Ad Picture Improves for Discovery, Scripps Networks

Discovery Communications and Scripps Networks Interactive on Wednesday were the latest to join the conga line of media companies that had encouraging news for investors, as both reported improved fourth-quarter results.

The parent company of the clutch of cable networks that includes Discovery Channel, Animal Planet, TLC and the developing OWN: The Oprah Winfrey Network raked in $287 million in domestic ad sales on the quarter, an increase of 2 percent versus Q4 2008. Affiliate revenue was up 4 percent, to $245 million.

Sequentially, Discovery’s ad growth was even more pronounced, growing 10 percent from $261 million in Q3 ’09. The media giant was able to write Q4 scatter business at a significant premium over upfront levels, securing CPM increases between 15 percent and 25 percent.

Chief Financial Officer Brad Singer on Wednesday said Discovery’s ad sales are up 5 percent since the year began, adding that he expects the marketplace will continue to improve throughout 2010.

In a call with analysts, Discovery president and CEO David Zaslav said the launch of OWN in 2011 should help drive subscriber fees. Currently available in 75 million homes under the soon-to-expire Discovery Health brand, the new OWN is expected to reach between as many as 80 million U.S. households by the time it debuts.

“With Oprah behind us, we are looking to get more carriage and a different compensation structure,” Zaslav said. “As distribution grows, we will get meaningful fees for our content.”

Per industry estimates, Discovery Health commands carriage fees of about 14 cents per subscriber per month, putting it in the lower-fourth quintile with ad-supported networks like Soap Net, Style and VH1. Under executive vp of distribution and strategy Allan Singer, OWN is heading into the marketplace with a much bigger sub fee in mind. One operator said that OWN was pushing for around 40 cents per sub, which would place the new net among the top 15 ad-supported cable channels in terms of its distribution fee.

While operators are likely to balk at such an inflated carriage fee, Discovery is banking on the fact that OWN will be the lone TV venue for all things Oprah. After 25 years on the air, the talk show host will end her syndicated program in September 2011.

In afternoon trading, shares of Discovery were down 93 cents, or 3.18 percent, to $28.34. Since Jan. 2, 2009, Discovery’s stock price has nearly doubled.

Meanwhile, Scripps Networks Interactive swung to a Q4 profit of $94 million, or 57 cents a share, compared with a prior-year loss of $154 million. Revenue was up 6 percent to $430 million.

Strong ratings growth at flagship properties Food Network and HGTV helped lead SNI to a lucrative quarter, as ad sales revenue increased 7 percent to $281 million. Food Net was up a whopping 29 percent in prime, averaging 1.16 million total viewers. Adults 18-49 grew 34 percent. HGTV lifted its nightly ratings by 18 percent, averaging 1.19 million viewers, of which 434,000 were adults 18-49.

SNI also enjoyed significant gains on the affiliate side of the business, as subscriber revenue was up 16 percent to $81 million.

All told, the lifestyle media unit boosted revenues 8 percent, to $369 million, excluding results at Travel Channel. In December, SNI acquired a 65 percent stake in the network from Cox Communications.

As much as the linear networks thrived, the interactive services segment continued to struggle. Online revenue fell 25 percent to $49 million, while profit dropped 50 percent to $10 million.

Shares of SNI were down $1.64, or 3.75 percent, to $42.12. Since Jan. 2, 2009, SNI’s stock price has increased 77 percent from $23.75.

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