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February 24, 2011
Discovery Communications Inc (DCI) increased total revenues nine per cent in 2010 compared with the prior year, growing its domestic network revenue nine per cent and international network revenue 11 per cent.
The cable channel operator's strong performance was in line with IHS Screen Digest's US Cable Network Intelligence (USCNI) estimates. However, in its home market, DCI faces a tough challenge in meeting its growth targets for its newest channels.
Last year saw significant rebounds in advertising for DCI's domestic and international networks. Discovery Channel and TLC provided a solid base for the domestic networks and made up nearly two-thirds of domestic revenues. The sale of a 50 per cent stake in Discovery Kids to toy company Hasbro, and its subsequent rebranding as The Hub, netted the company a $252m pre-tax gain.
Advertising growth of 23 per cent in the international segment was moderated by the somewhat slower growth of carriage fee revenues of six per cent.
Discovery has hedged its bets by launching two channels, OWN and The Hub, with partners. The Hub minimises the company's exposure while providing significant brand power and awareness. OWN on the other hand has been a significant investment with a huge potential upside. OWN's ratings have been soft in the first months of its operation, although they topped the former Discovery Health by 35 per cent. With 24 new shows slated for launch later this year, as well as significant advertising commitments, it is likely that OWN will be able to gain enough momentum to become an established channel.
In Discovery's fourth quarter and full-year 2010 earnings call, President and CEO David Zaslav, made the bold statement that OWN would be EBITDA positive in 2011. By limiting programming expenditures to lower priced reality programming coupled with immense advertising commitments, the network thinks it has found the formula for success. In the face of historical precedent however, this prospect is unlikely as the average cable network takes several years to gain enough momentum.
At the other end of the audience spectrum, The Hub bowed in October with a favorable reception. The children's genre is a highly competitive niche, dominated by Nickelodeon and Cartoon Network. Hasbro has many properties to leverage. The Hub has already rolled out series based upon Hasbro's iconic Transformers and G.I. Joe.
Unlike other programmers, Discovery has taken a cautious view to emerging technologies. The company has stated its preference for authentication-based internet distribution strategies, similar to Time Warner Cable's TV Everywhere. This makes sense given Discovery's position in the marketplace. Typically, reality fare has not performed as well on DVD as other genres. IHS Screen Digest believes the same dynamic is at play in the online space.
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