By Danielle Douglas
Capital Business Staff Writer
Monday, June 21, 2010; A13
Diverse programming, such as "Shark Week" and "Say Yes to the Dress," has long made Discovery Communications, which operates the Discovery Channel, the Learning Channel and Animal Planet, popular with American audiences. The Silver Spring-based media company, which celebrated 25 years in business last week, is winning new fans on Wall Street by aggressively expanding its global footprint.
The company has had an international presence since 1989, but in the past two years, it has launched a number of networks in Britain, India and Russia, in addition to rolling out high-definition programming in 17 global markets. Discovery has at least five channels in 180 countries. And revenue from its global operations is accounting for a larger portion of its total intake.
With the United States' pay-TV market largely saturated, Michael Corty, an analyst at Morningstar in Chicago, expects Discovery's growth to be fueled by international expansion. Indeed, Discovery's chief executive, David Zaslav, said that within 18 months the company will debut TLC in 100 million homes outside the United States.
"The content has universal appeal, so it translates well across cultures, countries and languages," Corty said. "The company can reedit and update programming, and distribute that content throughout the world."
Having access to the public markets has helped Discovery push into international markets. In 2008, shareholder John Malone, who purchased Cox Communications' stake in Discovery, combined shares with Advance/Newhouse Communications to create a new public entity.
Discovery "is stronger than ever," said Christopher Marangi, a media analyst at Gabelli & Co. in New York. "They've reinvigorated the programming, the balance sheet is strong and margins have improved."
Discovery's portfolio of Nielsen-rated networks has had significant gains in ratings, with TLC recently posting its best first-quarter results in five years. Such performances have translated into an uptick in advertising and overall operating income -- a measure of profits before taxes.
Revenue for the first quarter of this year increased 8 percent year-over-year to $879 million, while adjusted operating income, which excludes certain one-time items, grew 10 percent to $367 million.
"Going public hasn't changed our content mission," Discovery founder John Hendricks said at a celebration of the company's silver anniversary, held at its sprawling headquarters Thursday.
Before a sea of Discovery employees, Hendricks praised his staff for turning a channel that started out with 156,000 viewers into a $18 billion operation with 1.5 billion viewers. "We can look at being larger, but always stay true to satisfying our viewers' curiosity."
Before going public, Hendricks enlisted former NBC executive Zaslav to take the helm of Discovery in 2007. Many credit Zaslav, who pared down the company's overhead costs by shuttering 103 retail sites and reducing staff, with Discovery's resurgence.
During Zaslav's tenure, Discovery's revenue has gone from $2.88 billion in 2006 to $3.52 billion in 2009. And its stock, which opened at $12.80 a share two years ago, has hovered around $35 per share for several weeks. "The more we can reduce our embedded costs, the more we can invest in our content and brands," Zaslav said.
Aside from shaving dollars off expenses, he and his team have repositioned the content of the flagship network and brought on new leadership at TLC. "We've been able in the last year to grow our market share by 10 percent just by focusing on better stories," Zaslav said.
This move, analysts say, attracted a greater share of advertisers. Marangi and Corty agreed that ad dollars and affiliate fees, or the payment received from distributors, have bolstered Discovery's cash flow, strengthening the company's stock position.
Perhaps the only real threat to Discovery's continued growth trajectory, Corty said, is the changing ways that audiences consume content. Zaslav said the firm has digitized its library for the Web, converted to high definition and started shooting in 3-D to address such concerns.
Shortly before a whirl of confetti descended on his audience, Hendricks said the shift in content consumption will continue, especially with the advent of iPads and other such devices. "We've just got to be there with quality programming," he said. "Our brand will not only survive but thrive because of our content."
Intern Sonja Ryst contributed to this report.