By Anne Steele and Steven Perlberg
Discovery Communications Inc.'s profit fell 22% in the latest quarter as revenue remained flat amid foreign-exchange headwinds that continue to drag on the company, which does nearly half of its business overseas.
Revenue and profit fell short of analysts' estimates. Chief Executive David Zaslav said the company faced "challenging but expected headwinds this quarter" and continued to strengthen its traditional pay-TV offering with "robust new programming."
Growth in U.S. distribution revenue for the quarter ended Sept. 30 was partly offset by a 3% drop in domestic advertising revenue, which was dragged down by ratings declines.
Discovery's results come during upheaval for the media industry, as companies involved in TV reposition themselves amid uncertainty about the future of pay TV. AT&T Inc.'s recent $85.4 billion agreement to acquire Time Warner Inc. has raised questions about more industry consolidation, and analysts have long speculated about Discovery as a potential takeover target.
Discovery recently struck a new distribution deal with AT&T, which Mr. Zaslav said will include making some of Discovery's channels available on the coming DirecTV Now streaming service.
AT&T, which owns DirecTV, recently announced that the internet-delivered television service will offer more than 100 channels for $35 a month, an aggressive price point designed to capture market share from rival streaming services. It is unclear how many of Discovery's channels will be in the offering.
As the domestic TV landscape shifts, Discovery, whose assets include its namesake station in addition to Animal Planet and TLC, has been expanding overseas aggressively in recent years and more recently increasing its investment in digital businesses. It operates foreign-language channels including Giallo and Familia, and in 2014, took a controlling stake in the pan-European sports-network group Eurosport.
It has since signed dozens of sports rights deals, from Wimbledon in Belgium to Formula One in Portugal, helping to boost ratings.
On Tuesday, Discovery announced a European joint venture with BAMTech, the streaming media unit created by Major League Baseball that powers many media companies' direct-to-consumer streaming services and apps. Through the deal, Eurosport Digital will become the first client for the service, called BAMTech Europe, which will provide digital video technology to media companies operating in the continent.
On a call with investors, Mr. Zaslav also touted Discovery's recent $100 million investment in Group Nine Media, a new digital holding company that includes NowThis and Thrillist. Mr. Zaslav said that having one large sales team across the digital company was a "real advantage" and that the group has a "fantastic data analytics business."
With a larger slice of revenue coming from abroad, Discovery has had to contend with a stronger U.S. dollar.
During the September quarter, international networks' revenue fell 2.7% on currency impacts, offsetting the 1.5% growth at domestic networks. In the U.S., distribution revenue rose 6.7% to $381 million, while advertising revenue slipped 3.4% to $396 million.
In all, Discovery reported a profit of $219 million, or 36 cents a share, down from $279 million, or 43 cents, a year prior, missing analysts' expectations for 40 cents, according to Thomson Reuters. Total revenue was essentially flat at $1.56 billion, also inching in below analysts' estimates for $1.57 billion. Excluding currency impacts, Discovery said revenue rose 3%.
Discovery's shares fell 2.3% to $25.52 in late morning trading, giving the company a market value of about $12 billion.
Write to Anne Steele at Anne.Steele@wsj.com and Steven Perlberg at firstname.lastname@example.org
(END) Dow Jones Newswires
November 01, 2016 11:48 ET (15:48 GMT)
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