Discovery CEO touted the value proposition of cable
Shares of Discovery Communications rose sharply in mid-afternoon trading Friday, as the content company reported significant revenue gains in the third quarter.
Discovery’s stock price jumped $2.00, or 16.5 percent, to $14.09 in the minutes leading up to Friday’s close. Since Discovery began trading publicly two months ago, the company’s share price has ranged from as low as $10.02 per share on Oct. 24 to a high of $22.75 on Sept. 18.
For the three month period ended Sept. 30, Discovery grew its overall revenue 11 percent to $845 million, beating out Barclay Capital estimates of $813 million, or 9 percent growth.
Flying in the face of a weakening economy, the U.S. cable networks group, which includes Discovery Channel, TLC and Animal Planet, was particularly strong. Thanks to solid ad sales growth and a boost in affiliate dollars, the Discovery nets posted revenue of $498 million in the quarter, a gain of 6 percent versus the prior-year period.
Ad sales were up 5 percent, to $249 million, while affiliate revenue jumped 8 percent to $231 million. Strong prices in the Q3 scatter market were offset by under-delivery at Discovery and TLC, which were down 13 percent and 16 percent, respectively, in prime time. The flagship channel also struggled on the demo front, averaging 614,000 adults 18-49 in prime, a drop of 14 percent versus the year-ago period, according to Nielsen Media Research data.
In October, Discovery began to turn things round again, upping its nightly delivery by 18 percent to 1.15 million viewers. TLC also seems to have stopped the bleeding, growing 5 percent versus October 2007.
Discovery CEO David Zaslav said that the company’s success in a choppy ad market has much to do with the value proposition of cable. “Cable prices are about one-third 1/3 less than broadcast, so advertisers get a more efficient buy and much more bang for their dollar,” Zaslav said.
Zaslav said that while scatter is slowing, fourth-quarter pricing “remains above upfront and year-ago levels.” And while cancellations of upfront commitments for the first quarter of 2009 are up from last year, Zaslav said that pullbacks “are still at normalized levels.”
The Discovery chief added that he still expects that the nets will deliver positive ad sales growth in Q4.
In a Q&A period following the earnings review, Zaslav gave some guidance on what was in the works for OWN, the new joint venture between Discovery and Oprah Winfrey set to launch in the final quarter of 2009.
“[Oprah] recently opted to stay with [CBS Television] through September 2011, and the expectation is that after that …she will come to OWN,” Zaslav said. “We are talking now about what her presence will be and what kind of programming she would be involved in directly. But this is her Chapter 2, and building the OWN brand online and on air is something that she and I are working on together. And it’s a core mission for her.”
Zaslav may have jumped the gun with that intel. While it’s true that the Harpo syndication contract is set to expire in the fourth quarter of 2011, Winfrey has yet to make a final decision as to whether she will continue The Oprah Winfrey Show after its 25th year on-air.
Source: Nov 7, 2008 Media Week Magazine
