Discovery Earnings Drop in Q3 on Digital Fee Comparisons

Distribution Revenues Fall after Big Payment a Year Ago

Discovery Communications' third-quarter profits were lower than a year ago, when the company signed a big digital distribution deal.

Net income fell to $205 million, or 57 cents a share, from $237 million, or 60 cents a share, a year ago.

Revenues dipped slightly to $1.08 billion, with U.S. revenues dropping 4%, more than offsetting a 7% gain in international revenues.

Discovery also said it was less optimistic about its revenue for 2012, lowering its full-year guidance for revenue, but raising expectations for operating income before depreciation and amortization.

Discovery now expects total revenue to be between $4.475 billion and $4.525 billion. In February it said it expected revenue to be between $4.450 billion and $4.575 billion. The company reaffirmed that guidance in July.

Discovery also said it expects OBIDA to be between $2.125 billion and $2.150 billion, up from its earlier guidance of $2.050 and $2.150 billion. It continues to expect net income of $975 million to $1.025 billion.

Adjusted income at Discovery's U.S. Networks group increased 2% to $386 million. The company said that operating expenses were down 13%. Revenues dropped 4% compared to the year ago quarter, when the company realized gains from an extended and expanded licensing agreement to stream programming.

Advertising revenues grew 7% to $343 million as ratings and prices rose.

Total distribution revenue fell 14% to $300 million. "Higher rates and subscriber growth primarily from networks carried on the digital tier were more than offset by revenues from an extended and expanded licensing agreement in the third quarter of 2011," the company said in its earnings announcement. "Excluding licensing revenues, distribution revenues grew 5% compared with the third quarter a year ago."

Income at Discovery's international networks was up 11% to $173 million. Excluding the impact of foreign currency, income was up 16%.

"Discovery delivered another quarter of strong operating results as a sustained focus on developing compelling content and leveraging it globally provided additional growth opportunities and continued financial momentum," said Discovery CEO David Zaslav in a statement.

"In the U.S. we expanded market share, built new hits and capitalized on the ongoing strength of the ad market, while, internationally, we further leveraged the universal appeal of our programming and increased penetration of global pay-tv platforms to expand our unparalleled distribution footprint," Zaslav said. "Going forward we remain committed to thoughtfully investing in our brands and platforms while delivering sustained financial success and returning capital to our shareholders."