Jackie Burka - Vice President, Investor Relations David Zaslav - President and CEO Andy Warren - Chief Financial Officer

Anthony DiClemente - Nomura Kannan Venkateshwar - Barclays Doug Mitchelson - UBS Ben Swinburne - Morgan Stanley Rich Greenfield - BTIG Michael Nathanson - MoffettNathanson

Good morning, everyone. Thank you for joining us for Discovery Communications 2015 second quarter earnings call.

Joining me today are David Zaslav, our President and Chief Executive Officer; and Andy Warren, 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 Andy, and then we will open up the call for your questions. Please keep to one question so we can accommodate as many people as possible.

Before we start, I would 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 assumptions about future events and they involve risks and uncertainties that could cause actual results to differ materially from our expectations.

In 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, 2014, 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 thank you for joining us. Discovery’s strong start to the year continued in the second quarter, with steady growth across our global portfolio of brands and businesses.

Propelled from a strong second quarter into what was a momentous start to the third quarter, I join you extremely confident in Discovery’s future growth prospects. I believe we will look back on July 2015 as a pivotal month in our company's history as we announced three transformative agreements.

The multiplatform rights to the Olympic Games in Europe for the next decade, the deal to acquire 100% control of Eurosport and lastly, a favorable long-term renewal with Comcast for our U.S. Networks portfolio and distribution on the Xfinity Comcast platform.

These deals together stabilized and enhance our U.S. growth profile, continue our diversification internationally and give us more blue chip IP content and more distribution, so we continue to drive audience share across all consumer platforms.

Earlier this month, we announced an exclusive deal in Europe, with the IOC all of the TV and multiplatform media rights to the four Olympic Games from 2018 to 2024. Never before has one media company been granted all rights on all platforms across Europe.

We believe the Olympic Games will be a foundation programming piece for Eurosport and Discovery across the continent. Eurosport already dedicates over 40% of its programming schedule to Olympic Sports and bolstering our rights and offerings with the world's greatest sporting event is a perfect editorial and strategic fit for the linear channel and for eurosport.com, the leading online sports platform in Europe.

Combined with full access to the Olympic programming archive, our use of the Olympic rings immediately following Rio and our existing Sports Federation Agreements, this deal was substantially strengthen the Eurosport platform and bring the Olympic Games to more viewers on more platforms across Europe than ever before. We will maximize our reach to Europe’s 700 million residents across platforms.

Following the June 29th Olympic announcement, we have seen an increase in conversations and feedback from our European distributors, advertising partners, and phone and new media players, who want to work more closely with us. Soon after the Olympic deal, we struck an agreement to acquire full ownership of Eurosport from the TF1 Group.

In 2012, we began our investment with a 20% stake in Eurosport and increase that investment to 51% more than a year ago. Taking full control of Eurosport allows us to further strengthen the brand and decision-making process, more readily secure important sports rights on a local or pan regional basis, and fully realize the businesses growth potential.

Eurosport two or three channels across 130 million homes, eurosport.com and now the Olympics for the next decade, makes us the clear leader in sports in Europe. Finally, the third transaction was signing a long-term Distribution Agreement with Comcast.

Our renewal with Comcast is significant. It demonstrates the distributors continue to place great value on our content and brand, with meaningful increases, and it solidifies our TV Everywhere strategy with deployment on Xfinity, primary TV Everywhere platform in the U.S.

Four years ago we said we would reset our domestic affiliate rate structure with a step up and more meaningful increases to reflect our increased investment in content and the growth of our audience share that our channel brands had earned. I am proud to say that we've achieved it.

Prior to this renewal cycle our deals had price escalators at CPI. But we have now reset all of our affiliate agreements that have come up in the last four years, which is the majority, at a meaningful rate increase that reflects the strength of our brands and our increased market share.

Andy will give you more details but today we are positioned for long-term growth in the United States. Locking up that long cycle money with strong price escalators, allows us to focus on other aspects of the business and gives our U.S.

business a steady growth rate for years to come. And there is still real opportunity for value creation even on the affiliate side going forward.

At 13% share reviewing, we were only getting a mid-single-digit share of affiliate fees even with our increases. There is still a gap to close in the future as well, which we see as real opportunity in the years ahead.

Even in a marketplace like the U.S., it is relatively flat and challenged. Combined with our multiple TV Everywhere rights deals signed in the past two years, we are now accelerating the expansion of streaming choices for our content across platforms and diversifying our distribution channels with multiple partners.

It’s positive when new entrants come into the market, particularly when you have the number one channel in America for men with Discovery Channel, several top channels for women and the top channel for African-American women with OWN, all at a price point that is a very good value which gives us a real advantage. Today I'm pleased to announce an agreement with Verizon to bring long and short-form content from Discovery Channel, TLC, Animal Planet, ID and the Science Channel, including full episodes of prior seasons of hit shows to Verizon's U.S.

mobile subscribers. This deal extends our platform reach to Verizon customers beyond our traditional pay-TV customer base and adds yet another source to our distribution revenue stream.

While we drive to extend the delivery of our content to new platforms, we also are working to maximize and exploit our traditional business in the U.S. Headwinds notwithstanding the U.S.

pay-TV marketplace remains one of the world’s most important programming and advertising markets. Long-term we are evolving our approach to integrate advertising more deeply into our content, adding more branded integrations, pushing programmatic buying and driving higher CPMs from the scatter marketplace.

In the second quarter in the U.S. revenue growth, yet again outpaced cost increases and adjusted OIBDA reached an all-time high.

Hitting these metrics illustrates the strong command-and-control we have over our business. We have seen advertising market momentum pick up across all of our channels, so far in Q3, as we continue to benefit from ratings outperformance driven by the flagship Discovery Channel.

Led by new President, Rich Ross, the Discovery Channel team has done a fantastic job of creating and building programming that nourishes discoveries core male viewers while attracting more diverse audiences including women, Millennials, Hispanic viewers and family co-viewing. For the quarter, Discovery’s prime time delivery with persons 25 to 54 rose 12% and 9% with men 25 to 54 and 16% with women 25 to 54.

The network ranked as the number four channel and ad supported cable for persons 25 to 54, up two spots from a year ago and with women 25 to 54 rose seven spots to number nine. Discovery held all of cable's top five unscripted series for men, Deadliest Catch, Naked and Afraid, Alaskan Bush People, Fast N’ Loud and Street Outlaws.

More recently, Shark Week, which aired a month earlier this year continues to be a pop-culture juggernaut. For the science-based slate of programming that reinforce Discovery Channel's heritage, Shark Week 2015 became our highest-rated ever among persons 25 to 54 and women 25 to 54 and Discovery Channel's performance in July outside of Shark Week was strong as prime time delivery jumped 34% for persons 25 to 54 and 26% for men and 50% for women in the same age bracket, all making Discovery Channel the number one channel for men for the month of July.

Internationally Discovery Channel again reaches a record audience as many of our tent-pole shows replicated their success globally. Discovery Channel showed particular strength in India, Brazil and Mexico where our share of audience rose more than 20%.

ID also posted strong viewership gains in the U.S. and abroad in the second quarter.

IDs U.S. delivery rose 7%, and it was a top three ad supported cable network with women 25 to 54 in total day, top three.

IDs average international audience rose a record 23% for the quarter fueled by new market launches in organic viewership growth, including the June launch of ID in Sweden. On TLC, we have moved forward with new series that speak to what the TLC brand is best at, holding a mirror to the culture and telling stories in a thoughtful and sensitive way.

There are no better examples than I Am Jazz, a heartwarming new series about a transgendered teen, her loving family. In its premiere, the series posted 1.8 million viewers and My Giant Life, a new series that chronicles the remarkable stories of the world's tallest women and has averaged nearly 2 million total viewers.

These shows will soon be joined by returning series, Our Little Family and The Little Couple. Meanwhile, TLC’s viewership overseas continues to grow.

TLC’s average international audience rose 15% in the second quarter, led by strong viewership in South Africa, the Netherlands, the U.K. and Russia.

Just as our global networks and programming are performing well, it is also important to note our IP content investments are similarly making real strides. All three, which we own through a joint venture with Liberty Global International was nominated for 11 primetime Emmys this year, including the hit series Undercover Boss and Penny Dreadful.

Overall, we again achieved new record reach in market share gains internationally. With 6% audience share growth across our entire global portfolio in the quarter, our audience and share gains were led by our pay-TV channels in India, Brazil and Mexico, with the Discovery Kids, TLC and Animal Planet brands driving our gains.

We also saw strong delivery in the U.K., Germany and Italy as we have many pay-TV and free to air channels in those markets and a strong and growing share presence. Latin America once again delivered a stellar quarter with average audience up 13%.

We continue to see broad-based gains in viewership across the region. Led by Discovery Kids, Brazil's portfolio was up 23% and Mexico jumped 16%.

Our CEEMEA region posted 5% growth in average audience in the second quarter. Last week in the region, we officially announced an expanded partnership in Turkey with the Doğuş Media Group, one of the leading media companies in the country.

Doğuş is an important distribution partner for our 12 pay-TV channels in Turkey and with this new strategic partnership, we were able to extend our portfolio with positive economics and agreed to purchase our first free-to-air channel in this emerging growth market that expands and diversifies our platforms and windows for our content in Turkey, a key market for us. We will also partner with Doğuş to be our new exclusive representative for our advertising sales.

We are also deploying a free-to-air partnership strategy in the growing Middle East and North African market. In June, we announced plans to launch Quest Arabiya in the region in the fourth quarter through an agreement with Image Nation, one of leading content creators in the Middle East.

This free-to-air Arabic language channel will reach 45 million homes, with the best locally produced male-oriented factual programming, mix with program from Discovery's vast global content engine. Quest Arabiya will expand Discovery’s seven network portfolio in the market, which already includes six pay-TV Discovery brands and the free-to-air channel Fatafeat.

Across Europe and Asia, our investment in Eurosport continues to demonstrate progress, with the business posting a 6% increase in average audience this quarter alone. As we approach the 2018 Olympic Winter Games, we will continue to build Eurosport’s offering and brand for the long-term across Europe and Asia.

Since taking control of Eurosport a little more than a year ago, we've added 7,500 hours of coverage per year, with more than 3,300 of that life through more than 50 sports rights deals to drive viewership and strength of the offering and Eurosport remains meaningfully profitable. Recent rights include the exclusive television and digital rights for eight major international cycle races from 2017 to 2021 in Asia-Pacific, Wimbledon in Belgium, the PGA Tour Golf in Norway and the Europa league in the Nordics.

Beyond linear, we are bullish about the impact of the Olympics and all the local and niche sports content, we are requiring will have on driving adoption of our over-the-top products in Europe. With the Eurosport Player in 52 countries and DPlay, which recently launched in Norway, Sweden, Denmark and Italy, we are continuing to drive toward our stated goal, march to a million subscribers across those platforms in the next two years.

And we now have over 300,000 subscribers as of the end of last month. We are making real progress in our goal to maximize the linear platform while aggressively attacking digital distribution around the world.

Our strategy centers on investing in premium content to grow market share such as the Olympics, maximizing audience reach on pay-TV platforms by locking down long cycle agreements like Comcast, while aggressively pushing our content to new distribution platforms like Verizon in the U.S. And finding new ways to monetize our content like with Dogas in Turkey and evolving our approach to advertising through the use of data to drive addressability, dynamic ad insertion and secondary guarantees using set-top box data.

All of these efforts are designed to enhance growth in the U.S., while driving the expansion aggressively of our international footprint. Based on a 30-year track record of success, the transformative partnerships we've signed in just the past month alone and our continued global growth horizon, I believe Discovery is well-positioned to grow across our 220 markets around the world for the years to come.

With that, I will turn the call over to Andy to detail our second quarter financial results.

Thanks, David and thank you, everyone for joining us today. Discovery’s ability to execute on key strategic global growth initiatives, while focusing on trailing controlling costs led to another quarter of solid results.

On a reported basis, total company second quarter revenues increased 3% and adjusted OIBDA was down 2%. As expected, given our increasingly international business mix, the stronger dollar remained a headwind and changes in currency rates reduced both our reported revenues and adjusted OIBDA growth rates by 8%.

Therefore, excluding currency, revenues and adjusted OIBDA were up an impressive 11% and 6% respectively. On an organic basis, so excluding the impact of foreign currency as well as the inclusion of Eurosport and Discovery Family, total company revenues grew 4% and adjusted OIBDA grew 3%.

Our organic margins were flat year-over-year at 44%. Our strong cost and content spend allocation, discipline and management continues.

But note that we do expect to see a significant uptick in costs domestically and internationally in the third quarter, given the timing of certain content marketing investments. This 3Q cost uptick is embedded in our full year guidance.

Note also that because of the difficulties in separating Eurosport France from the rest of Eurosport results, we will continue to breakout the impact of both transactions to the end of this year. It’s important to remind people, however, that when we breakout and report the combined Eurosport results for another few quarters, the benefits of our owning Eurosport extend far beyond the standalone Eurosport results to the rest of the Discovery portfolio in Europe and Asia to the combined distribution and ad sales leverage in these country.

Net income available to Discovery Communications of $286 million was down versus last year second quarter net income of $379 million, primarily due to unusually large amounts related to higher foreign currency losses of $54 million from the revaluation of both our euro-denominated debt, and monetary assets in Venezuela, $28 million of lower gains related to selling SBS radio this year versus gains related to HowStuffWorks and Eurosport last year and higher restructuring and other charges this year of $19 million, primarily due to content impairments charges from canceling TLC's 19 Kids & Counting. This all was partially offset by lower income tax expense as our effective tax rate decreased another 300 basis points year-over-year to 32%.

As we remain extremely focused on lowering both our effective and cash tax rates, we expect our effective tax rate to be 33% for 2015 and still expect it to be at or below 30% for fiscal 2017, which will continue to drive sustained income growth as well as accelerate our free cash flow. Earnings per diluted share for the first quarter was $0.44 and adjusted earnings per diluted share from a relevant metric, from a comparability perspective that excludes the impact from acquisition-related non-cash amortization of intangible assets was $0.49.

Excluding negative currency impacts, adjusted EPS was up 4% for the quarter and up 11% for the last 12 months. Free cash flow in the second quarter increased an impressive 55% to $313 million, due to lower cash taxes, working capital improvements, lower cash interest payments and lower capital expenditures.

We still expect our full year free cash flow to be up low-single digits versus 2014 and accelerate nicely in 2016. Turning now to the operating units.

The U.S. Networks grew revenue 5%, as it benefited from another quarter of strong distribution growth, up 12% versus last year second quarter and a small increase in ad sales.

Our advertising revenues were up slightly versus last year second quarter, as higher pricing and the consolidation of Discovery Family offset lower delivery. Total U.S.

delivery did improve from the first quarter, led once again by the flagship Discovery Network, but it was still down low-single digits versus second quarter of last year. As David mentioned, this quarter marked our highest-ad sales quarter in the company's history, as we benefited from the overall market shift from an advanced upfront ad buying to higher price scatter volumes, as we also sold a record amount of scatter ad volume.

Looking ahead, we are bullish on our third quarter ad trends as our improved delivery, especially at Discovery, is allowing us to continue to take advantage of a healthier scatter market in respect to our third quarter U.S. advertising revenue growth to modestly accelerate to low single-digit.

It is still too early to have a solid read on Q4. Distribution revenues, excluding the impact from consolidated Discovery Family results, were up 6% this quarter as we again benefited from the higher rates we garnered from our new deals with NCTC, Cablevision, Sony and others at the end of 2014, as well as from contributions from our new Hulu deal, which started January 1st of this year.

Organic growth decelerated from the first quarter due to tougher year-over-year SVOD comps and a decline of approximately 1% in the pay subscription universe. Given the one-time nature of the SVOD comp, we expect organic affiliate growth to accelerate slightly into the second half of the year, assuming that the rate of subscriber losses does not pick up.

I also want to address the financial impact of our recently announced Comcast renewal. We are extremely pleased with the rate structure of our new comprehensive long-term agreement that again recognizes the value of Discovery’s Networks.

Pricing for the new deal goes into effect, January 1st of next year and includes a healthy initial step-up, followed by continued rate escalators over the life of the deal. This deal along with our other recently uncompleted deals help stabilize and accelerate our U.S.

affiliate growth trajectory to high-single digits in 2016 and significantly enhances our domestic affiliate revenue and cash flow growth expectations. Turning to the cost side, domestic operating expenses in the quarter were up 1% on a reported basis, but were down 3%, excluding the Discovery family consolidation.

Excluding family, cost revenue were up 2%, while SG&A declined 11%. Our laser focus on controlling cost with the domestic adjusted EBITDA growth of 7% on a reported basis versus last year’s second quarter and up 4% excluding family.

While margins on a reported basis and excluding family, both expanded by 100 basis points year-over-year to our all-time high margin rate of 61%. Moving onto international operations, our international division drove another solid quarter of organic distribution growth, but did experience a near-term slowdown in organic advertising that is already reversing in the third quarter.

On a reported basis, revenues grew 1% and reported adjusted EBITDA declined 11%. Excluding currency, revenues increased 19% and adjusted EBITDA increased 7%, as changes in FX rates reduced both revenue and adjusted EBITDA growth rates by 18%, as a stronger dollar versus last year remained a major headwind.

And on organic basis, so excluding currency impacts, as well as Eurosport, revenues and adjusted EBITDA both increased 7%. For comparability purposes by following international comments, we refer to our organic results only, so exclude the impact of Eurosport and FX.

The 7% second quarter revenue growth was led by 7% advertising growth and 7% distribution growth. Ad growth was led by another quarter of 20% plus growth in Latin America, led by strong volume, pricing and delivery in Brazil, as well as strength in Argentina and Mexico.

Asia PAC has also recovered nicely and grew advertising over 10%. The majority of the reasons our advertising growth rate decelerated from the first quarter or one-time in nature, namely tough comps related to the World Cup last year, as well as a slowdown in the U.K.

due to elections in May, but we are now seeing a nice acceleration into the third quarter. We were also hurt in 2Q, our audience share in Norway.

Looking forward, we still forecast full year organic advertising growth to be in the low-double-digit range, so it will depend upon no further share losses in Norway. Distribution revenues grew 7%, driven by another quarter of double-digit growth in Latin America, due to higher rates and the continued expansion of pay television in key markets like Brazil, Mexico, and Argentina.

We still expect organic affiliate growth in the back half of this year to be in the mid to high single digit range. Turning to the cost side, operating expenses internationally grew 7% in the second quarter, primarily due to higher content amortization and increased personnel costs, as we further localize our international businesses.

Adjusted OIBDA grew 7% and international organic margins were in line with last year at 38%. Eurosport’s standalone margin in the second quarter was 11% and we still expect margins to be in the high-single-digit range for the full year.

We continue to see significant strategic value of investing in additional sports IP in order to bolster and enhance, both the Eurosport and total Discovery European platforms. And while these investments will drive real long-term portfolio value, the loss will continue to depress margins at standalone Eurosport and will also limit margin expansion going forward for total DNI.

Our Education and Other segment reported small operating loss for the quarter. Given our strategic focus on producing and utilizing more content for our in-house own production studios, which has no margin associated with it, and our continued investment in education's digital textbooks to drive the long-term value of this industry disrupting business, this segment, in total, continue to operate at a small loss for the remainder of the year.

Now, taking a look at our overall financial position, in the second quarter we repurchased a total of $207 million worth of shares. We have now spent over $6.2 billion buying back shares since we began our buyback program at the end of 2010.

And we have reduced our outstanding share count by 30%, as we continue to find the return on repurchasing our own shares extremely attractive. As we previously stated, we remain highly committed to our BBB rating and we will manage our capital planning and allocation with this commitment in mind.

The rating agencies have recently taken a more conservative view on the media industry. And given our current debt to EBITDA threshold is at the higher end of target levels for BBB company, we’re now focused on preserving cash for the remainder of this year.

Therefore, we now expect to have less total available capital for fiscal 2015 than we previously stated. Including the $52 million worth of stock that we will soon buy from Advance/Newhouse under our preexisting buyback agreement with them, we will spend $575 million on total share buyback this year and unlikely that we purchase any additional common stock for the remainder of this year.

Given our capital allocation priorities remain, first and foremost, to invest and drive organic growth, and, second, to invest in strategic M&A platforms and IP, and, third, to buy back our stock. For the remainder of 2015, we need to retain flexibility for additional potential strategic investments, such as our recently announced accretive and growth driving investment with the Doğuş in Turkey while continuing to pay down debt.

As we look towards 2016 however, we forecast for having meaningfully more capital available and expect the amount of capital allocated to share repurchases to increase significantly next year. Turning to full year guidance; excluding currency impacts, we are pleased to reaffirm that we still expect revenue growth to be in the high-single to low-double digit range and adjusted OIBDA growth to be in the low to mid single digit range.

Given our solid operating performance and lower tax rate trends, we are raising our full year adjusted EPS, excluding currency growth expectation, to be low-double digits. The guidance ranges still include the sale of the non-core SBS radio assets, which closed at the end of the second quarter, as well as the $50 million negative non-FX related impact from Russia.

Before move onto Q&A, I want to update our full year foreign exchange impact on our 2015 results. While the dollar has been less volatile, there are slightly higher currency headwinds versus when we last reported, in large part due to Venezuela.

At current spot rates, FX is now expected to reduce our constant currency guided revenues by $440 million, or roughly 7%, and adjusted OIBDA by $160 million, roughly 6%, versus our 2014 reported results. In addition, we are now disclosing that FX will have a $0.23 to $0.28 impact on adjusted EPS versus last year reported results, assuming no further below the line currency adjustments.

Looking at our International Networks mix of currency exposures, the revenue mix in 2015 remains the same at around 30% euro, 30% Nordic, 20% US dollar, 10% British pound, and 5% Brazilian real. Our International Networks' adjusted OIBDA currency mix is forecasted to be around 25% euro, 25% Nordic, 15% real, 5% Russian ruble, 5% US dollar, and still slightly shorted British pound as our international headquarters are in London.

Lastly, as a reminder, we have successfully hedged a portion of our currency exposures and did realize gains in these hedges in the first half. We only hedged about 60% of our international transactional exposures.

We also do not hedge translational exposures, as these derivatives do not qualify for hedge accounting. In conclusion, as I look across our portfolio, I couldn't be happier with how we are currently positioned.

Our current exposure to higher growth international markets is 50% and growing. And while we will continue to benefit from the global evolution of pay-TV and continued audience share gains, as we leverage our marquee content across our unmatched global distribution platforms, about half of our global revenues are locked in for the next several years to long-term affiliate agreements, both domestically and internationally.

David and I look forward to discussing our compelling and highly unique portfolio positioning in more depth at our Investor Day on September 29. And now we would like to open the line up for questions.

Thank you very much. I have one for David and a couple quick ones for Andy.

David, congratulations on the Comcast renewal. You mentioned that in your prepared remarks.

You also mentioned the importance of data. So I thought I would ask about that.

My understanding is that your content as you said will be deployed as part of the XFINITY TV Everywhere app. Do you guys have access to that viewership data?

Some your peers have had network apps that are specific to the network. Just wondering as part of your deal, do you have the rights to launch your own authenticated network app as part of the deal?

And if not, why not do that or do you plan to do that? And I'll come back for my questions for Andy.

Thanks.

Thanks, Anthony. The Comcast was one of the final pieces of this overall strategy over the last four years where we grew our viewership from 5% share of viewership on cable to 13% and to try and get more value and bigger increases.

And so Comcast together with all of our deals to be in a position where we now can look forward and see high-single-digit affiliate growth in US, with all of our channels being carried with very limited exposure to this issue of skinny bundles, because almost all of our deals require that all of our channels be carried to a very high percentage of subscribers. It puts us in, I think, a very good position and makes the US for us, as we look forward, a growth market.

And when we say high-single, we’re putting in there an expectation that the US, we recognize that it's mature, it's been declining at about 1%, and we think we can get high-single, even if that accelerates a little bit. And so the big piece here is that we really -- we have a very good affiliate revenue stream now.

And as I mentioned, we still only represent about 5% or a little bit more than 5% of the economics, even though we’re 13% of viewership, before we’re at 3% or 3.5%. So we are quite a good bargain when someone is looking for content, whether it’d be new over-the-top platforms and so on.

On the data piece, there is a data relationship with Comcast that we established. And I think that's critical because the data inside the box is very important.

Comcast platform is probably the -- if not the best, it's certainly up there and the X1 platform is terrific. It's a leader in TV Everywhere, but it also is one of the real leaders in data capture, which could help us I think on the monetization side.

So we were all in on TV Everywhere with Comcast and with Neil. We’re glad to have that deal behind us.

The other piece is that we own all of our own content, which is quite unusual. And I think it's going to be a very important element as you look at the future of a mature market, because we own all of our content.

We don’t have long-term commitments to sports. We don’t have long-term commitment to off-network and when we put our content on platforms, we get all the money.

And so it gives us the chance to move our content on to platforms, but it also to the extent that the marketplace moves in a particular direction, we have real ability to maneuver from a cost perspective. We don't have any long-tail expensive programming cost.

Got you. Thanks.

Thanks, David. And then, for Andy, just on the comment you made about cost -- the cost uptick in 3Q, why don’t if you just clarify, how is that breakdown U.S.

versus international and specifically, which cost, I think ,you talked about programming being part of that -- timing of programming? And then the $0.23 to $0.28 of FX impact, could you give us, how that compares to what your prior expectation was as of last quarter?

And then, sorry about this, but just had a last one, which was, sound like 3Q is going really well on the ad side, just wondering is it more so a function of ad demand and help of the scatter market or is it more so better audience delivery, given the strength that you guys have seen in terms of ratings in the month of July? Thanks.

Okay, Anthony. Look, on the first question, I am very happy with our cost trends right now.

I really feel like that the point from David’s comments, the fact that we, do we have more content cost flexibility. We definitely demonstrating a lot of coming to control around other non-content cost, particularly in SG&A and we are seeing that benefit over the last several quarters.

To your point though in 3Q, we do expect double-digit increases for both domestic and international, predominantly on the content side, and little bit on the marketing side, as we are going to put some more support and tailwind behind some of our new program launches. So there definitely be a cost uptick in 3Q, but definitely I want to highlight the fact that that, as I think about our cost structures and I think about going forward, I feel really good about our sustained level of productivity and driving SG&A in particular to be kind of in that low single to mid single-digit range.

The second question about the foreign exchange impact, yeah, it’s the $0.23 to $0.28 is the latest view, that's a few cents higher than we would have thought back on our May conference call. It's really highlighting more the fact that while euro has been relatively stable, given our global reach and global expansion of our platforms, clearly some other currencies in particular Venezuela and Brazil have continue to be some additional headwind.

So we definitely do want to going forward continue to highlight for everyone kind of what the impact is on our adjusted EPS.

Okay. Thanks.

And the third question ad sales trends? Yeah, look, it’s really the combination of both our performance and the market, we are, look, our deliveries are strong, particularly with Discovery, our sell-out has been strong, some of the overall ad sales trends around cancellations are kind of add normal levels, we are seeing some nice pricing on the scatter market and the fact that a lot of other networks have been more sold out, given some 80 new constraints and given our relative ratings performance, we add more capacity and so we have more impressions to monetize.

For the first time I would say and we -- it’s too early to make any projections for where fourth quarter will be, but the marketplaces has absolutely picked up and the fact that we have rating points is allowing us to take advantage of that, scatter pricing has been fine for a long time, but the volume wasn't there, fourth quarter was quite weak, we pointed that out and it was a surprise. Second quarter was, okay, but third quarter really seems to be accelerating.

It's too early to tell whether that will continue, but it's -- but it feels good right now.

Yeah. And just to clear off that, six months ago, we all said around, I think, everyone in the industry and said, where is the money going, there is clearly less volume in the broadcast of 20 year ago and what we see today is that a meaningful shift out of broadcast both in the calendar and scatter, and we are seeing the benefit of that scatter today, not only from the standpoint of volume, our highest record ever of scatter volume in the second quarter, but also because we are still seen some good sustained pricing in the scatter market, that's helping us get an uptick in the third quarter, so some overall nice dynamics.

Thank you very much for taking my questions.

Thank you. So just a question the Olympics, now that the deal is done and as you look forward into your affiliates, the levers, and the whole cycle when it comes to Eurosport going forward?

What the end of operating leverage you see from this process, especially when it comes to Eurosport margins? I mean, you guys are still at the single-digits kind of margin profile and once this process is completed, are we looking at a substantial bump over where Eurosport was when you guys acquired this asset?

Thanks.

Well, I think, exactly how the Olympics will play out long-term and the impact, some of it, one of the reasons why we were really keen about getting the Olympics for the next decade and we get the rings and library and access right after Rio, is that we have on all platforms. And so, the one element here is positioning ourselves for the future, where between Eurosport where we own all the sports IP and we have Olympic sports, many of which are top sports in particular countries plus the Olympics.

It positions us where for the long-term -- for the next 10 years we have must have IP and we've seen the response in the market in a meaningful way by a number of different players on all platforms, interested in talking to us about the Olympics. But also the sports content that leads up to the Olympics, so we can take you from Michael Phelps every event right up to the Gold Medal and so there's real value in that, we will try to figure that out.

On the -- when we look at how the Olympics is done in Europe and I was involved with the Olympics for 15 years in the U.S., NBC was quite effective in evolving Olympics from being just the free to air product to free and air -- to free to air and cable, including getting incremental fees and incremental -- and lifting up the whole bundle of the NBC channels and then moving it on to other platforms. If you look at Europe, U.S.

is about 300 million -- 330 million people. All rights in Europe are over 700 million people, but in almost every one of those markets it sort of where the U.S.

was in 1992, basically almost only free to air in each country and they had been sold to free to air players and to the TBS to the public stations in each market, and so we are now the holder of that content, and we will look to monetize it together with all of our assets. So, I think, it's a little bit of a -- of a force pieces of data that look at just where Eurosport is, you will need to take a look at what is our affiliate revenue in the aggregate doing, what is our advertising revenue in the aggregate doing and what is our sponsorship advertising revenue in the aggregate look like.

And as we mentioned earlier, we are pushing hard in over the top. I think we're the only company in Europe that's going directly to consumer with sports and we have over 300,000 subscribers now that are paying us between $6 and $8 a subscriber in order to get the Eurosport programming.

So for the French Open instead of watching three quarts, if you had three Eurosport channels in your country you could watch 15 quarts, on cycling you can follow 15 cyclists. And so, this is -- we are really looking to restructure our company for significant growth in the future by better IP, while at the same time growing our linear platforms and I think, the Olympics together with Eurosport allows us to do that.

And just to elaborate the question about margin, from a purely financial perspective, while Olympics will dilute margins for Eurosport and DNI. It is absolutely going to be both cash flow OIBDA and FTV positive.

So when we look at the financials of Olympics standalone, couldn't be more enthused about the deal we did, the rights we have and the impacts it’s going to have on over our portfolio.

So just one follow-up question, I mean, you guys do have affiliate deals coming up much prior to the Olympics. So when should we start seeing some of these fee bumps as a result of the Olympics.

I mean, is the 2016 kind of an event or is it further up?

The cycle for our affiliate deals outside the U.S. are shorter.

They tend to be about three years versus in the U.S. where they are five to seven years.

And you’ll see it in two forms. You'll see it in an overall bundling.

I oversaw the sale of the Olympics when I was at NBC and we were able to get several hundred million dollars for each Olympics. We’re not saying that that's exactly what we’re going to be able to do in Europe but we do think that we’ll be able to get some -- get meaningful fees for, whether it's by in the way that we carve it up charging for over the air us carrying it on cable, putting it on other platforms.

And so some of it will be in the form of affiliate revenue and some of it will be in the form of the rights fees where we'll be giving away some of those rights to carry the Olympics and the Olympic programming that leads up to it.

I think you'll see a similar kind of cadence that you saw from us in the U.S. As David said earlier, we committed four years ago as we're going into our renewal cycle and as we catch up unsure of wallet, catching up to share a viewership.

Even you see an accretion on our U.S. distribution rates and you saw it went from 4% in ‘13 to 5% in ‘14 and 6% in ‘15 and you can see our growth accelerating in ‘16.

As we said, it’s going to be a high single digit. I think the same kind of cadence will exist now for DNI.

The combination of Eurosport, the combination of Olympics and that leverage we will have will allow us to continue to accrete on the affiliate line for the next several years at international.

The other element, that's helpful here is we moved into Eastern and Western Europe, and viewed it four or five years ago was the new emerging market. So we’ve gone local in those markets.

We launched free-to-air channels at a very low cost where we use our content to reach some markets that have low pay-TV. And we've done some more local content in markets.

And with the largest pay-TV play around the world but internationally -- but in Europe, we are now by far the largest pay-TV media company. And the scale that we've been able to get by the growth of our pay-TV together with free-to-air puts us in a much better position as we sit down with distributors.

And what’s happened, there is a lot of other companies that are local because of the fact that most countries are either in recession or flat and it's been a long haul. A lot of the local companies have spent less on content, which has helped us gain share and a lot of the players from outside have taken cost out and done the opposite rather than go local and spend more on content reduced.

And so our market share is up. So we think that Eurosport in the Olympics together with our market share being up and people spending more time with our channels gives us over the next several years some upside as we pushed for higher pricing and we intend to do that and we've started to.

Thank you.

Thanks so much. So David, with the total revenue now in good shape in the U.S., they are playing the model, of course, it’s on the advertising side, you're well aware of concerns that investors have for medias.

I’m just curious how you feel non-fiction programming position looking forward versus the secular concerns of humans moving on Mars to general entertainment, OTT platforms like Netflix and then you also mentioned Discovery can close the gap further? And I'm thinking you're suggesting that OTT platforms is a place where you can get better pricing than you have in traditional deals and perhaps that suggest that you’ve got a good chart ingredient to Apple TV Phase1.

But am I thinking about that comment right that Discovery can continue to close the gap on affiliate revenue in United States. Thanks.

Well, first, we pivoted about a year and half ago back, hard back to core brand. I think that's one of the reasons why a lot of our channels are much stronger.

In July, they have Discovery be the number one cable channel in America for men. There have been several months in the last eight months where Discovery has been with the core structure that's very different from entertainment and sports channels to be the number one cable channel.

And remember 80% of that content, we get to reuse around the world. We don't rent it for just the U.S.

So it's a very effective model. We also have seen that the amount of time that our content is DVR, it’s gone up significantly, which is why much people want our content.

And we’re excited about going full into TV Everywhere. We think we'll learn more about that, our deal with Verizon.

In Europe, we’re talking to a lot of different players. So I think we’ve the value gap right now, we were able to reach it with Verizon.

We think our content is more valuable. We could be on every SVOD platform, if you want it to.

But since we own all of our content, we can also go directly to consumer, which is very possible. And we’re doing it throughout -- we're doing it in Europe now with sports across all of Europe.

We’re doing it in with entertainment content and sports content in a number of countries in northern Europe and Italy and so we have all that flexibility. My only point on the upside is that in a declining market where people are choosing channels, the fact that we are 13% or 14 channels or 13% of viewership on cable and we’re only 5% of the money, that’s not something to brag about.

We were much lower. The good news is we've got a significant step up in big increases.

But the -- I think the other piece of good news for us is that when people are looking to launch channels, they can get our channels whether they took eight of them or took 13 of them or 14 of them and even if we charge more, it's a lot less expensive than maybe than most of the channels. There are lot of the entertainment and sports channels that are in the inverse.

They might have 5% of viewership and be 20% of the money. So I think it makes us quite attractive but also as we continue to make our case over the next several years, we grew share in the last couple of months.

A lot of others are losing share. And so the fact that if we can continue to gain share as our deals come up, we’ll continue to do what we've done over the last four years, which is make the value argument that we’re under indexing on economics and they are trying continue to drive our affiliate line even in a marketplace that has some decline on subscribers.

I mean, that’s pretty interesting comment, David. If I could just follow-up on a comments around direct to consumer.

Based on what you’ve seen in United States, I think you’ve talked about 1%, 1.5%, the core subscriber declines, obviously broadband, only homes are growing. Like what point do you think is optimal to consider launch share direct to consumer offering in United States.

Is it now, is it three or is it five plus years?

We are looking at everything. I think that the marketplace is actually quite stable.

I think there's a lot of noise in the marketplace but I was at NBC when viewership on the networks were declining, they are still declining. The fact that that subscribers are going down 1%, 1 maybe close to 1.5, that's not a good thing.

The fact that we have higher fees locked in, we could be in a position where we could say now that even if the advertising market is weakened, it ends up being flat. We still have a mid-single growth U.S.

business which is only half of our company. And most of -- a lot of our growth is coming from outside the U.S.

where there is still double-digit or better growth and the kind of general growth dynamics that we saw in the U.S. historically.

The idea of going directly to consumer something we have every opportunity to do. We own all of our content.

We have super fan groups. So I think we are very well-positioned.

We are looking at everything but I think the marketplace at least for the next three years is going to stay relatively stable and we will probably have more people buying our content. And we will be in a position if we want to, at any moment to start picking off some of those super fan groups.

That’s what we do in Europe. Viewership on Eurosport is up, but the people that absolutely love tennis, or love cycling, or love Olympic sports or winter sports, they are signing up for Eurosport and what we are finding is in most cases, they are there watching more Eurosport.

But when they're out of their home, they want to be able to watch the sports they like. So for the near-term at least, we are double dipping.

And the idea of having more than 300,000 people, we have their credit cards, we have a direct relationship, we could talk to them about what they like about our app, what they don't. We are learning an awful lot.

So that if we want to move into any other region, we can.

Thank so much for all the help, David.

Thank you. Good morning.

I have a question for David and then follow-up for Andy. David, on the Olympics, can you just educate us a little bit on the sublicensing and any kind of regulations around keeping Olympic content on broadcast free-to-air?

I know you’ve got a lot of markets where you free-to-air and a lot that you don't. And does the sort retrans kick in to this conversation, if you look at the duration of your Olympic deal with your free-to-air networks you started thinking about fighting for retrans fees in some of these markets?

Any help would be great.

Sure. Thanks, Ben.

It is complex and I think it's one of our advantages. When you are looking at Europe, you are looking at 55 countries in 20 languages and different regulations in each country.

The good news for us is that’s what we do for a living. We are already in all 55 of those countries.

We have teams on the ground. We have an infrastructure that converts into every language.

And so for us, it is what we do for a living. On the Olympic side, there are specific restrictions that the IOC has on how much has to be free-to-air for summer and for winter.

And in some countries, the requirements that are in addition to the IOC requirements on free-to-air. We own all the rights and so for instance in the U.K., if the BBC has the rights then we would sit down with them historically and we can talk about how much we want to give them.

We would look in most cases to preserve all the rights other than free-to-air. So, we could sub distribute the free-to-air rights.

In many markets, we have free-to-air channels that meet the requirements in Italy, in Germany, in Spain, in the U.K., in Norway, Denmark, Sweden, Finland. So there are a lot of markets where we have the free-to-air rights and in that case, we will have to decide are we better off selling it to someone in that market, the free-to-air only?

Maybe we sell 60% of the rights, hold back 40% for cable and then hold back all the rights for phone and other devices to go directly. We have plenty of time to think about it.

The good news is it's been just free-to-air. And so when you look back at the early 90s, whenever Saul came up with this idea of you can be your producer.

You could watch this on broadcast, swimming, but you could see diving and you could see cycling and you could see judo on cable. We could bring that to Europe and I think it could be quite effective.

And we have the ability to make those decisions and we have the ability in many cases in many of the big markets to go all-in ourselves if we want to. And so, I think that gives us very good optionality.

Great. And then Andy, just to clarify on the affiliate revenue growth in the U.S, so make sure I heard you right.

So you are saying high single-digit in ’16. Is there any licensing revenue trends contemplated and are you excluding that?

And then it sounded like that was the step-up, so it's sort of -- does it decelerate from there? I just want to make we heard you right because you gave a lot of good information.

Yeah. That's right, Ben.

We are looking at high single-digit next year that does not contemplate any licensing revenues. It's really all about step up.

It's all about price escalators and even better than that, we've assumed a slight acceleration of the decline in the sub base.

Okay. And then just on the rating agency comment, you said that they've changed the view of how they're looking at media company, so for us, equity investors.

Can you just help us with -- what is your leverage today if you look at it as a rating agency and sort of where does it need to be, just so we can help triangulate all of the moving pieces here?

The agencies have definitely taken a little more conservative view on the sector in total. When they think about the ad trans and they think about what’s happening with subscriber trends, they’ve taken a little more conservative view.

Today, we are at about 3.3 times leverage. They like us to be, kind of in the low three times.

So there is definitely little bit of debt paydown here that we want to pursue in the next, kind of six months to get more aligned with where they need to be. The 3.3 by the way is, to your question, the agency define leverage.

Okay. Got it.

On the subscriber fees, we are not guiding for beyond next year but the high single doesn't reflect a one-time only in terms of where we are. That's not like we're getting a big step-up here in and then there is something coming after that.

We are guiding. We are saying that we got -- we are able to get a step-up over the last four years in each deal with significant increases and you'll see that coming through in the years ahead.

And we are telling you that next year will be high single.

Just to elaborate on that, all the deals that we’ve done including the Comcast deal certainly have year-over-year price escalators. So while there is nice step-up in year one beginning in January with Comcast, clearly all of the deals including Comcast have continued escalators beyond ’16.

Hi. Quick couple of questions.

David, I think you mentioned that you didn't have kind of long tail commitments, but as I look at what you're doing now in Europe with the Olympics, it seems like you are actually getting into some of the sports kind of very long-term big number commitment despite the rapidly changing landscape. And then just when you look at your commentary about kind of the ability to hit subscription numbers.

Clearly, we've gone from a video subscription base that’s been growing to a video subscription base that’s now declining, what gives you confidence that a one percentage decline or even a little bit larger than that is reasonable? Why can it be 4%, 5%?

And the same thing with advertising because it seems like both advertising and subscription have gone from growth to kind of flat to negative? What gives you confidence that you can keep them in a moderation on the decline side or even towards flat?

Thanks.

Okay. Why don’t I hit you some quick.

First of all, on the advertising side, we saw flat to slightly negative in fourth and first. We are now seeing a rise in advertising.

So, I can't opine on where the advertising market is going to go, but I can say that the pricing in scatter has been good and that the market has picked up. I don't know if it will continue to.

On the affiliate side, we’ve been able to get a step-up. So over the last four years, when a new deal comes in, we get a step-up and then we get increases.

And even assuming that there's some decline, we see some very good affiliate growth over the next several years and that were okay. And so the way that we look at it is I say, okay, if we got high single affiliate growth, even if there is some decline and if the advertising market is even week, then we still have a mid-single growth business here in the U.S.

And having that with the cost basis that's very manageable and probably lower than most where we get to reuse our content around the world, we then use that mid single growth business to fuel 65% or 70% of the content we need around the world where we are seeing much higher growth. And most of those countries outside the U.S.

are not experiencing what you're talking. They are getting advertising growth.

They are getting affiliate growth, our market share is growing. And so I think, we’ve really stabilized the U.S.

business. I feel good about it.

If you put in a lot of the parade, we still have a nice mid-single growth business. We’re not assuming that there is a dramatic tilt and tip but I don't see any -- despite all the headlines and discussions, anything that would make me in any way concern that there is a tilt, a meaningful tilt or tip over here.

This is a mature market that's showing some decline. And we've stabilized it and we put ourselves in a position for a growth here.

On the Europe side, we've actually done the opposite of what you’ve said. The only big ticket item that we've gotten is the Olympics.

We paid a little less than $1.5 billion for four Olympic Games where we have very little cost until 2018. And we begin to get the Olympic library and the rings to use on Eurosport and use on Eurosport.com, which is the leader online beginning right after Rio.

The rest of the sports rights that we've gotten and we've done over 50 deals, our most of the money goes to soccer. Soccer is like the NFL, times two in Europe.

And distributors are fighting over who gets to get the soccer. We've opted out of that game.

And we think we can get everything else and we can do it on a very reasonable basis and we can monetize it on our European platform and we can monetize it direct to consumer and online. We carry the clips of soccer on Eurosport.com, which is the equivalent of ESPN.com here in the U.S.

it’s the leading online site but we don't need to own soccer. And so we have the Olympics together with a dominant position in everything else, which I think now that we own the Olympics and we have a relationship with the federations, we don’t see that the prices of speed skating is going to go up dramatically.

And in fact in some of the markets where people have bid on soccer, they bid so much money that they’ve come to us and said, would you -- do you want to buy some of our other sports rights because we just had a step up with such increases on soccer. So, we think Eurosport will be EBITDA positive in itself and will lift our overall portfolio.

And when you think of Eurosport as being in a 130 million homes and then another two or three sports channels and you think of where ESPN was years ago, we haven't begun to monetize the subscriber economics. We haven’t begun to aggressively -- we only started selling locally four months ago.

We haven’t begun to monetize the advertising piece. And we have the IP and the Olympics, if we could do a little of what Iger has been able to do over the last 15 years, in gaining significant subscribers, building on the dominant platform that he has, and using it to build the rest of his company, we could have a hell of a business.

And he did it with, in a marketplace that has 330 million homes with the leader in sports and have the Olympics in a next decade in a market that has 700 million homes but we’re not going to do the NFL, we’re not going to do soccer.

Very helpful. Thank you for taking the time to answer that in full.

Thanks. I’ll ask Andy quick one and David, another one.

Andy, in terms of the rating agencies, I think some of us assume in the out years, your company, other companies borrow money to buy back stock. Do you know if that is a practice that you think more conservatively the agencies will fed upon in general, just basic to get leverage to buyback equity?

No. Michael, I think it will.

It comes down to an overall growth level of leverage. I think how that capital is deployed is still a very much up to the management teams.

And look, for us, when I think about why there is a more nominal constraint for us in ‘15, I see enormous amount of capital growth and accretion in ‘16, based on much higher cash flows and our ability than to put leverage on that growth. And so to me, I don't see a constraint medium or long term and I see us having full flexibility in how we allocate that capital.

This is really more of a short-term nuance just based on where our leverage is today, relative to where we wanted to be at year end.

Okay. And David, something that you’ve not talked about regards to Comcast, is it just for advertising either in VOT or maybe two, otherwise you talk a bit about your view on when do you start monetizing some of those eyeballs that are awful in your feed?

And when is that becoming a source of growth for you and for other people?

Look, I think that what Neil and Brian have built with their platform and X1 is quite compelling and the type of viewership they’re getting and the acceptance of the platform. So, I think the first step for us was to get on it.

I think the addressability of advertising, we do have that with some others to the extent that we were able to get that and work with Comcast on that, that will be an upside for us.

Okay. Thanks.