Discovery Communications CEO Discusses Q3 2010 Results – Earnings Call Transcript

Discovery Communications Inc. (

DISCA

)

Q3 2010 Earnings Call Transcript

November 2, 2010 4:30 pm ET

Executives

Craig Felenstein – SVP, IR

David Zaslav – President and CEO

Brad Singer – Senior EVP and CFO

Peter Liguori – COO

Analysts

Imran Khan – JPMorgan

David Bank – RBC Capital Markets

Ben Swinburne – Morgan Stanley

Richard Greenfield – BTIG

Anthony DiClemente – Barclays Capital

Doug Mitchelson – Deutsche Bank

John Janedis – UBS

David Miller – Caris and Company

David Joyce – Miller Tabak & Co.

Presentation

Operator

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Good day, ladies and gentlemen. Welcome to the Q3 2010 Discovery Communications earnings conference call. My name is Keith and I’ll be your operator for today. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the call over to your host for today’s Mr. Craig Felenstein, Senior Vice President of Investor Relations. Please proceed, sir.

Craig Felenstein

Thank you, Keith. Good morning, everyone, and welcome to Discovery Communication’s third quarter 2010 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 Web site, at

www.discoverycommunication.com

. 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.

Before we begin, as is customary, I would like to remind you that the 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 that may 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, 2009, and our subsequent filings made with the U.S. Securities and Exchange Commission.

With that, I’ll turn the call over to David.

David Zaslav

Thanks, Craig. Good afternoon, everyone, and thank you for joining us. It has been two years since our first earnings call as a public company, and while economic conditions have been widely disparate over that time frame, Discovery’s consistent execution against a focused strategy has enabled the company to repeatedly outperform and deliver sustained growth.

Our priority has been to strengthen the quality and globally utility of our content, while delivering consistent operating leverage. We have focused on building bigger brands, better programming, and taking that content around the world across our best in class global distribution platform.

Investing in areas that provide the greatest advertising and affiliate opportunities, while controlling costs to deliver margin expansion and free cash flow growth. This strategy generated consistent gains throughout 2009 despite the challenging environment from much of that year. Our growth has accelerated in every quarter of 2010.

Discovery’s investment in content and brands is translating into increased audience share across our global portfolio, and the result has been escalating advertising revenue as we capitalize on the current robust global ad environment.

Today, I want to discuss several of the key programming initiatives underpinning our strategy which are beginning to gain significant traction while also providing some detail on our current content investments.

Domestically, despite the rocky economy over the last few years, our commitment to investing in high quality content centered on building the next generation of growth, while further strengthening our core flagship channels. As a result of these investments, we saw a viewership growth of 8% across our domestic networks in 2009, and we have sustained that momentum with ratings up 7% thus far in 2010.

One of the standouts of our programming strategy remains ID, Investigation Discovery. ID continues to be the fastest growing network in all of cable with viewership this year up 52% among adults 25 to 54.

With incremental investment over the last few years, ID has become the leading brand for viewers looking for high quality investigative storytelling and it has moved from the 49th ranked network in the U.S. for women 25 to 54 to the 39th ranked network today. ID is now in over 70 million homes, and as we look to further increase our distribution we expect that ranking to continue to improve.

ID’s strong performance underscores our investment in programming and marketing over the past 2.5 years. It is delivering real value to our affiliate and advertising partners, helping us generate strong returns for this new brand and passionate viewer category.

The same can be said for Animal Planet. We had a strong brand, terrific distribution, but limited ratings. So we installed new creative leadership, revamped the programming filter, and increased our investment by 15% over the last couple of years, and it’s working. The result has been eight quarters of year-on-year audience growth including 11% growth this past quarter, led by Whale Wars, which grew its audience 27% versus last season.

Animal Planet is now a top 30 network and with a broader brand proposition that is resonating with viewers it is delivering consistent ad revenue growth that is far outpacing our investment.

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