Discovery’s Sales Slow as Company Seeks Growth Overseas

Discovery Communications Inc. (DISCA), the cable-programming company that owns the Animal Planet and Investigation Discovery channels, reported slower sales than estimated last quarter as the company looks overseas for growth.

Sales gained 7 percent to $1.14 billion, Silver Spring, Maryland-based Discovery said today in a statement. Analysts had projected revenue of $1.16 billion on average, according to data compiled by Bloomberg. Net income rose 15 percent to $293 million, or 76 cents a share, from $254 million, or 62 cents, a year earlier, topping the 70-cent estimate.

Discovery, facing slower growth in the U.S., is banking on an expansion in international markets. Chief Executive Officer David Zaslav has increased Discovery’s stable of channels and is bolstering its programming in places like Brazil and Mexico. The company gets about half its revenue from ads, with the rest coming from rights fees from pay-TV operators.

“International is our strength,” Zaslav said on a conference call following the earnings report.

Discovery fell 0.6 percent to $50.63 at the close in New York. The stock has climbed 24 percent this year.

Discovery’s international business remains a bright spot, even as Europe copes with a credit crisis, according to Paul Sweeney, a media analyst with Bloomberg Industries in New York.

“The 11 percent growth in international advertising seems to bear this out,” Sweeney said.

Oprah’s Network

The OWN channel, Discovery’s joint venture with Oprah Winfrey’s Harpo Productions, is on track to be profitable by the second half of next year, and eight of its charter advertisers have re-signed with the network, according to Zaslav. Discovery began recording 100 percent of the losses at OWN in its “other expense, net” section.

Investigation Discovery, started March 2003, increased its total-day viewership among 18- to 49-year-olds, a group targeted by advertisers, by 49 percent, overtaking TLC as the company’s No. 2 channel, David Bank, an analyst at RBC Capital Markets in New York, wrote on July 19, citing Nielsen. Animal Planet’s prime-time audience in that group gained 12 percent, he wrote.

Discovery is seeking to renew agreements with three pay-TV services that expire later this year, a chance to increase subscriber income, Todd Juenger, an analyst at Sanford C. Bernstein & Co. in New York, wrote yesterday. Investors will seek clarity on Discovery’s plans for $1 billion in debt sold during the period, wrote Juenger, who anticipates the cash will be used for share repurchases.

To contact the reporters on this story: Andy Fixmer in Los Angeles at afixmer@bloomberg.net; Edmund Lee in New York at elee310@bloomberg.net

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net; Nick Turner at nturner7@bloomberg.net

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