On Thursday morning's Q4 earnings call, Discovery Communications CEO David Zaslav told analysts in no uncertain terms that he expects to realize greater profits over the next few years by raising ad rates. "I think you'll see over the next couple of years that that'll be the sustained wind at our back," he said.
Advertising, Zaslav said, is the domestic revenue stream that still has room for growth. Discovery has seen affiliate fees rise steadily, and it has renewed series more steadily over the last few years. "We have subscriber growth flat in the U.S., we have viewership flat in the U.S.," said Zaslav frankly. "The one advantage we have at our back is that there's a 30 percent CPM differential between broadcast and cable."
The hard-charging CEO pointed to Gold Rush, a Discovery Channel program that has occasionally beaten out every show on television and regularly outperforms the lackluster new scripted offerings on broadcast (last Friday, the only prime-time broadcast show to equal Gold Rush's 1.9 in the demo was ABC reality series Shark Tank). "The justification for [that discrepancy] is eroding," Zaslav said.
Zaslav emphasized the stability of his networks' programming—renewals are cheaper than new programs, and Discovery has seen a larger-than-usual share of returning shows recently. "We're in this odd moment where we could spend the same amount of money and get a lot more creative content," he noted.
With a family of 14 networks, there was only time to call out a few favorite children, among them Animal Planet. "The viewership [had] been low, and [president and gm] Marjorie [Kaplan] has really broken through," Zaslav said. "The bad news is that our CPMs are still low on Animal Planet, but the good news is we're catching up. That'll be a CPM grower for us over a period of time—more so than even TLC."
And of course, no Discovery call would be complete without mention of the company's high-profile joint venture OWN. "On OWN, we're ahead of where we thought we'd be in ratings," Zaslav enthused. "We said we'd fund less in 2012 than we did in 2011; we did." In Zaslav's mind, programming is taking steps forward; to illustrate his point, he mentioned that Tyler Perry is "working very hard on a comedy and a drama" and has started shooting. Zaslav added that OWN was growing its affiliate revenue stream by sercuring some sort of fee from virtually every operator. "We've done deals with every operator in America except for one," he said.
Ad revenue got a 9 percent boost in the fourth quarter, although CFO Andy Warren cautioned that the windfall from Q1 of 2012's license sale to Amazon would make the current quarter's revenue look weak by comparison. "The first-quarter growth rates will be lower than the previous year," Warren said.
As always, Zaslav was bullish on international, saying that the company is looking for opportunities abroad that would facilitate growth. "The acquisition of ProSieben's suite of Nordic networks will deepen our footprint across some of the most stable and well-penetrated cable markets in the world," he said. Discovery purchased the ProSieben channels last year, as well as a 20 percent stake in Eurosport, a pan-European sports cable channel. The two purchases combined represented a $2 billion outlay for the company.