Wednesday, July 31, 2013

Discovery profit misses; Oprah Winfrey network makes money

By Liana B. Baker

(Reuters) - Discovery Communications Inc reported lower-than-expected second-quarter earnings and cut its full-year outlook on Tuesday, but it also said Oprah Winfrey's OWN Network, which it partly owns, was finally turning a profit.

Shares of the media company, which owns cable networks such as Animal Planet and TLC, fell 2.1 percent to $82.61.

Discovery said it now expected 2013 revenue of $5.55 billion to $5.63 billion, down from the forecast of $5.58 billion to $5.70 billion that it gave last quarter.

The company blamed unfavorable currency fluctuations and costs from its $1.7 billion acquisition of Scandinavian company SBS in December.

Chief Executive Officer David Zaslav had some good news about OWN, on which Discovery has spent more than $500 million. He said the cable network, a joint venture with Winfrey, had turned a profit faster than expected as it benefited from ratings traction with two new series from Tyler Perry, "The Have and Have Nots" and "Love Thy Neighbor."

"OWN is now cash flow positive and starting to pay down the investment Discovery has made in the venture," Zaslav said.

The company originally said OWN would turn a profit in the second half of the year.

The network, which launched in 2011, has been a bumpy ride. Last year it went through a restructuring that included layoffs, executive departures and a reshuffling of its programming lineup. But on Tuesday, Zaslav said it had signed on 30 new ad partners and that the channel had the "highest growth of any cable network in the second quarter."

Zaslav brushed off concerns that the merger of big ad companies Publicisand Omnicom would create pressure on Discovery's advertising rates. He said the deal was "probably a good thing" for the company.

"As long as we continue to grow our audience, we're going to find very receptive buyers," he said.

Net income in the second quarter rose to $300 million, or 82 cents per share, from $293 million or 77 cents per share, a year earlier.

Excluding special items for licensing agreements and foreign currency fluctuations, earnings per share of 83 cents missed the analysts' average estimate by 7 cents, according to Thomson Reuters I/B/E/S.

Gabelli & Co analyst Brett Harriss said he was expecting improved profitability at Discovery's U.S. networks, where advertising was up 10 percent, but the company also recorded higher-than-expected operating expenses.

"U.S. advertising was great, but programming and marketing costs were up," Harriss said.

Discovery said operating expenses rose 17 percent at its U.S. unit, which it said offset revenue growth at that division.

Total revenue rose 30 percent to $1.47 billion. Analysts had expected $1.48 billion.

(Reporting by Liana B. Baker; Editing by Gerald E. McCormick, Maureen Bavdek and Lisa Von Ahn)


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