UPDATE, 7:05 AM: CEO David Zaslav refused to put any daylight between himself and Oprah Winfrey as analysts in a conference call this morning asked for more insight into the prospects for their struggling OWN joint venture. Now that Winfrey is running the operation, it has “a team she has confidence in, and I have confidence in,” he said. He sidestepped a question about whether Discovery has the right to terminate its agreement with Winfrey, or to re-purpose the channel — for example by moving it to the Web. “We’re up for about a year,” he says. “If we grow a meaningful audience, and we think we will, this will be a significant asset.” Zaslav says that the channel “learned a great deal about its audience” last year and is “off to a nice start in 2012” with returning shows including Our America With Lisa Ling and Sweetie Pie. Also, “Oprah will be featured in additional formats. … We’re excited to grow this network in 2012.” The company says that, as a matter of policy, it doesn’t break out profits for individual channels.
Zaslav was more optimistic than most other execs have been this earnings season about the ad market. He says that scatter pricing in Q4 was “strong throughout the quarter” and up 17% vs the upfront market — and he expects “a strong and steady scatter price environment” in 2012. Discovery benefited from the growing ratings at many of its smaller networks including Discovery Fit & Health and Velocity. The Hub, Discovery’s kids’ channel joint venture with Hasbro, has built its audience every quarter. In Q4 — the first opportunity to make a year-over-year comparison — it was up 31% in total day viewing among kids 11 and under. But Zaslav lavished most of his praise on ID: Investigation Discovery, which he called the largest driver of the company’s ad growth. The channel “is enormously strong in daytime,” he says. It has grown so quickly, though, that “it’s going to take a while for us to get the (ad rate) where we think it should be.”
On other matters, Zaslav says he expects to see a big increase in 2012 in payments for his channels and programming. Netflix should face new competitors who’ll want Discovery’s content. “We’re in discussions with a number of players for a window similar to Netflix” which gets Discovery shows about 18 months after they’ve run on pay TV. The company has seen no evidence to indicate that the digital platforms cannibalize conventional TV viewers “but we’re going to watch it.” Discovery also could see a big bump in the fees pay TV companies pay as carriage agreements begin to come up for renewal later this year. Although Discovery won’t say when specific deals expire, Zaslav says that each agreement encompasses all of his channels. “We’ll be looking for a lot more value and we’ll see how it goes.” He also plans to drive a hard bargain for pay TV companies that want to stream Discovery shows to subscribers on their TV Everywhere platforms. “Our existing deals do not provide” TV Everywhere streaming rights, Zaslav says. Although he likes the initiatives, which could boost viewership, he says Discovery wants to be paid. “Right now we’re in discussion as to what’s the value.”
PREVIOUS, 4:09 AM: The cable network company credits strong ad sales — as well as $109M from foreign tax credits — for its year end performance. Discovery generated net income of $337M, up 71.1% vs the Q4 period in 2010, on revenues of $1.1B, up 10.5%. The revenue figure nearly matched the consensus forecast among analysts following the company. But earnings at 86 cents a share handily beat the 69 cents that the Street expected. Discovery’s U.S. networks were a big driver of the revenue growth, with $677M, up 11%. The company says that ad sales rose 13% to $364M as channels raised prices and still managed to sell out more of their inventory. Meanwhile, fees from pay TV providers were up 7% to $282M. The revenue figure does not include OWN, the joint venture with Oprah Winfrey. It was created in January 2010 from what had been the Discovery Health channel; if you take that out of the 2010 Q4 results, then ad sales would be up 17% with pay TV fees up 8%. Discovery also saw strong growth from its international networks where revenues were up 12% to $401M. That was largely based on an 18% increase in ad sales to $160M and a 10% jump in pay TV fees to $225M. CEO David Zaslav credits “the power and universal appeal of our non-fiction programming.” He adds that this year “we remain focused on taking market share globally while delivering value to our shareholders through sustained financial results and capital returns.” Discovery told investors that full year revenues in 2012 could go as high as $4.58B, which would be up 8%.
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