CEO sez OWN is stablizing even as losses hit Q1 results

Discovery Communications CEO David Zaslav said OWN should hit “cash flow break even” in the second half of next year as video providers start coughing up substantial fees – and despite persistent rumors the company could shutter the Oprah Winfrey network.

“There’s been a lot of noise out there,” Zaslav told investors on a conference call to discuss first-quarter earnings. But he said OWN ratings are rising, blue-chip advertisers are on board and the channel has successfully tackled cost issues and tweaked its programming.

“Despite what you read, we are making real progress…There’s a long way to go but I feel better about OWN than we ever have,” he said.

Ratings grew 14% for the March quarter and are up 17% this quarter to date, he said. OWN had virtually no subscriber fees from cable and satellite operators when it launched in January of last year, but that will change starting early next year.

“Oprah is having a lot of fun. She is working very hard,” Zaslav said. “We are confidant that by the end of 2013, OWN will be cash flow positive. We are a long-term driven company.”

In March, OWN laid off 30 employees and canceled Rosie O’Donnell’s “The Rosie Show” due to poor ratings. Winfrey acknowledged in an interview with CBS that the network wasn’t ready when it launched and that if she had a do over on starting OWN she’d probably pass. But she also said she had no plans to give up. The net announced a handful of new and returning shows at Discovery’s upfront last month where Oprah thanks advertisers for having patience and sticking with her.

Accumulated losses from OWN took a bite out of Discovery’s earnings last quarter as the company said profit fell 28% to $221 million.

Discovery began recording 100% of OWN’s net losses under “other expense” last quarter as accumulated operating losses at OWN exceeded the equity funneled into the network. That was sooner than expected, said Nomura analyst Michael Nathanson, contributing to a loss of $50 million below the line.

Revenue rose 16% to $1.1 billion on strength across the board including international and $50 million from new and existing digital streaming deals with Netflix and Amazon.

Animal Planet saw revenue surge 18% led by “Finding Bigfoot.” TLC ratings declined but the net “has build a broad stable of returning hits,” Zaslav said. He touted the company’s suite of growing niche channels — Science, Military, Velocity, Fit & Health — and the pending makeover of Planet Green, to launch May 28 as Destination America with a combination of travel, adventure, food, home and natural history programming.

Zaslav said the scatter market is strong and he expects “significant increases” in this year’s upfront.

Advertising revenue rose 13% at the U.S. networks and 22% internationally. Distribution was up 23% in the U.S. and 14% overseas.

The board of directors approved a $1 billion increase to the existing stock repurchase program to $3 billion.

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