Feb. 8 (Bloomberg) -- Discovery Communications Inc., the cable programmer built on nature and science shows, is turning to Mike Tyson’s racing pigeons, Oprah Winfrey and Transformers to drive audience and revenue growth.
Animal Planet’s “Taking on Tyson,” a show about former boxer Tyson’s fascination with pigeons, is part of a push for viewers by Discovery’s U.S. channels. Since October, the company has added the Oprah Winfrey Network, with specials and talk shows by Winfrey and Rosie O’Donnell, and The Hub, a children’s outlet co-owned by Hasbro Inc., maker of Transformers toys.
With more mainstream shows and higher Nielsen Co. ratings, Discovery may be able to charge pay TV systems more for its programming, reach more homes and increase advertising sales. OWN and The Hub are seeking to enlarge their audiences beyond the networks they replace: Discovery Health and Discovery Kids.
“This is a mature company, and the only way to grow is to expand its audience beyond traditional science and nature viewers,” said Anthony DiClemente, an analyst with Barclays Capital, who has a “neutral” rating on the stock. “But there’s a lot of competition out there for women and kids. We’re still waiting to see if this is a successful strategy.”
Discovery, based in Silver Spring, Maryland, gained 28 cents to $42.55 at 4:30 p.m. New York time in Nasdaq Stock Market trading. The shares have more than tripled in the past two years. Cable billionaire John Malone has a 31 percent voting stake.
DiClemente estimates Discovery’s revenue will increase 6.4 percent in 2011 to $4 billion. He projects earnings will grow by 15 percent to $2.03 a share. The company reports fourth-quarter results on Feb. 11.
‘Taking on Tyson’
“Taking on Tyson” begins airing on March 6. The former heavyweight boxing champion has had a lifelong fascination with pigeons and joins with friends for a six-part show on bird racing in his old neighborhoods around New York, according to Discovery’s website.
The show explores “the highly competitive, bizarrely fascinating subculture of pigeon racing,” Discovery said. “The stakes are high in this sport, which has just as much machismo as boxing. But this time it’s not about money; it’s about bragging rights.”
The company’s larger efforts, OWN and the Hub, face entrenched competitors.
The Oprah Winfrey Network, owned with Winfrey, was in more than 80 million U.S. TV homes in its Jan. 1 debut, according to the company. That compares with 101.5 million for the flagship Discovery channel, according to industry trade group data.
No Fee, No Gain
In addition, most cable operators didn’t pay Discovery for the Health channel, Chief Executive Officer David Zaslav said at a Dec. 6 investment conference. Those that paid were charged 7 cents a month per subscriber, according to researcher SNL Kagan.
The Lifetime network, owned by Walt Disney Co., Hearst Corp. and Comcast Corp., gets 29 cents and is in almost 102 million homes, according to Kagan and 2009 estimates by the National Cable & Telecommunications Association. Discovery executives declined to be interviewed for this story.
Through Sept. 30, OWN had spent $107 million getting started, part of $189 million Discovery or a third party agreed to lend the project. Discovery took in $300 million from Hasbro for half of The Hub and hasn’t disclosed costs.
“If we can get that sub fee, we will have a dual revenue stream business that’s in the 80 million homes that has one of the best friends in media,” Zaslav said at the conference, referring to OWN. “You put that together with oprah.com and we think we could have something that could be quite special.”
OWN has averaged 159,000 women viewers in the 25-to-54-year-old demographic group the channel targets, a 49 percent rise from the 107,000 Discovery Health drew a year earlier, according to Nielsen Co. ratings from the company.
Winfrey’s Harpo Productions Inc. has an option to sell its OWN interest back to Discovery every two and half years, starting in 2016. The maximum payouts range from as much as $100 million to up to $400 million in 12.5 years, according to a Discovery filing. Winfrey declined to comment.
The Hub is available in about 60 million homes, compared with 100.6 million for Time Warner Inc.’s rival Cartoon Network, according to the company and cable industry estimates.
Cable systems pay Discovery 6 cents per subscriber every month for The Hub, compared with 18 cents for Cartoon Network, according to SNL Kagan, based in Monterey, California.
The network, which features shows based on Hasbro toys for almost a fourth of its schedule, attracted an average of 32,000 kids ages 2 through 11 from inception through Jan. 23, a 113 percent increase over Discovery Kids, according to Nielsen data. Wayne Charness, a Hasbro spokesman, declined to comment.
“The new channels are like a call option,” said Michael Nathanson, a Nomura Securities analyst in New York who rates Discovery “neutral” because it is “the most expensive” media stock.
Investigation Discovery, which began airing more crime shows in 2008, is also showing audience gains, up 64 percent in prime time in 2010, according to Nielsen data.
This year the network is adding a series on victims who were stalked, another on “the most shocking and heinous” unsolved murders and specials on subjects that include “ID Investigates: Why Is Bin Laden Alive?” network President Henry Schleiff said in a presentation to television critics on Jan. 6.
“We’ve really embraced the notion of having provocative characters and compelling stories on our air, from Palin to polygamists to ‘Who the (Bleep) Did I Marry?’” Peter Liguori, Discovery’s chief operating officer, said at the TV critics conference.
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