Great Quarter for Discovery, but Oprah Net Still Under Fire

Zaslav on OWN: 'The mission is to grow an audience'

It was a good fourth quarter for Discovery Communications. The cable network company saw revenues increase 12 percent to $4.2 billion, propelled by a 13 percent uptick in domestic ad revenue (17 percent, if you exclude figures from the defunct Discovery Health) and 7 percent more in affiliate fees.

The report far outstripped Wall Street predictions; Discovery has also been able to leverage higher carriage fees as its true-crime network Investigation Discovery barrels up the cable ranker.

But the network's impressive increases internationally and at Discovery and ID couldn't quite stop analysts from quizzing honcho David Zaslav about OWN, its high-profile, high-cost Oprah Winfrey joint venture.

Richard Greenfield, an analyst at BTIG, flatly asked Zaslav whether the company had the rights to terminate the joint venture or turn the channel into an online network so that it could repurpose the cable real estate it currently takes up.

Zaslav emphasized the network's gains: "We've done deals with most of the distributors for meaningful subscriber fees, and on the advertising side we have good advertiser support—we're up for about a year." Going forward, he said, OWN's mandate is what it's always been: "The mission is to grow an audience. If we grow a meaningful audience that wants to spend time with OWN, and we think that we will, this will be a very significant asset."

That ratings growth needs to begin soon. The network saw a brief ratings spike in January when Winfrey herself arrived on-air, but hasn't sustained it. Sources have said that the network is looking for more programming that appeals to African-American women—the demo with which OWN seems to have the most traction. But the network can't continue at its current level if it's going to survive.

Fellow joint venture The Hub was among the networks touted during the beginning of the earnings call. In the fourth quarter, the Hasbro JV saw its young audience soar 31 percent in the 2-11-year-old demo against the prior-year quarter. The kidcentric cabler seems to be on the slow-and-steady course more typical to newbie cable networks than the shock-and-awe arrival touted for OWN.

International continues to be a major driver for Discovery; Zaslav said the company's global ad sales "now exceed half a billion dollars." With possible exceptions for new and troubled networks, expect Discovery to scale down new content investment as it looks to market more of its material internationally and slowly drive up carriage fees and advertising rates on success stories like ID.

"We're leveraging very low CPMs," Zaslav said. "In the long run, CPMs are going to drive us, and we have a lot of headroom on that."

Publish date: February 16, 2012 © 2020 Adweek, LLC. - All Rights Reserved and NOT FOR REPRINT