Broadcasters received moral support this morning from cable in the looming battle against the new Auto Hop feature on Dish Network‘s Hopper DVRs, which enables the machines to automatically recognize and skip over ads on recorded shows. “In the end a technology like that could create real carnage for the industry,” Discovery Communications CEO David Zaslav said in a panel opening this week’s annual Cable Show. And he put Dish Network’s Charlie Ergen on notice that his programming costs could soar if he continues to sell the ad-zapper. “He needs our content,” Zaslav says. “If there isn’t going to be advertising, then there needs to be a lot higher subscriber fees.” He says the pay TV industry needs to be “disciplined” to protect the current system built around ads and subscriber payments. Time Warner Cable CEO Glenn Britt said that in the long run it could hurt consumers. “Either subscription prices are going to go up or there’s going to be less content made,” he said. “Destroying the revenue isn’t going to have the effect people think.” But AOL chief Tim Armstrong said that Dish’s initiative puts more pressure on advertisers and media companies to develop commercials that people will want to watch. “The reality is you have a superengaged consumer,” he says. “How do you make more engaging advertising tied to how people are using the media?” He urged pay TV providers to recognize …
Discovery CEO David Zaslav wants Wall Street to ignore the “noise” about financial losses at his OWN joint venture with Oprah Winfrey. “We have a long way to go,” he told analysts this morning, but adds that “despite what you read, we’re making real progress” — forecasting that cash flow will break even in the second half of 2013. The company won’t say exactly how much the venture is losing. It acknowledges, though, that OWN accounted for most of the $50M in “other” costs that Discovery reported for Q1. (Susquehanna Financial Group analyst Vasily Karasyov estimates that Discovery took a $30M hit to shutter Rosie O’Donnell’s talk show.) Discovery has to report 100% of OWN’s losses because they outweigh the equity in the channel. But “2012 funding will be less than 2011,” Zaslav says, now that OWN “has taken significant steps that will help the network improve its financial position.” The channel cut costs and employees.
Zaslav’s more upbeat about OWN’s growth opportunities. Beginning next year several pay TV providers including Comcast will pay significantly higher fees for the channel (Zaslav won’t say how much) than they pay now or paid for OWN’s predecessor, Discovery Health. He also sees ad sales improving as the audience grows. Zaslav says OWN reaches 85M pay TV subscribers, up from 80M. With about 15M viewers a week, it has become the 27th-highest-rated network for women — up from last year when …
It’s a sweet deal, especially when you consider that Discovery shares lost 2.8% of their value in 2011 and three of the company’s four other top execs made less than they did in 2010. Zaslav’s compensation, reported in an SEC filing, consisted of nearly $3M in salary, $20.3M in stock awards, $23.9M in option awards, $4.8M in non-equity incentives, and $430,379 in other compensation. The last category includes personal use of aircraft, car service and security services. Zaslav’s pay indicates that the Discovery board considers him a rock star: He made nearly nine times more than the average for the other four top execs — up from 7.1 times their average compensation last year. Corporate governance experts consider it a red flag when the top earner makes more than three times the average for his or her closest associates. The company filing notes that former COO Peter Liguori — who left the company at the end of the year — received a $250,000 bonus for his brief tenure as CEO of the company’s struggling OWN joint venture with Oprah Winfrey. That amount was guaranteed; he was not granted the additional $250,000 that was left to the discretion of the Compensation Committee. But he doesn’t have to wait for the Barney’s warehouse sale before he buys more business suits: His severance package includes a $1.1M base salary, $1.3M bonus, and $212,837 in stock options.
Discovery CEO David Zaslav was as optimistic as he could be yesterday when he spoke to analysts about his OWN joint venture with Oprah Winfrey. But his company’s annual report filed this morning at the SEC tells a slightly different story: It says that Discovery has already contributed $312M to the venture, far more than its original $189M commitment. What’s more, Discovery “expects to provide significant additional funding to OWN.” And despite Zaslav’s enthusiasm, the funding “is expected to exceed OWN’s earnings for the next two years.” Indeed, Discovery acknowledges that the channel’s early results “have been below its initial business plan” which means “there is a possibility that the results of OWN’s future operations will fall below the revised long term projections.” Could that lead to a write-down? Perhaps. Discovery says that it will “continue to monitor the financial results of OWN” to determine whether “an impairment has ocurred.” The filing says that Discovery expects to recoup its investment, which accrues interest at a rate of 7.5% compounded annually. “There can be no event of default on the borrowing until 2023,” it adds — although the venture is supposed to repay in four years “to the extent that OWN has excess cash” to handle the debt. While Discovery owns 50% of OWN, it can’t ensure that it will be repaid because Winfrey “holds operational rights related to programming and marketing, as well as selection and retention of …
UPDATE, 7:05 AM: CEO David Zaslav refused to put any daylight between himself and Oprah Winfrey as analysts in a conference call this morning asked for more insight into the prospects for their struggling OWN joint venture. Now that Winfrey is running the operation, it has “a team she has confidence in, and I have confidence in,” he said. He sidestepped a question about whether Discovery has the right to terminate its agreement with Winfrey, or to re-purpose the channel — for example by moving it to the Web. “We’re up for about a year,” he says. “If we grow a meaningful audience, and we think we will, this will be a significant asset.” Zaslav says that the channel “learned a great deal about its audience” last year and is “off to a nice start in 2012″ with returning shows including Our America With Lisa Ling and Sweetie Pie. Also, “Oprah will be featured in additional formats. … We’re excited to grow this network in 2012.” The company says that, as a matter of policy, it doesn’t break out profits for individual channels.
This is now happening — I have learned that Discovery Communications COO Peter Liguori will be leaving the company after two years. The veteran TV executive is expected to stick around until the end of the year. (He started at Discovery in January 2010.) He will not be replaced. Liguori, who previously ran Fox and FX, is the latest top Discovery Communications executive to exit as the company’s president and CEO David Zaslav now faces three upcoming major departures in his upper ranks; Discovery Channel president Clark Bunting and Discovery Communications CFO Bradley Singer both announced earlier this year that they will leave at the beginning of 2012. Bunting’s announcement came a couple of months after he was made to report to TLC General Manager Eileen O’Neill in an executive restructuring. Despite beating earnings expectations in the just-reported third quarter, Discovery Communications continues to struggle with its joint ventures, especially OWN: Oprah Winfrey Network, which sucked up another $12 million investment in 3Q. Liguori was hands-on involved in the January launch of OWN and in May he was named interim CEO of the fledgling cable network following the departure of Christina Norman. Two months later, Winfrey took over the CEO position, and Liguori’s involvement decreased to a point of him having no day-to-day role at the channel. In addition to representing Discovery Communications in its three joint ventures — OWN; The Hub, which also has had a hard time; and 3Net — Liguori’s duties as COO included oversight of Marketing, Discovery Studios, Corporate Communications and Corporate Affairs, Business Affairs, and Media Technology, Production and Operations.
UPDATE 6:15AM: Discovery just put out a release announcing Liguori’s departure:
Silver Spring, Md. – Discovery Communications today announced that Chief Operating Officer Peter Liguori has decided to depart the company at the end of the year. Liguori was responsible for launching numerous creative and brand marketing initiatives around the world, including overseeing the successful launches of Discovery’s joint ventures in The Hub, OWN, and 3net.
President and CEO David Zaslav said, “Pete’s leadership, enthusiasm and creative vision have brought a fresh and important perspective to Discovery.
UPDATE: Discovery Hunts For More Digital Cash After Netflix Deal Helps It To Top 3Q Earnings Estimates
UPDATE, 2:30 PM: Discovery says that OWN is draining cash — the company added $12M to its investment in the joint venture during 3Q. Still, CEO David Zaslav says he’s optimistic, although “this is going to take some time”: The challenge is “putting up really good content that drives the Oprah brand.” He’s gearing up for a series of negotiations with cable and satellite operators to score payments for the Discovery programming they want to run on their TV Everywhere digital services. Currently “no distributor has the right to take our channels on to TV Everywhere.” Some talks will take place soon even though Discovery’s carriage deals run to the end of 2012. “We’re very supportive” of TV Everywhere, Zaslav says. “We just need to find value.” One hurdle is to figure out digital ratings. “Today it’s measured on computers, but not on iPads.” He adds that Discovery’s deal with Netflix is “a big net positive for us” since it only involves the U.S., it’s not exclusive, and it involves shows that are at least 18 months old. But he says that “nobody knows” whether online viewing cuts into TV ratings. “We couldn’t find any discernible degradation,” he notes although “there isn’t enough data out there.” Discovery shares were up 1.7% in after hours trading.
PREVIOUS, 1:30 PM: Discovery says that it saw strong growth both in the U.S. and overseas. The company had net earnings from continuing operations of of $238M, up 45.1% vs last …
Oprah Winfrey and Discovery Communications CEO David Zaslav have run out of excuses: With their unofficial relaunch today of OWN, they’ll have no one to blame but themselves if their struggling joint venture fails to show a big improvement in the ratings following a dismal 3Q. In its targeted demo, women 25-54, OWN delivered a rating of .16 — down 16% vs. the same period last year when the channel was still Discovery Health. OWN may have set a deceptively low bar for itself; word is that it cut back on marketing in preparation for the relaunch. Still, the channel is betting everything on Oprah’s star power — and, to a lesser extent, Rosie O’Donnell’s — and that will be put to the test beginning today with the launch of The Rosie Show (7-8 PM) and Oprah’s Lifeclass (8-9 PM). Winfrey’s program, built on clips from her syndicated talk show, begins with one of her classics: for an episode about “ego,” she will include scenes from the show where she illustrated how much weight she lost from a liquid protein diet by wheeling in a wagon filled with 70 pounds of fat. Discovery will air both shows today on TLC, Investigation Discovery, Discovery Fit & Health and Planet Green as well as OWN. The joint venture also is spending more than $10M for marketing, not including free ad time on Discovery-owned networks. The cash is going for ads on hit shows such as The X Factor and Dancing With The Stars, as well as radio and billboards, and websites including Yahoo, Google, People.com, Technorati, and TVGuide.com.
(Silver Spring, Md.) — Discovery Communications today announced the appointment of Jean-Briac (JB) Perrette as Chief Digital Officer, effective October 17, 2011. Perrette most recently served as President, Digital and Affiliate Distribution and Content Distribution Strategy for NBCUniversal.
(Los Angeles, CA) – OWN: Oprah Winfrey Network announced today that the premiere episodes of the new OWN series “The Rosie Show” and “Oprah’s Lifeclass” will air concurrently across five Discovery Communications networks when the series debut on Monday, October 10. Joining OWN in airing the premieres will be TLC, Investigation Discovery, Discovery Fit & Health and Planet Green.“The Rosie Show” will air at 7:00 p.m. ET and “Oprah’s Lifeclass” at 8:00 p.m. ET across the five networks.
“OWN is ramped up for a creative and entertaining all-new fall season driven by the powerful cornerstones of ‘The Rosie Show’ and ‘Oprah’s Lifeclass,’” said Sheri Salata, president of OWN. Erik Logan, president of OWN added, “We are thrilled with the ongoing support of our partner, Discovery Communications, whose commitment to OWN’s mission is unwaveringand will create more great exposure for these highly anticipated premieres.”
In addition to the simulcast, as part of an overall strategic outreachplan, Discovery Communications is also devoting significant promotional time across its family of U.S. networks and social media support to drive awareness and sampling for “The Rosie Show” and “Oprah’s Lifeclass.”
“With Rosie and Oprah debuting daily on OWN, we couldn’t be more proud to offer our other Discovery properties to drive awareness and build audiences for these fantastic new shows,” said David Zaslav, president and CEO, Discovery Communications.
The joint-venture channels — OWN with Oprah Winfrey, and The Hub with Hasbro — aren’t included. What’s more, “there is not any specific content that Netflix is entitled to,” Discovery Communications CEO David Zaslav told investors this morning at Goldman Sachs’ Communacopia Conference. He wouldn’t talk about the economics of the deal but says that they will “become apparent” the next time the company reports its quarterly earnings. He adds that while “we don’t know what’s going to happen with Netflix” — which is grappling with consumer fury after it raised prices 60% for those who want to stream video and rent DVDs –”right now we think that will not create an issue for us.” Here’s the release about Discovery’s new Netflix agreement:
Los Gatos, Calif. and Silver Spring, Md. — Netflix, Inc. and Discovery Communications today announced a two-year non-exclusive licensing agreement that allows Netflix members to instantly watch prior-season series and specials, including an expanded selection of additional seasons of popular series from Discovery, TLC and Animal Planet, as well as Investigation Discovery, Science and Military Channel. Among the highlights are Discovery Channel’s Man vs. Wild, TLC’s Say Yes to the Dress, and Animal Planet’s River Monsters and other titles from Discovery’s rich program library.
A day after the UK’s Culture Minister floated the idea of tightening media regulation in the wake of News Corp’s hacking and bribery scandal, Discovery Communications CEO David Zaslav threw some cold water on the idea. Zaslav today told the Royal Television Society Convention in Cambridge that the UK needs to keep its “light touch” and a “level playing field” for foreign players. Discovery has reason to be concerned about changes, since it invests more than $300M a year in the UK, where it broadcasts 12 channels. “It’s our largest market outside of the U.S., we’ve been here since 1989, and we’re hoping that’s not going to change,” Zaslav said. Discovery had an annual profit of $1.6B and nearly $4B in revenues last year. UK lawmakers are talking tougher media rules after allegations that the News of the World reporters hacked the phone of a murdered schoolgirl forced Rupert Murdoch’s News Corp. to fold the tabloid and abandon its bid to take over BSkyB.
Now that Big Media’s 2Q earnings season is over, the big question on Wall Street is: Did it give us any insight into the future? CEOs’ cheery talk about strong ad sales in TV’s upfront market, the expected bump next year from political ads, and the revenues coming in from online streaming services may be irrelevant if the economy sinks into a deep, new recession. CEOs say they see no evidence of trouble yet. The industry’s leading cheerleader, CBS chief Les Moonves, channeled his inner Buzz Lightyear last week saying that he has “every reason to believe that we will deliver strong results throughout the rest of the year, into 2012 and beyond.” Investors still sliced 6.3% off of CBS’ market value. The Dow Jones U.S. Media Index is down about 16% in the last month as traders anticipate cuts in ad spending, ticket buying, subscriptions — the works. If the pessimists are right, then the race is on: Which company will be the first to change its message from “people will buy media because they have cash” to “people will buy media because it helps them to forget their problems”?
Here are other themes from the latest earnings reports:
Jobs: Media companies still aren’t hiring. No one said that so baldly, but it’s there between the lines: CEOs talked more about financial engineering – cutting costs and returning cash to shareholders – than about spending to become more competitive. Time Warner recorded $24M in layoff-related expenses, quadruple the amount from the same quarter last year, while Viacom spent $14M, up from zero last year. Yet virtually every media company is repurchasing shares or increasing its dividend. The message? CEOs can’t persuade investors that the companies know how to make a decent profit from their cash, and shareholders want it back.
Pay TV: This was “the weakest (quarter) in the industry’s history,” says Bernstein Research’s Craig Moffett. Analysts were startled to see the largest cable, satellite, and telco companies collectively lose about 195,000 video customers. The cord cutters don’t fit the stereotype of well-to-do technophiles. Moffett says that “all the evidence” shows that a growing number of people – especially young adults — simply can’t afford pay TV. Dish Network seemed to confirm that thesis by saying that it will shift its marketing focus to upscale consumers instead of bargain hunters. With the U.S. market stalled, it’s easy to see why cable programmers want investors to look at their expansion efforts in growing markets overseas such as India, Russia, China, and Brazil. “It is the current momentum and potential of our international assets that present a meaningful, unique opportunity for us,” Discovery Communications CEO David Zaslav told analysts.
UPDATE: Discovery Chief Says 3D TV Growing “Slower Than Expected” As 2Q Company Results Beat Estimates
UPDATE, 6:50 AM: Not much from the conference call with analysts about the most interesting story at Discovery: the recent changes at its struggling joint venture with Oprah Winfrey, OWN: Oprah Winfrey Network. Oprah recently named herself CEO and Chief Creative Officer. Zaslav says that “she is in place as CEO already,” and “we now have her creative team in place.” That means Discovery COO Peter Ligouri — named OWN’s interim CEO in May when the partners dumped Christina Norman — can “spend more time with us.”
Hollywood is very much on the minds of cable executives meeting in Chicago this week at the National Cable & Telecommunications Association’s annual trade show. Introducing Chicago Mayor Rahm Emanuel for his welcoming remarks, Discovery Communications CEO David Zaslav said that “in our industry he’s known as Ari’s brother” — referring to WME co-CEO Ari Emanuel. The mayor picked up the theme by offering a mock apology on behalf of his family. “You know him as an agent,” he said. “We know him as a brother. We thought we got the worse end of the deal.” He said that when HBO introduced its series Entourage, Ari wanted to know what Rahm thought of the Ari Gold character who’s based on the super agent. “I like Ari Gold more than I like you,” Rahm says he replied.
Seems there’s no way to avoid Fox News these days. Rolling Stone and New York Magazine have big stories about the network. And Fox was very much on the minds of the media elite who gathered in NYC today for the annual Mirror Awards, Syracuse University’s celebration of the year’s best reporting about the media. Eric Alterman, accepting the best commentary award for digital media, disturbed the air of industry self-congratulations by urging the audience to “stop treating Fox News as though it’s news. It’s not.” Applause was mixed with disapproving murmurs after he added that those who take Fox seriously “allow it to corrupt the news ecosystem.” The network was also central to the story that won the best single article award for traditional media, Gabriel Sherman’s “Chasing Fox” — a story for New York Magazine that examined how the News Corp-owned network has affected the journalism at CNN and MSNBC.
The most surprising winner was Milwaukee Magazine’s Mary Van de Kamp Nohl who won the best in-depth piece in traditional media. She showed how the publisher of the Milwaukee Journal Sentinel impoverished many of its employees by encouraging them to buy its stock — which lost nearly 98% of its value after the company went public in 2003. “They hired a PR director to handle me,” she said. “It’s a sad commentary on the priorities of this particular business.”
But moguls had nothing to fear at the gathering. The top honor, the Fred Dressler Achievement Award …
UPDATE 7:45 AM: Discovery CEO David Zaslav acknowledged this morning that ratings for OWN, the joint venture cable channel with Oprah Winfrey, were “below our expectations” — and that his company will have to spend more than the $215 million it has already invested. “It has been a slower start,” he told analysts in a conference call.” He added that “it’s going to take us a while, and we’re committed to it.” The company didn’t specify how much it would invest saying it will depend on OWN’s ratings. Meanwhile, Zaslav says that he plans to make big changes at Planet Green — the channel about environmentally friendly living. The concept “hasn’t worked out well. It’s underperforming.” Still, he’s upbeat about the upfront ad market as well as prospects to sell programs to services including Netflix and on platforms such as the iPad. “We’re unusual because we own all of our content,” he says. “We view all of those as opportunities.”
PREVIOUS, 5:36 AM: Add Discovery Communications to the list of television companies benefiting from the thawing ad market. The cable network power reports net profits of $305 million in the first quarter, up 76% vs the same period last year, on revenues of $951 million, up 9%. The revenue increase comes to 12% if you just look at properties on Discovery’s books both years. The earnings represent 74 cents per share. Analysts that follow the company expected …