A slightly longer and more thorough version of the article can be found here.
Introduction
Discovery, Inc. (DISCA, DISCK) is an unscripted champion with target market niches of highly regarded brands and programming. Content creation and distribution are in upheaval, and that’s why it’s so cheap based on price to fundamentals. I think Discovery’s segmented channels and unique audience verticals offer an advertising and distribution paradise both for viewers who love its content and advertisers trying to reach target audiences. The road ahead for Discovery won’t be easy, but the cash flows being produced and the opportunities to benefit from a new, evolving industry equilibrium look lucrative.
Discovery, Inc.
Discovery is a content creation and distribution company. It has 4 billion worldwide subscribers in 220 countries and 50 languages. It consists of pay television channels, free to air and broadcast channels, the GO application (allowing viewers to watch content direct), other digital distribution. Discovery has been pushing for years to own intellectual property, giving it greater control over its destiny. Discovery breaks its business into U.S. and International Networks. I’ll describe Discovery’s largest and highest profit segment first, U.S. Networks, which also happens to face the strongest headwinds.
U.S. Networks
U.S. Networks generated $6.4 billion in revenue in 2018 and $3.5 billion in adjusted OIBDA (operating income before depreciation and amortization), which are 60% and 85% of the total business, respectively. 39% of that revenue is distribution, 59% advertising and 2% other. Advertising is the key revenue stream in North America. All of Discovery’s channels are available on the Go application except the Oprah Winfrey Network. Discovery's U.S. Networks include:
- The Discovery Channel has 88 million U.S. subscribers, down 3.3% year over year. The channel targets the 25-54 demographic, particularly men.
- TLC has 86 million U.S. subs, down 3.4%. The target audience is
