Oprah's Bid Farewell to Daytime: Will She OWN Cable Next?
Another CEO gone as ratings sink, but analysts see long-term success.
Although Oprah Winfrey's OWN might not be living its best life, the startup cable network co-owned by Discovery Communications and Winfrey's Harpo is still expected to become a valuable property in the long term. But some believe Discovery might have to spend even more to establish the channel in the wake of continued ratings woes and the May 6 ouster of CEO Christina Norman, and analysts are wondering if the financials for OWN might be weaker than expected in the near term.
Discovery, which is funding the channel as part of its deal with Harpo, had spent $216 million on OWN by the end of March, according to the company. But four months after its Jan. 1 launch, the network has disappointed, averaging an underwhelming 297,000 viewers in primetime and finishing the first quarter down 4 percent in the 24 to 54 demographic compared with its low-rated predecessor, Discovery Health. "The main problem is that Oprah is not on OWN," RBC Capital Markets analyst David Bank says. "They need her, and I think she will really have to step up to make it work -- and to preserve her reputation and credibility."
Winfrey, 57, is wrapping up her syndicated talk show today. Starting in the fall, OWN will air reruns from 25 years of The Oprah Winfrey Show, with Winfrey supplying some new content, but she has not said how she plans to increase her OWN presence. And the primetime travel program Oprah's Next Chapter, which will feature Winfrey, won't bow until January.
In a statement announcing that Norman would be replaced by Discovery's Peter Liguori as interim CEO, Winfrey acknowledged that she can no longer be a part-time steward. "I was on the phone yesterday with the head of OWN probably for 20 minutes," Winfrey said. "And then I was on another phone call for an hour, so I probably gave OWN an hour and 20 minutes yesterday. Not enough."
It's safe to say that Hollywood will welcome her attention. Those in the creative community say that though OWN is "ravenous" for content, its executives seem to have a hard time pulling the trigger on programming, and verbal agreements are reversed before contracts are executed, leaving some feeling burned. "They're very disorganized," one independent producer says. "They don't seem to know what they want, and who knows who's making the decisions over there."
Liguori, a former News Corp./Fox executive, has experience building cable brands, as he did with FX, and he also is known to have a knack for branding and marketing. Meanwhile, Winfrey and her Discovery partners plan to tend to the channel directly while looking for a new head. Discovery said in its recent quarterly earnings call that it might increase its spending on OWN yet again -- beyond the $239 million which it had previously committed -- depending on ratings in the coming quarters.
In January, Discovery CFO Brad Singer said OWN in 2011 will report positive earnings before interest, taxes, depreciation and amortization. Later, Discovery said it expects break-even operating income before depreciation and amortization for OWN this year.
Evercore Partners analyst Alan Gould estimates that OWN lost $20 million in the first quarter. "If the ratings don't improve from here, I think the network will struggle to reach break-even this year," Davenport & Co. analyst Michael Morris says.
But analysts aren't too concerned about the financial impact on Discovery, which Morris says will bring in about $1 billion in earnings this year. "This has not been a smooth execution," RBC's Bank says about the early run of OWN. "But the stumble over the near term isn't really that costly to Discovery from an economic perspective. And it';s not like you have a network that was doing really well and thriving, and all of a sudden it drops off a cliff."
Discovery previously took steps to protect itself from financial pains. As of this year, it shares OWN's net losses 50-50 with Harpo, and it will recoup its prelaunch losses from the network's future profits. Once it recoups its losses, profits will be split evenly between Discovery and Harpo. "The money invested is actually a loan," Morris explains.
Most preach patience, with SNL Kagan predicting OWN will grow its 5-cents-per-subscriber fee to 21 cents in 2013. Says Miller Tabak analyst David Joyce, "OWN will work, but it will take time.