Discovery quadruples Q2 profit

Revenue and ad income down slightly

NEW YORK -- Discovery Communications more than quadrupled its second-quarter profit as higher U.S. ratings, increased international subscribers, cost controls and a special gain offset a slight advertising decline.

The company Tuesday reported a profit of $183 million for the period, including a $46 million tax gain from the partial sale of Discovery Kids, compared with $43 million in the year-ago period. Revenue fell by $4 million to $881 million.

Ad revenue declined slightly to $368 million, but U.S. advertising rose 1%, which UBS analyst Michael Morris said "outperformed peers." Viacom's cable networks unit, for example, posted a 6% domestic ad revenue decline in the latest period.

"Discovery's second-quarter results demonstrate our ability to execute on our business plan and strategic initiatives in a difficult operating environment," president and CEO David Zaslav said.

In a conference call, management said the ad market likely will remain challenging for the rest of the year. "Scatter visibility remains limited" as ads often are booked just days ahead of time, Zaslav said.

Discussing upfront ad sales, he said Discovery is "still in the middle of our sales process," forecasting that the company will sell less inventory this year to hold back ads for scatter, where prices have remained strong.

"This strategy ... is often a worthwhile risk to take for programmers with strong ratings," Barrington Research analyst James Goss said.
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