Discovery Forms Discovery Health Media

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Looking to transform its five-month-old digital health
network into a fully distributed analog channel, Discovery Communications Inc. plans to
spend up to $350 million -- in good part on original programming -- and to line up MSOs as
partners in the service, officials said last week.

DCI is creating a new company, Discovery Health Media Inc.,
as an umbrella for both Discovery Health Channel -- which debuted July 28, and which will
undergo an upgrade and relaunch -- and Discovery Health Online, which will include a
corollary broadband-interactive service.

DCI founder and chairman John Hendricks said he sees the
health category as a huge opportunity for an analog network, with a large advertising base
among pharmaceutical makers, even though competition for analog slots is fierce.

"I wouldn't call it a niche," he said.
"It's a major category of programming."

In order to try to jump-start analog distribution for
Discovery Health, Hendricks added that DCI will be offering cable operators three options:
equity in the health network, a share in its national ad revenue, or upfront cash launch
fees.

When DCI rolled out Discovery Channel, it gave charter
affiliates rebates of roughly 20 percent from a pool of its ad revenue. And it shelled out
cash launch fees for Animal Planet.

Hendricks said he's looking to forge "creative
partnerships" with cable operators.

Discovery Health is currently available on
Tele-Communications Inc.'s Headend in the Sky, on Cox Communications Inc.'s
digital platform and via its own satellite. Right now, its digital distribution is just a
portion of the current total of roughly 2 million digital homes in the United States,
Hendricks said.

DCI launched the health network as a digital service this
summer -- one of the programmer's six digital "Showcase" offerings -- in
order to get a foothold in the category, officials said.

"We felt: Let's go out there now, get on a
satellite and experiment with the format," Hendricks said. "So we've
launched a health service, and we now want to develop a service that's worthy of
universal distribution."

It's possible that DCI, after revamping Discovery
Health into an analog service, might also continue to offer operators a digital version of
the channel with strong interactive elements, DCI president Judith McHale said.

Part of DCI's investment, which will range from $300
million to $350 million, will fund seven new original series that will air on Discovery
Health, with the first of them likely to premiere in about four months, according to
Hendricks. That programming is meant to upgrade the digital service, which, to date, has
depended on DCI library product.

Those new original series are Profiles in Medicine, Whole
Health
, Your Body, 21st Century Medicine, Mindwise, Children'sHospital and Discovery Health in the News.

Discovery Health's rate card will be from 10 cents to
20 cents per month, per subscriber, and Hendricks expects the network to get distribution
in the 60 million-home range within five to seven years.

DCI doesn't have a firm commitment yet from its
current MSO partners -- TCI and Cox -- for analog carriage for Discovery Health.

But Hendricks said he expects the two operators to support
Discovery Health's quest for analog space, since they voted to support the capital
outlay of more than $300 million to upgrade it.

A TCI spokeswoman said the MSO is currently talking to DCI
about a possible analog-carriage deal for the "rejiggered" and
"relaunched" health network. But TCI president and chief operating officer Leo
J. Hindery Jr. recently called Oxygen -- the women's network being created by
Geraldine Laybourne -- the last big analog launch for his MSO.

Cox couldn't be reached for comment.

This isn't DCI's first effort to get analog space
for its health network. Earlier this year, the company made a bid for Courtroom Television
Network, with the plan of scrapping the channel's format and using its analog shelf
space for either Discovery Health or Travel Channel, which it had recently acquired.

America's Health Network, with 9 million subscribers,
doesn't think that cable operators will let DCI dominate the field with its health
network.

"The distribution community wants competition in key
niches, and we welcome it," AHN chairman Webster Golinkin said.

Hendricks said that today, it costs about one-third of a
billion dollars to launch an analog channel, as opposed to roughly $25 million for a
digital one. He expressed hopes that Discovery Health will score high ratings, based on
the success of health-oriented and medical programming on DCI's The Learning Channel.

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