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Discovery Q2 international revenues hit by 41-per-cent advertising slump

Discovery president and CEO David Zaslav speaks at Discovery, Inc. TCA Winter Panel 2020 (Photo by Amanda Edwards/Getty Images for Discovery, Inc.)

A dramatic fall in advertising caused by the Covid-19 pandemic led to a 23-per-cent drop in second-quarter revenues at the international division of Discovery, the US-based media group that owns pan-European sports broadcaster Eurosport.

Releasing its latest financial results today (Wednesday), Discovery’s International Networks posted revenues of $783m (€658.5m), a fall of $237m compared to the figure reported 12 months ago.

The second-quarter revenues included $276m in advertising, which reflects a 41-per-cent year-on-year drop.

International Networks’ distribution revenues fell by 6 per cent to $486m, while ‘other revenues’ were down by 42 per cent to $21m.

International Networks’ adjusted second-quarter OIBDA (operating income before depreciation and amortisation) was $193m, a 33-per-cent year-on-year decrease.

Including revenues from US-based operations, Discovery reported overall revenues of $2.541bn in the second quarter, a 12-per-cent decrease, with total adjusted OIBDA of $1.127bn, also down by 12 per cent.

Commenting on the performance of the international unit, Discovery said: “Ex-FX [foreign exchange effects], advertising decreased 37 per cent, primarily driven by a decline in demand stemming from the Covid-19 pandemic and, to a lesser extent, the discontinuation of certain pay-TV distribution in the Nordics.

“Ex-FX, distribution decreased 2 per cent, primarily driven by the impact on sporting events due to Covid-19, the discontinuation of certain pay-TV distribution in some European markets, and lower contractual rates, partially offset by increases in digital distribution.”

David Zaslav, Discovery president and chief executive, remarked: “We generated significant free cash flows in Q2, demonstrating the durability of our business, especially against the backdrop of a historic disruption to the global advertising market due to the impacts of the pandemic.

“With our significant liquidity cushion and the initial signs of stabilization that we’re seeing in many of our key markets around the world, we are pleased to announce our intention to resume returning capital to shareholders through share repurchases.

“We are cautiously optimistic about the global outlook for the rest of the year and firmly believe that the long-term prospects for Discovery remain as vibrant as ever.”

Speaking during a call with analysts and investors, Zaslav said that the advertising recovery in European markets such as Germany and Poland had been “much faster” than the media group had expected. However, the advertising downturn in Latin America still “hasn’t bottomed yet”, according to Gunnar Wiedenfels, Discovery’s chief financial officer.

In May, Discovery reported first-quarter revenues of $923m at its international division, a 3-per-cent year-on-year fall.

At the time, Zaslav claimed that the broadcaster is well protected in terms of financial commitments that must be made – or not – following the postponement or cancellation of a host of sports events to which it holds the rights.

He said: “Having no sports is a challenge for all of us but 90 per cent of our deals have either force majeure provisions or provisions that specifically relate to us not paying for content that we don’t get.”

The Tokyo 2020 Olympics have been the most high-profile event to be postponed because of the Covid-19 pandemic, with Discovery holding the rights in Europe (excluding Russia) from 2018 to 2024 in a €1.3bn ($1.54bn) deal. The broadcaster expects to defer its Olympic-related revenues and significant expenses to the 2021 financial year.

Elsewhere, Discovery is in the process of terminating its Bundesliga contract and has been locked in legal negotiations with the German Football League (DFL).

Discovery has undertaken cost-saving initiatives to try and offset the revenue losses and deferrals caused by the coronavirus crisis, including travel, marketing and production cost reductions.

Meanwhile, second-quarter revenues at Discovery’s US Networks fell by 6 per cent to $1.756bn. The figure includes advertising and distribution revenues of $997m and $739m, respectively. Adjusted second-quarter OIBDA at US Networks fell by 6 per cent to $1.062bn.