QUOTE AND NEWS
Market Intelligence Center  Dec 15  Comment 
Discovery Holding Company (DISCA) presents a trading opportunity that offers a 4.97% return in just 214 days. A covered call on Discovery at the $30.00 level expiring on Jul. '15 offers an assigned return rate of 4.97% or 8.47% annualized. This...
TheStreet.com  Dec 12  Comment 
NEW YORK (TheStreet) -- Shares of Discovery Communications are down 1.06% to $33.69 after Jefferies lowered its core fourth quarter U.S. advertising estimate by 100bps from 1% to flat and its fourth quarter U.S. revenue and OIBDA estimates to...
MarketWatch  Dec 9  Comment 
Fans of the Discovery TV network show "The Deadliest Catch" will be able to watch episodes of that show, and other Discovery Communications programs online via Hulu in an exclusive agreement announced Tuesday between the TV network and the...
Benzinga  Dec 9  Comment 
Discovery Communications and Hulu today announced an expansive new agreement for the distribution of titles from Discovery's unparalleled portfolio of programming available to U.S. Hulu subscribers. Popular programs, including MYTHBUSTERS, THE...
Market Intelligence Center  Dec 5  Comment 
Discovery Holding Company (DISCA) traded between $34.31 and $35.31 before closing at $34.43 Thursday and presents some attractive trading opportunities today. MarketIntelligenceCenter.com’s patented algorithms selected a Jul. '15 $30.00 covered...
The Australian  Dec 3  Comment 
FOXTEL and US cable giant Discovery Communications are in a three-way battle against two American bidders to win control of Ten.
The Australian  Dec 2  Comment 
PAY-TV operator Foxtel and US cable giant Discovery Communications signed off on a takeover bid for Ten Network last night.
Benzinga  Dec 1  Comment 
According to The Australian, Discovery Communications Inc. (NASDAQ: DISCA) and Foxtel could see their offer to acquire Australian based Network Ten for $510 million to $664 million rejected. Network Ten is the third Australian commercial...
The Australian  Dec 1  Comment 
FOXTEL and cable giant Discovery Communications will table a lowball opening takeover bid for Ten Network, but the offer could be rejected as too cheap.




 

Spun off from Liberty Media (LCAPA) in 2005, Discovery is a holding company for two businesses: Ascent Media Group, which helps create and distribute television shows and films; and a 67% stake in Discovery Communications, which creates and distributes programming through cable channels such as Discovery Channel, Animal Planet and The Learning Channel.

Both of DISCA's businesses operate in a highly competitive environment: Ascent competes with many of the same motion picture studios which are its customers--including Walt Disney Company (DIS), News Corporation (NWS)'s Fox Studios--and smaller companies providing post-production services, while Discovery competes with other cable networks operators such as E.W. Scripps Company (SSP) and Viacom (VIA).

Business Overview

Discovery is a holding company for two businesses: Ascent Media Group, which helps create and distribute television shows and films, and Discovery Communications, which creates and distributes programming through various cable channels.

  • Ascent Media serves large clients such as motion picture studios, independent producers, and broadcast networks; it provides creative services for the production of films and television shows as well as network services to facilitate the distribution of content on cable and broadcast networks.
  • Discovery Communications creates and distributes programming through its flagship Discovery Channel and a host of other networks including Animal Planet and The Learning Channel; the group currently operates in over 170 countries and receives revenues from subscriptions and advertising.[1]

Business & Financial Metrics[2]

In 2009, DISCA generated a net income of $552 million on revenues of $3.52 billion. This represents a 74.1% increase in net income on a 2.1% increase in revenues from 2008, when the company earned $317 million on $3.44 billion in revenues.

Business Segments[3]

DISCA has three reportable business segments:

  • US Networks (60.9% of total revenue): This segment operates DISCA's American television channels. Networks this segment operates include Discovery Channel, TLC, Animal Planet, Discovery Health, and Discovery Kids.[4]
  • International Networks (33.8% of total revenue): This segment operates television channels in more than 170 non-US countries. Its portfolio includes 22 brands.[5]
  • Commerce, Education, and Other (5.0% of total revenue): This segment supports DISCA's overarching strategic objectives by extending on-air brands into the world of e-commerce and creating licensing arrangements.[6]

IMAGE:DISCA-Segments2009.jpg[3]

Key Trends, Risks and Forces

  • Consolidation in the Cable/Satellite Television Industries: Discovery Communications must negotiate with cable and satellite television companies for placement of its programming on cable and satellite channels. Consolidation in these industries (such as the 2006 purchase of bankrupt Adelphia by Comcast (CMCSA) and Time Warner Cable) reduces the number of distribution channels available to Discovery. Such consolidation raises cable companies' bargaining power at the expense of Discovery's; additionally, per-subscriber license fees paid to Discovery may be subject to volume discounts.[7]
  • Increasing Fragmentation of Television Audiences: With the proliferation of cable, broadcast, and satellite channels, video-on-demand, and various digital video recording devices such as TiVo (TIVO), cable audiences are becoming increasingly fragmented, with fewer viewers watching each program. Such fragmentation can decrease the amount of original entertainment content needed by any one entity and, consequently, the demand for Ascent Media's services, which aid in the production of such content.[8] Discovery Communications' advertising revenues are also threatened by audience fragmentation. If the number of viewers watching Discovery's programming decreases, so will the value of the advertising the company sells. The increasingly frequent tendency of viewers to fast forward through advertisements further aggravates this decrease in value.[9] Thus, fragmentation of television audiences is likely to have a negative impact on DISCA's profitability.
  • General Economic Conditions in the UK: Ascent Media receives nearly 19% of total revenues from the United Kingdom;[10] Discovery Communications is also quite active in the British market and has a longstanding relationship with the BBC, with which it partners for many of its international ventures.[11] Hence, both general economic conditions in the UK and the state of the cable and satellite television industries there are important for DISCA; a positive environment can counterbalance weakness in the US economy, while recessionary conditions can drag down results.

Competition

Ascent Media

Many major motion picture studios (Walt Disney Company (DIS), Paramount Pictures, etc) can provide the same services as Ascent in-house, which makes them both customers and competitors of the company. Other competitors include:

  • Thomson: A global company whose brands include Technicolor and RCA, Thomson provides a variety of services to customers in the media, entertainment, and communications industries. Thomson has grown at a steady 8.3% over the past few years. [12]
  • Eastman Kodak Company (EK): Kodak is a leading imaging products and services company. Its Laser Pacific division, acquired in 2003, provides many of the same services as Ascent, as do the Cinesite production facilities in Los Angeles and London. [13]

Discovery Communications

Discovery competes with other networks for viewers, both for absolute numbers and narrower demographic categories; because the company acquires some of its programming from third party sources, it competes with other networks to acquire the best programming.[14]

  • Viacom (VIA): Viacom owns the MTV Networks (137 channels including MTV, Nickelodeon, Comedy Central, etc.) and the BET Networks. With $11.5 billion in revenue, the company is much larger than Discovery. It has a smaller exposure to international markets, which have lower margins; furthermore, many of Viacom's reality shows are cheaper to produce than Discovery's programming.
  • E.W. Scripps Company (SSP): Scripps operates in the newspaper, broadcast and cable television, and Internet segments of the media industry; its cable channels include Food network, Do it yourself and Fine living. Due to virtually no international exposure and lower costs of producing home improvement/cooking shows, Scripps' margins are higher than Discovery's.[15]

Competitive Advantage

DISCA benefits from Discovery Communications' Discovery, TLC and Animal Planet brands, recognized worldwide. The company also owns one of the largest libraries of nonfiction video content in the world; the nature of its nonfiction programming is such that it appeals to universal audiences and is simple to adapt to international markets (by dubbing over narration into foreign languages.) [16]

Footnotes

  1. DISCA 2006 10-K Item 1 Business p.I-1
  2. DISCA 2009 10-K pg. 29  
  3. 3.0 3.1 DISCA 2009 10-K pg. 38  
  4. DISCA 2009 10-K pg. 7  
  5. DISCA 2009 10-K pg. 9  
  6. DISCA 2009 10-K pg. 11  
  7. DISCA 2006 10-K Item 1 Business p.II-11
  8. DISCA 2006 10-K Item 1 Business p.I-14
  9. DISCA 2006 10-K Item 1 Business p.I-15
  10. DISCA 2006 10-K Item 1 Business p.II-37
  11. DISCA 2006 10-K Item 1 Business p.I-8
  12. Thomson Corporate Website www.thomson.net
  13. Kodak Corporate Website www.kodak.com
  14. DISCA 2006 10-K Item 1 Business p.I-16
  15. Scripps Corporate Website www.scripps.com
  16. DISCA 2006 10-K Item 1 Business p.I-7
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