Good day, ladies and gentlemen, and welcome to the Full Year and Q4 2017 Discovery Communications Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, today's conference is being recorded. I would now like to introduce your host for today's conference call, Mr. Andrew Slabin, EVP, Global Investor Strategy. You may begin, sir.

Good morning, everyone. Thank you for joining us for Discovery Communications' full year and fourth quarter 2017 earnings call. Joining me today are David Zaslav, our President and Chief Executive Officer; and Gunnar Wiedenfels, our Chief Financial Officer. You should have received our earnings release, but if not, feel free to access it on our website at www.discoverycommunications.com. On today's call, we will begin with some opening comments from David and Gunnar, and then we will open the call up for your questions. Please keep to one question if you can, so we can accommodate as many as possible. 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. These statements are made based on management's current knowledge and assumption about future events and they involve risks and uncertainties that could cause actual results to differ materially from our expectations and providing projections and other forward-looking statements, the company disclaims any intent or obligation to update them. For additional information on important factors that could affect these expectations, please see our Annual Report for the year ended December 31, 2016, and our subsequent filings made with the U.S. Securities and Exchange Commission. And with that, I will turn the call over to David.

Good morning, everyone, and thanks for joining us today. Yesterday, we received some good news. We spoke to the DOJ and they told us that we have been given clearance to move forward with our acquisition of Scripps Networks Interactive, and last night, we received the formal letter from the DOJ. With our EC approval and DOJ clearance in hand, we expect this transformative merger to close sooner than expected, within the next two weeks. Discovery, with our collection of global IP, brands and strength in non-fiction, kids and sports globally, together with Scripps channels and global content; we will be a formidable and differentiated company in the marketplace. In bringing together Scripps and Discovery's suite of world class brands, content and talent, our company will have the ability to reach viewers and fan groups around the globe on every screen and service across every format, accelerating our pivot to becoming a stronger global IP company with more direct-to-consumer content that can offer advertisers and distributors a high quality and engaged audience at real scale. As new and deep pocketed players enter the scripted market, the competition and cost to create quality content has become intense, with over 500 scripted projects competing in the marketplace this year alone. This creates a high stakes game, which not everyone can win. That side of scripted television and scripted movies, that's not us. We're on the other side of the ledger. We've always kept a keen eye on our production expenses and are proud of our efficiently run, low cost, global content engine. In the non-fiction space, we're strong. It's what we do. We tell great stories with great characters and we take that content around the world. We don't do red carpets or fancy openings. We stay focused on real life entertainment,…

Thanks, David, and thank you, everyone, for joining us today. Let me now walk through our fourth quarter and full year financial results. While our industry continues to evolve at a rapid pace, 2017 was an exciting year for Discovery and we ended the year on a high note operationally, with solid global ad and distribution revenue growth and continued strong cost management. For the full year, Discovery achieved both of our total company guidance metrics, with 16% full year adjusted EPS growth. This metric excludes currency effects and non-cash European goodwill write-down, which I will discuss more later, and Scripps transaction costs and was at the high-end of our guidance range of low to mid-teens. And 25% full year free cash flow growth including currency effects and Scripps transaction costs, well ahead of our guidance of at least 10%. Looking at the rest of our full year results, our total company reported revenues and adjusted OIBDA were up 6% and 5% respectively. And on an organic basis or excluding the impact of foreign currency, as well as the impact from The Enthusiast Network or TEN, as well as OWN, which we began consolidating in December of last year, total company revenues and adjusted OIBDA both grew 4%. Organic costs were up 4%, with 7% cost of revenue growth and flat global SG&A, as we remain hyper focused on controlling non-content costs. So in 2017, we were again able to deliver solid financial results, while at the same time investing in new areas of growth to strengthen our global content platforms and brands. Full year net income available to Discovery Communications grew 10% excluding currency, Scripps transaction costs and the goodwill write down, mostly driven by improved operating results and the net positive impact from our solar deals, which helped…

Our first question comes from Steven Cahall with Royal Bank of Canada.

Yes. Thank you. Good morning. So, maybe just the first question around the synergy. We've seen a lot of media companies recently talk about using tax reform to increase their content investment. David, you've said that you have a lot of confidence, and it sounds like maybe there's some upside to that synergy number. So, between your debt paydown and investing back in the business, how do you think about allocating a lot of that savings? And then, secondly on the advertising side, it looks like the Q1 pacing both domestic and international is pretty strong. So, can you give us any more color on what you're seeing in those markets, maybe from a pricing perspective to indicate the health in advertising? Thank you.

Thanks, Steven. Well, first, on the advertising market. It remains I would say pretty steady, maybe leaning a little bit toward, maybe a little improved versus the fourth quarter, but not a big difference. But pricing is good, volume is good. So, we see the market as being steady to maybe a little bit stronger. Remember, in the first quarter, we have the Olympics. So, even with the Olympics, seeing what we're seeing, it may be behind that there's a little more strength. We'll just have to see. On the synergy, as Gunnar and I said, we haven't been able to get too close because we've been going through this process, but the more that we look at Scripps, the stronger the synergies are. So, we think $350 million is very conservative. Just conceptually, this is a one over one transaction. When I was at NBC and we acquired Universal, there was a movie business, there was a theme park business. So, there were businesses that we didn't understand and we weren't in, and then there was the cable business. For us here, we're in the free-to-air and cable business around the world. So, we have 12 channels. They have six channels here in the U.S. And so, everything we do, they do. And so it's one over one. So, in terms of our ability to take that IP around the world, to put these channel factories together, to launch new channels with their IP, and to take that IP around the world and put it on platforms, we have people in place and competency to do that in every language. And so, the more we look at it, the more we see on the cost side, real optimism. Having said that, we haven't included at all our revenue synergy;…

And, Steven, maybe if I can add a couple of points from the financial perspective. I think it's worth taking a look at the 2017 numbers. If you look at the development of our cost base, you'll see that we've grown cost of revenues at 7%, while we've kept SG&A flat. And I mean, I think that underscores how we're looking at the business. We have invested into content and we will continue to do so. As I said in my speech, I am pretty optimistic when it comes to cash flow for 2018. Tax reform certainly is going to be a helper here. And I also think we can be even more efficient on our content investments. So, those are two additional points I would make from a financial perspective.

Gunnar made the point that we're going to have our eyes on and we'll be pointing it out to you regularly, free cash flow. We think that putting these two companies together, we're a free cash flow machine. And in a difficult environment, as I've said before, we have – we built the moat and we have an opportunity to double our free cash flow, very quickly. And we're getting rid of other assets that we don't think that we need, and we'll use that to pay down, so that we can get ourselves in a position where we could start deploying capital to buy back our stock, to invest in the future. So, we're quite bullish.

Thank you.

Our next question comes from Jessica Reif with Bank of America Merrill Lynch.

Just a couple. Given the changing landscape, actually global landscape, with Disney-Fox and potentially Comcast Sky today, can you talk about other areas of potential interest outside the U.S.? And then, the second question is given there's so many changes in the industry, again, globally, given the newer competition in global platforms from Netflix or Amazon, how are you thinking differently about either programming or marketing on a global basis?

Thanks, Jessica. Let me deal with the second one first. This is a different world. Before, we generated content, we put it on our cable and free-to-air channels and we did deals with our cable and satellite distributors. Now we're doing business with the mobile players as well, as we look to create content on the mobility platform. But we have four big global platform companies now; Apple, Amazon, Google, Facebook – five – and Netflix. And that matters. They're in business with customers. And they're all in slightly different businesses, but they're quite compelling. They're very good at what they do. And there's opportunities for us to either compete with them or to piggyback on those platforms. When we look at a lot of those platforms, we think there's very few media companies in the world that have global content in every language and brand that are loved and characters that are loved everywhere in the world. So, if Amazon or Apple or there was a company – if Facebook wanted to do a deal with a media company and they wanted to hit a button and offer it globally, we're one of the few companies that could do that with brands that will delight and be pulled through by customers. So, I guess that would be piece number one. The other is that – and I alluded to this – we really see the industry now is dividing. The right side of the industry is Netflix and Amazon. And they get value differently and they're really in the scripted series and scripted movie business. And if you look at them, they're becoming more and more commoditized. There's some of the – a lot of the movies that you see on one, you see on another. And then, there's…

Our next question comes from Tim Nollen with Macquarie. Tim Nollen - Macquarie Capital (USA), Inc. Thanks. Wanted to ask something about OTT strategy and distribution as well. You alluded a couple of times now to some other distribution. You seem to be one of the few that has not really gone after a direct-to-consumer strategy in the U.S. I wonder if this is something that could be possible. And you mentioned couple of times just now mobile. I wonder if there's something you could discuss about mobile distribution given some of the alignments that we're starting to see between content and mobile carriers. And then one other very, very small question, regarding the Scripps transaction. I believe there's a put option by UKTV there. I wonder if there's any comment on that, and if that factors into the closing here? Thanks.

Okay. Thanks, Tim. Just on the OTT side. When you put our channels together with Scripps, we have a lot of quality services. We have a breadth of family channel offerings and we have something that's differentiated. The good news is that there are some skinny bundles that are starting to happen. Charter launched one, DIRECTV NOW is growing. We don't see any reason – we're fully supportive of those. We don't see any reason why we can't ourselves together with others continue to seed or grow that market. We think that there's a big need in the U.S. for a low priced entry product. And we'll be – after we close on Scripps, we'll be looking very hard at what we have ourselves and we'll be talking to customers about what kind of opportunity there is to create an offering either ourselves or with others. So, I think we will be looking hard at that domestically and internationally. We could create a pretty compelling offering for $6, $7, $8 that would look a lot different than Amazon Prime, a lot different than Netflix, and it could be very attractive in every language globally. So, we'll keep our eye on that. On mobile, it's just common sense. Facebook had this moment where they made that pivot. We – if you take a look at everything we've bought and everything we're doing, it's really this idea that we have to be on screens. And, yes, we believe that traditional business is going to continue to be there for us, and we think we can continue to grow that business globally. And outside the U.S., the business in many markets is much healthier than it is here. And there are many markets where the traditional business is still growing. But you look at the U.S. and you look at a great company like AT&T with over 100 mobile screens. Verizon, over 100 million mobile screens. You look at Vodafone in Europe, Deutsche Telekom, Telecom Italia. We're talking to every one of those, and the secret source hasn't happened yet, but every one of them together with us, is looking at what kind of content will people want to consume on mobile. What will differentiate or de-commoditize those mobile players. And we now have a full menu. And we need to work on some of those recipes, but if you want women, we have women. If you want men, we have men. If you want cars, we've got cars. You want food, you want home, you want Oprah, so we have a lot of stuff and we do think pivoting to mobile and devices is a very key element to us emerging as a very different media company that's around for a long time.

And Tim, on UKTV, it's true, there is an obligatory put that's change of control trigger. I think the market would agree, it's a quality asset and we haven't closed the deal yet, so we'll figure it out. But from a financial perspective, worst case if we have to put the asset, then that will lead to faster de-levering because we'll get the fair market value. So, let's cross the bridge when we reach it.

And we have a very good relationship with the BBC, long-standing. Tony Hall, who runs BBC, is a wonderful man, very talented. He and I are close friends. We haven't talked about this because we haven't closed yet, but we have been in discussions about a lot of things where there are things we can do for them and there are things that BBC could do for us. We've had that kind of relationship in the past. And I think with UKTV, it's another piece of the puzzle, and we'll figure out – I think we'll figure something out together that's mutually beneficial.

Our next question comes from Todd Juenger with Sanford Bernstein.

Hi. Good morning. Thanks. Hey, David, if you don't mind, you've used some of my favorite words this morning; terminal value and moats. And so, if you don't mind, I'd love to hear your thoughts on this. If you think – and let's just keep it to the U.S. I know it's a big world, but for the U.S., when you think about the world as it would exist for you five years from now, is your view more that the decline of linear audience and ad supported audiences will find a floor and settle down, and sort of be stable, and therefore you'll be okay? Or is your view more that, no, those declines in viewership, at least linearly, will keep going down, but it's okay because you'll make it up in price on advertising and subscription fees and that's how you'll maintain stability or growth? Or is your view that no, that will keep going down, but we'll replace it with some of these things you've said like mobile and OTT and make that trigger point change? And I guess depending on which of those views you have, how do you determine like when you would make those sort of strategic changes and what that could do to accelerate the other dynamics going on with your linear business, if you follow? Just love to hear your thoughts on that. Thank you.

Thanks, Todd. First, I hate to talk about the U.S. because that's how you guys look. I think in general, people see us and they see what we do in the U.S. Nobody does what we do outside the U.S. where we're in 50 languages and we're a leader with channels and brands, and relationships with users everywhere in the world, and more and more our leadership in sports in Europe and our leadership with kids in Latin America is an important piece of our company, as we see sports and kids being first movers to direct-to-consumer and first movers with a lot of the more scalable platforms in those markets. But, look, we have no idea. That's the honest answer. We don't know what's going to happen. Personally, I'm optimistic. I think that the U.S. is slowed down because of our behavior because of the rational behavior and overleveraging of sports and retrans. You and I have talked about it a lot. And I think finally, as you start to see declines in the U.S. that look nothing like anywhere else the world, where things are much more steady and younger people are still in many cases subscribing to cable even though they're also subscribing to Netflix and other products. And it's because it's so expensive here, it's $100. And so, when you see Charter launching a less expensive bundle, when you see Philo, when you see AT&T starting to be aggressive with DIRECTV NOW; all those things are encouraging. My own view is if there were skinny bundles out there, we'd probably be flat to slightly up as an industry, and we would be embracing a lot more younger people. But I'm not in control of that. We think we can have more of an impact because we're…

Roger that. Thank you, David.

Our next question comes from Alexia Quadrani with JPMorgan.

Hi. Thank you. Just looking at some of the ratings at your networks and the soon-to-be-owned Scripps, in 2017, how disruptive is the elevated news cycle, and I guess how much share do you think you're losing to news, if any at all? And how do you manage that given that the issue doesn't appear to be short lived there as we all once thought. And when you look at the strength at TLC and the strength at ID, they are immune because the programming is so strong? Or a different demo? I would just love to hear your thoughts on sort of the general environment for your networks here and the ratings and maybe the factors that are influencing the performance going forward.

Thanks, Alexia. It's hard to tell. We do get some – we do look at the data. We want to see basically when – people who love our channels when they're not watching us, what are they watching. And there are certain channels that have more of an overlap than others. We don't have a depth of knowledge of exactly what's going inside of Scripps because they've bought a lot of that data and they are much more versed on it. They have said publicly that they think that there's a significant overlap there. It's sort of like what happens during the Olympics. Discovery takes a bigger hit, but some of our other channels don't take much of a hit at all. So, we'll continue to look at that. There's no question, look, I launched CNBC and MSNBC, and I've seen those channels, and I think they're doing a great job. They're all doing a terrific job if the goal is to aggregate an audience, that's what they're doing. They're affinity networks and they're aggregating an audience. They're basically, at this point, they're telling stories just like we are. It's just playing out really as one of our shows in real time every day. And so, that's a big benefit for them and they're doing a terrific job. We can't control that. We do have a large portfolio. We get the advantage of being able to promote from one channel to another before we would spend money, Scripps spent a lot of money on us, on ID and TLC and Oprah and Animal Planet, telling people to come over and watch their stuff and vice versa. We get the ability to move content around, we get the ability to promote, to tell people what's going on, on the different networks. And we got a big portfolio, and we're going to be able to take the best people from both companies, which is something we haven't talked a lot about. But one of the things we loved about Scripps is Ken Lowe built a hell of a company. They're great. They understand brands. They're great at creating characters, telling stories. It's sort of like, we think we're the best. We look at them and we say sometimes we think, as much as we say that, we think they're the best. And so they have kind of been our rival, and we've made each other better, and now we're going to be able to take the best of both and I think you'll see that when we get this over the finish line. And I think that'll help us and all of this will all come to pass. There's different trends, and as I was saying when I was there with MSNBC and you looked at CNN, it was very hard to get people to watch news. That's not true now. But at some point it will be true again. And so, I like the diversity of our portfolio.

Thank you very much.

Our next question comes from John Janedis with Jefferies.

Hi, thanks. Two questions from me. One is, David, it seems like your standalone digital business is starting to have more visible contribution on your ad growth. And so with Scripps's $19 billion global video ad views last year and then layering on what you've been building, can you talk about to what extent the scale gives you the ability to accelerate either demand or ad growth, particularly given your share in some key demos? And then separately, there's been a lot of focus on virtual MVPDs and distribution, with the deal closing in a couple of weeks, do you have more confidence in the potential to be added to either existing or new platforms going forward?

Thanks John. Well look, right now, we're not carried on Sling, on Hulu and on YouTube. Our ambition is to be carried on every platform, and that's basically how we're carried almost everywhere in the world. So, we've had a lot of discussion about why we haven't been carried on those. In many cases, they're paying $40 or $42 to carry every channel from Disney, Comcast and Fox. And you got to carry every one of them and every regional sports network and every one of their channels. Those are channels that consumers make a choice and they prefer our channels to many of those channels. And so – and we're a great buy. And the people that are running those three businesses are quite good. They're looking at what consumers want. Their platforms are good, and I think over time, given the amount of time that people spend with our channels, it's going to be in our mutual interest to have people that choose those platforms to be able to spend time on with Discovery, with Oprah, with Food, with HGTV, with TLC, with ID, and I'm an optimist. So, I'm confident in the long run that consumers will win out, and both those – all three of those platforms are terrific. And the people there are very good, and they're dealing with an issue. They have a very high cost structure. But I think over time we'll get on there, and they're looking at more and more data of what people want on their platforms. And none of them are growing in ways that they're – their growth we think could be helped by having more good stuff. So that's our argument, and we continue to have those discussions with them, and I'm hoping that eventually we'll be on all of them. We should be.

And then, John, on the digital contributions, I mean, as you say, we're seeing some traction in our advertising business, our GO platform has supported growth over the past couple of quarters and, again, made strong contributions in the fourth quarter. And we're seeing some real traction there. Motor Trend OnDemand is developing well. We're, as you know, bringing together the Velocity network, the linear network, and Motor Trend OnDemand, and sharing content, et cetera. There's some early positive signals there. As David said in his speech, the Eurosport Player has really seen a lot of momentum, passed a million subs even before the Olympics started. And clearly from what we've seen during the due diligence, Scripps is operating an impressive short-form digital operation. So, I agree with you. I think there's a lot of potential as we look forward, and obviously a greater IP library is going to put us in a better position when it comes to exploiting the content in emerging platforms.

Look, this is really a journey for us. Over the last three years, we have fallen down many, many times. The platform didn't work. We had buffering. We had consumer interface that wasn't loved. We got over a four-star rating on our Eurosport Player for the Olympics. And people – we went online and people were delighted by it. But it – what we ended up doing on that platform was a result of three years of talking to customers and making mistakes. And we've still got a long way to go. But if you drew a circle around what you need to do to make somebody happy on a platform where they're consuming content on a small device and consuming content that they're excited about or they're a super fan, we're inside that circle now. And we're doing things we didn't even think we would need to do or want to do a year ago. We downloaded 700 pieces of short-form content every day during the Olympics. So, our original thought was we just provide the Games, but then we figured out that just as important as the Games is this idea; if have you a device, you hit that app five or six times a day, and if there isn't something fresh in there for you, that's interesting or funny or tells you something you didn't know, you go there three or four times and there's nothing there, you change. You stop going there. And it's very similar to a cable channel in the sense that if someone comes to Discovery four or five times and there's not something there that they like, then they start to look elsewhere. And so on our Eurosport Player we were very careful with the consumer interface. We did a huge amount of short-form content that we published throughout the day and night, and then we even changed it. A couple of days in we saw that the content that we were publishing was the local athletes and coaches that were getting much more play and much more shares than our big-time talent. And so, we looked at that data and we said okay, it's local, local, local. And so, I think we're getting smarter and we're getting more confident. Almost 0.5 million subscribers in less than 15 days. So, we're going to take what we learned from that and we're going to put that in the bank and start to try and get better at what we're doing. And a year or two from now, we're going to be in a position where we're really going to understand how people consume content on a phone and what we have to give them, so that they could feel like I love this thing. But we're on our way.

Our next question comes from Jason Bazinet with Citi.

I just had two questions. You mentioned on the call you're optimistic about the cost savings synergies with the Scripps deal and revenue synergies. Do you think that you will post-close sort of update it with a hard number on the cost side? And do you think you'll ever give a revenue synergy number? Or you'll just let it play out as it plays out? Thanks.

Look, Jason, the reality is, given that we haven't closed the deal, we have stayed away from Scripps, of course. So, we've done a lot of work on our side, and as David said, we're super confident with the analytical preparation work that we have done. It looks like we're going to close the deal soon now, and certainly, we want to take a couple of weeks to sort of test some of our assumptions and get some more details, including the details on the Scripps side. So, we'll take that time, but certainly then once we have a fully vetted view on what the – not only the total number of synergies is going to be, but also what our sort of refined ramp-up timing is going to look like, we'll definitely come back and update the market on our plan there.

Great. Okay, thank you. And if I could just ask one follow-up. I noticed, I think it was in January you decided to move the headquarters to Knoxville out of Maryland, and then today you announced that you're shutting your Education business. Can you just provide just a bit of color? I mean it sounds like you guys are doing everything to get sort of very focused on the opportunities as you see it, and sort of do everything you can to get more efficient. So, any color on either of those moves would be helpful?

I guess you nailed it. We're really committed to focus as much as we can. As David said, the headquarter decision has been a tough one. But there's no way we would be operating a combined company with three major locations in the U.S. So, as tough as the decision was, we've decided to move the headquarter to New York actually, and once the deal closes build out Knoxville as an operational center going forward. And you're right, the Education sale is another $120 million cash in for us. And it's clearly one of our objectives to really focus, and as we've said before, de-lever as quickly as we can as we go through this integration.

Perfect. Thank you.

Our last question comes from Rich Greenfield with BTIG.

Hi. This is Mark Kelley on for Rich. Even with the vMVPD benefit, even the biggest programmers are losing about 3% of their subs year-over-year, and everyone's, not just Discovery's ratings, are continuing to fall. So given that, can revenues in the U.S. really continue to grow long-term with less and less subs and less and less viewership? And at what point is the weight on rates simply unsustainable? Thanks.

Look, I think it's clear that the one thing we do not control is those subscriber trends. As David said, we're confident that this linear business is going to be around for a very, very long time. And if you look at what we're doing, both on the affiliate side and on the advertising side, there have been significant step-ups in our deals, which has continued to lead to positive growth. There certainly is additional upside from emerging bundles from direct-to-consumer offerings that we might be going after, especially internationally. And on the advertising side, there's a very logical reason for increasing CPMs, as the only remaining mass medium becomes more and more scarce in terms of available inventory, there's an increasing value of 1,000 viewers. So that's a pattern that has been very stable over the past couple of years. And if you look at the technology evolution in the pipeline, I think TV as an industry might benefit quite a bit from being more and more addressable and targeted in their advertising product. So, I think we have a healthy outlook.

The only thing I would add to that, which I think is a positive, is when you look at our portfolio, the thing that would come to mind I think is all safe. When you go on some of these other platforms, you got to worry about what you're going to be next to, what's going to show up, is it fully quantifiable in a way that you can take to the bank. Then you take a look at our 18 channels here in the U.S., what they provide, the cross-section of demographics, the quality of the content, and the things that we just don't do as a company, the safety, the knowing that it fits Discovery, that there's a filter there and there's a quality. And that's a big deal. And that's what we're moving toward. That's what the – when you think about our owners, our biggest shareholders, the new house family, Bob Miron, Donald and Si Newhouse, who built this company, and John Malone, they came here for quality content that was going to entertain and when we're at our best we would educate and inspire around the world, globally and now on all platforms. And so, as there's a race to provide audience, there's often a degradation or on many platforms, there's a disruption with quality content or good content, not knowing where it's going to be or what's going to be next to it. So, we think long-term that's an advantage. So, thanks so much.

Great. Thank you.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.