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Nov-04-2009Discovery 3Q earnings fall 29 pct on higher costs(topic overview)
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Shares up 2.7 pct prior to earnings release (Adds comments from executive; stock price) By Paul Thomasch NEW YORK, Nov 3 (Reuters) - Discovery Communications Inc ( DISCA.O ) posted a larger-than-expected decline in profit, but stronger U.S. advertising sales stole the show and raised hopes that parts of the media business are finally recovering. The quarterly results make Discovery -- a company whose share are up 93 percent this year -- a rarity in the media business, where advertising sales have been devastated by the recession. The parent of the Discovery Channel, Animal Planet and the Science Channel is typically less reliant on some of the hardest hit U.S. ad categories, such as automakers and financial institutions, for sales. Another factor is that national cable channels -- like Discovery's -- have proven relatively resilient to the downturn when stacked up against local TV or broadcast networks. [1] NEW YORK (Reuters) - Discovery Communications quarterly profit fell 29 percent, largely because of extra stock compensation expenses that masked stronger advertising and distribution fees at its U.S. cable networks.[2]
Results fell short of analysts' average earnings forecast of 22 cents per share, according to Thomson Reuters. Revenue exceeded their estimate of $849.6 million. Discovery said revenue from its U.S. networks rose by 5 percent to $522 million, driven by a 5 percent increase each in distribution and advertising. [3] Revenue rose 1 percent to $854 million, surpassing the $850 million analysts polled by Thomson Reuters I/B/E/S had expected. Another major media company, Viacom Inc ( VIAb.N ), showed a 4 percent decline in quarterly U.S. ad revenue in its report on Tuesday, while executives said trends had improved.[1]
Discovery's U.S. ad revenue rose 5 percent in the third quarter, and the company said sales would be flat to slightly positive in the fourth quarter. "People are going to be most concerned with how the ad revenue was looking," said Miller Tabak analyst David Joyce, who said Discovery's third-quarter ad sales surpassed his expectations.[1] U.S. ad revenue rose 5 percent. Discovery's revenue is also underpinned by the fees it collects from cable companies that carry its channels.[2]
Fourth quarter domestic ad revenue would be likely be, '''flat to slightly positive on last year,''' said Singer. Separately, Zaslav touched on the potential opportunity to launch a global women'''s channel in 2010 on the strength of TLC'''s performance in the U.S. Zaslav said while Discovery has made additional programming investments in its big three channels; Discovery, Animal Planet and TLC, it is still considering the future of some smaller emerging services which he did not name. Those smaller services include: Military Channel and FitTV. '''We'''re being a little bit prudent. Some channels we haven'''t decided is this the right brand,''' said Zaslav, adding that the company sees international expansion possibilities for Investigation Discovery, run by president Henry Schleiff.[4] Revenue at the company's domestic networks group, which includes the flagship Discovery Channel as well as Animal Planet and TLC, grew 5 percent to $522 million, on proportionate gains in advertising and affiliate revenue.[5] Discovery, which owns the Discovery Channel, Animal Planet and TLC, reported net income of $95 million in the quarter compared with $134 million in the same quarter a year ago.[3] The parent of the Discovery Channel, Animal Planet and the Science Channel said third-quarter profit fell to $95 million, or 22 cents a share, from $134 million, or 44 cents a share, a year earlier.[2]
Discovery Communications posted a third-quarter net profit of $101 million, or 22 cents a share, down 25 percent from $134 million, or 44 cents a share, in the year-ago period.[5]
SILVER SPRING, Md. — Discovery Communications Inc. said Tuesday that its net income for the third quarter fell 29 percent as an increase in operating costs offset a slight uptick in revenue for the owner of cable networks.[3] Discovery Communications reported a decline in third quarter net income to $95 million down from $134 million.[4]
For fiscal 2009, Discovery said it expects to report revenue of $3.45 billion to $3.5 billion and net income of $525 million to $550 million.[3] Overall revenue was up slightly to $854 million, thanks to a 5% increase in U.S. Networks, though that was offset by a 2% decline at the international unit, affected by currency fluctations. There was a little more cheer on the advertising front, where Discovery'''s channels are largely in growth mode and benefiting from both improved ratings and better scatter rates than the upfront.[4] Discovery credited the lift in ad sales revenue to improved ratings. Per Nielsen live-plus-seven-day estimates, Discovery Channel saw its prime-time delivery of viewers 18-49 increase 7 percent in Q3, as the network averaged 660,000 members of the core TV demo.[5] Discovery's results reinforced early hopes that the ad market has begun to rebound. Earlier today, Cablevision reported that its Rainbow programming division, which includes AMC, IFC, WE tv and Sundance Channel, saw ad sales revenue soar 18.2 percent versus Q3 2008.[5]
Q3 upfront cancellations came in at around 14 percent. Sequentially, Discovery's ad sales revenue fell 10 percent from its Q2 '09 take ($290 million).[5] Looking ahead, Singer expects Q4 ad sales revenue to come in "flat to slightly positive" versus the prior-year period, when Discovery took in $282 million.[5]
In comments to investors and analysts on a conference call, Discovery Chief Executive David Zaslav stopped short of saying ad sales were fully on the road to recovery. "It is too early to say things have turned, but demand is much improved," he said. In addition to advertising, Discovery's revenue is also underpinned by the fees it collects from cable companies that carry its channels.[1] Discovery president and CEO David Zaslav told investors that upfront pricing was down slightly, adding that the ad sales team sold "10-15 percent less inventory than in previous years."[5] Excluding the impact of foreign currency changes that figure would have represented a 9% increase, driven largely by the Europe, Middle East and Africa region. Commenting on the third quarter ad sales performance, Discovery chief financial officer, Brad Singer, said the third quarter was the first time this year that total dollars had run ahead of expectations. Speaking on an analysts''' call CEO David Zaslav added: '''The marketplace is feeling stronger in terms of pricing, the last two months do feel more robust,''' but he cautioned there was no visibility on whether that strength would continue, '''We can'''t predict where it will be.'''[4] Even while Discovery is doing better on the ratings front, the weaker ad market is making for tough comparisons. Even while this year'''s scatter pricing is running as much as 15% higher than upfront, last year'''s third quarter scatter market was much more buoyant with pricing between 20% and 30% higher than upfront.[4]
Few media companies have reported any gain in revenue in recent quarters -- however slight -- but Discovery is typically less reliant on some of the hardest hit U.S. ad categories, like automakers or financial institutions. Another factor is that national cable channels - like Discovery's -- have proven relatively resilient to the downturn when stacked up against local TV or broadcast networks. [2] U.S. distribution revenue rose 5 percent for the quarter. Its international business showed less strength, with revenue dropping 2 percent.[2] Revenue rose by 1 percent to $854 million. It would have been higher if not for a $22 million drag from foreign currency fluctuations at its international operations.[3] Revenue at Discovery rose 1 percent to $854 million, surpassing the $850 million analysts polled by Thomson Reuters I/B/E/S had expected.[2]
International networks revenue fell 2 percent to $293 million due to the drag from foreign exchange.[3] Affiliate revenue also grew 5 percent versus the year-ago period, with distribution dollars adding up to $242 million in Q3.[5]
Ad sales dollars increased 5 percent to $261 million, eclipsing analysts' expectations of 1 percent to 2 percent growth.[5]
Analysts are expecting revenue of $3.48 billion and net income of $570.5 million.[3]
Profit fell to $95 million, or 22 cents a share, largely because of extra stock compensation expenses.[1] Shares in Discovery rose 49 cents in after-hours trading to $28.50, after ending the regular session at $28.01, up 73 cents.[3] Shares of Discovery closed 2.7 percent higher at $28.01 on the Nasdaq on Tuesday ahead of the quarterly results.[2]
Presently, Q4 scatter pricing is up by high-single to mid-teen percentages over upfront rates, although Discovery chief financial officer Brad Singer was quick to note that business was nowhere near as robust as it was a year ago, when the Discovery nets commanded 20-30 percent premiums.[5] Singer said OWN would launch sometime next year and that Discovery would invest between $40 million-$50 million in the startup, a joint venture with Winfrey's Harpo Productions.[5] On the affiliate side of the ledger, distribution gains at the digital networks (Investigation Discovery, Science Channel, etc.) were offset by the deconsolidation of the Discovery Kids network, which eliminated approximately $10 million in carriage fees.[5]
Discovery Communications Inc.' s (DISCA) third-quarter profit slid a greater-than-expected 25% as the cable-television network operator posted lower margins,.[6]
Cable Up! is the cable network programming resource for media planners and buyers during the crucial upfront selling season. [5] Jon & Kate Plus 8 juiced TLC (562,000 viewers 18-49, up 30 percent year-on-year), while Animal Planet's less-cuddly programming lineup helped boost ratings 19 percent to 235,000.[5] The Programming Insider posts the previous nights broadcast ratings results and weighs in on any number of TV issues, from the latest hits to the best of the classics. Berman, aka The Programming Insider, offers tasty tidbits from his daily enewsletter, dishes on TV news (occasionally with a guest editor from Mediaweek) and previews upcoming shows to watch or avoid. Other than Lost, the last science fiction show I really got into was cheesy daytime serial Dark Shadows, and that was 40 years ago.[5] The company explained the decline was partly due to a $91 million expense, the result of a change in the mark-to-market share-based compensation which had been a benefit in the prior year.[4] The company reiterated full year guidance of revenue of between $3.45 billion and $3.5 billion for 2009.[4]
Join AdweekMedia and Advertising Women of New York in celebrating the winners of the third annual Changing the Game Awards. Join us as we examine the evolution on content discover online - including search, portals and social media - and investigate how publishers can leverage these segments to attract and drive traffic. [5] Thomson Reuters is the world's largest international multimedia news agency, providing investing news, world news, business news, technology news, headline news, small business news, news alerts, personal finance, stock market, and mutual funds information available on Reuters.com, video, mobile, and interactive television platforms.[2]
SOURCES
1. UPDATE 3-Discovery profit down, but ad sales show life | Markets | Markets News | Reuters
2. Discovery quarterly profit down 29 percent | Business News | Reuters
3. The Associated Press: Discovery 3Q earnings fall 29 pct on higher costs
4. Discovery Q3 Net Income Falls; Revenue Up - 2009-11-03 18:47:37 EST | Broadcasting & Cable
5. Discovery Grows Ad Sales 5%
6. CORRECT: Discovery Communications 3Q Profit Down 25% - WSJ.com
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