Discovery Posts Higher Income

Ad revenue up 16% on U.S. Networks
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Discovery
Communications' earnings jumped in the third quarter, riding a robust
advertising market.

Net
income increased 98% to $186 million, or 43 cents per share, from $94 million or 22 cents a share a year ago, the company said Tuesday. Net income from
continuing operations was up 73% to $161 million.

Revenues
rose 11% to $926 million in the quarter.

"Our
ability to execute, combined with a robust advertising environment, enabled us
to deliver third quarter results that exceeded our expectations," said
David Zaslav, president and CEO of Discovery, in a statement. "We are
committed to building the next generation of growth drivers and are producing
real returns from additional investments in Animal Planet, ID and our
international networks, while launching our joint ventures, The Hub and OWN. We
are excited by the opportunities these investments present to further grow our
business long-term and generate increased value for shareholders."

Adjusted
operating income at Discovery's U.S. networks grew 12% to $346 million.
Revenues at the U.S. networks rose 11% to $585 million. Ad revenues at the U.S.
networks increased 16% to $304 million.

Brad
Singer, Discovery's CFO, said that the increase in ad sales came from
higher pricing in the scatter and direct response markets, as well as higher
sell through. Prices were up in the mid-single digits in the upfront, and there
were high teen percentage increase in scatter from upfront levels. Silver said
that he expects fourth-quarter ad revenues to be up in the mid teens as well.

Domestic
distribution income rose 9%.

For
the full year, Discovery raised its estimates, saying it expects total revenue
of between $3.75 billion and $3.8 billion and net income of $650 million to
$700 million.

During
the company's earnings call, Zaslav noted the fast growth domestically of
Investigation Discovery Animal Planet and Science.

Zaslav
said he was "very pleased with the initials results of The Hub, a joint
venture with Hasbro. He said The Hubs ratings were higher than Discovery Kids
and that the programming is starting to resonate with target audience. He said
that 50 new advertisers have come on board the channel, including many game and
toy companies.

He
also said Discovery was feeling good about the schedule OWN will have at
launch, and some of the personalities who will be joining the network later in
the year. OWN will be taking over the distribution of the Discovery Health
channel, which had revenues of 80 million and operating income of $30 million
last year.

While
OWN will face high expectations, Zaslav noted that "every cable network
takes time to find a voice . . . We are going to be listening to viewers. We
have oprah.com as a way for us to hear what they like and what they don't
like," he said. And if they listen, "we're going to have a
big asset."

Peter
Liguori, Discovery's COO, who has been working closely with OWN, added
that the company expected OWN to have better ratings than Discovery Health. He
added that blue-chip advertisers have made commitments to OWN, with some making
multi-year deal. "It's not merely spots and dots. They're
ones where they're heavily involved and integrated into our
programming," he said. If the ratings come in, the economics of the
channel will follow, he said.

Internationally,
Discovery said its major initiative is a roll out of TLC aimed at adding 100
million subscribers, building a female oriented network world wide that will
compliment the more male-skewing Discovery Channel. . Already this year, TLC
has added 50 million subs in 27 markets. .

Analyst
Anthony DiClemente of Barclays Capital said that Discovery stock has run up 15%
since the company announced second quarter results. "Third quarter
expectations are now inflated, programming costs continue to rise, fourth
quarter and 2011 growth is likely to decelerate, and valuation is demanding at
current multiples," he said in a note issued before Discovery's
earnings were released. 

Like
most other cable network companies, Discovery has been benefiting from the
rebound in the ad market. But DiClemente says investors have already figured
14% to 15% growth in ad revenues into Discovery's stock price. The stock
is also trading at 21.9 times earnings, one of the highest levels in the media
sector.

Discovery
stock finished Tuesday up 9 cents at $44.49.

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