Discovery eyes more ad gains

CEO lauds Oprah, upfront; OWN costs to exceed target

NEW YORK -- Cable network firm Discovery Communications expected continued advertising momentum, but will spend more than the originally eyed $100 million on the launch of the OWN network, a joint venture with Oprah Winfrey.

On a conference call Tuesday morning, CEO David Zaslav described the global ad market as "relatively healthy" and later called ad trends "more robust."
He predicted double digit or low teen ad growth for the rest of 2010 and said scatter, or current sales, ad market prices remain about 15% above upfront levels.

Asked by analysts about 2011, for which observers predict slower ad growth, Zaslav said it is still early for such projections, but upfront sales were positive. "We sold more in the upfront than we ever have," he said. Zaslav said Discovery sold more upfront ad inventory than last year and prices were higher in the mid to high single digit percentage range. 

Discussing the upcoming OWN network, management said Discovery has spent about $75 million on OWN to-date and will exceed the original $100 million target due to a slightly later-than-originally-expected launch in January.

Zaslav said the recent upfront ad sales for the channel went better-than-expected. While not disclosing new programming, he also lauded Winfrey for her commitment and called her energy and enthusiasm "contagious."

COO Peter Liguori emphasized that while Winfrey is not allowed to do a talk show on OWN until next fall, she will be visible on the network from the get-go in once-a-week shows, such as a behind-the-scenes reality TV show about her syndicated talk show's final year. She will also be seen in interstitials, some of which she shot Monday, Liguori said.

Zaslav on Tuesday also lauded the success of his team's strategy of boosting program investment to increase ratings and in turn ad revenue. He particularly cited a 65% investment increase at Animal Planet since a 2008 rebranding.

Zaslav also highlighted the recent gains of Discovery's ID network, which he called this year's fastest-growing network.

Meanwhile, TLC's ratings were down a bit in the second quarter due to tough year-ago comparisons with last year's hit show "Jon & Kate Plus 8."

Discovry on Tuesday reported a lower second-quarter profit as special items offset solid advertising gains.

Discovery's quarterly revenue increased 11% to $963 million driven by a 10% U.S. and 15% international improvement. The U.S. gain was powered by 13% ad growth thanks to higher sellout rates and better pricing.

Profit fell 40% to $106 million, but rose 61% to $211 million when adjusting for one-time items. The year-ago period included a gain on the sale of 50% of the Discovery Kids channel, while the current quarter included a one-time loss on the early extinguishment of debt.

Discovery, whose networks include Discovery Channel, Animal Planet and TLC, on Tuesday also said it would launch a $1 billion stock buyback program.