By Liana B. Baker
July 30 The Oprah Winfrey Network is making
money four years after its debut, as stronger ratings and
advertising growth helped turn around the joint venture with
Discovery Communications Inc sooner than expected.
The news was a bright spot for Discovery, which has invested
more than $500 million in OWN, as it posted weaker-than-expected
second-quarter results and cut its earnings forecast on Tuesday.
The media company's stock fell 4.3 percent to $80.74 on
Nasdaq at mid-afternoon.
Discovery Chief Executive David Zaslav said OWN, which it
formed with talk-show host Oprah Winfrey, benefited from two
popular new series by producer Tyler Perry, "The Have and Have
Nots" and "Love Thy Neighbor."
"OWN is now cash flow positive and starting to pay down the
investment Discovery has made in the venture," Zaslav said.
The network, which replaced Discovery's Health channel in
January 2011, had expected cash flow to break even in the second
half of the year.
Lazard Capital Markets Barton Crockett said it was
encouraging that one of Discovery's biggest bets was paying off.
"We knew that OWN was working because ratings have been
great. The fact that it is bouncing back into positive isn't a
huge surprise," he said.
Winfrey, known as the "queen of talk," had admitted in a TV
interview to making "101 mistakes" when launching the network.
The mix of in-depth interviews with celebrities and feel-good
programs did not initially translate to the ratings success
Winfrey had seen on broadcast TV for years.
Under President Erik Logan, OWN has since gone through
layoffs, executive departures and a reshuffling of its
programming lineup to add more scripted shows. It also has been
selling some of Oprah's talk shows overseas, including to the
On Tuesday, Zaslav said it had signed on 30 new ad partners
and had the "highest growth of any cable network in the second
quarter." Viewership by OWN's target demographic of the 25-54
age group grew 39 percent in the second quarter, the company
Discovery said it now expects 2013 revenue of $5.55 billion
to $5.63 billion, below its previous forecast for $5.58 billion
to $5.70 billion. The company blamed unfavorable currency
fluctuations and costs from its $1.7 billion acquisition of
Scandinavian media company SBS in December.
Zaslav brushed off concerns that the merger of big ad
companies Publicis and Omnicom
would pressure Discovery's advertising rates. He said the deal
was "probably a good thing" for the company.
"As long as we continue to grow our audience, we're going to
find very receptive buyers," he said.
Net income rose to $300 million, or 82 cents per share, from
$293 million or 77 cents per share, in the year-ago quarter.
Excluding special items for licensing agreements and foreign
currency fluctuations, earnings per share of 83 cents missed the
analysts' average estimate by 7 cents according to Thomson
Crockett, the Lazard Capital Markets analyst, said Wall
Street was not expecting the charge related to the SBS
acquisition and noted that it helped explain why Discovery
missed EPS estimates.
Gabelli & Co analyst Brett Harriss said he was expecting
improved profitability at Discovery's U.S. networks, where
advertising was up 10 percent, but noted the company's
higher-than-expected operating expenses.
"U.S. advertising was great, but programming and marketing
costs were up," Harriss said.
Discovery said operating expenses rose 17 percent at its
U.S. unit, which it said offset revenue growth at that division.
Total revenue rose 30 percent to $1.47 billion. Analysts had
expected $1.48 billion.