Discovery confronts need to hone OWN

Earnings report up, but Winfrey cabler is in the red

Discovery Communications delivered a strong third quarter earnings report Tuesday, but even an increase in its revenue and profit projections for the full year wasn’t enough to divert Wall Street’s attention from the problems at OWN.

Discovery’s joint venture with Oprah Winfrey is in the red for the year, with negative cash flow to the tune of $55.6 million, according to numbers provided by SNL Kagan. The subscriber fees that cable and satellite operators pay to carry the channel have dropped to 5¢ a sub per month, from 7¢ last year when the channel was still Discovery Health, according to Kagan.

Losses for a startup operation are no surprise, but OWN’s growth curve has been steep as the cabler has struggled mightily to gain viewer traction with its original programming. Its most recent big bets, the Rosie O’Donnell yakker and the Winfrey fronted “Oprah’s Lifeclass,” have had a sluggish start in their Monday-Friday primetime runs.

Discovery CEO David Zaslav preached patience during the quarterly earnings call in which analysts grilled him about OWN’s finances. Discovery brass would not disclose many details about the joint venture, but chief financial officer Brad Singer acknowledged that it had invested $12 million more in the cabler during the quarter.

For 2011, SNL Kagan estimated operating expenses of nearly $160 million at OWN, and revenue of $104 million. In terms of distribution, the net is in more households than Discovery Health, which it replaced, but only about 5.8 million more.

Zaslav said he’s confident that OWN’s fortunes will improve now that Winfrey is serving as full-time CEO.

“We are working hard to develop content that will appeal to her audience,” Zaslav said. “We are building some meaningful audience growth and flow. Viewership is up from previous levels (and) there’s some nice momentum going into 2012. … We are starting to swing in a positive direction in term of getting people to spend more time with us.”

For the year to date, OWN is essentially flat in primetime compared to its Discovery Health predecessor. After three weeks on the air, “Rosie” and “Oprah’s Lifeclass” have yet to make much of a difference in the numbers.

“Rosie,” airing at 7 p.m., started out with an average of 321,000 viewers in its first week, declining to 229,000 in week two and 223,000 in week three. There’s been a similar slide in the all-important women 25-54 demo, where “Rosie” started out with an average of 140,000 viewers but slid last week to 106,000.

“Lifeclass,” trumpeted as Winfrey’s return to the airwaves, bowed to an average of 310,000 total viewers in week one, declining to 297,000 last week. In women 25-54, the show has inched up from an average of 118,000 in week one to 122,000 last week.

OWN’s biggest original success story to date is the weekly docu-series “Our America With Lisa Ling,” which started slowly earlier this year but has shown steady progress. In October the show averaged a healthy 542,000 viewers, and 230,000 in women 25-54. Reality skein “Welcome to Sweetie Pie’s” has also gotten some traction, pulling in 421,000 total viewers in October, including 144,000 in women 25-54.

Zaslav pointed to the performance of “Our America” and “Sweetie Pie’s” in defending the net’s performance to analysts.

“It’s like we said at the beginning, it’s gonna take some time.”

David Leavy, Discovery’s corporate communications topper, reinforced the company’s mantra that new cablers take three to five years to really find their footing with viewers — even with Oprah Winfrey’s name on the door.

“Yes, it’s Oprah Winfrey, so the expectation is a litte higher, but we are very pleased,” Leavy told Variety. “We probably didn’t have enough original programming when we launched. It’s the right trajectory — no one’s declaring victory, but we’re seeing green shoots.”

Beyond OWN, Discovery’s third-quarter results were strong, buoyed by growth in international markets. Net income rose to $238 million from $189 million the year before. Revenue jumped 18% to almost $1.1 billion with 19% growth at both domestic and international networks.

For the full year, the company said raised its projections, pegging revenue to come in between $4.17 billion and $4.25 billion, and net profit of about $1 billion.

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