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Discovery looks to add food to its streaming service menu

Discovery Inc. is looking to further diversify its nascent streaming business, eyeing opportunities within the culinary category in particular.

Speaking on the company's Aug. 6 earnings call, Discovery President and CEO David Zaslav said the programmer continues to "actively look at the food and cooking space" and the CEO plans to provide updates "about our plans in that category over the coming months."

He also offered updates on Magnolia, the new joint venture with Chip and Joanna Gaines, the renovating couple from the HGTV (US) series "Fixer Upper," which will yield a cable network and a streaming service down the road. Zaslav said things are going "terrifically well" here, with plans calling for the 2020 launch of the cable network via the conversion of the DIY Network (US).

SNL Image"Fixer Upper" series
Source: Scripps, now part of Discovery

Progress is also being charted with the company's upcoming natural history-oriented streaming service, which will feature content from Discovery's portfolio and BBC Studios through a partnership. It is slated to bow next year.

Discovery believes that unlike other streaming services centered on scripted programming, the company’s lifestyle, factual and sports fare lend themselves to curation and, ultimately, purchases.

"Our content has subscribers, but they can also transact," said Zaslav. "That's true in foods; it's true at home; it's true in golf; it's true in cycling." Notably, Discovery owns various properties that speak to enthusiasts who follow each of those categories.

Relative to 5G, Discovery is having discussions with "everyone." Zaslav said "the Holy Grail" is to aggregate passionate audiences globally, then have them "hit a button" and make related purchases quickly and easily.

"We're working real hard on it, and stay tuned," he said.

CFO Gunnar Wiedenfels told analysts on the call that the company’s various direct-to-consumer investments will have an approximately $300 million to $400 million impact on operating income before depreciation and amortization in 2019, depending on the timing of the outlays.

Discovery's total revenues improved 1.4% to $2.89 billion from $2.85 billion in the second quarter of 2018. Excluding the impact of foreign currency fluctuations, total company revenues during the three months ended June 30 would have increased 4%.

U.S. networks' revenues increased 4.5% to $1.86 billion, behind a 5.5% rise in advertising revenues to $1.15 billion and a 5.2% gain in distribution revenues to $688 million, offset by a $14 million decline in other revenues tied to the sale of its education business.

The advertising uptick stemmed from higher pricing and additional inventory and continued monetization across digital platforms, countered to some degree by lower overall ratings and audience declines in aggregate across the linear portfolio.

Relative to distribution, revenues grew from higher affiliate rates and carriage on streaming platforms, countered by a 3% decline in overall portfolio subscribers. Fully distributed networks were flat during the period.

International revenues declined 2.9% to $1.02 billion. Advertising revenues were off 2.9% to $1.02 billion, while distribution revenues decreased 2.6% to $1.05 billion. Excluding the impact of foreign currency fluctuations, revenues increased 3%.

Net income available to the company totaled $947 million, or $1.33 per share, up from $216 million, or 30 cents in the prior-year period.

The company said the increase in net income was a result of higher operating results and a one-time, noncash tax benefit recognized in the quarter. Discovery carried out a number of internal restructurings across several areas within the international networks segment. The net effect of these restructuring activities was a one-time, noncash income tax benefit of $455 million from the recognition of a deferred tax asset.

The S&P Global Market Intelligence GAAP EPS consensus estimate for the quarter was $1.33 and 98 cents on a normalized basis.