So Far No Economic Slowdown for Discovery, With Gains in Subscription, Ad Sales

Owning its Own Content is Key, says Zaslav, Adding that Oprah Net is Gaining Momentum

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Discovery Communications is bullish on the content business -- because it owns its own content, CEO David Zaslav told investors as the company announced solid third quarter results, topping analysts' sales estimates and boosting its forecast for the year as subscription revenue increased.

David Zaslav
David Zaslav

Revenue for the quarter climbed 18% to $1.1 billion, the Silver Spring, Maryland-based company said yesterday in a statement. Revenue for the year is expected to be between $4.18 billion and $4.25 billion, compared with a forecast range in August of $4.08 billion to $4.18 billion, the company said.

"There has never been a better time to be in the content business, if you own your own content, which we do," Mr. David Zaslav said on a conference call with analysts yesterday after the statement was released.

To illustrate his point, he brought up Discovery's recent deal with Netflix: "We were able to generate significant value from library content, mostly 18-months-plus old, while retaining flexibility with regards to our other distributors. A significant portion of the revenues were recognized in the current quarter, but revenues from this transaction will continue to enhance our affiliate growth rates over the 2-year deal as we deliver additional content and for an additional year if we exercise our option to extend." (The current quarter includes $77 million in revenue from the expanded licensing agreement with Netflix, Chief Financial Officer Brand Singer later noted.)

Mr. Zaslav addressed economic concerns by saying that while it's still too early to comment on 2012, "we have not seen any meaningful cancellations on options the next year, and current scatter demand and pricing for the fourth quarter remains strong." Domestic ad revenue grew more than 11% year over year in the quarter, said the company on the call, led by the strong performance of Investigation Discovery as well as the sustained favorable pricing and demand environment. Net income climbed 27% to $237 million, or 59 cents a share, from $186 million, or 43 cents, a year earlier.

The company also addressed concerns about Oprah Winfrey's OWN TV network, which is a joint venture largely funded by Discovery. Discovery said Oprah Winfrey plans to appear in a new entertainment show in January on OWN. Winfrey's network still has "negative cash flow," according to Mr. Singer.

"In regards to OWN, Oprah is now the full-time CEO. … Viewership of our new shows are up significantly from the network's previous levels, and the audience is starting to return regularly, building some nice momentum heading into 2012, when Oprah's Next Chapter launches in prime along with a lot of new original series," said Mr. Zaslav.

~~~Bloomberg News contributed to this report.~~~

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