Upfronts 2009: Discovery's Zaslav Says Market's Hard to Gauge
Discovery CEO Says 'Odd' Auction For Advertising Difficult To Predict
by Kent Gibbons -- Multichannel News, 5/4/2009 6:37:08 PM
Complete Coverage Of Upfronts 2009 From Multichannel News
Ratings gains led to an uptick in domestic advertising revenue at Discovery Communications in the first quarter but the company is in "cautious optimism" mode as to the ad-sales upfront as buyers still aren't tipping their hands.
Discovery's U.S. affiliate revenue rose 11% and ad revenue rose 2% for an overall increase of 5% year over year, to $509 million, in the first quarter, the company said as part of its overall earnings announcement.
Discovery has affiliate-fee increases built into its contracts and saw subscriber growth from its digital networks, officials said during a conference call with analysts.
Higher pricing and ratings gains at the likes of Discovery Channel, Animal Planet and TLC bolstered ad sales.
CEO David Zaslav said the upfront auction, where a sizable portion of ad sales are booked, is "an odd market" this year. "It's unusual to say 'here we are and we really don't have a sense of the upfront.' But the truth is we really don't have a sense of the upfront," he said.
Attendance at Discovery upfront gatherings, where new shows were shown off, was good and buyers have seemed enthusiastic about Discovery shows and cable programming in general, he said.
Ad contract cancellation levels were about 13%-14% in the second quarter and expected to be about the same in the third quarter, Zaslav said, historically high levels, but Discovery got back some of that second-quarter business in "scatter" purchases. [An earlier version of this story said those were 2008 cancellations.]
Discovery executives also added some details about the joint venture announced last week with Hasbro Inc. that will see Hasbro buy 50% of Discovery Kids, one of Discovery's U.S. digital channels. It will be renamed and relaunch late next year with programming built around Hasbro brands.
Chief financial officer Brad Singer said the $300 million fee for half of Discovery Kids will work out to about $200 million after taxes, and said the transaction should close in the current, second quarter. The channel, slated to be in 60 million homes when it relaunches, was expected to generate about $25 million in operating income this year and earned 90% of its revenue from affiliate fees. Discovery targets a revenue mix for its channels of 50% affiliate fees and 50% ad revenue, so the channel was "an underperformer" in that respect, Zaslav said.
Singer said Discovery and Hasbro expect the joint venture to be self funded, but the partners have capped possible additional contributions to it at $15 million each.
Discovery's Class A stock (DISCA) closed Monday at $20.21, up $1.60 (8.6%).
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