Discovery Communications, Inc. (DISCA)

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Discovery Communications (DISCA)

Q2 2011 Earnings Call

August 04, 2011 8:30 am ET


Craig Felenstein - Senior Vice President of Investor Relations

Peter Liguori - Chief Operating Officer and Senior Executive Vice President

Bradley Singer - Chief Financial Officer, Senior Executive Vice President and Treasurer

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


James Goss - Barrington Research Associates, Inc.

Jessica Cohen - BofA Merrill Lynch

Spencer Wang - Crédit Suisse AG

Anthony DiClemente - Barclays Capital

Richard Greenfield - BTIG, LLC

Benjamin Swinburne - Morgan Stanley

Michael Nathanson - Nomura Securities Co. Ltd.

Marla Backer - Hudson Square Research, Inc.

Vasily Karasyov - Susquehanna Financial Group, LLLP

John Janedis - UBS Investment Bank

Douglas Mitchelson - Deutsche Bank AG

David Bank - RBC Capital Markets, LLC



Good day, ladies and gentlemen, and welcome to the Second Quarter 2011 Discovery Communications, Inc. Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I will now turn the presentation over to your host for today, to Craig Felenstein, Senior Vice President of Investor Relations. You may proceed.

Craig Felenstein

Thank you, Francis. Good morning, everyone, and welcome to Discovery Communications' Second Quarter 2011 Earnings Call. Joining me today is David Zaslav, our President and Chief Executive Officer; Peter Liguori, our Chief Operating Officer; and Brad Singer, our Chief Financial Officer.

Hopefully, you have all received our earnings release, but if not, feel free to access it on our website at On today's call, we will begin with some opening comments from David and Brad, after which, we will open the call up for your questions. We urge you to please keep to 1 or 2 questions so we can accommodate as many folks as possible.

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, Discovery 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 for the year ended December 31, 2010, and our subsequent filings made with the U.S. Securities and Exchange Commission.

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

David Zaslav

Thanks, Craig. Good morning, everyone and thank you for joining us. Discovery delivered another quarter of strong growth in Q2, maintaining the financial momentum we generated at the start of the year, as well as the strength we exhibited throughout 2010. We once again achieved double-digit OIBDA gains, despite the expected higher content amortization that we previously highlighted.

Our focused investment in content remains a strategic imperative as we look to further strengthen our established brands, build new genres and take full advantage of our robust global distribution platform. It's important to note that while our amortization in 2011 is catching up to our cash investment over the last several years, we have only increased our content investment at a compound annual rate of 6% to 7% since 2008, as we remain diligent with regards to success-based investment.

Maintaining an appropriate cost structure continues to be a priority. So as we look to grow revenues and build out our content assets, we remain persistent about controlling spending that does not end up on the screen, evidenced by margins increasing to 48% this quarter.

Brad will take you through Discovery's quarterly results in a few minutes. But before he does, I'd like to illustrate how our sustained investment in content is translating into stronger brand position and increased financial returns. While also setting the company up to deliver continued robust operating strength in the future.

About 2/3 of Discovery's content investment is dedicated to our U.S. Networks, where we are focused on strengthening the brands and storytelling of flagship networks, Discovery Channel and TLC; building new brands and genres with ID, Animal Planet, Science and Military; and filling the creative whitespace with our joint venture efforts in OWN and The Hub.

Our investment has allowed us to create a diverse portfolio that appeals to both men and women, delivers real value to affiliate and advertising partners and positions us to grow market share across our networks. This past quarter, ratings were up 6% across our domestic portfolio, and we leveraged those bigger audiences into another quarter of double-digit appetizing growth.

The biggest engine driving both ratings and advertising gains remains Investigation Discovery. ID is the leading brand for viewers looking for high-quality investigative storytelling and has moved from the # 26 ranked network in the U.S. for women 25 to 54 last year to the 18th ranked network today. It continues to be the fastest-growing network in cable, with prime time viewership up nearly 70% this quarter, driven by the BEHIND MANSION WALLS, True Crime with Aphrodite Jones and Disappeared. ID is now in over 77 million homes and with commitments to be in over 80 million homes by year-end. And when you combine this reach with an audience that has one of the longest viewing times of any cable network, it becomes a great value proposition for advertisers.

We also delivered solid ad growth this quarter from our flagship networks, Discovery and TLC. Discovery leveraged the continued ratings strength of Deadliest Catch, as well as the success of several documentaries which focused on breaking news story such as KILLING BIN LADEN and Mega Quake. Discovery remains top 5 network among adults 25 to 54, and we are excited about the number of new hits we have returning in the back half of the year, including Gold Rush, Flying Wild Alaska and Sons of Guns, which returns for its second season in July and is delivering double-digit ratings gains from season 1.

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