By Jennifer Saba
Feb 14 Discovery Communications Inc reported a bigger-than-expected drop in quarterly earnings, overshadowing a rise in advertising sales at its cable channels.
Discovery said on Thursday that fourth-quarter net income fell 33 percent to $224 million, or 61 cents per share. Analysts on average were expecting 76 cents per share, according to Thomson Reuters I/B/E/S.
Shares of Discovery fell 2.4 percent to $69.78 in morning trading.
The company attributed the decline to higher taxes, equity-based compensation and costs due to its acquisitions, such as Germany's ProSiebenSat.1 Media AG's 12 Nordic television stations for $1.7 billion.
Still, the company, whose cable networks include Discovery Channel, TLC and Animal Planet, said total revenue rose 8 percent to $1.2 billion, in line with analysts' expectations.
Discovery forecast 2013 revenue of $5.58 billion to $5.70 billion. Analysts are expecting $5.43 billion.
The company's partnership with entertainment mogul Oprah Winfrey in the OWN Network - a high-profile and expensive joint venture - is on track, executives said on a call with analysts.
"Oprah is doing a great job," said Discovery Chief Executive Officer David Zaslav. "Everything is moving in the right direction."
Winfrey, who dominated daytime talk TV for decades, is trying to replicate her winning formula on cable. OWN scored a two-part interview with disgraced cyclist Lance Armstrong, but it failed to break its own viewer record with its most-watched show involving an interview with the family of the late Whitney Houston..
TV ratings were a popular topic on the call. Executives and analysts noted that some of Discovery's most talked-about shows, like "Gold Rush," "Finding Bigfoot" and "Breaking Amish," are not drawing as much money from advertisers as traditional broadcasters are getting for their programs.
"We are always making the argument that we are delivering bigger audiences and we should be getting more money," Zaslav said.
Generally the ad rate for a commercial running on Discovery is about 33 percent lower than what rivals get, he said.
Advertising revenue rose 9 percent to $397 million in the fourth quarter at the company's U.S. channels and increased 16 percent to $185 million at the international cable networks.
"If anything, people were expecting they would outperform," Macquarie Research analyst Amy Young said about ad revenue.
Discovery said it expects advertising revenue to rise at a high single-digit percentage rate in the first quarter.
One area where Discovery remains on the sidelines is the initiative known as TV Everywhere, which allows cable subscribers to access content on several devices, like smartphones and tablets. The company is looking at how to value such deals.
"The big risk to the ecosystem is that online video distributors like Netflix have a better product than traditional television," said Gabelli & Co analyst Brett Harriss. "TV Everywhere is a way to respond, and Discovery is taking a more measured approach."