DISCA

Discovery Communications, Inc. (DISCA)

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Discovery Communications (DISCA)

Q4 2012 Earnings Call

February 14, 2013 8:30 am ET

Executives

Craig Felenstein

David M. Zaslav - Chief Executive Officer, President, Director and Member of Executive Committee

Andrew C. Warren - Chief Financial Officer and Senior Executive Vice President

Mark G. Hollinger - Chief Executive Officer of Discovery Networks International and President of Discovery Networks International

Analysts

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Benjamin Swinburne - Morgan Stanley, Research Division

Todd Juenger - Sanford C. Bernstein & Co., LLC., Research Division

David Bank - RBC Capital Markets, LLC, Research Division

Jessica Reif Cohen - BofA Merrill Lynch, Research Division

Michael Nathanson - Nomura Securities Co. Ltd., Research Division

Richard Greenfield - BTIG, LLC, Research Division

Alexia S. Quadrani - JP Morgan Chase & Co, Research Division

Alan S. Gould - Evercore Partners Inc., Research Division

David W. Miller - B. Riley & Co., LLC, Research Division

Presentation

Operator

Good day, ladies and gentlemen. Welcome to the Q4 2012 Discovery Communications, Inc. Earnings Conference Call. My name is Charlene, and I will be your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would like to turn the call over to Craig Felenstein, Senior Vice President of Investor Relations. Please proceed.

Craig Felenstein

Good morning, everyone. Thank you for joining us for Discovery Communications' Fourth Quarter and Full Year 2012 Earnings Call. Joining me today is David Zaslav, our President and Chief Executive Officer; Andy Warren, our Chief Financial Officer; and Mark Hollinger, President and CEO of our international operations. You should have received our earnings release. But if not, feel free to access it on our website at www.discoverycommunications.com.

On today's call, we will begin with some opening comments from David and Andy, after which, we will open the call up for your questions. [Operator Instructions]

Before we start, I would like to remind you that comments today regarding the company's future business plans, prospects and financial performance are forward-looking statements that we make pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are made based on management's current knowledge and assumptions about future events, and they involve risks and uncertainties that could cause actual results to differ materially from our expectations. In providing projections and other forward-looking statements, the company disclaims any intent or obligation to update them. For additional information on important factors that could affect these expectations, please see our Form 10-K and subsequent filings made with the U.S. Securities and Exchange Commission.

And with that, I'll turn the call over to David.

David M. Zaslav

Thanks, Craig. Good morning, everyone, and thank you for joining us. 2012 was another year of successful operational execution and strong financial results for Discovery as we delivered sustained growth, further invested in our global brands and content and developed new and diverse strategic opportunities around the world.

Since becoming a public company in the fall of 2008, Discovery has demonstrated a unique ability to generate healthy and consistent returns, capitalizing on the sturdiness of our business model, the widespread appeal of our content and the unparalleled global distribution platform we have built for more than 20 years.

As technology rapidly evolves and economies ebb and flow, Discovery's underlying focus remains exactly the same, delivering long-term value by creating the highest-quality content with great storytelling and compelling characters that can be leveraged around the globe and across a growing number of digital and consumer platforms. Our targeted investment strategy emphasizes geographies and brands that offer meaningful advertising and affiliate upside, a key factor in our strong and dependable growth over the last few years.

The success of this strategy was never more evident than in the record results we delivered in 2012, which were driven in large part by the market share gains in the U.S. and around the world as we strengthened our existing brands, such as Animal Planet and ID; launched new brands, such as Destination America; and extended strong brands globally, such as ID in Latin America and Discovery Kids in Asia.

Domestically, this was our fourth consecutive year taking market share as viewership across our portfolio was up 6%, and our best-in-class ad sales team translated the larger audiences into double-digit ad growth, excluding one-time items. This growth speaks partly to the strong ad market, but also to the breadth and depth of our brand portfolio and the ability of our ad sales team to maximize the market and create value-enhancing ad campaigns for clients.

On the viewership side, ID continues to be a juggernaut. It celebrated its fifth anniversary last month, and our sustained investment in increasing its content offering continues to pay off. ID just delivered its 45th straight month of year-over-year primetime gains in its key demo, the longest streak among any ad-supported cable network. And in January, they premiered their newest hit, REDRUM, which delivered the network's best performing primetime telecast ever. ID has the longest length of tune in all of television in both primetime and total day and finished 2012 up over 20% in all of its key demos. This momentum is poised to continue in 2013, with a great development slate, 35 returning series, increased distribution and viewership and most importantly, still discounted CPMs relative to its audience and reach.

Animal Planet also had its best year ever, with viewership up 17% versus 2011, led by the success of River Monsters, Finding Bigfoot, Call of the Wildman and Tanked, all of which grew versus a season ago. It was one of the fastest-growing networks in all of cable in 2012 in terms of viewership. And with 15% more returning hours in 2013, we expect Animal Planet to continue growing its audience in the year ahead.

Our newest brand, Destination America, also delivered big growth this year, up 30% versus 2011, and we only launched Destination America 7 short months ago. In addition, Science and Velocity also experienced double-digit gains for the year and continued their strong momentum. The success of these emerging networks provides a great launching pad heading into 2013, especially when coupled with the big momentum we currently have at our flagships, Discovery and TLC.

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