Discovery Communications Management Discusses Q2 2012 Results - Earnings Call Transcript

Discovery Communications (DISCA)

Q2 2012 Earnings Call

July 31, 2012 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

Analysts

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Benjamin Swinburne - Morgan Stanley, Research Division

David Bank - RBC Capital Markets, LLC, Research Division

John Janedis - UBS Investment Bank, Research Division

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

Jessica Reif Cohen - BofA Merrill Lynch, Research Division

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

Anthony J. DiClemente - Barclays Capital, Research Division

Tuna N. Amobi - S&P Equity Research

Barton E. Crockett - Lazard Capital Markets LLC, Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Quarter 2 2012 Discovery Communications Incorporated Earnings Conference Call. My name is Ben, and I will be your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes.

I would now like to turn the call over to Mr. Craig Felenstein, Vice President of Investor Relations. Please proceed, sir.

Craig Felenstein

Thank you, operator, and good morning, everyone. Welcome to Discovery Communications Second Quarter 2012 Earnings Call. Joining me today is David Zaslav, our President and Chief Executive Officer; and Andy Warren, our Chief Financial Officer.

Hopefully, you have all received the 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 to 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, 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, and thank you for joining us. Discovery delivered another strong quarter during Q2 as the strategic initiatives we have been driving across the company, over the last several years, are generating significant financial growth. At the same time, we are continuing to capitalize on the growth of Pay TV globally and a macro ad environment that remains healthy throughout the vast majority of the 200-plus countries we operate in.

Discovery's consistent focus on investing in our global platform, building new brands and leveraging additional growth opportunities resulted in another quarter of double-digit OIBDA growth, excluding the impact of foreign currency. The steps we have taken to broaden our global content offerings are helping to drive international expansion, while domestically, we are generating significant returns from sustained programming initiatives and audience growth, especially across our developing networks.

Andy will discuss the specifics behind our financial performance in a moment, but before he does, let me take a few moments to highlight some of the initiatives contributing to our sustained operational and financial success.

You've heard us talk in the past about Discovery's long-term strategy of investing in bigger, stronger brands and the highest quality nonfiction content. We've increased our success base content costs by about 7% or 8% annually over the last 4 or 5 years. This sustained investment in programming is delivering market share growth worldwide, and given the continued strength in the advertising market across the globe, we have been able to generate 13% total company organic growth in the second quarter.

The biggest contributor to this growth in percentage terms is our International business, which generated local ad growth of 22% this quarter. This business is a true differentiator for Discovery, and the significant advertising growth highlights the opportunity we have to exploit our global infrastructure by launching new channels, growing our audience and building stronger brands.

There is no better example than the global rollout of TLC, which most of you are familiar with by now. Over the last 2 years, we established TLC as another global flagship. TLC is the #1 most distributed women's brand in the world. It is now in over 150 countries, is making money and we are only in the early stages of its growth cycle. But that's just 1 example. We have a robust portfolio of 26 brands, 137 networks and 170 feeds around the world, and we are strategically investing in content to further capitalize on our market opportunities to drive audience and advertising growth.

Our latest initiative is to drive the IT brand in markets where we think it will have broad appeal. Earlier this month, we rebranded Liv, our fully distributed entertainment channel, in 38 countries throughout Latin America to ID. After seeing the success of crime and investigation genre across our existing platforms, we are already seeing a larger audience on that channel. ID is now in over 100 countries globally, and we think this can be another growth driver for our International business over the next several years.

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