In this segment fromMarket Foolery, Chris Hill and Simon Erickson look at the international growth of Discovery Communications' (NASDAQ: DISCA)various channels. It may not be the biggest media name in the U.S., where its viewership has declined slightly, but its global footprint -- especially in Europe -- and its digital streaming plans make it an intriguing player in the industry.
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A full transcript follows the video.
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This podcast was recorded on Feb. 14, 2017.
Chris Hill: Let's start with fourth-quarter profits fromDiscovery Communications, whichcame in a little higher than expected. When you'relooking at media companies,I think it's safe to say that the thesis for Discovery Communications,as much as anything, is this is a global play. If youlive in the United States and you have cable, you'refamiliar with at least some of their networks -- Animal Planet, TLC, theDiscovery Channel, that sort of thing. But when you look at the global footprint of whereDiscovery Communications operates,I think that's part of the thesis, isn't it?
Simon Erickson:Absolutely,it is. I think that's probably whatinvestors are looking at for this company right now. Like you said,there's some definitely established channels here in the United States. We actually saw aslight decline in U.S.subscribers. So the real story here is that international growth. The one thatreally sticks out for me, Chris, it's actually in Europe of all places. Discovery Communications hasEurosport,which is kind of broadcasting live events. They have done Wimbledon. They've done Formula One. They've donea variety of other events. Typically not soccer, because that's expensive, but otherlive sports in Europe. And they've got theexclusive rights for the Winter Olympics of 2018, tobroadcast nearly 740 million peopleacross in Europe. Great, right?
Erickson:Butthe other thing that's really interesting to me is,there's various ways that you can reach people. They're going to,of course, do the free network TV. They'regoing to do some other paid TV events like that. But the thing that's interesting to me is the over-the-top offering, thedigital streaming that they're going to be doingin the next few years. They're usingBAMTechtechnology to create this. We know BAMTech becauseDisney is also working with them for live sports here in the U.S.Discovery is using them in Europe. They have the guy fromDirecTV. They built out theNFL Sunday Ticket,incredibly successful here in this country.
Hill:I was going to say ...that's a nice thing to have on your resume.
Erickson:Yeah,the right guy on the right project. I think that more and more,you and I talk quite a bit aboutwhere the media industry is heading. It's not just that linear free TV anymore, butstuff you could watch at any timeover computer andhave it streamed directly to youfor a certain price.
Hill:I want to go back to the first point you hit, which is decliningsubscribership in the U.S. Nice reminder that, for all of the headlines that Disney hasgotten over the last 18 months aboutthe falling subscribership of ESPN,this is a nice reminder thatit's not just ESPN. Whenpeople are cutting the cord, it's also affecting companies likeDiscovery Communications.
Erickson:Absolutely. The subscriber numberis only one piece of this puzzle. As thatcontinues to evolve over time,you can't just look at that and that's the only thing that you're following as aninvestor, there's a lot of other things going on, too. Andlet's not forget currency, too. A lot of this is revenue that's generated overseas. When youtranslate that back to a strong dollar in U.S. dollar,it doesn't look, sometimes, as strong as it really is out there.
Hill:Where is this stockin terms of its valuation? This is a good quarter,but I think the declining cable subscriber numbermight be a little bit of why we'reseeing the stock fall 2.5% today. That'snot a big drop, and this is a stock that was trading near a 52-week high. But it's really been in the $20's for a year now,and I'm just wondering if it's pricey,if that has anything to do with the drop today,or if it's really all just about the cable subscribers?
Erickson:Well,I mean, a $13 billion valuation for a media company -- that's asmaller media company than the juggernauts -- but obviously larger than a smaller regional one would be oranything like that. So, Istill think it has room to run, Chris. I think a lot of that over-the-top anddigital streaming stuff really isn't priced into the stock at this point, but we stillneed to continue to see them gain traction on that,especially with that Eurosport in Europe.
Chris Hill has no position in any stocks mentioned. Simon Erickson has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.