Discovery Communications: OWN to Reach Cash Flow Break-Even in Second Half of 2013

Oprah Winfrey

"Had I known it was this difficult, I would have done something else."

Most pay TV operators will next year start paying affiliate fees for the channel, whose losses meant a $10 million hit to Discovery's earnings in the first quarter, the company says.

OWN, the joint venture of Discovery Communications and Oprah Winfrey, will reach cash flow break-even during the second half of 2013, Discovery CEO David Zaslav said Tuesday.

On his company's first-quarter earnings conference call Tuesday, he said Discovery expects funding to OWN in 2012 to come in below that of 2011.

OWN's recent steps such as layoffs and the cancellation of several shows, including one featuring Rosie O'Donnell, will improve the network's financial performance, Zaslav reiterated.

Discovery reported lower earnings for its first quarter as it said it began recording 100 percent of losses from OWN, which exceeded the equity that Discovery had contributed to the network. New Discovery CFO Andrew Warren said on Tuesday's conference call that the result was a $10 million hit to earnings, or 3 cents per share. The company started including the OWN losses earlier than previously expected.

Warren didn't give specific guidance but said the losses will be lower in the coming quarters as a write-down on the O'Donnell show and the layoffs affected the performance in the latest period. 

With 80 million subscribers, and growing to 85 million, OWN will also see "most" pay TV operators beginning to pay affiliate fees for the channel in 2013, Discovery CEO Zaslav said, highlighting that OWN has added 10 million subs since its launch, when the channel made "virtually no" sub fees. "We remain confident in the growth potential" of OWN, he said.

"OWN has already become a top 30 cable network for women," up from 45 a year ago, he also emphasized. And ratings momentum has improved this year "with the creative team firmly in place … and Oprah once again captivating audiences as only she can."

Zaslav also said Tuesday that "there has been a lot of noise out there [about OWN]. Despite what you read, we are making real progress." The network is focusing on finding the "right blend of content to nurse the audience," and ratings are trending up 17 percent so far in the second quarter, he said. 

Overall, Zaslav said: "We have a long way to go," but he feels better now than he has ever felt about OWN. The channel has the opportunity for "significant" appreciation over time, he said.


Twitter: @georgszalai