Discovery Grows Ad Sales Despite Economy

Discovery Communications on Tuesday announced a substantial rise in second-quarter profit, easily outstripping expectations with $183 million in net income, thanks to a gain on the deconsolidation of its kids-targeted cable channel and steady performance at its programming division.The company quadrupled its year-ago profit of $43 million, while revenue dipped 1 percent to $881 million. Earnings included a $46 million after-tax gain related to the sale of 50 percent of its Discovery Kids network.Discovery’s U.S. networks division, which houses the fully-distributed cable nets Discovery Channel, TLC and Animal Planet, posted a revenue gain of 2 percent, to $557 million, on increases in ad sales and affiliate dollars. Despite a tottering advertising market, Discovery was able to boost its domestic ad sales revenue 1 percent in the quarter, to $290 million. Sequentially, Discovery grew its stateside ad sales revenue by 19 percent, after having sold $244 million worth of inventory in the first three months of 2009. Thus far in this earnings season, Q2 ad sales revenues have been a mixed bag. Discovery’s 1 percent gain puts it on the right hand side of the number line, along with the Turner networks (up 5 percent) and Rainbow Media (up 2.3 percent). Viacom posted a 6 percent drop and Disney’s ESPN fell 10 percent versus the year-ago period.Discovery’s affiliate fees, which account for slightly less than half of the networks’ overall revenue, grew 4.7 percent, to $247 million. During this morning’s conference call with investors, Discovery president and CEO David Zaslav noted that steady ratings growth and increased inventory positioned the networks to “garner a larger share of the available ad dollars going forward,” adding that the company will “certainly benefit when the market strengthens.”Zaslav also provided a synopsis of the current state of the ad market, noting that third-quarter cancellations “finished up on the same level as Q2,” which was about 13 or 14 percent. He also echoed sentiments expressed by NBC and ABC, saying Discovery “plans on selling less [upfront] inventory than in years past,” largely because of tightened marketing budgets and a scatter market that is pricing at a premium to last year’s upfront levels.“We’re still in middle of our sales process, but we anticipate lower absolute levels of commitment,” Zaslav said. “We think holding back additional inventory is prudent.”During the Q&A in the latter portion of the earnings call, Zaslav said that Discovery “sold a little bit more than 50 percent” of its available inventory in the 2008-09 upfront, but he declined to quantify just how much airtime the ad sales team would hold back in this year’s bazaar.As for CPMs, the Discovery chief said the networks enjoy “some flexibility in our discussions [with media buyers and clients],” and that the sales staff “would not look to make any significant reductions on pricing.”In early afternoon trading, shares of Discovery were down $0.09, or 0.35 percent, to $25.30. Since the year began, the stock has increased in value by 80 percent, growing from $14.07 per share on Jan. 2.

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Discovery Grows Ad Sales Despite Economy

Anthony Crupi

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