UPDATE 2-Discovery profit down, but ad sales show life

By Paul Thomasch NEW YORK, Nov 3 (Reuters) - Discovery Communications quarterly profit fell 29 percent, largely because of extra stock compensation expenses that masked stronger advertising and distribution fees at its U.S. cable networks. The parent of the Discovery Channel, Animal Planet and the Science Channel said third-quarter profit fell to $95 million, or 22 cents a share, from $134 million, or 44 cents a share, a year earlier. Revenue at Discovery rose 1 percent to $854 million, surpassing the $850 million analysts polled by Thomson Reuters I/B/E/S had expected. Few media companies have reported any gain in revenue, however slight, in recent quarters, but Discovery is typically less reliant on some of the hardest hit U.S. ad categories, such as automakers and financial institutions. Another factor is that national cable channels -- like Discovery's -- have proven relatively resilient to the downturn when stacked up against local TV or broadcast networks. U.S. ad revenue rose 5 percent in the third quarter, and it said sales would be flat to slightly positive in the fourth quarter. "People are going to be most concerned with how the ad revenue was looking," said Miller Tabak analyst David Joyce, who said Discovery's third-quarter ad sales surpassed his expectations. "Overall, it seems to be an operational outperformance." Discovery's revenue is also underpinned by the fees it collects from cable companies that carry its channels. U.S. distribution revenue rose 5 percent for the quarter. Its international business showed less strength, with revenue dropping 2 percent. For the full year, Discovery said revenue would run between $3.45 billion and $3.5 billion, a range that surrounds the $3.48 billion that analysts had forecast. Shares of Discovery closed 2.7 percent higher at $28.01 on the Nasdaq on Tuesday ahead of the quarterly results. The shares were little-changed in after-hours trading. (Reporting by Paul Thomasch, editing by Matthew Lewis) (([e-mail]; + 1 646 223-6092; Reuters Messaging: [e-mail])) Keywords: DISCOVERY/ (Visit http://blogs.reuters.com/mediafile/ for more coverage at the Reuters MediaFile blog) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved.

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