed that Discovery Channel is facing some recent "ratings challenges," before adding that the flagship net "is still the number one [non-sports] cable network for men in primetime."

Zaslav went on to note that Discovery managed to achieve 3 percent growth in ad sales "despite not having news or sports, which speaks to the power of our broad portfolio balance." As advertisers keenly understand, live programming, and sports in particular, are effectively the only content on linear TV that can still deliver high-impact commercial impressions.

Discovery Channel's ratings squeeze is anything but superficial. The network in the fourth quarter saw its target audience of adults 25-to-54 plummet 25 percent versus the year-ago period, while fellow tentpole Animal Planet fell 16 percent in the demo. All told, the Discovery portfolio of TV brands saw deliveries in the respective target demos fall 7 percent on the quarter. Those declines were not as severe as was the aggregate loss for the overall cable network sector, which suffered 12 percent ratings declines in the period.

The Discovery and Scripps brands first entered the upfront as a unified force last spring. In bringing the two portfolios together, Discovery now boasts four of the top five non-fiction cable networks in Investigation Discovery, HGTV, Food Network and Discovery Channel. (The outlier is History Channel.)

As for guidance on the year ahead, Discovery Chief Financial Officer Gunnar Wiedenfels said, "U.S. advertising growth is expected to be up in the low-single-digit range, with similar dynamics as in the fourth quarter of last year." The CFO added that future gains will be fueled by pricing increases and the continued monetization of Discovery's digital inventory.

Thanks in large part to rate increases and beefed-up distribution deals with streamers Hulu and Sling, Discovery grew its fourth-quarter affiliate revenue 1 percent. On a pro forma combined basis, total subscribers were down 4 percent in December.

Early in the call, Zaslav spoke enthusiastically about Discovery's new GolfTV venture, a streaming service launched in January under a partnership with the PGA Tour. A month after unveiling the service, GolfTV announced it had signed Tiger Woods to a multi-year content partnership that will offer subscribers a caddy's-eye look at the 14-time major champion's golf game.

"We've gotten off to a great start with Golf TV, and we're very pleased with the early product results," Zaslav said. "While we're still in beta and really just getting started, we're happy with the quality of the technological capabilities thus far and early engagement numbers are impressive after only a few events." Zaslav went on to say that Woods is "having a lot of fun [interacting] with fans and we've already produced over 30 original pieces that have been consumed by millions of fans over just the first three tournaments."

The GolfTV venture is emblematic of Discovery's drive to engage with more doers rather than just the usual run of passive consumers of video content. "We're focusing on this idea that they watch and they do. And that's a huge opportunity," Zaslav said. "They watch golf, but they also buy golf equipment… and take [golf-themed] vacations. And they will go to Tiger for instruction."

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