Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Discovery Communications Inc. (DISCA), Scripps Networks Interactive, Inc. (SNI): Rediscover this Leader in Nonfiction Media Content

Page 1 of 2

If you are a nature or animal lover, it is likely that you have watched programs produced by Discovery Communications Inc. (NASDAQ:DISCA), the global leader in nonfiction media content with brands such as Discovery Channel and Animal Planet. Unlike television dramas and movies, whose popularity depend on a host of unknown factors, Discovery Communications Inc. (NASDAQ:DISCA)’s programs have far more stable viewership ratings and customer loyalty for its brands. However, Discovery Communications Inc. (NASDAQ:DISCA) is fairly valued at 1.0 times PEG, and I will advise investors to wait for a more attractive entry price.

Discovery Communications Inc. (NASDAQ:DISCA)

Nonfiction’s edge over fiction

I prefer to invest in producers of nonfiction content like Discovery Communications Inc. (NASDAQ:DISCA), rather than those churning out fiction. Popular actors and actresses, award winning scriptwriters and directors, and a big budget devoted to the state-of-the-art special effects are no guarantee for high ratings. In fiction media content, you are as good as your last show. That means that investors in fiction content are essentially buying into unknowns.

In contrast, the elements of a good nonfiction program are easily replicated across multiple shows, resulting in more consistent quality. Furthermore, nonfiction media consumption has a stronger association with brands and content creators. As a result, nature lovers and animal lovers have a higher chance of staying with the programs produced by Discovery Communications Inc. (NASDAQ:DISCA).

Does customer loyalty still exist?

Discovery Channel, Discovery Communications Inc. (NASDAQ:DISCA)’s flagship television brand, was named by U.S. viewers as their favorite cable network for the 20th consecutive year, according to a 2013 study by BETA Research. Discovery Communications’ brands have also unparalleled reach, with its channels distributed to more than 300 million households across over 200 countries.

Despite its incumbency status, Discovery Communications also managed to build six new brands in the past five years. Among these new brands, Investigation Discovery, which offers crime and mystery related documentaries, is now among its top five networks in terms of U.S. subscriber base with more than 80 million subscribers.

Diversified revenue streams provide stability

Discovery Communications generates about half of its revenue from distribution, and the remaining half from advertising. It is intuitive that when the economy is in a downturn, consumers have a lower propensity to spend, leading to decreased advertising spending. On the other hand, there is need for television stations to fill up the time slots with content, notwithstanding the state of the economy. Moreover, advertising contracts are usually shorter in tenure of a year or less; in contrast, Discovery Communications signs multi-year agreements with its distributors. With a longer lock-up period, distribution contracts provide an element of stability for Discovery Communications’ earnings, partially offsetting the cyclicality of advertising revenues.

Discovery Communications also derives more than one-third of revenues outside the U.S., further reducing its reliance on the domestic advertising market.

Peer comparison

Discovery Communications’ peers include Scripps Networks Interactive, Inc. (NYSE:SNI) and Viacom, Inc. (NASDAQ:VIAB).

Page 1 of 2

Biotech Stock Alert - 20% Guaranteed Return in One Year

Hedge Funds and Insiders Are Piling Into

One of 2015's best hedge funds and two insiders snapped up shares of this medical device stock recently. We believe its transformative and disruptive device will storm the $3+ billion market and help it achieve 500%-1000% gains in 3 years.

Get your FREE REPORT and the details of our 20% return guarantee today.

Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.
Loading Comments...

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 102% in 3 years!! Wondering How?

Download a complete edition of our newsletter for free!