Discovery revenue down but sports rights costs deferred in Covid-hit Q2
By Euan Cunningham
Revenue at the international networks arm of US media giant Discovery, which includes pan-European sports broadcaster Eurosport, slipped 23 per cent year-on-year in the three months to the end of June, as the coronavirus pandemic continued to affect both advertising and distribution based income.
For the second quarter, Discovery International Networks generated overall turnover of $783 million, compared with $1.02 billion in the equivalent period last year.
Despite this income, the company's hierachy said in an earnings conference call today that it was confident about the months ahead in terms of predicted revenue from distribution and advertising, adding that the absence of live sports events had actually been "a big savings-driver."
In the quarter, international distribution revenue amounted to $486 million, down 6 per cent, while international advertising revenue plummeted to $276 million, down from $466 million in the same period in 2019, with advertising in particular having been impacted by the effect of Covid-19 on global markets.
Other revenue came to $21 million, down from $36 million, a drop of 42 per cent.
Operating expenses decreased year-on-year to $590 million, down 20 per cent.
International Networks’ operating income before depreciation and amortisation (Oibda), came to $193 million, compared with the 2019 Q2 figure of $286 million, a decrease of 33 per cent.
Across the entire Discovery business, revenue amounted to $2.54 billion in the second quarter, down from $2.88 billion, while Oibda totalled $1.12 billion, down 12 per cent from the 2019 figure.
On the earnings call, David Zaslav (pictured), the president and chief executive of Discovery, said: “These uncertain times highlight the competitive advantages that distinguish us… An efficient, low-cost production model, and short production cycles allowing for quick content development.
“I feel our hand now is stronger than ever, given the full range of content we have to offer. While there are still Covid-related uncertainties, I remain enthusiastic about our strategic course, given the market opportunities we see unfolding.”
Gunnar Wiedenfels, the company’s chief financial officer, added: “The efficiency of our operating model has never been more critical. For the last quarter, April was the toughest month and appears to have been the trough. May and June were much better."
In terms of sport, Discovery has been dealing with the myriad of postponements and cancellations of leagues and events that it would have been expecting to show in the last quarter.
Both Eurosport and GolfTV, the international OTT subscription service, were left short of live sport to cover as a result of the pandemic.
In April and May, in particular, Eurosport was unable to show anywhere close to its normal amount of events, with competitions across soccer, cycling, tennis and motorsport all impacted.
However, Wiedenfels said “there have actually been some timing benefits when it comes to the delay of these sports events… We recognised very few sports rights costs during Q2, with many being deferred to later in the year.
“Those will all now be held until later in the year, in what admittedly looks to be a rather condensed schedule.”
He added: "In terms of our costs, the absence of sports events and other productions has been a big savings-driver."
Wiedenfels said that “when sports resume in full, we expect to condense an entire calendar year of content into two quarters at most," but admitted that as of now, Discovery did not know “to what extent sports revenues will resume” in the third quarter, running to the end of September.
While Discovery has agreed deals with rights holders regarding payments for a number of sports events, it did not do so with the DFL, the German soccer league, regarding a contracted outlay of €70 million ($83.2 million) for live domestic rights to the top-tier Bundesliga.
The dispute over that missed payment, the final one for the 2019-20 season which had its conclusion delayed by over a month due to the pandemic, has led to Discovery terminating its media rights contract with the league.
Wiedenfels did say on the call that had Discovery not exited that agreement, “distribution revenue would have been significantly higher.”
However, the company did strike several new content deals between April and June, including one for USA’s World Wrestling Entertainment in Italy, exclusive rights to Norwegian soccer’s Eliteserien across Europe, exclusive coverage of snooker’s 2020 Championship League, and several tennis tournaments created to fill the void left in that sport’s calendar.
Discovery also agreed a new long-term carriage and distribution deal with Sky, the pay-television broadcaster owned by Comcast, across the UK, Ireland, Germany and Austria.
Eurosport will continue to be carried on Sky’s platforms in the UK and Ireland, and through Sky Deutschland in Germany and Austria.
As well as the distribution of Eurosport as a linear channel, Sky will provide its carriage deal for the Eurosport Player over-the-top streaming service.
The deal is set to cover the various non-linear Discovery platforms and offerings in the UK, for the first time.
The planned over-the-top licensing deal between Discovery and Telia, the Swedish telecoms firm currently splashing out on premium soccer rights, has also now been approved by the European Commission.
That agreement covers standalone OTT rights in Sweden and Finland.
Zaslav said the carriage deals signed across the quarter “showed the value of the content we’re distributing throughout the ecosystem.”
In the first quarter, Discovery had to contend with the postponement of the Tokyo Olympic Games by a year to 2021.
Discovery holds European rights to the Olympics and had budgeted for expenses related to the games to contribute to an operating income loss of between $175 million and $200 million in the third quarter of 2020. As such, revenues and expenses associated with the games (which could still theoretically not take place at all, if the coronavirus continues to cause disruption on a global scale), have been pushed back to next year.
Tokyo 2020 will be the first summer games in Eurosport’s €1.3-billion deal with the IOC covering four Olympics to 2024.
The broadcaster was set to provide coverage of this year’s Olympics in 50 European countries (excluding Russia).