Oprah, Currency Rates Pressure Discovery

Stock Dips As Much As 9% on Mixed Q4
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Discovery Communications stock was down more than 5% Thursday after the programmer reported mixed fourth quarter earnings and said TV icon Oprah Winfrey could exercise put options that would require the company to purchase some of her interest in the OWN channel.

Discovery shares were down as much as 9% ($2.38 each) to $24.33 per share Thursday after the company said total revenue was down 2% to $1.6 billion, adjusted OIBDA fell 10% to $574 million and net income dipped 16% to $219 million as foreign currency rates pressured results. The stock was trading at $25.88 each in afternoon trading Thursday, down 3.1% (83 cents each).

The company said that excluding foreign currency fluctuations and the impact of its acquisition of Eurosport and the sale of SBS Radio, revenue and cash flow would have increased in the period.

Discovery also noted that TV icon Oprah Winfrey, who controls 50% of OWN: The Oprah Winfrey Network, now can require Discovery to purchase a portion of her interest in the channel. On a conference call with analysts, Discovery CEO David Zaslav said the company would welcome the opportunity to increase its stake in OWN.

Zaslav said that if Winfrey decides to exercise that put option, it would be beneficial for Discovery.

“We think it has a great niche and some very strong IP,” Zaslav said. “And over time, as our interest grows, if we have an opportunity to consolidate it, that would be very favorable for us. But in the meantime, it's a 50/50 venture with Oprah having rights to put interest to us over time beginning this year, and she is very happy with the venture and it's quite a success story.”

Winfrey’s investment company Harpo, Inc., has the right to require Discovery to purchase Harpo’s interest in OWN every 2 1/2 years beginning Jan 1, 2016. According to the agreement, if Harpo decides to exercise the option, Discovery would have to purchase the interest at fair market value up to a maximum put amount that ranges from $100 million on the first put exercise to $400 million on the fourth put exercise date.

Discovery has done several recent deals to make its content available on TV Everywhere platforms. Zaslav also threw some cold water on claims that skinny bundles are putting pressure on content providers, adding that the vast majority of TV viewers still opt for more robust programming packages.

“With all the talk of the skinny bundle and as appealing as it seems, most consumers seem to want the big bundle,” Zaslav said.

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