Discovery's Results Surprise

8/08/2009 2:00 AM Eastern

Discovery Communications outperformed its much-larger cable-programming counterparts for the second quarter in a row, despite the recession and the daily havoc being played out in the advertising market.

Discovery managed to report a gain in advertising revenue (1%) for the second quarter, the second consecutive period of advertising growth for the Silver Spring, Md.-based programmer.

In contrast, media behemoth News Corp. managed another quarter of declines, as strong performance from its cable-programming unit was unable to offset big declines at its broadcasting, film and publishing businesses.

Revenue at News Corp. was down 10% in the fiscal fourth quarter to $7.7 billion and declined 8% for the year to $30.4 billion, in line with most analysts' expectations. Operating income for the quarter plunged 82% to $268 million from $1.47 billion in the previous year, reflecting a $452 million non-cash impairment charge related to changes at its Fox Interactive Media unit. Excluding the one-time charge, operating income for the fiscal year was down 30%, in line with company guidance.

For the full year, News Corp. took about $9 billion in write-downs, forcing a $3.4 billion net loss for the year, compared to a $5.3 billion profit in fiscal 2008.

Cable networks were the sole bright spot for the quarter and the fiscal year — cable operating income rose 39% in the quarter, to $434 million, and was up 32% for the fiscal year to $1.7 billion. Leading the charge was Fox News Channel, which reported a 50% rise in operating income compared to the prior year, mainly due to increased affiliate fees.

But cable's gains weren't enough to offset huge declines in TV broadcasting (operating income down 66% in the quarter, 85% for the fiscal year), newspaper and information services (operating income down 64% for the quarter and 41% for the year) and book publishing (down 104% in the quarter, 89% for the year).

In a conference call with analysts, News Corp. chairman Rupert Murdoch said that he believed that the worst was over — he had a similar sentiment in May during News Corp.'s fiscal third-quarter conference call.

But he conceded that “in spite of a very good July, we expect a tough few months ahead.”

It was a markedly different picture at Discovery, with overall revenue flat at $881 million — U.S. Networks revenue rose 2% to $557 million, offset by a 5% decline at international networks that was fueled mostly by unfavorable foreign-currency exchange rates. Adjusted operating income before depreciation and amortization rose 13% companywide — AOIBDA was up 11% at the U.S. Networks, but down 5% at international.

This was the second straight quarter of domestic ad-sales increases for Discovery — it had a 2% increase in the first quarter. In contrast, cable-programming peers like Viacom reported a 6% decline in domestic ad revenue in the second quarter and Time Warner Inc. reported a 3% decline in second quarter ad sales.

Discovery predicted that domestic ad sales in the third quarter would be flat, but the programmer said it expects to have a strong second half.


The quarter ending June 30 was a study in contrasts for News Corp. and Discovery Communications, with the latter reporting its second straight quarter of advertising gains and the former hobbled by broadcasting and publishing losses.

  Discovery   News Corp.  
  Q2 '08 Q2 '09 % change FQ408 FQ409 % change
SOURCE: Company reports
Op. income$208$486134%$1,478$268(82%)
Net income (loss)$82$179118%$1,129($203)(118%)
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