Q2 2020 Discovery Inc Earnings Call

[music].

Ladies and gentlemen, please standby your call for coal begin momentarily. Thank you for your paycheck simply standby.

[music].

Ladies and gentlemen, thank you for standing by and welcome to the discovery Inc. second quarter 2020 earnings call at this time operative complying with can only nine.

After the speakers presentation, there will be a question answer session [laughter]. During the session you will need to press Star then one of your telephone.

Please be advised that today's conference maybe recorded if you require any further assistance. Please press star then zero.

I'd now like they have a conference I, what's your speaker today.

Andrew Sleven Executive Vice President Global Investor strategy, Sir you may begin.

Good morning, everyone. Thank you for joining us for discoveries Q2 earnings call. Joining me today, our David just loves our President and Chief Executive Officer, and Gonna be themselves, our Chief Financial Officer, you should have received our earnings release, but if not feel free to access it.

Website at Www Dot corporate touched every day.

Today's call, we will begin with some opening comments from David and Theater and then we will open the call to take questions before we start I'd like to remind you that comments today regarding the company's future business plans prospects and financial performance are forward looking statements that we make pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995, you said.

Mr made based on management's current knowledge at assumptions about future events and they involve risks and uncertainties that could cause actual results to differ materially from reputations.

Nobody projections and other forward looking statements the company disclaims any intent to obligation to update them.

Additional information important factors that could affect these expectations. Please see our form 10-K for year ended December 31st 2019, and subsequent filings made with the U.S. Securities Exchange Commission and with that I'd like to turn the call over to David.

Good morning, everyone and welcome to our Q2 earnings Conference call.

Last quarter, we noted that these uncertain times highlight unique competitive advantages that distinguish us from many of our peers.

Strategically creatively operationally and financially.

We benefit from content leadership in core genres that are relevant popular and durable.

An efficient low cost content production model with a long tail and global appeal.

Sure production cycles that allow for quick content development.

The most international and diverse mix of assets platforms in brands.

And among the most crusted family friendly brand portfolio at all for say environments for advertisers.

And while our relentless focus on content that nurses in the lights off France has always been our north star.

Its impact couldn't be more significant than it is right now.

In a world that offers viewers greater choice than ever before across an increasing array of delivery platforms.

And added competition for viewers time, more and more viewers are choosing to spend time with us.

Everywhere around the globe.

It's emblematic of our differentiated model.

At a time when most broadcasters in networks have been relying on tied repeats and reruns of scripted shows.

We brought over 1000 hours of fresh original content to our networks since the world shutdown due to colder.

It's been cost effective creatively shot and produce and well received.

In fact, Amy Schumer learns to Cook, which was shot from home for food network was nominated for a primetime Emmy.

But most importantly, our ability to continuously refresh and update our IP.

Further adds to the strategic value of our global IP Library.

Particularly as we drive our content increasingly direct to consumer.

And this attraction increases to others during a time when nearly all platforms will acquire more and more depth of content to attract delight and maintain subscribers.

Our content is differentiated in the marketplace and is a great consumer complement to others.

The appeal of our I T continues to increase in United States. This last quarter.

Even though we do not own a broadcast network. We were the number two portfolio on all of linear TV in total day, among our target demos.

And we grew our number one share of pay TV.

Well internationally building off Q1 success, we grew our record high share another 4%.

Despite not having any sports.

And helped by Tailwinds from our global brands.

As well as impact of our local content offerings.

The impressive ratings and share narrative couldn't be happening at a more critical time.

Particularly as we put finishing touches on bringing an aggregated direct to consumer product to the market here in the United States.

And enhancements to our SBO de offerings like de play in many markets around the globe.

The details for which we look forward to sharing in the very near future.

We believe there exists a great opportunity to reach the growing quadrant viewers, who either don't have access to our brands and content.

Want to consume content out of the traditional video ecosystem.

And informed by the growing engagement of authenticated an authenticated viewers to our go platform here in the U.S.

We remain excited to hit the ground running.

Underpinning all of our efforts as a financial model that is super solid.

We generated a Q2 record of nearly 900 million a free cash flow.

Well some of the growth was driven by timing factors.

The performance is emblematic of the efficiency of our model.

The resiliency of our cash production.

We remain a free cash flow machine.

Having ended the quarter was 1.7 billion in cash on our balance sheet.

Minimum debt due over the next three years and an Undrawn 2.5 billion revolver.

We're pleased to now resuming our equity buybacks at what we believe represent very attractive levels.

We're pleased to be able to bring long term value to our shareholders by investing in our future growth prospects as well as return capital to shareholders even in the current environment.

Yeah.

We recently completed important renewals with four major distributors in the first half for 2020.

Cox charter Comcast and Sky.

And we are pleased with both the value, we are receiving and delivering within the traditional distribution ecosystem.

We view these renewals as mutually beneficial.

And help us in efforts to further develop our next generation direct to consumer offerings.

Drawing upon the stability of our distribution profile in linear and increased flexibility for next gen products.

Turning to the advertising marketplace from a high level regarding called.

It feels like the advertising markets have largely bottomed and the worst is behind us.

Though I would caution that visibility still remains relatively limited.

April was a low in the U.S., but the nice recovery in May and June.

Well internationally with some regions like lot Tam still searching for a bottom we've seen a noticeable return of advertisers spending money against the TV marketplace, where economies have increasingly a gun to open.

Particularly in Europe.

In fact, a number of markets in EMEA, such as Poland in Germany, two of our largest and most important advertising markets are experiencing a much faster recovery and we thought against our internal projections.

As I noted, we continue to grow share internationally.

Both for the entirety of our international marketplaces, as well as the top 10 advertising markets each up 4%.

We saw a particularly strong growth from our locally focused free to air channels, notably in Italy, with giant and in the UK with really and quest.

As well as continued momentum at age G food TLC discovery and de Max.

Our efforts from day, one post the scripts merger to further drive their lifestyle brands around the globe has also proven to be an important element of our share story.

This quarter HKG in food became our number three and the before global brands by audience up 160% and 50% respectively. In the quarter helped in part by continued new channel launches.

From a ratings perspective here in the U.S., we were led by TLC, which is a number one network across all of TV on Sunday nights and solidified his position as the number one pay TV network across all of Prime time, among our target female demos and.

Back TLC delivered the biggest primetime gains this quarter for any non news network among the top 25 units.

The network is on fire.

And Howard Lee and his team continue to innovate with content that resonates with audiences around the globe.

Overall into Q, we own for top 10 pay TV channels in prime time.

In P., two plus and total viewers.

Ill see HKG discovery and food.

Which means that when people were watching the news.

Eurs chose to spend time with us.

Turning to the upfront well without a doubt this isn't unusual upfront market.

No one has as much momentum as we do.

We have fresh content ratings tailwind the hottest network Barr Nunn with TLC and an exciting clearly anticipated new network soon to launch with the Magnolia network.

All underpinned across verticals that uniquely resonate.

With advertisers.

Collectively we offer appetizers and even greater reach than our broadcast peers.

Particularly in the coveted 25 to 54 demo having out delivered each of our broadcast competitors on C. 95% of the nights in Q2.

Quite an accomplishment put discoveries networks in the aggregate to provide more reach 95% of the time than our broadcast peers.

In addition, we had longer length of view.

And time spent on our networks.

As such given the glaring discrepancy in CPM pricing.

While we have broader reach and delivery, we continue to lean into package, our content to drive greater share of wallet spend in the upfront and and scattered.

And market challenges notwithstanding this year I feel our hands has never been stronger than it is right now.

Given the full Arsenal and complement of our nets that we have to offer.

And how well, we aligned with advertisers and brands, particularly when eyeballs are scarce.

US whether in the upfront or in scatter who worked closely with our advertising partners as we always have.

To offer a real differentiated value.

Fresh value in the marketplace.

Building on this stress and as I noted we couldn't be more excited about our plans for the Magnolia network, which is coming into focus chip and Joe a hard at work on 36 originals 14 of which are already in production.

And I truly couldn't be more thrilled that just yesterday, we announced that fixer upper.

It's coming back.

To the light of so many viewers and advertisers and all the new episodes will be exclusive to our network.

We hope to pick up right, where we left off.

During the final season, then astounding 75 million people to get including 20 million people on an average weekly basis.

As for distribution, we naturally won't be immune from subscriber churn.

Finally in cases, where it's driven by economic pressures, though we remain well represented maybe the best representation of anyone across the V. and bpd landscape in the U.S., where there continue to be pockets of strength.

Such as from filed offering a more affordable entertainment only true skinny bundle.

In fact follow has had great momentum topping 700000 subscribers double where they ended 2090.

And our recent renewals provide us with a healthy pricing backdrop to help mitigate revenue impact from subscriber churn.

Outside of traditional bundle, we continue to enhance our portfolio global Avon and that's faade content and lifestyle platforms.

Lastly, while there are still a number of kobin related uncertainties that we are addressing head on I remain enthusiastic about the strategic course, we are on.

Behind an increasingly relevant global portfolio of assets and passion verticals and the addressable market opportunities that we see unfolding broad nexgen products.

Moreover, the financial backdrop that underpins our ability to navigate and invest against these remains on solid footing.

I'd like to once again, thank all hardworking employees for their dedication and resiliency in this most uncertain time to deliver an outstanding product on a global scale.

And now I'd like to turn the call over to garner.

Thank you David Good morning, everyone. As David noted, we continue to operate under less than optimal conditions around the globe. However, I remain very pleased with how our organization has adapted and evolved in the face of current uncertainty and limited visibility.

The benefits of a dual revenue stream model are apparent, particularly long term contractual subscriber base distribution revenues, which I'm pleased to report we continue to renew with solid pricing and mutually beneficial terms with our partners.

This highlights not only the tremendous value of our content on the linear platform, but also supports the evolving nature of how we may reach audiences on a D to C basis I'm looking forward to discussing our plans with you in greater detail in the near future.

And even as we continue to invest to support these initiatives the efficiency of our operating model has never been more critical or more apparent.

While there were some timing related benefits. Most importantly from a decreased content spend particularly on the late sports events, we achieved our highest free cash flow in the first half here in the company's history.

Consequently over the trailing 12 month period, we have again generated $3.1 billion and free cash flow in an environment when global at sales were down 11% ex FX and the first half and down 20% ex FX the second quarter.

Ill provide some modeling help on the cadence or free cash flow drivers and content spend specifically shortly.

In the U.S. advertising decreased 14% year over year in an environment characterized by overall weaker demand stemming from cold weather related issues, though while demand was weaker we were able to hold firm on pricing and our overall cpms for the quarter were up mid single digits year over year.

Scatter pricing was solid up 25% above last year's broadcast upfront.

Interestingly much of the movement of dollars initially out of the upfront commitments and then later bought back into scatter ultimately return at a higher pricing.

Also in a number of cases, we extended the content like the bar shows.

We were pleased to primetime delivery across the portfolio was flat year over year in our target demo during the second quarter versus the rest of pay TV down in the mid teens.

As expected April was the toughest month in the quarter that present appears to have been the trough with both may and June on average much stronger week to week and even month to month, while the trend line to still side. The regular it is indeed, pointing in the right direction.

That point and bearing in mind that we haven't closed the books on the month. Our latest estimate is that July will be down in the low teens year over year, the sequential improvement over second quarter.

That said with the return of major League sports in the U.S., We may see some shift that dollars away from our verticals.

Additionally, we continue to remain cautiously optimistic and mindful of the pace of recovery in the U.S. given the resurgence of the pandemic in parts of the country in recent weeks.

Distribution revenues increased 7% year over year, including a 500 basis points benefit from a nonrecurring items.

The underlying year over year growth rate was 2%.

Formans was impacted by a 5% decline to our fully distributed networks and 7% decline to the total portfolio a slight acceleration from the first quarter, which we had expected as we left the you to deal during the quarter in April.

We continue to foresee subscriber declines for our fully distributed networks to be more or less in line with industry trends.

Now turning to international and know the following commentaries provided on a constant currency basis.

International advertising decreased 37% year over year, given cobot related demand weakness around the globe.

Across the three main international territories Asia Pac how our smallest region began to stabilize towards the end of Q1 EMEA. The largest appears to have bottomed and stabilized during Q2, while that Tam. Unfortunately may not have bottomed yet.

Again by the level of visibility is still reasonably opaque we are increasingly encouraged by the pace of recovery in a number of key territories, particularly in email.

In countries, where cobot is reported to be better under control and steps taken to further open up we have seen a sequential resumption and the pace of TV advertising.

While we still don't know to what extent sports will resume and the second half of the year based on our latest estimate DNA advertising in July is estimated to be down high teens year over year with Europe slightly better than that well that Tam is down significantly more.

Overall like him to U.S. this points to further sequential improvement in July 1st at the end of the second quarter.

[noise] distribution revenues decreased 2% year over year impart impacted by little to no sports programming in the quarter across our various platforms Eurosport player Gulf TB and certain premium de plate tiers as well as the previously noted impact from our more aggressive stance to drive DTC distribution in countries such as Denmark.

Worth noting is that we recently exited our agreement with the German football League for the fourth and final year, if the Bundesliga while beneficial to a little bit had we not distribution revenue would have been meaningfully higher this quarter. This comp will exist for the next three quarters.

Now turning to cost.

Total operating expenses were down 10% year over year ex FX and the second quarter, resulting in a little bit the margins that were relatively flat.

Total cost of revenues declined 12% ex FX in part due to the timing of sports costs, we recognize very little sports rights costs during the quarter approximately 35% of what we recognized last year as a result with the shutdowns.

Many of the events have been deferred to the second half of the year rather than being canceled as such we will be recognizing those expenses and sports resume in what admittedly looks to be rather condemned schedule in Q3 in Q4.

Outside of sports, we realized modest savings across traditional content spend while continuing to invest in content and rights gear to our next generation initiatives.

[noise] overall as you need decreased 8% ex FX largely helped by lower marketing spend.

As we continue to lean in on our next generation initiatives, we expect marketing spend will begin to pick up both to build awareness and for continued performance marketing.

He had to he was also minimal during the quarter as the vast majority of our employees continue to work from home and travel was virtually stopped.

As we continue our office openings around the globe and employees returned to more of a business as usual cadence inclusive of travel incremental spend should be expected, though it is reasonable to envision this returns rather slowly.

We continue to take the necessary steps to align our overall cost structure with the changes that are taking place within the TV ecosystem.

The evolution of the transformation, we began in 2018 following our merger with scripts.

Though as we continue to refine and broaden our next Gen strategy savings from our continuing focus on operational efficiencies will primarily be redeployed towards these initiatives.

I continue to expect total full year operating expenses to be flat year over year on a constant currency basis slightly lower in the first half slightly higher in the second half given the more condemned sports schedule and content investments that I previously laid out keep in mind for modeling purposes that to the extent sports to resume unfold, we expect to compressed.

Really an entire calendar year into two quarters at a time when the advertising market. So improving in Europe is still in recovery mode.

We continue to expect a core business opex will be down mid to high single digits year over year offsetting the increase spend for growth initiatives.

A couple of comments on below the line items for the second quarter first our effective tax rate for the quarter was 34% primarily due to withholding taxes outside of the U.S. that are calculated for the year and spread evenly across quarters. We expect that the book tax rate, we'll finish the year and the low to mid 20% range.

[music].

Second.

Additionally, in conjunction with the debt that we tendered during the quarter, we recognize the 71 million dollar or eight cents per share net of tax debt extinguishment charge.

Adjusted EPS for the quarter was 77 cents after adding back purchase price amortization.

Excluding the aforementioned debt extinguishment charge adjusted EPS would have been 85 cents per share in the second quarter versus one dollar per share last year on a like for like basis.

FX was approximately a 40 million dollar drag to revenues and the 15 million dollar direct mail going out in the second quarter for the year based on current rates, we expect effects to have a negative 35 to 45 million dollar impact on revenues and a negative 25 to 30 million dollar impact when they open it up.

Turning to capital allocation as you may have notice in our earnings release. This morning, we are pleased to announce the assumption of our capital returns to shareholders fire share repurchases were $1.8 billion remain outstanding on our authorization.

As for the end up the second quarter as David mentioned, we had $1.7 billion a cash on hand as a matter of fact as for the end of July one month into the quarter that balance has grown to over $2 billion plus of course, two and a half billion dollars of undrawn revolver commitment and very little debt maturing over the next three years following our successful refinancing measures around.

We ended the year.

As always we will be tactical and flexible regarding any repurchases. However, the sensible construct to consider as you're thinking about the cadence of our activity what center around us allocating roughly 50% up our free cash flow to share repurchases for the time being.

That said, our overall capital allocation priorities have not changed switch having properly never at the company as reflected by our commitment to investment grade ratings and number three to three and a half times target net leverage range, our to number one invest and support our core business to drive future growth number to evaluate inorganic growth opportunities such as strategic M&A.

If presented with attractive opportunities and where it makes sense and number three return residual capital to shareholders.

And now with that I'd like to turn it back to the operator for questions.

Thank you ladies and gentlemen, if you have a question at the time. Please press star how about the number one key on your Touchtone telephone.

Yes, it has been answered or you wish to move yourself from the Q. If that's the town key once again to ask a question. Please press Star then one now.

And I first question comes from Stephen call from Wells Fargo. Your line is open.

Thanks, So I'd love to talk about the medium term outlook for U.S. affiliate revenue growth in light of some of the accelerating some declines a you've had a pretty good kinda industry, leading affiliate growth rate. So I was wondering if you could just give you know sort of the longer term outlook about how you're thinking about your ability to keep getting price on when your deals versus those.

Declines and that related Lee a big part of the country now is not subscribing to the linear but also how are you thinking about taking Mac content I'm kind of more direct to consumer. Thanks.

Thanks, Steve.

Well, we just did as we said four big deals I'm curious to hear in the U.S. The good news for US is our content is usually overperforming.

They're not so good news for US is that our content is cheap.

And so we've been able to get increases I believed that we should be getting significantly more for our channels.

Well, we have the number one channel in American TLC, where we're number two or three in America for women aside from the news networks. You know you look at food H. GE own TLC I'd, you know that our portfolio is extraordinarily strong and growing.

With characters and brands the people love and they watch these channels like they watch Fox News all day.

So we're taking that into the upfront, but as we sat down with distributors. They recognize that we're providing huge value. They make a lot of money by selling them. So I expect we'll continue to do a quite well in renewals that come in the future, but right now we're very stable and we're very happy about that so we can get on.

With getting off.

To your second point, which I think there's an important one is that there are 30 million subscribers or more maybe 33 that are broadband only.

There are a lot of people that want to watch content with.

With no commercials.

And there were some strong players out there that are built a great road to this direct to consumer business and we think we can get on that road, Netflix and Amazon and Disney plus it was hard work building behavior Lady that road of getting people to pay for content.

And Gestationally you know, we're now like in the third or fourth inning and people are comfortable with that but those services are all scripted series and scripted movies effectively they built a road and they all have great sports cars fantastic and their beautiful scripted series and scripted movies.

We have a new s. UBI.

We will be coming to you very soon with more detail and exactly how we're going to roll it out, but our FCB is filled with large free lodged fresh content.

A huge amount of original content and it comes at a time when people have been because of quarantine.

Consuming and consuming Netflix and Disney plus an Amazon and Hey, what's on these different aim bought an S. Vod services and they've been picking adamant taken Adam and picking out and so we think we will launch with a differentiated service. This new asked you be which people will unlike a lot of these others products don't.

Yeah. This is its use it'll be useful everyday.

All the time it'll be dependable all the time.

And your your friends and all the characters that you love, which really differentiates us fit in this new product assess UBI, there's plenty of room for everyone. All the characters that you love your favorite brands.

It'll be a great value.

And the most important thing is it's going to be a terrific companion.

We think we got a great lane, it's almost like that lane as ours. If you haven't that's what's if you have gives me plus if you have Amazon if you have any video product who wouldn't want.

What we have been surprised it's what most women in America watching all the time.

And then you add to that discovery, the BBC and all the planet Earth content, all the environmental and animal planet content. So you have the most compelling high quality content for women and men.

That people can watch anytime in the background you know their favorite characters their favorite brands together with the definitive collapse in the World book effectively.

In the science natural history and environment Ariad I think when you put those two together.

We pretty great alone and were pretty great with everyone else and the road is there for us and we'll be giving you a little bit more detail, but we're going to be hitting that road very soon.

Sounds good can't wait to take the have to be offered.

Yeah, Let me let me just add one thing going on here on the on the affiliate question, Steve. So a couple of points I want to make number one as you know a we have a very clean affiliate number and that's why we point out when there's a sort of special effects like in this quarter. The underlying number is 2% if you combine that with a 5% or some decline for them.

So you know the industry essentially and our main made part of the portfolio. Then you get to sort of you know the implied up pricing number as David said, we're pretty happy about how those deals have gone no visible trend change here when it comes to pricing the big after that we don't control of course is some declines so we'll see how that.

Oh that turns out overtime and then there is going to be an increasing contribution both in international and the U.S. from a from DTC subscription revenues and again thats, a little more difficult to find out but you should have.

Started assuming some some positive contributions over time.

One more for its Steven because the focused <unk> generally.

Here in the U.S. tends to be the U.S., but we all the number one global media company outside the U.S. leader in sports leader in the aggregate local content that we have in every language and I just laid out what our strategy is here in the U.S. and we'll be talking to you exactly about when we're coming to market, how we're doing it.

Exactly what it looks like which is very exciting but outside the U.S., we have a very compelling differentiated strategy as well.

Local content local sports, so Netflix and Disney Fantastic services, they're coming over the top primarily U.S. Eventually you know Netflix has a little bit a local Disney we'll have some local others will do a little bit of local but where local content local sports. So we think that differentiated.

Above the globe attack outside the U.S. local language local sport.

Very strong very differentiated in the U.S. very differentiated a great companion great content, great brands, great characters, great original so we we like our hand.

Great. Thank you.

Thank you.

Question comes from Doug Mitchelson from Credit Suisse I had hoped.

Hi, Good morning, this is making their can standing in for Doug.

I wanted to see if you could talk a little bit about the progress of food network kitchen any update on Sab's post the Amazon promotion, how much is it contributing to advertising is there any E commerce revenue coming in and any learnings there.

And I have a follow up for great.

Great. Thanks, well look everything that we've done we've been in the direct to consumer business for the last couple of years with the Eurosport player with deep play with food network kitchen.

And each one of them we've learned we fall down we picked ourselves up what are people like what do they want more of how do we create a product that people love every month to reduce churn how do we get partners to help us partners to help us is hugely important being having Amazon together with us built into echo.

There is there's a there's there's a huge number of people that are on fire TV that Amazon is pointing to and driving how do we get those people to convert to be food network kitchen subs, what does Amazon do what do we do how effective can amazon be as a partner in and in driving free funnel subs and pay subs all of that is.

<unk> said, we're learning it's very it's going to be very helpful. To US same is true across Europe, as we're getting distributors to align with us and have gotten distributors to align with us and driving or driving de play in our direct to consumer products. So it's going well.

We're learning a ton from it we get to talk directly to customers and you know as we as we lap as we roll out our our big aggregate attack in it which will take you through in the near term will.

At that point, we'll figure out what other details on some of our vertical products will get.

And then on a follow up for good or if you can just give us a little bit more color on exactly where we're going to see the investments flying through the model is it going to be U.S. International a combination of both.

Yes, so it's going to continue to be a combination of both I mean as the as David said, we're increasing and looking at the U.S. markets. So if you look at last year. The majority was hitting international you should assume that that's going to be a bit more balanced mix. This year other than that we had got given guidance or initial.

Yes, we went into the year.

On our investment levels, you know I know, we have attracted guidance, but we have continued to invest and I I continue to expect us to keep investing.

Pretty much a similar level as what we originally guided to roughly $600 million losses from those Ah from those new investment opportunities for the year.

Okay. Thanks, guys.

Thank you.

Your next question comes from just a race early from Bank of America Security. Your line is open.

Thank you in.

Three quick questions on can you talk about what you're seeing and pay TV subs outside the U.S. did they called that out on their earnings call yesterday.

Second.

Question, you had amazing cost control I know going are you said, it's flat on a full year basis, but when you. When you look forward can you point parse out how much of these.

The cost containment, okay or decreases how much is permanent and how much. It's just deferred costs or do they have to sound like T. Any in sports and then finally, David you mentioned advertising the upfront.

Talk about the process now and expectations as well how are you selling definitely targeting different metrics are you doing more addressable advertising and what's the new timeframe for for the upfront is it the broadcast here or are you going to a calendar year. Thanks.

Okay, why don't I start with the upfront and then going or why don't you take the metrics on international and cost control.

Yep front.

I would have been over in a normal year and so there's it's a bit of a dance, but the market has gotten has really picked up it's getting better I think the in terms of the upfront I think we have the best hand.

We have original content, we're continuing to produce original content most of what you're going to see.

Right now from US is very dependable, a fully engaged audience and we come with it.

You know what some Sunday nights, we get a fourth we get over a four or four or five on on T. L sees a 90 day alone with the number one franchise on television. So one is we're way underpaid for all of our channels and we expect that that even at significant increases.

We will be a great value because what people look out to the other services what are they buying their buying a lot of reruns they may be buying sports they may not be buying sports, where the new sports people coming on every day and watching food and H. G. T. L. C is the most popular services in women 18 to 25 25 to 50 418 couple.

49, so and the in H. GE is the number one channel for women in the aggregate. So you know if you want to reach women in America, you want to walk you want to reach them in in a watching live close to lives.

With the only place to come we still have the number one channel for men with real strength with the with discovery and so we got some swagger.

We really have some swagger because you know we look at the advertising market and we see broadcast.

Charging you knows $65 for CPM and delivering point for us and wait delivering four point fives.

And we have historically been you know relatively cheap and we think right now since where the number two media company in America, and what we deliver and we have the most fresh content and dependable fresh content going forward.

That if you want to play you've got to pay and if you want to reach people women lives men live and know that you're going to reach them between now and the ended the year. This crazy time.

You're going to want to be with us and that's that's a <unk> as we talked appetizers they recognize that.

And they recognize you know the strength of our brands and I think we're going to we certainly are going to do very very well and I hope that we're going to make up a big piece of the differentiation because it shouldn't have existed and out where we're a hell of a by compared to everyone else even at a big inquiries.

Okay, and then let me let me cover the other the other two questions are quickly on on the pay TV subscribers. Jessica. So you know right now its mildly up across the board obviously.

JV would say looking at international it's a it's just a collection of very very many market with very different.

Dynamics going on but it's a it's up a little bit I think the one outlier I guess, we should point out as Brazil, which was obviously given the current environment or what's was down a and subscriber numbers, but other than that we continue to see growth on the cost control side, what's permanent whats differ or that's just go through a couple.

All of elements I would start with let's call them, the windfalls or you know travel Ginnie overall, you know events or some marketing real estate et cetera in a lot of that obviously wasn't would fall and is going to come back if and when we start opening up again I think the second I'm a big savings driver here.

Our Ironically of course has been the absence of sports events and some other Oh original productions again, we have been able to maintain a very very healthy a schedule from the perspective, a fresh content and again financially in a positive way because we're producing a lot of content and we're producing it.

At a much more attractive cost per hour and our audience as you know loving the authenticity continue to enjoy itself. So that has been a positive driver overall you know as things go back to normal you should see some of that content coming back at higher cost there may be even additional costs from.

You know some some ur cobot related additional health protocols et cetera, again, I would hope to be able to offset some of that with with more efficient overall production approach, but that's sort of the second.

Building block and then you shouldn't forget that we're still on our transformation journey. What we started two years ago. We went into this with a massive team hundreds of people working on hundreds of initiatives. We've worked through a lot of that list, but we still have a a lot of initiatives or you know more complex more long term nature that we're working through and.

We're committed to continue or you know adjusting adjusting the structure of this company to the best possible set up for the operating environment.

Right. Thank you.

Thank you.

Our next question comes from Michael Nathanson from Moffettnathanson. Your line is open.

Great Hey, Dave out a couple of for you.

On the new renewals those deals accelerator was at a national timing and then can you talk a bit about the alignment you now have given those deals I'm sure you do that does that allow you now to do your bigger as you rebuild and then on the S. You rebuild.

Would you consider adding a non commercial to your and also non discovery content in terms of making yes, you, even bigger and more attractive people, who don't like commercials.

Sure.

Thanks, Michael we don't we don't really talk specifically about when our deals to come up and what we do.

But yeah, we had a significant amount of flexibility. We now have more flexibility. So we have the lane the full laying that we that we need in order to could be effective you know what's interesting that we found that we think.

Ah, it's going to help us in this drives.

As a lot of the competitor just now.

Coming out.

With their scripted series of scripted movies with the same drive.

We got more stuff, we got more shows.

Hey by US we have more shows and those shows are actually really good and they're great companies more shows more shows more shows you know what people are saying I got enough shows.

What we have is great brands great characters.

And we think that that's going to make a huge difference in an environment with a lot of blaring lights for shows and as we build that and as we have been very quietly aggregating content, creating original content we are looking.

At the full gamut of what we'll nourish.

And then create the most compelling product that's the most differentiated we think we have the right recipe and will take you through it very soon and we think you're going to love. It. We hope we hope you like it and we hope more importantly that when we get out to consumers in the U.S. it around the world.

That Ah that they like what our hand as much as we do.

Thanks Terry.

Thank you.

Our next question comes from Brett Feldman from Goldman Sachs. Your line is open.

Yeah. Thanks for taking the question and just to stick with the direct to consumer theming I listen to some of the language you used during your prepared remarks, you highlighted the importance of reaching 30 million plus broadband only households, and talk about the importance of being a companion oney pool TV service. You know you think about this broadband households are predominantly served by key.

Cable companies, which are current distribution partners for you is it safe to assume that as you look to sort of accelerate your direct model you're looking to do it in partnership with your existing partners not only because of the reach but also because the importance of just would he be respectful those relationships and this is just as an extension of that with you know fixer upper coming back on Noli at which is.

Which is awesome should we assume that make no he could potentially be a centerpiece of your accelerated direct consumer model as well. Thanks.

Sure. Thanks, I look I don't want to get into anymore. The details you can expect that we think we have the best content the greatest brands and in a world, where it's hard to cure rate, which is why people say up more shows we have this ability to cure rate through brands and through and through characters that people already know and they know how.

Now to navigate you should expect that will be offering our content in ways that are competitive.

In terms of.

Or whether they have commercials I don't have commercials or how much commercials. They have we thought that out carefully and we intend to to our product will be very competitive and flexible and we expect to have multiple partners and that's how we're going to be successful domestically and around the world and will take you through that but you know Disney.

He has been very successful by using partners and as where we had been more successful we've been more successful when not only a we marketing our product, but other distribution platforms are marketing our product and so whether its table distributors mobile distributors or or larger play.

Layers that are pushing other products like Amazon is doing with us with fire every one of those is a ah isn't added opportunity and we like everyone else are looking for all of those to get the scale ER and build scale as quickly as aggressively as possible.

Great. Thank you.

Thank you.

Your next question comes from Ben Swinburne Yang from Morgan Stanley. Your line is open.

Thanks, Good morning, maybe.

Maybe one for good or just on the the near term anything you could tell us good or bad affiliate trends as we think about the back half the year I don't know if the second quarter is a decent a kind of run rate for U.S. and international and then maybe for David just going back to your point about you know lanes and OPENLANE Avon is.

It is an area, where we're seeing a at least a lot of growth in consumption.

And your company given its scale in advertising it ought to get it seems perfectly situated to exploit that as the AD market comes back.

Got a strategic priority for you for discovery in terms of investing in either.

Technology, you know and more targeted ratings approach than just standard Nielsen demos and.

There's been some acquisition in the states like to be in food I'm. Just wondering how you think about that opportunity and whether that's an area of focus for the company.

Okay.

Ben Let me, let me start without a a trend question again, I don't want to give specific guidance and there's not too much to add to what I said, a a couple of minutes ago U.S.

Feeling good about the pricing trends, we don't control the subscribers and we'll see overtime as a as you just see ramps up how bad it starts contributing on the international side, a similar to answer the key factor here is a a sports.

And that is twofold number one as we already pointed out the termination of the blend as we got contract is going to be a little bit of a drag on a affiliate revenues, but again as I pointed out obviously very beneficial on the EBITDA side and the second factor as you know some sports have come back, but the majority of the big event is still.

Slated for us a bit later in the third quarter and marking the fourth quarter, that's going to be that's going to be a driver and more we'll see how that pans out.

Thanks, good or.

I I guess and it tends to answer your question on the eight but you know we've been we've been quite successful with our go products, even though they're just individual channels that are authenticated, but we've been able to get a very young audience and get additional data, which has helped us get.

Which is which the advertisers have like we have Ah we do have a a a a team that is driving our data. We're also working innovatively with a number of the cable cable operators, who have set top box data I do think data is a huge piece of our future in order to be able to get higher value for our existing content.

And in products, where we're going direct to consumer consumer Avon or ask Bob that has a commercial light I think you'll you'll you'll see that ability to provide dated advertisers that benefit both us and them.

Great. Thanks.

Thank you.

Our next question comes from Jason Bazinet from Citi. Your line is open.

Just had a quick in your prepared remarks, he talked about increased flexibility on Nextgen products do you mind, just elaborating on what flexibility you're seeking and widows for renewals you talked about do you have that flexibility globally now or is it still just in a subset of your global footprint. Thanks.

We have it globally I'm fully globally and when we take you through our our aggregate the global plan will give me more detail.

Thank you.

Thank you.

Our next question comes from Alexia Quadrani from JP Morgan Your line is open.

Thank you know I can't think of it cannot question on advertising you guys continue to extract tire pricing.

I'm curious if the ratings continue to kick out after the way that they had can you are all the old rules sort of turn out to wind down in terms of broadcasting and out getting premiums versus cable can you sort of surpassed that eventually and then my second question is truly on they are the rebranding have as it would be my eye incomes in early 2021.

Any any progress so far in terms of potentially getting more distribution for that channel.

Sure. Thanks, we have gotten more distribution for D. I why I mentioned I think on the last call that when shipping Joe We're on D. I why on a Sunday night.

That you could actually see people.

On Google trying to figure out what channel DIY was so that they could watch it and they did watch it and it was the number to show on Sunday Night on television behind 60 minutes. So we think we're super excited about what they're doing I spent I spoke to chip and Joe yesterday for an hour and a half they're excited not just about fish.

Sure upper but about everything that's going on in Waco with the production with the brand so a very exciting and they'll come onto de iwai with more subs and as a channel. It's it's it's been growing significantly because of the environment, where people at home and the content works very well so.

We feel very good about it it'll be a early in a it early next year.

And what was the other question.

Really on pricing and Jennifer can keep cutting the gap between disappear between you and broadcasts.

Its.

I hope it does because if it if it does then you can you can put a multiple of two and a half times against our AD revenue.

They will be all kidding aside we're dealing with a legacy issue.

And that legacy issue is really doesn't make sense anymore, how much do people watch how much do they watch live how engaged our they and if anything if you're selling products being on h. GE or food.

For cooking.

It's probably a lot more important for a lot of advertisers then to be on a regular show.

Even a sports show and a lot of advertisers have told us their ability to convert product is is stronger on us. So we have this ah Ah. This inverse problem. It's really based on the fact that cable was was it the kids table well you know weve aggregated the <unk> very strong brands or investing haven't.

Yes, it's usually in building those brands building the characters building the relationship with the audience and we're starting to really breakthrough.

And we need you know we have to fight to get our fair value and we have to be you know.

And then the end I think.

The equitable argument that we have.

Broke started to break through a little bit in the last two years, you've seen us outperform quarter by quarter.

You should see us outperformed by a lot more in my opinion because in the end I. You know we have we have great content that people love and then in this very unusual environment.

Also have original content and a dependable are ongoing product at a time when you know some of our competitors can't do it just because of sports and scripted is harder. So I hope. So we're fighting for we've got a great leader in John style off we got a great team. We're very engaged in the upfront we're engaged in in scatter and we've.

Got to keep telling our story.

They know it we have to figure out how are you know how we wrestle it.

Thank you.

Thank you.

We'll take our final question from Rich Greenfield from my chat partners. Your line is open.

Hi, Thanks for taking the question David I guess the question is that as as you and others. Yeah, I think of NBC I think of wage feel match as good as everybody is finally kind of making dependent and direct to consumer where do you think I mean, what probably around $70 million to $80 million.

Fibers and the multichannel bundled today, where are you thinking it bottoms out and you know as you think about Europe with Disney taking a huge write down and sort of pivoting to D to C overseas.

How do you think about kind of the eight of Europe relative to what you're seeing into you less.

For the multi channel universe.

[noise] nice rich well first let me just start with Europe Europe, I think is much more stable and in terms of what we're seeing in terms of viewership on that platform viewership was way up on traditional television. It was the the whole marketplace performed very differently and much more favorably.

The idea that we were significantly up and all of our sportswear, even on and people watching so much more of our content, which by the way I think the fact that people are watching a lot more of our content.

In the end, where we're at IP company. The fact that people are watching spending more and more hours with our brands with our characters in the U.S. and around the world just means that our overall IP library.

Yeah, we emerged from this behavior or leave that this spending more time with our brands in our characters and they love us more and we love them why we know them better and so I think we emerged stronger but Europe is more stable.

Europe is said the declined as much slower and that the differences that huge broadband here and Amazon is a great great product, but it's not deployed with local content. The way. It is here in the U.S.U.S. is one market 330 million people and Netflix has been extraordinarily successful Amazon a success.

It will Disney plus is successful and so and this huge amount of broadband. So you see this and a lot of marketing dollars telling people what around those like none of that exist in Europe. So our local language local sports, we think is pretty compelling and the fact that the ecosystem is more stable also gives us.

Skip given how big we are in Europe, and both sports free to air and cable gives us I think a much so youre.

Hi, how are you said.

Are you surprised by Disney has moved to sort of a band in Europe.

No.

Yeah, I don't really want to comment on Disney It's a great company I think Bob as has done an extraordinary job in building IP and building that company for US I look at what we have and I you know I really like what we have in Europe.

I like the differentiation of what we have I love. The IP that we are you know in the U.S. I can't predict where it's going to go but we're on every skinny bundle [noise].

We are you know everybody I've taken no noticeable yep content.

Robin with a very core that bundle if people have cable TV and they have six channels that they watch in almost every taste for the six or as well. So I think we'll be well do very well on the bottom.

Right.

There are several of these I think we'll continue to be you know to be good because we deserve it and we can you know the reason that we're going so hard.

Direct to consumer is because we know it's we want to make sure that are great content is on every platform and has an opportunity for everyone to see it how they want to see it when they want to see it when they do we think they're gonna be very happy and we think we're gonna do very well.

Really look forward to trying it.

Thank you.

And that does conclude our question and answer session for today's conference.

Ladies and gentlemen, this now concludes today's call. Thank you for your participation you may now disconnect everyone have a wonderful day [noise].

[noise].

[music].

[music].

Ladies and gentlemen, thank you for standing by and welcome to the discovery Inc. second quarter 2020 earnings call.

At this time operative that's why I know what can only mode.

After the speakers presentations there will be a question answer session that should during the session you'll need to press Star then one of your telephone.

Please be advised that today's conference maybe recorded if you require any further please press star and then be around.

I'd now like they have a copper so what's your speaker today.

Andrew Slaven Executive Vice President Global Investor strategy, Sir you may begin.

Good morning, everyone. Thank you for joining us for discoveries Q2 earnings call joining me today, our David.

President and Chief Executive Officer.

So our Chief Financial Officer, you should have received our earnings release, but if not feel free to access it on our website at www dot.

So we don't comment on today's call will begin with some opening comments David anchor sooner and then we will open the call to take questions. We start I'd like to remind you that comments today regarding the company's future business plans prospects of financial performance are forward looking statements that we made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act.

Actually 95.

Mr made based on management's current knowledge assumptions about future events and they involve risks and uncertainties that could cause actual results to differ materially from reputations and providing projections and other forward looking statements. The company disclaims any intent to obligation to update them.

Additional information on important factors that could affect these expectations. Please see our form 10-K for year ended December 31st 2019, and subsequent filings made with U.S. Securities and Exchange Commission and with that I'd like to turn the call over to David.

Good morning, everyone and welcome to our Q2 earnings Conference call.

Last quarter, we noted that these uncertain times highlight unique competitive advantages that distinguish us from many of our peers.

Strategically creatively operationally and financially.

We benefit from content leadership in core jobbers that are relevant popular and durable.

An efficient low cost content production model with a long tail and global appeal.

Sure production cycles that allow for quick content development.

The most international and diverse mix of assets platforms and brands.

And among the most trusted family friendly brand portfolio. It offers safe environments for advertisers.

And while our relentless focus on content that nurses and the lights off.

Has always been our north star.

Its impact couldn't be more significant than it is right now.

In a world that offers viewers greater choice than ever before across an increasing array of delivery platforms.

And added competition for viewers time, more and more viewers are choosing to spend time with us.

We were around the globe.

It's emblematic of our differentiated model.

At a time when most broadcasters in networks have been relying on tied Wifi and reruns of scripted shows.

We brought over 1000 hours, a fresh original content to our networks since the world shutdown due to colder.

It's been cost effective creatively shot and reduce and well received.

In fact, Amy Schumer learns to Cook, which was shot from home food network was nominated for a primetime Emmy.

But most importantly, our ability to continuously refresh and update our IP.

Further adds to the strategic value of our global IP Library.

Particularly as we drive our content increasingly direct to consumer.

And if the traction increases to others during a time when nearly all platforms to acquire more and more depth of content to attract the light and maintain subscribers.

Our content is differentiated in the marketplace and is a great consumer complement to others.

The appeal of our IP continues to increase in United States. This last quarter.

Even though we do not own a broadcast network, we with a number two portfolio on all of linear TV in total day, among our target demos.

And we grew our number one share of pay TV.

Well internationally building off Q1 success, we grew our record high share another 4%.

Despite not having any sports.

And helped by Tailwinds from our global brands.

As well its impact of our local content offerings.

The impressive ratings and share narrative couldn't be happening at a more critical time.

Particularly as we put finishing touches on bringing an aggregated direct to consumer product to the market here in United States.

And enhancements to our SBO de offerings like de clay in many markets around the globe.

The details for which we look forward to sharing in the very near future.

We believe there exists a great opportunity to reach the growing quadrant of viewers, who don't have access to our brands and content.

Want to consume content out of the traditional video ecosystem.

And informed by the growing engagement of authenticated an authenticated viewers to our go platform in the U.S.

We remain excited to hit the ground running.

Underpinning all of our efforts as a financial model that is super solid.

We generated a Q2 record of nearly 900 million a free cash flow.

Well some of the growth was driven by timing factors.

Formats is emblematic of the efficiency of our model.

And the resiliency of our cash production.

We remain a free cash flow machine.

Having ended the quarter with 1.7 billion in cash on our balance sheet.

Minimum debt due over the next three years and an Undrawn 2.5 billion revolver.

We are pleased to now resume our equity buybacks at what we believe represent very attractive levels.

We're pleased to be able to bring long term value to our shareholders by investing in our future growth prospects as well as return capital to shareholders.

Even in the current environment.

We recently completed important renewals with four major distributors in the first half for 2020.

Cox charter Comcast and Sky.

And we are pleased with both the value, we are receiving and delivering within the traditional distribution ecosystem.

We view these renewals as mutually beneficial.

And help us in efforts to further develop our next generation direct to consumer offerings.

Drawing upon the stability of our distribution profile in linear and increased flexibility for next gen products.

Turning to the advertising marketplace from a high level regarding cold.

Feels like the advertising markets have largely bottomed.

The worst is behind us.

Though I would caution that visibility still remains relatively limited.

April was a low in the U.S. with a nice recovery in May and June.

Well internationally with some regions like lot Tam still searching for a bottom we've seen a noticeable return of advertisers spending money against the TV marketplace, where economies have increasingly a gun to open.

Particularly in Europe.

In fact, a number of markets in EMEA, such as Poland, and Germany, two of our largest and most important advertising markets are experiencing a much faster recovery than we thought against our internal projections.

As I noted, we continue to grow share internationally.

Both for the entirety of our international marketplaces, as well as the top 10 advertising markets each up 4%.

We saw a particularly strong growth from our locally focused free to air channels, notably in Italy, with giant and in the UK with really and quest.

As well as continued momentum at age G food TLC discovery and de Max.

Our efforts from day, one post the script merger to further drive their lifestyle brands around the globe has also proven to be an important element of our share store.

This quarter HKG food became our number three and number four global brands by audience up 160% at 50% respectively. In the quarter helped in part by continued new channel launches.

From a ratings perspective here in the U.S., we were led by TLC, which is a number one network across all of TV on Sunday nights and solidified its position as the number one pay TV network across all primetime among our target female demos.

Back TLC delivered the biggest primetime gain this quarter for any non news network among the top 25.

Yes.

The network is on fire.

And how widely and his team continue to innovate with content that resonates with audiences around the globe.

Overall into Q, we own for top 10 pay TV channels in prime time.

Impede two plus and total viewers TLC ha discovery and food.

Which means that when people were watching the news.

Yours chose to spend time with us.

Turning to the upfront well without a doubt this isn't unusual upfront market.

No one has as much momentum as we do.

We have fresh content ratings tailwind the hottest network or non with TLC and an exciting clearly anticipated new network soon to launch with the Magnolia network.

All underpinned across verticals that uniquely resonate.

With advertisers.

Collectively we offer appetizers and even greater reach then our broadcast peers.

Particularly in the coveted 25 to 54 down, though having out deliberate each of our broadcast competitors on C. 95% of the nights Q2.

Quite an accomplishment put discoveries networks in the aggregate to provide more reach 95% of the time than our broadcast peers.

In addition, we had longer length of view.

And time spent on on networks.

As such given the glaring discrepancy in CPM pricing.

While we have broader reach and delivery, we continue to lean into package, our content that drive greater share of wallet spend in the upfront and in scattered.

And market challenges notwithstanding this year I feel our hands has never been stronger than it is right now.

Given the full Arsenal and complement of our nets that we have to offer.

And how well, we aligned with advertisers and brands, particularly when eyeballs are scarce.

US whether in the upfront or in scatter, we will work closely with our advertising partners as we always have.

To offer a real differentiated value.

Fresh value in the marketplace.

Building on this stress and as I noted we couldn't be more excited about our plans for the Magnolia network, which is coming into focus chip and Joe a hard at work on 36 originals 14 of which are already in production.

And I truly couldn't be more thrilled that just yesterday, we announced that fixer upper.

It's coming back.

The light of so many viewers and advertisers and all the new episodes will be exclusive to our network.

We hope to pick up right, where we left off.

During the final season, and establishing 75 million people to get.

Including 20 million people on an average weekly basis.

As for distribution, we naturally lumpy immune from subscriber churn.

Finally in cases, where it's driven by economic pressures.

Oh, we remain well represented maybe the best representation of anyone across the V. MPPD landscape in the U.S., where there continue to be pockets of strength.

Such as from filed offering a more affordable entertainment only true skinny bundle.

Follow has had great momentum topping 700000 subscribers double where they ended 2019.

And our recent renewals provide us with a healthy pricing backdrop to help mitigate the revenue impact on subscriber churn.

Outside of traditional bundle, we continue to enhance our portfolio global Avon and that spot content and lifestyle platforms.

Lastly, while there are still a number of kobin related uncertainties that we are addressing head on I remain enthusiastic about the strategic course, we're on.

Behind that increasingly relevant global portfolio of assets and passion verticals and the addressable market opportunities that we see unfolding broad nexgen products.

Moreover, the financial backdrop that underpins our ability to navigate and invest against these remains on solid footing.

I'd like to once again, thank all hardworking employees for their dedication and resiliency in this most uncertain time to deliver an outstanding product on a global scale.

And now I'd like to turn the call over to garner.

Thank you David Good morning, everyone. As David noted, we continue to operate under less than optimal conditions around the globe. However, I remain very pleased with how our organization has adapted and evolved in the face of current uncertainty and limited visibility.

The benefits of a dual revenue stream model are apparent, particularly long term contractual subscriber base distribution revenues, which I'm pleased to report we continue to renew with solid pricing and mutually beneficial terms with our partners.

This highlights not only the tremendous value of our content on the linear platform, but also supports the evolving nature of how we may reach audiences on a D to C basis I'm looking forward to discussing our plans with you in greater detail in the near future.

And even as we continue to invest to support these initiatives the efficiency of our operating model has never been more critical or more apparent.

While there were some timing related benefits. Most importantly from a decreased Jonathan spend particularly on blade sports events, we achieved our highest free cash flow in the first half year and the company's history.

Consequently over the trailing 12 month period, we have again generated $3.1 billion on free cash flow in an environment when global AD sales were down 11% ex FX and the first half and down 20% ex FX and the second quarter.

Ill provide some modeling help on the cadence or free cash flow drivers and content spend specifically shortly.

In the U.S. advertising decreased 14% year over year in an environment characterized by overall weaker demand stemming from cold weather related issues, though while demand was weaker we were able to hold firm on pricing and our overall cpms for the quarter were up mid single digits year over year.

Scatter pricing was solid up 25% above last year's broadcast upfront.

Interestingly much of the movement of dollars initially out of the upfront commitments and then later bought back into scatter ultimately return at a higher pricing.

Also in a number of cases, we extended the content length of our shows.

We were pleased to primetime delivery across the portfolio was flat year over year in our target demo during the second quarter versus the rest of pay TV down in the mid teens.

As expected April was the toughest month in the quarter that present appears to have been the trough with both may and June on average much stronger week to week and even month to month, while the trend line to still side. The regular it is indeed, pointing in the right direction.

That point and bearing in mind that we haven't closed the books on the month. Our latest estimate is that July will be down in the low teens year over year, the sequential improvement over second quarter.

That said with a return of May drilling sports in the U.S., We may see some shift of AD dollars away from our verticals.

Additionally, we continue to remain cautiously optimistic and mindful of the pace of recovery in the U.S. given the resurgence of the pandemic in parts of the country in recent weeks.

Distribution revenues increased 7% year over year, including a 500 basis points benefit from a nonrecurring items.

The underlying year over year growth rate was 2%.

Formans was impacted by a 5% decline to our fully distributed networks and 7% decline to the total portfolio aside acceleration versus the first quarter, which we had expected as we left the you tube deal during the quarter in April.

We continue to foresee subscriber declines for our fully distributed networks to be more or less in line with industry trends.

Now turning to international and know the following commentary is provided on a constant currency basis.

International advertising decreased 37% year over year, given cobot related demand weakness around the globe.

Across the three main international territories Asia Pac how our smallest region began to stabilize towards the end of Q1 EMEA. The largest appears to have bottomed and stabilized during Q2, while that Tam. Unfortunately may not have bottomed yet.

Again, while the level of visibility is still reasonably O page. We are increasingly encouraged by the pace of recovery in a number of key territories, particularly in EMEA.

In countries, where cobot as reported to be better under control and steps taken to further open up we have seen a sequential resumption and the pace of TV advertising.

While we still don't know to what extent sports will resume in the second half of the year based on our latest estimate DNA advertising in July is estimated to be down high teens year over year, whether Europe slightly better than that well that's ham is down significantly more.

Overall like in the U.S. this points to further sequential improvement in July 1st the end of the second quarter.

[noise] distribution revenues decreased 2% year over year in part impacted by little to no sports programming in the quarter across our various platforms Eurosport player golf TB and certain premium de plate tiers as wells. The previously noted impact from our more aggressive stance to drive DTC distribution in countries such as Denmark.

Worth noting is that we recently exited our agreement with the German football League for the fourth and final year, if the Bundesliga while beneficial to AOL, but had we not distribution revenue would have been meaningfully higher this quarter. This comp will exist for the next three quarters.

Now turning to cost.

Total operating expenses were down 10% year over year ex FX and the second quarter, resulting in a little bit margins that were relatively flat.

Total cost of revenues declined 12% ex FX in part due to the timing of sports costs, we recognize very little sports rights costs during the quarter approximately 35% of what we recognized last year as a result, and the shutdowns.

Many of the events have been deferred to the second half of the year rather than being canceled as such we will be recognizing those expenses as sports resume in what admittedly looks to be rather condemned schedule in Q3 in Q4.

Outside of sports, we realized modest savings across traditional content spend while continuing to invest in content and rights gear to our next generation initiatives.

[noise] overall SGN, a decreased 8% ex FX largely helped by lower marketing spend.

As we continue to lean in on our next generation initiatives, we expect marketing spend will begin to pick up both to build awareness and for continued performance marketing.

PND was also minimal during the quarter as the vast majority of our employees continue to work from home and travel was virtually stopped.

As we continue our office openings around the globe and employees returned to more of a business as usual cadence inclusive of travel incremental spend should be expected, though it is reasonable to envision this returns rather slowly.

We continue to take the necessary steps to align our overall cost structure with the changes that are taking place within the TV ecosystem.

The evolution of the transformation, we began in 2018 following our merger with scripts.

Though as we continue to refine and broaden our next Gen strategy savings from our continuing focus on operational efficiencies will primarily be redeployed towards these initiatives.

I continue to expect total full year operating expenses to be flat year over year on a constant currency basis slightly lower in the first half slightly higher in the second half given the more condemned sports schedule and content investments that I previously laid out keep in mind for modeling purposes that to the extent sports to resume unfold, we expect to compressed.

Really an entire calendar year into two quarters at a time when the advertising market, though improving in Europe is still in recovery mode.

We continue to expect a core business opex will be down mid to high single digits year over year offsetting the increase spend for growth initiatives.

A couple of comments on below the line items for the second quarter.

First our effective tax rate for the quarter was 34% primarily due to withholding taxes outside of the U.S. that are calculated for the year and spread evenly across quarters. We expect that the book tax rate, we'll finish the year and the low to mid 20% range.

Second.

Additionally, in conjunction with the debt that we tendered during the quarter, we recognize the 71 million dollar or eight cents per share net of tax debt extinguishment charge.

Adjusted EPS for the quarter was 77 cents after adding back purchase price amortization, excluding the aforementioned debt extinguishment charge adjusted EPS would have been 85 cents per share and the second quarter versus one dollar per share last year on a like for like basis.

FX was approximately a 40 million dollar drag to revenues into 15 million dollar drag to a little bit out in the second quarter for the year based on current rates, we expect FX to have a negative 35 to 45 million dollar impact on revenues and the negative 25 to 30 million dollar impact on they have it up.

Turning to capital allocation as you may have notice in our earnings release. This morning, we are pleased to announce the resumption of our capital returns to shareholders fire share repurchases were $1.8 billion remain outstanding on our authorization.

As for the end up the second quarter as David mentioned, we had $1.7 billion a cash on hand as a matter of fact as for the end of July one month into the quarter that balance has grown to over $2 billion plus of course, two and a half billion dollars of undrawn revolver commitment and very little debt maturing over the next three years following our successful refinancing measure.

This early in the year [noise].

As always we will be tactical and flexible regarding any repurchases. However, a sensible construct to consider as you're thinking about the cadence of our activity what center around us allocating roughly 50% of our free cash flow to share repurchases for the time being.

That said, our overall capital allocation priorities have not changed which having properly never at the company as reflected by our commitment to investment grade ratings and number three to three and a half times target that leverage range, our to number one invest and support our core business to drive future growth number to evaluate inorganic growth opportunities such as strategic M&A.

If presented with attractive opportunities and where it makes sense and number three return residual capital to shareholders.

And now with that I'd like to turn it back to the operator for questions.

Thank you.

Ladies and gentlemen, if you have a question at this time. Please press star Alibi, there number one key on your touched on Palestine.

Yes. It has been answered all your wish there a movie ourselves from the deal if that's the town key once again. That's a question. Please press Star then one now.

And our first question comes from Stephen call from Wells Fargo. Your line is open.

Thanks, So I'd love to talk about the medium term outlook for U.S. affiliate revenue growth in light of some of the accelerating some declines you've had a pretty good kinda industry, leading affiliate growth rate. So I was wondering if you could just give sort of the longer term outlook about how you're thinking about your ability to keep getting price on when your deals person.

Those sub declines and then related Lee a big part of the country now is not subscribing to the linear bundle. So how are you thinking about taking Mac content I'm kind of more direct to consumer. Thanks.

Thanks, Steve.

Well, we just did as we said four big deals three of the here in the U.S. The good news for US is our content is usually overperforming.

They're not so good news for US is that our content is cheap.

And so we've been able to get increases I believe that we should be getting significantly more for our channels.

Well, we have the number one channel at American TLC, where we're number two or three in America for women aside from the news networks, you look at food H. GE own TLC I'd.

Our portfolio is extraordinarily strong and growing with the characters and brands that people love and they watch these channels like they watch Fox News all day.

So we're taking that into the upfront, but as we sat down with distributors. They recognize that we're providing huge value. They make a lot of money by selling them. So I expect we'll continue to do a quite well in in renewals that come in the future, but right now we're very stable and we're very happy about that so we can get on.

With getting off.

To your second point, which I think is an important one is that there are 30 million subscribers are more maybe 33 that are broadband only.

There are a lot of people that want to watch content with.

With no commercials.

And there are so strong players out there that have built the great road to this direct to consumer business and we think we can get on that road, Netflix and Amazon and Disney plus it was hard work building behavior Lady that road of getting people to pay for content.

And Gestationally you know went out like in the third or fourth inning and people are comfortable with that but those services are all scripted series and scripted movies effectively they built a road and they all have great sports cars fantastic and their beautiful scripted series unscripted movies.

We have a new s. UBI.

We will be coming to you very soon with more detail and exactly how we're going to roll it out, but our FCB is filled with large fleet lodged fresh content.

A huge amount of original content and it comes at a time when people have been because of quarantine.

Consuming and consuming Netflix and Disney plus an Amazon and Hey, what's on these different aim bought an svod services and they've been picking adamant taken Adam it ticking Adam and so we think we will launch with a differentiated service.

New asked you be which people will unlike a lot of these others products don't you. This is its use it'll be useful everyday.

All the time it'll be dependable all the time.

And your your friends and all the characters that you love, what's really differentiates us.

Fit in this new product. This LTV, there's plenty of room for everyone. All the characters that you love your favorite brands.

It'll be a great value.

And the most important thing is it's going to be a terrific companion.

We think we got a great Blaine its almost like that lane is ours.

If you have net what's if you have gives me plus.

If you have Amazon if you have any video product.

I wouldn't want.

What we have been surprised it's it's what most women in America watching all the time.

And then you add to that.

Discovery, the BBC and all the planet Earth content, all the environmental and animal planet content. So you have the most compelling high quality content for women and men.

That people can watch anytime in the background you know their favorite characters their favorite brands together with the definitive collapse in the world, but effectively.

In the science natural history and environment Ariad I think when you put those two together.

We pretty great alone and were pretty great with everyone else and the road is there for us and we'll be giving you a little bit more detail, but we're going to be hitting that road very soon.

Sounds good can't wait to take the maybe offer.

Yeah, Let me let me just add one thing going on here on the on the affiliate question, Steve. So a couple of points I want to make number one as you know a we have a very clean affiliate number and that's why we point out when there is a sort of special effects like in this quarter. The underlying number is 2% if you combine that with a 5% or some decline to them.

So the industry essentially and our main made part of the portfolio that you get to sort of you know the implied pricing number as David said, we're pretty happy about how those deals have gone no.

Visible trend change here when it comes to pricing the big after that we don't control of course is sub declines. So we'll see how that how that turns out overtime and then there is going to be an increasing contribution both in international and the us from from DTC subscription revenues and again Thats a little more difficult.

Planned out, but you shouldn't.

Started assuming some some positive contributions over time.

One more for its Steven because the focus is generally.

Here in the U.S. tends to be the U.S., but we are the number one global media company outside the U.S. leader in sports leader in the aggregate local content that we have in every language and I just laid out what our strategy is here in the U.S. and we'll be talking to you exactly about when we're coming to market, how we're doing it.

Exactly what it looks like which is very exciting but outside the U.S., we have a very compelling differentiated strategy as well.

Local content local sports, so Netflix and Disney Fantastic services, they're coming over the top primarily U.S. Eventually you know Netflix has a little bit a local Disney we'll have some local others will do a little bit of local but where local content local sports. So we think that differentiated.

Above the globe attack.

Outside the U.S. local language local sport.

Our strong very differentiated in the U.S. very differentiated a great companion great content, great brands, great characters great original.

So we like our hand.

Great. Thank you.

Thank you.

Question comes from Doug Mitchelson from Credit Suisse.

Hi, Good morning, this is making their can standing in for Doug.

I wanted to see if you could talk a little bit about the progress of food network kitchen any update on subs plus the Amazon promotion, how much is it contributing to advertising is there any E commerce revenue coming in and any learnings there.

And I have a follow up for great.

Great. Thanks, well look everything that we've done we've been in the direct to consumer business for the last couple of years with your fourth player with deep play with food network kitchen.

And each one of them we've learned we fall down we picked ourselves up what are people like what are they want more of how do we create a product that people love every month to reduce churn how do we get partners to help us partners to help us is hugely important being having Amazon together with us built into echo.

There is there's a there's there's a huge number of people that are on fire TV that Amazon is pointing to and driving how do we get those people to convert to be food network kitchen subs, what does Amazon do what do we do how effective can amazon be as a partner in in in driving free funnel subs and pay subs all of that is.

So that we're learning it's very that's going to be very helpful. To US same is true across Europe, as we're getting distributors to align with us and have gotten distributors to align with us and driving or driving de play in our direct to consumer products. So it's going well.

We're learning a ton from it we get to talk directly to customers and you know as we as we lap as we roll out our our big aggregate attack in it which will take you through in the near term will.

At that point, we'll figure out what other details on some of our vertical products will get.

A and then on a follow up for good or if you can just give us a little bit more color on exactly where we're going to see the investments flowing through the model is it going to be U.S. international a combination of both.

Yes, it's going to continue to be a combination of both I mean as the as David said, we're increasing and looking at the U.S market. So if you look at last year. The majority was hitting international you should assume that that's going to be a bit more balanced mix. This year other than that we had got to given guidance.

Initially as we went into the year.

On our investment level.

I know we have attracted guidance, but we have continued to invest and I I continue to expect us to keep investing.

Pretty much a similar level as what we originally guided to is roughly $600 million of losses from those from those new investment opportunities for the year.

Okay. Thanks, guys.

Thank you.

Our next question comes from just a race or at least from Bank of America Security. Your line is open.

Thank you.

Three.

Questions on can you talk about what you're seeing on pay TV subs outside the U.S. did they called that out on their earnings call yesterday.

Second.

Question, you had amazing cost control on I know going are you said, it's flat on a full year basis, but when you. When you look forward can you point parse out how much of these.

The cost containment, okay or decreases how much is permanent and how much is just deferred costs do you have to spend like T and and sports and then finally, David you mentioned advertising. The upfront can you talk about the process now and expectations as well how are you selling definitely targeting different metro.

Next are you doing more addressable advertising and what's the new timeframe for for the upfront is it to broadcast here or are you talking to a calendar year. Thanks.

Okay Wonder I start with the upfront and then going or we wouldn't you take the metrics on international and cost control.

You upfront.

Would've been over in a normal year and so there's it's a bit of a dance, but the market has gotten has really picked up it's getting better I think the in terms of the upfront I think we have the best hand.

We have original content, we're continuing to produce original content most of what you're going to see right now from US is very dependable a fully engaged audience and we come with it.

No at some Sunday nights, we get a fourth we get over a four or four or five on on T. L sees a 90 day alone we have the number one franchise on television. So one is we're way underpaid for all of our channels and we expect that that even at significant increases.

We will be a great value because what people look out to the other services what are they buying their buying a lot of reruns they may be buying sports they may not be buying sports, where the new sports people coming on everyday and watching food and H. G. D. L. C is the most popular service in women 18 to 25 25 to 50 418 couple.

49, so and the in H. GE is the number one channel for women in the aggregate. So you know if you want to reach women in America, you want to walk you want to reach them in in a watching live or close to lives.

With the only place to come we still have the number one channel for men with real strength with the with discovery and so we got some swagger.

We really have some swagger because you know we look at the advertising market and we see broadcast.

Charging you knows $65 for CPM and delivering point for us, we're delivering four point fives.

And we have historically been you know relatively cheap and we think right now since where the number two media company in America, and what we deliver and we have the most fresh content and dependable fresh content going forward.

That if you want to play you've got to pay and if you want to reach people women lives men live and know that you're going to reach them between now and the ended the year. This crazy crime.

You're going to want to be with us and that's that's a little as we talked appetizers they recognize that.

And they recognize you know the strength of our brands and I think we're going to we certainly are going to do very very well and I hope that we're going to make up a big piece of the differentiation because it shouldn't have existed and out where we're a hell of a by compared to everyone else even at a big inquiries.

Okay, and then let me let me cover the other the other two questions quickly on on the pay TV subscribers, Jessica So right now its mildly up across the board obviously.

JV would say looking at international it's a it's just a collection of very very many market with very different.

Dynamics going on but it's a it's up a little bit I think the one outlier I guess, we should point out as Brazil, which was obviously given the current environment, what's was down a and subscriber numbers, but other than that we continue to see growth on the cost control side, what's permanent whats deferred let's just go through a key.

All of elements.

I would start with let's call them, the windfalls or you know travel Ginnie overall events.

Marketing real estate et cetera.

That obviously wasn't would fall and is going to come back if and when we start opening up again I think the second.

A big savings driver here Ironically of course has been the absence of sports events and some other.

Original productions again, we have been able to maintain a very very healthy schedule from the perspective, a fresh content and again financially in a positive way because we're producing a lot of content and we're producing it at a much more attractive cost per hour and our audiences.

Loving the authenticity continue to enjoy itself. So that has been a positive driver overall you know as things go back to normal you should see some of that content coming back at higher costs. There may be even additional costs from some some cobot related additional health protocols et cetera, again I would.

Hope to be able to offset some of that with more efficient overall production approach, but that's sort of the second.

Building block and then you shouldn't forget that we're still on our transformation journey. What we started two years ago. We went into this with a massive team hundreds of people working on hundreds of initiatives. We've worked through a lot of that list, but we still have a a lot of initiatives.

More complex more long term nature that we're working through and we're committed to continue.

Adjusting adjusting the structure of this company to the best possible set up for the operating environment.

Right. Thank you.

Thank you.

Our next question comes from Michael Nathan then from Moffettnathanson. Your line is open.

Great Hey, David a couple of for you.

On the new renewals were those deals accelerator was out of natural timing and thank you talk a bit.

After you alignment you now have given those deals.

We do that does that allow you now to do your bigger as you build and then on Sq rebuild would you consider adding a non commercial tier and also non discovery content in terms of making yes, you, even bigger and more attractive people, who don't like commercials.

Sure.

Thanks, Michael we don't we don't really talk specifically about what our deals to come up and what we do.

But yeah, we had a significant amount of flexibility. We now have more flexibility. So we have the lane the full laying that we that we need in order to could be effective you know what's interesting that we found that we think.

It's going to help us in this drives.

As a lot of the competitors now.

Coming out.

With their scripted series of scripted movies with the same drive.

We got more stuff, we got more shows.

Hey by US we have more shows and those shows are actually really good and they're great companies more shows more shows more shows you know what people are saying I got enough shows.

What we have is great brands great characters.

And we think that that's going to make a huge difference in an environment with a lot of blaring lights for shows and as we build that and as we have been very quietly aggregating content, creating original content we are looking.

At the full gamut of what we'll nourish.

And then create the most compelling product that's the most differentiated we think we have the right recipe and will take you through it very soon and we think you're going to love. It. We hope we hope you like it and we hope more importantly that when we get out to consumers in the U.S. it around the world.

That that they like what our hand as much as we do.

Thanks.

<unk>.

Thank you.

Next question comes from Brett Feldman from Goldman Sachs. Your line is open.

Yeah. Thanks for taking the question and just to stick with the direct to consumer theme, you know I listen to some of the language you used during your prepared remarks, you highlighted the importance of reaching 30 million plus broadband only households, and talk about the importance of being a companion on equal TV service.

Think about this broadband households are predominantly served by cable companies, which are current distribution partners for you. It's safe to assume that as you look to sort of accelerate your direct model you're looking to do it in partnership with your existing partners not only because of the reach but also because the importance of just continue to be respectful those relationships and this is just as an extension of that.

You know fixer upper coming back on Noli at which is which is awesome should we assume that magnolia could potentially be centerpiece of your accelerated direct consumer model as well. Thanks.

Sure. Thanks, I look I don't want to get into anymore. The details you can expect that we think we have the best content.

The greatest brands and then a world where it's hard to Curie, which is why people say up more shows we have this ability to cure rate through brands and through and through characters that people already know and they know how to navigate you should expect that will be offering our content in ways that are competitive.

In terms of or whether they have commercials I don't have commercials or how much commercial they have we thought that out carefully and we intend to to our product will be very competitive and flexible.

And we expect to have multiple partners and that's how we're going to be successful domestically and around the world and will take you through that but Disney has been very successful by using partners.

And as where we have been more successful we've been more successful when not only a we marketing our product, but other distribution platforms or marketing our product and so whether its table distributors mobile distributors.

Or larger players that are pushing other products like Amazon is doing with us. The fire every one of those is a isn't added opportunity and we like everyone else are looking for all of those to get the scale ER and build scale as quickly as aggressively as possible.

Great. Thank you.

Thank you.

Our next question comes from Ben Swinburne Yang from Morgan Stanley. Your line is open.

Thanks, Good morning.

Maybe one for good or just on the the near term anything you could tell us qunar about affiliate trend as we think about the back half the year I don't know if the second quarter is a decent a kind of run rate for U.S. and international and then maybe for David just going back to your point about you know lanes and OPENLANE Eva side is.

Is an area, where we're seeing a well it's a lot of growth in consumption.

And your company given its scale in advertising at audience seems perfectly situated to exploit that as the AD market comes back.

Strategic priority for you for discovery in terms of investing in either.

AD technology.

You know and more targeted ratings approach than just standard Nielsen demos and.

There's been some acquisition in the stays like to the include I'm. Just wondering how you think about that opportunity and whether that's an area of focus for the company.

Huh.

Ben Let me, let me start with that.

Trend question again, I don't want to give specific guidance and there's not too much to add to what I said, a a couple of minutes ago U.S.

Feeling good about the pricing trends, we don't control the subscribers and we'll see overtime as a as you to see ramps up how that starts contributing on the international side, a similar answer the key factor here is a sports.

And that is twofold number one as we already pointed out the termination of the blend as we got contract is going to be a little bit of a drag on a affiliate revenues, but again as I as I pointed out obviously very beneficial on the able but outside of the second factor as you know some sports have come back, but the majority of the big events is still.

So slated for us at a later in the third quarter and partly the fourth quarter, that's going to be that's going to be a driver and we'll see how that pans out.

Thanks, good or.

I I guess and it tends to answer your question on the a but you know we've been we've been quite successful with our goal products, even though they're just individual channels that are authenticated, but we've been able to get a very young audience and get additional data, which has helped us get.

Which is which the advertisers have like we have Ah we do have a a a team that is driving our data. We're also working innovatively with a number of the cable cable operators, who have set top box data I do think data is a huge piece of our future in order to be able to get higher value for our existing content.

And in products, where we're going direct to consumer consumer Avon or ask Bob that has a commercial light I think you'll you'll you'll see that ability to provide dated advertisers that benefit both us and them.

Great. Thanks.

Thank you.

Next question comes from Jason Bazinet from Citi. Your line is open.

Just had a quick in your prepared remarks, you talked about increased flexibility on Nextgen products do you mind, just elaborating on what flexibility are seeking and widows for renewals you talked about do you have that flexibility globally now or is it still just in a subset of your global footprint. Thanks.

We have it globally I'm fully globally and when we take you through our our aggregate the global plan will give you more detail.

Thank you.

Thank you.

Our next question comes from Alexia Quadrani from JP Morgan Your line is open.

Thank you I can kind of again all question on advertising you guys continue to extract tire pricing I'm I'm curious if the ratings continue to kick out after the way that they had can you are all the old rules sort of turn out to wind down in terms of broadcasting and out getting premiums versus cable can you sort of surpassed that eventually.

And my second question is truly on they are the rebranding of Dubai incomes in early 2021.

Any any progress so far in terms of potentially getting more distribution for that channel.

Sure. Thanks, we have gotten more distribution for D. I why.

I mentioned I think on the last call that were in shipping Joe We're on D. I why on a Sunday night.

That you could actually see people on Google trying to figure out what channel DIY was so that they could watch it and they did watch it and it was the number to show on Sunday Night on television behind 60 minutes. So we think we're super excited about what they're doing I spent I spoke to chip and Joe yesterday for.

And our and a half.

They're excited not just about fixer upper but about everything that's going on in in Waco with the production with the brand so a very exciting and they'll come onto the DIY why with more subs.

And as a channel it's it's been growing significantly because of the environment, where people at home and the content works very well so.

We feel very good about her to it'll be a early in a it early next year.

And what was the other question.

Really on pricing and Jennifer can keep Kevin the gap really just Pierre between you and broadcast.

Yeah.

Yeah.

I hope it does because if it if it does then you can you can put a multiple of two and a half times against our AD revenue [laughter]. They won't be all kidding. Aside we're dealing with a legacy issue and that legacy issue is really doesn't make sense anymore. How much the people watch how much they watch live how engage.

Aged are they and if anything.

Selling products being on H. GE or food.

For cooking.

It's probably a lot more important for a lot of advertisers than to be on a regular show.

You know, even a sports show and a lot of advertisers have told us their ability to convert product is is stronger on us. So we have this ah Ah. This inverse problem. That's really based on the fact that cable was was that the kids table well you know weve aggregated the <unk> very strong brands or investing happen.

Invested hugely in building those brands building the characters building the relationship with the audience and we're starting to really break through and we need you know we have to fight to get our fair value and we have to be.

And then the end I think.

The equitable argument that we have.

Broke started to break through a little bit in the last two years, you've seen us outperform quarter by quarter.

You should see us outperformed by a lot more in my opinion because in the end I. You know we have we have great content that people love and then in this very unusual environment. We also have original content and a dependable are ongoing product at a time when you know some of our competitors can't do it just because of sports and scripted as hard.

So I hope so we're fighting for we've got a great leader and John style off we got a great team, we're very engaged in the upfront or engaged in in scatter and we've got to keep telling our story.

They know it we have to figure out how are you know how we wrestle it.

Thank you.

Thank you.

We'll take our final question if I'm right screen failed from my chat partners. Your line is open.

Hi, Thanks for taking the question.

David I guess the question is.

As you and others.

Yeah, I think of NBC I think of wage bill match as good as everybody is finally kind of making dependent and direct to consumer.

Where do you think I mean, what probably around 70 to 80 million subscribers in the multichannel bundled today.

Where are you thinking it bottoms out and as you think about.

Europe with Disney taking a huge write down and sort of pivoting to D to C overseas.

How do you think about kind of the state of Europe relative to what you're seeing in the less.

For the multi channel universe.

[noise] nice rich well first let me just start with Europe Europe, I think is much more stable and in terms of what we're seeing in terms of viewership on that platform viewership was way up on traditional television. It was the the whole marketplace performed very differently and much more favorably.

Yeah that we were significantly up and all of our sports where are you going on.

And people watching so much more of our content, which by the way I think the fact that people are watching a lot more of our content.

In the end, where we're at IP company. The fact that people are watching spending more and more hours with our brands with our characters in the U.S. and around the world just means that our overall IP library.

We emerged from this behavior or leave that this spending more time with our brands and our characters and they love us more and we love them why we know them better and so I think we emerge stronger, but Europe is more stable.

Europe is said the declined as much slower and that the differences that huge broadband here and Amazon is a great great product, but it's not deployed with local content. The way. It is here in the U.S.U.S. is one market 330 million people and Netflix has been extraordinarily successful Amazon a successful.

All Disney plus is successful and so and this huge amount of broadband so you see this.

And a lot of marketing dollars, telling people what around those platform none of that exist in Europe. So our local language local sports, we think is pretty compelling and the fact that the ecosystem is more stable also gives us given how big we are in Europe in both sports free to air and cable gives us I think a much so you're exactly right are you.

<unk>.

Are you surprised by Disney has moved to sort of a band in Europe.

Yeah, I don't really want to comment on Disney It's a great company I think Bob as has done an extraordinary job in building IP and in building that company for US I look at what we have and <unk> you know I really like what we have in Europe.

Like the differentiation of what we have I love. The IP that we are you know in the U.S. I can't predict where it's going to go but we're on every skinny bundle. We are you know.

Why do you have taken no noticeable content.

And with a very core that bundle if people have cable TV and they have six channels that they watch in almost every taste for the six or us well. So we will do very well on the Bob.

Right.

There are several of these I think we'll continue to be in order to be good because we deserve it and we can you know the reason that well going so hard.

Direct to consumer is because we know it's we want to make sure that are great content is on every platform and has an opportunity for everyone to see it how they want to see it when they want to see it when they do we think they're going to be very happy and we think we're going to do very well.

Really look forward to trying it.

Yes.

Thank you.

And that does conclude our question and answer session for today's conference.

Ladies and gentlemen, this now concludes today's call. Thank you for your participation you may now disconnect everyone have a wonderful day.