Discovery Communications (NASDAQ:DISCA) is a leading provider of pay-TV programming with an emphasis on lower-cost, fully-owned, nonfiction content that appeals to global audiences. Despite positive business developments through 2015, shares of Discovery and other media stocks generally suffered as investors became more skeptical of traditional pay-TV’s staying power. Modest subscriber declines reported by cable and satellite TV providers in addition to falling ratings through 2015 led many to conclude that the whole pay-TV ecosystem was unravelling in an accelerating fashion. Exacerbating the perception problem for Discovery was the strength of the US dollar, which muted continued strong growth in the company’s strategic portfolio of international channels. Although the traditional video bundle may get “skinnier,” we believe that the traditional cable system will continue to persist and that Discovery’s content remains a “must have” for subscribers. The company’s ownership of its content also affords it the flexibility to begin offering it directly (via mobile apps), a recent industry trend. From today’s price, we believe the stock has above average return potential.
From Wallace Weitz (Trades, Portfolio)'s fourth quarter 2015 Value Fund commentary.
