Discovery Posts Strong Ad Gains, But OWN Remains in the Red

Oprah Winfrey Network May Break Even Next Year, Zaslac Says

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Discovery Communications, owner of cable networks such as Animal Planet and TLC, reported a 28% decline in first-quarter profit from a year earlier, when it recorded a one-time gain on the Oprah Winfrey Network, but it posted strong increases in advertising and distribution fees last quarter.

OWN, a cable channel half-owned by Discovery, has struggled to attract viewers and has lost as much as $330 million since its 2008 inception, Bloomberg reported last week. But Discovery recorded a $102 million gain in first-quarter 2011, when it contributed its Discovery Health channel to the OWN venture.

Excluding that , Discovery's first-quarter profit rose 8.9%.

Paula Deen with Oprah Winfrey on 'Oprah's Next Chapter'
Paula Deen with Oprah Winfrey on 'Oprah's Next Chapter' Credit: George Burns/OWN

Analysts remain concerned over OWN's trajectory and still-mounting costs. "The company needs to provide investors with a road map for this business," said Paul Sweeney, senior analyst with Bloomberg Industries. "Specifically, how long will they stomach these losses before they make a serious change in strategy?"

OWN may break even at cash flow in second-half 2013, Discovery CEO David Zaslav said on a conference call today.

"We remain confident in the growth potential of this network," Mr. Zaslav said.

Discovery gets about half of its revenue from fees paid by cable- and satellite-TV providers, and has recently seen revenue coming from deals with online video distributors such as Netflix and Amazon. Growth in viewership across the U.S. networks delivered a 13% increase in ad revenue, to $329 million, as distribution fees advanced 23%, to $337 million.

Ad increases were among the highest in the industry so far this quarter, according to Mr. Sweeney.

Discovery's first-quarter revenue advanced 16%, to $1.1 billion. Analysts had predicted $1.06 billion on average. The company also increased its share buyback program by $1 billion.

The company raised its full-year revenue forecast to as much as $4.65 billion, compared with a previous maximum of $4.58 billion in February. Analysts anticipated $4.56 billion.

-- Bloomberg News --

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