Ad Sales Drive Discovery In Q3

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Discovery Communications continued to buck the advertising trend in the third quarter, reporting domestic advertising sales increases of 5% in the period, fueling another strong period of growth.
Domestic advertising revenue was $261 million in the period, up 5% marking its third consecutive quarter of growth.  In contrast, cable network giant Viacom reported a 4% decline in domestic ad revenue in the third quarter, an improvement over the prior period.
For the period, Discovery reported total revenue of $854 million, a 1% increase over the prior year's performance. Adjusted operating income before interest, depreciation and amortization (AOIBDA, a measure of cash flow) increased 17% to $364 million in the period.

Free cash flow fell $170 million to $29 million in the period, mainly because of $89 million in cash taxes associated with the sale of a 50% interest in Discovery Kids and the timing of $59 million in additional tax payments related to prior periods.

On a conference call with analysts, Discovery CEO David Zaslav said that the programmer has positioned itself to capture a larger share of the available ad dollars through ratings growth and holding back some inventory from the upfront. He said that the Discovery networks held back about 15% of their upfront inventory for the scatter market. Scatter pricing is up in the high-single digits to mid-teens percentages currently.

Zaslav pointed to networks like TLC, which went from the 15th-highest-rated ad supported network at the beginning of the year to the eighth largest today and Animal Planet, which reported 12% ratings growth in the third quarter, as examples.

"Visibility is relatively limited but demand is much improved," Zaslav said, adding that the networks expect to deliver ad revenue growth in 2010 as well.