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Discovery Communications CEO Touts OWN's Move Toward Profitability

UP: David Zaslav

David Zaslav also sees carriage fee upside for the cable networks company and says the pay-TV industry won't move to an a la carte channels model.

Discovery Communications expects OWN, the cable network joint venture with Oprah Winfrey's Harpo, to start throwing off a profit in the back half of the year, CEO David Zaslav said at an investor conference Wednesday.

Discovery has previously mostly focused on predicting that the venture would reach a cash flow break-even point in the second half of 2013 before beginning to make a profit. However, Zaslav last year also said that Discovery would start seeing such a profit from OWN in the back-half of the year.

Appearing at the Sanford C. Bernstein Strategic Decisions Conference in New York in a session that was webcast, Zaslav lauded the "enormous success" and growing audience of the network. "We will be making money on OWN" later this year and are "ahead of where we thought we'd be," he said. "Oprah is working really hard," and OWN even has strong ratings on Saturday nights without Winfrey on the air, he said.

Zaslav on Wednesday also said that Discovery would grow its affiliate fee revenue in the coming years, but doesn't expect to see the pay TV industry move to an a la carte channels offering.

Asked if continuing carriage disputes could lead to an a la carte system to allow consumers to pay only for networks they want, Zaslav said: "I don't see that happening. This is a very sturdy system. Viewers really enjoy the basic package … It works quite well for us and distributors. I don't see that challenged."

Plus, companies invest a lot of money in content, with Discovery alone spending $1.1 billion a year, he highlighted. But even if the pay TV industry moved to an a la carte model, Zaslav said Discovery has strong brands and owns its content. "There are a lot of media companies that don't own their content," he said. "We have full control."

Asked about affiliate fee upside, Zaslav said that various carriage deals will come up in the coming years. Citing that Discovery's cable viewership market share has risen in recent years from 3.5 percent to 10 percent, and that the company is spending more on content, "We have a lot of affinity channels" and the firm's fees have not gone up much in recent years, he concluded: "That all leads to a good story for us."

Helping the company in carriage fee talks is that the Discovery network is the most valued channel in the U.S., according to studies, with Animal Planet in the top five and ID in the top 10, Zaslav said.

Zaslav reaffirmed that Discovery has not given TV Everywhere rights to any pay TV companies. "We need to get more value for that," he said, mentioning interest from pay TV distributors and Discovery.

Discussing digital content licensing, the Discovery CEO said that "there has never been a better time to be in the content business -- at least for next three to four years." Amazon, Netflix and other new players that want content in another window all provide new revenue and profit sources.

The CEO also said Wednesday that Discovery is different from other media giants in that it has launched or relaunched more networks in the past few years than all other U.S. companies combined. "We still believe that if we invest in content … we can still attract audiences," he said.

Signaling upside to the company's current 10 percent cable network audience market share in the U.S., Zaslav said "the real opportunity for us is to populate these channels with better [content]." The company's effort to make its channels better and grow their market share is currently only in the third or fourth inning, he added.

Asked how Discovery would spend available cash, Zaslav mentioned potential further acquisitions and even a dividend as possibilities.

Email: Georg.Szalai@thr.com

Twitter: @georgszalai