Discovery Profit Soars on Hit Content and Higher Ad Rates
Cable distribution and content companies are rocking this earnings season.
The headline: ad rates are rising and maybe content really is king. Discovery Communications reported 42 percent higher quarterly profit of 39 cents per share, a nickel higher than analyst expectations. The company reported 8 percent higher revenue of $879 million, and raised its full-year outlook.
Discovery is continuing a strong trend from media companies this week. Comcast, Time Warner Cable, as well as Viacom's cable networks all reported higher ad rates and cable's growing popularity. Ratings for Viacom and subscriber numbers for the cable providers continue to rise.
Discovery's numberswere particularly impressive overseas, where a 44 percent jump in international networks ad revenue helped grow the division's revenue by 16 percent. Excluding exchange rates, ad sales still grew 35 percent. Even in the US ad growth is remarkable -- up 9 percent. It's not just a rebounding ad market, though marketers including auto makers seem to be flooding back -- this rise was driven by 11 percent higher ratings at its US networks, including its namesake channel and Animal Planet.
On Discovery's earnings call this morning, analysts were eager to hear details about the upcoming Oprah Winfrey Network, of which Discovery owns half.
The network doesn't launch until January 2011 but its already signed Procter & Gamble for a major multi-year marketing deal.
With Winfrey starring "Oprah's Next Chapter," and her impeccable track record, there's little doubt that this channel will be a hit.
Her move to cable is yet another sign of the rise of cable against network TV. Viewers love Oprah, and they don't care whether she's in syndication at a broadcast network or on a channel higher up on the proverbial dial.
Management comments on the earnings call were positive -- CEO David Zaslav said that the company's long-term investments in content over the last two years have paid real dividends in terms of higher ratings. He also said that the worst is behind the ad market, saying that there's a "much higher degree of optimism" in the marketplace and the company expects volume and prices of ads sold in the scatter market will continue to accelerate over pricing of ads pre-sold during the Upfront ad sales period.
This is a big year for Discovery.
It was added to the S&P 500 about two months ago, helping its stock rise nearly 100 percent over the past 12 months. In addition to readying for the launch of "OWN" in January it's also launching HUB, a joint venture with Hasbro this fall. And last quarter it launched its popular "TLC" channel globally, which should help fuel that international growth. Discovery acknowledged it's unlikely its international division will maintain that 35 percent growth in international advertising (excluding exchange rates), but we can expect International growth to outpace the US.