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Olympics rights-holder Discovery monitors coronavirus and ‘follows IOC’s lead’

Discovery, the US-based media group that holds Olympics broadcast rights across Europe, has said that it is closely following the potential impact of the coronavirus outbreak on this summer’s Olympic Games in Tokyo.

There has been heightened focus on the viability of the Olympics taking place as planned in Tokyo since an interview given at the start of the week by Dick Pound, the long-serving International Olympic Committee member.

Asked about the impact of a cancellation of the Games on Discovery’s costs and revenues, Gunnar Wiedenfels, chief financial officer, told investors and analysts today (Thursday): “On this issue we’re monitoring it closely. We are following the IOC’s lead and that’s about all we can do. At this point we’re continuing to prepare for the Olympics and clearly we’re looking internally at scenarios.”

Pound told the Associated Press that he felt there is a three-month window to decide whether the Games will proceed as planned in Tokyo.

Tokyo 2020 is scheduled to run from July 24 to August 9, but a slew of other major sporting events have been postponed or cancelled as the coronavirus continues to spread internationally. It emerged today that the World Health Organisation is advising the Tokyo 2020 organisers, which reacted to Pound’s comments by saying that its “basic thoughts are that we will go ahead with the Olympic and Paralympic Games as scheduled”.

Discovery, which owns pan-European sports broadcaster Eurosport, holds the rights in Europe (with the exception of Russia) in a €1.3bn ($1.4bn) contract that runs from 2018 to 2024.

Discovery took out protective insurance “a long time ago”, the media group said today. On the potential for a cancellation of the Games or contingency plans being put in place, Wiedenfels claimed that, “rest assured that it’s not going to have any adverse impact on our financials”.

Expanding on that, he remarked: “Clearly the top-line number would change because there is a contribution, but so would the expense line”.

JB Perrette, president and chief executive of Discovery Networks International, added: “We’re prepared and we’re ready to go and we’re excited about going…we feel like it should be a positive for us and if it doesn’t happen then we’ll update you but it won’t be an adverse impact on our financials.”

Commenting generally on the broadcast plans for the Games, David Zaslav, Discovery’s president and chief executive, noted: “We are within six months of broadcasting our second Olympics across Europe and across all screens. This is our first Summer Games and we’ll have three times as many events as the Winter [Games].

“Our teams have been hard at work preparing for the challenge. We are excited to outdeliver the amazing set of Games we delivered in 2018 [at PyeongChang], supported by vast improvements in our technology, programming expertise and the delivery platforms.”

Full-year financial results

The Discovery executives were speaking as the group presented its fourth-quarter and full-year financial results.

International Networks, the business unit that houses assets including Eurosport, reported full-year revenues of $4.04bn (€3.63bn), a 3-per-cent year-on-year fall. International Networks’ full-year adjusted operating income before depreciation and amortisation (OIBDA) dropped by 2 per cent cent to $1.06bn. Excluding foreign currency effects, the figure rose by 8 per cent.

Full-year advertising revenues at the International Networks division totalled $1.8bn, a 2-per-cent uplift (or 8-per-cent increase excluding foreign currency effects). Distribution revenues were just under $2.1bn, a 1-per-cent rise (or 7 per cent excluding foreign currency effects).

International Networks’ fourth-quarter revenues were $1.12 billion, up 3-per-cent. This was comprised of $546m in advertising revenues (up 2 per cent), $531m in distribution revenues (up 5 per cent) and $42m in ‘other’ revenues (down 9 per cent).

Providing some detail on the full-year figures, Discovery said: “Pro forma combined ex-FX advertising growth of 4 per cent was primarily driven by the consolidation of the UKTV Lifestyle Business, growth in our direct-to-consumer initiatives, and, to a lesser extent, higher pricing in certain European markets, partially offset by the impact of the Olympics in 2018.

“Pro forma combined ex-FX distribution growth of 5 per cent was primarily driven by content licensing arrangements, higher affiliate rates and new channel launches in our Latin America business unit, higher affiliate rates in Europe and monetization of direct-to-consumer initiatives in Europe and Asia.”

Ahead of the PyeongChang 2018 winter Olympics, the first covered by Discovery’s landmark rights contract, OTT service Eurosport Player passed the one-million subscriber threshold. Discovery announced swiftly afterwards that Eurosport Player and (fellow OTT platform) Dplay added nearly 500,000 subscribers during the games. However, many of the subscribers are likely to have signed up for a free promotional offer and may not have been retained.

Full-year 2019 revenues at Discovery’s US Networks division rose by 12 per cent to $7.09bn. The figure includes advertising and distribution revenues of $4.2bn and $2.7bn, respectively.

Commenting on the 2019 financial performance, Zaslav said today: “2019 was a year of promises made and promises delivered. We achieved more than $3bn of free cash flow and brought leverage down to the low end of our target range of 3-3.5 times net debt to Adjusted OIBDA.

“Our differentiated local content strategy and global scale, coupled with our unique free cash flow conversion profile, provide distinct financial flexibility that allows us to adapt to changing media consumption habits. Our Board’s confidence in our strategic direction is highlighted by the recent authorization to repurchase up to an additional $2bn of our shares.”