Discovery Communications, Inc. (DISCA)

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Discovery Communications (DISCA)

Q3 2012 Earnings Call

November 06, 2012 8:30 am ET


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


John Janedis - UBS Investment Bank, Research Division

David Bank - RBC Capital Markets, LLC, Research Division

Jessica Reif Cohen - BofA Merrill Lynch, Research Division

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Benjamin Swinburne - Morgan Stanley, Research Division

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

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

Richard Greenfield - BTIG, LLC, Research Division

Anthony J. DiClemente - Barclays Capital, Research Division

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

Michael C. Morris - Davenport & Company, LLC, Research Division

Vasily Karasyov - Susquehanna Financial Group, LLLP, Research Division



Good day, ladies and gentlemen, and welcome to the Quarter 3 2012 Discovery Communications, Inc. Earnings Conference Call. My name is Carolyn, and I'm your operator for today. [Operator Instructions] As a reminder, the call is being recorded for replay purposes.

I'd like to turn the call over to Craig Felenstein who's the Senior Vice President of Investor Relations. Please go ahead, sir.

Craig Felenstein

Thanks, operator. Good morning, everyone. Thank you for joining us for Discovery Communications' Third Quarter 2012 Earnings Call. Hopefully the timing of our release did not interfere too much with your election day plans.

Joining me today is David Zaslav, our President and Chief Executive Officer; and Andy Warren, our Chief Financial Officer.

You should have 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 Andy. After which, we will open the call up to 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 for the year ended December 31, 2011, and our 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. We appreciate you joining us. And before we begin the call, on behalf of myself and the entire team at Discovery, I wanted to extend our thoughts and best wishes to everyone who has been impacted by Hurricane Sandy. It's been quite a week.

Discovery's financial momentum continued during the third quarter as our sustained investment in developing high-quality content and building bigger brands of global appeal allowed us to capitalize on the relatively healthy worldwide ad environment and the further penetration of pay-television around the world. Investing in great series and specials in those geographic areas that provide the greatest advertising and affiliate opportunities has been a consistent strategic priority for Discovery and a key factor in our strong and dependable growth over the last few years.

Our third quarter results were skewed by several one-off items, which Andy will discuss when he covers our financial performance, but the sustainable organic growth story remains robust.

International expansion continues at a rapid pace as we broaden our global content offerings and capitalize on our unparalleled distribution platform, while domestically, targeted programming initiatives are delivering audience growth at several of our emerging networks and we continue to see market share gains across the portfolio. Though investing in bigger, stronger brands remains paramount, we remain committed to our success-based investment style. We do not just throw dollars against the wall and see what sticks. But rather, by incrementally spending on those brands that have demonstrated meaningful upside, we can maximize the best possible return on our programming dollars.

There's no better example of this than Investigation Discovery. ID was launched back in January 2008 with the view that mystery and forensic content was compelling enough and had a sufficient audience base to be the linchpin for an entire network. But before investing significantly in the concept, we wanted to test whether this type of programming would resonate with viewers, so we seeded it with a little bit of money and launched ID off the distribution of Discovery Times.

In the first year, our cash spend only increased marginally, but the reception from viewers was immediate. We then went out and hired cable veteran Henry Schleiff, spent a little bit on marketing, attracted top storytellers to the genre and continued to incrementally invest in content. Since 2008, we have more than doubled the number of original hours on ID and the return has been significant.

ID's audience has more than tripled during that period, and critically, we have been able to monetize that audience, with advertising up more than 6-fold over the same time period. Our investment continues to pay off, with viewership on ID up nearly 30% this past quarter in Total Day among its key women 25 to 54 demo. It is now a top 6 network in America during the day for women. And thus far in 2012, it is one of our largest drivers of advertising growth domestically. We still have significant room to grow before we achieve pricing and volume parity with the ratings ID is delivering. However, ID has clearly become one of Discovery's flagships, and we will continue to incrementally invest in the brand both in the U.S., as well as around the world. In just the last year, we have taken ID into over 130 countries.

Animal Planet is another network that has really broken out. Since 2008, we have increased its original content by nearly 30%, and the audience is up a healthy 46%. When the growth took a breather in 2011, we deliberately held back on further increasing its content budget to see if the Animal Planet brand would regain its momentum and continue to grow. The answer was a resounding yes, with viewership up nearly 20% year-to-date, including its best-ever third quarter led by returning favorites Call of the Wildman, Tanked and My Cat from Hell. Given their momentum, we will continue investing additional programming dollars in Animal Planet as the audience growth is translating into significant advertising revenue gains.

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