Analyst: Oprah's OWN Could Lose $142.9 Million This Year

Oprah Winfrey Green  -  P 2012
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Oprah Winfrey Green  -  P 2012

UPDATED: SNL Kagan expects advertising and carriage fee challenges ahead and a Discovery write-down, but a Discovery spokesman says the venture has "more business momentum than ever before" and the company is confident in its future.

NEW YORK -- SNL Kagan analyst Derek Baine on Wednesday predicted that cable networks group Discovery Communications would have to take a write-down on its Oprah Winfrey joint venture OWN and that the network would record a higher loss this year amid programming flops and challenges for advertising and carriage fee revenues.

Discovery, led by CEO David Zaslav, has not signaled any need for a write-down, and some sources have predicted it would be able to avoid one. The cable networks company also has said repeatedly that it remains optimistic that OWN will end up on the right trajectory, with one source saying Wednesday that recent layoffs came to improve OWN's financials.

OWN is "on more solid ground and has more business momentum than ever before," a Discovery spokesman told THR. "We are superbly confident in the future of OWN and the long-term value creation we're building."

He also said that the analyst report was "riddled with inaccuracies and bad information," but didn't detail OWN's financials or financial expectations. A source said OWN is expecting carriage fee revenue to increase, though.

OWN's financials have been the subject of guessing games for analysts because Discovery doesn't disclose details. The company reported a loss of $35 million for 2011 -- down from a loss of $57 million in 2010 -- from its equity investments, but those also include other channels, such as kids network The Hub, which the analyst believes was at about break-even.

"Net-net, we estimate that OWN lost $107 million on a cash-flow basis in 2011, but Discovery has invested much more," Baine said in his report, projecting that OWN's losses could rise to $142.9 million this year. Other analysts have made more optimistic projections for OWN.

"The investment includes startup costs and production facilities but are likely capitalized programming costs for the most part," Baine wrote. "Therefore, we believe that there may be a significant write-down at OWN in the first quarter from both programming costs for shows that are not working as well as severance costs for those being laid off."

OWN recently announced about 30 layoffs and canceled its Rosie O'Donnell talk show. Baine didn't specify how big a write-down could be.

Meanwhile, he also predicted potential challenges on the revenue side. "With all of the bad press that the channel is getting, advertisers may tire of playing the waiting game for shows to catch an audience," Baine suggested.

And when it comes to carriage-fee renegotiations, big gains could be harder to come by. "Many of Discovery's renewals with multichannel operators are up in late 2012 and 2013," Baine wrote. "That means Discovery could end up negotiating carriage agreements for OWN again starting at the end of this year. Its hope for license fees of 20 cents to 25 cents per sub may now be unrealistic."


Twitter: @georgszalai