Discovery bucks the downward trend

Chris Forrester

TV advertising is collapsing just about everywhere, but not at Discovery Communications which yesterday (May 4) declared higher Q1 profits and advertising revenues helped by stronger ratings.

Discovery, home to the Discovery Channel, Animal Planet and the Science Channel, among others, posted impressive numbers, saying profits had risen to $119m from $34m in the same period a year ago. Free cash-flow increased to $120m (up $75m).

Revenue rose 1% to $817m, ahead of most estimates, as US cable and international distribution has proven to be one of the most resilient businesses in media during the recession. Analysts had been expecting Discovery to post revenue of $799m. Advertising revenue rose 2%, while distribution revenue rose a very attractive 11%.

The broadcaster also backed its earlier forecasts and guidance for 2009. Previously, Discovery Communications said it expects net income from continuing operations of $475m to $575m, on revenue of $3.38bn to $3.50bn for the year ahead.

David Zaslav, Discovery's President and Chief Executive Officer said: "The growth Discovery delivered in the first quarter despite economic and foreign currency headwinds demonstrates the strength of our business model. Our stable and growing distribution revenue provides a unique resiliency in the face of economic hurdles. In the first quarter, this distribution strength was complemented by domestic advertising revenue growth as we capitalized on increased ratings across the portfolio. The durability of our revenue streams, combined with our ability to control spending, translated into Adjusted OIBDA growth of 9% this past quarter, and gives us confidence that we can continue to expand operating margins in today's challenging environment."

Specifically looking at Discovery’s international portfolio of channels, Zaslav reported that currency fluctuations had badly affected the company’s Dollar income. “International Networks' revenues for the first quarter decreased 4% to $255m as a $32m unfavourable impact of foreign currency fluctuations resulted in a 12% decline in advertising revenue and slightly lower distribution revenue. Excluding the impact of foreign currency fluctuations, revenues increased 9% led by 10% affiliate revenue growth, primarily from subscriber increases in EMEA (Europe (excluding UK), Middle East and Africa) and Latin America. Advertising revenue in local currency terms was up 7% as strong growth in EMEA and Latin America was offset by lower advertising revenue in the UK.”