Offering a rare -- if partial -- glimpse into the financial fortunes and strategic future of privately held Discovery Communications Inc., founder John S. Hendricks said Thursday that revenue hit $2 billion last year and that he sees future growth in television retailing, better technology and education.
The Silver Spring-based media company's chairman said that revenue increased by 16 percent last year while operating cash flow rose to $508 million in 2003, up from $379 million in 2002. Hendricks was speaking to the annual meeting of shareholders of Liberty Media Corp., which owns a 50 percent stake in Discovery. Cox Communications Inc. and Advance/Newhouse Communications Inc. own approximately 25 percent each, and Hendricks own less than 1 percent.
Discovery's operating expenses rose in 2003 by 7.4 percent, Hendricks said, but he stopped short of disclosing the bottom line. The company, which is privately held, doesn't release profit or loss figures.
Hendricks, who hasn't appeared at the Liberty Media shareholders meeting for the past two years, took the stage at the Hudson Theater to the strains of the 1976 Boston hit "More Than a Feeling" to talk about how the company is doing financially and to lay out future strategy.
He attributed the uptick in revenue in part to the growth of subscribers internationally. Almost half of Discovery's 980 million subscriptions are outside the United States, double the number from 2000. Discovery was "profitable in all international markets," Hendricks said.
Ad revenue was the other major contributor to Discovery's bottom line, Hendricks said. Discovery's 14 U.S. networks posted $1.3 billion in revenue. Discovery Channel's Monday night lineup of "Monster Garage" and "American Chopper," in particular, has gained an audience among 18- to 25-year-old men, a sought-after demographic for advertisers. "We read in the press, 'Where did all the young men go?' Well, they found a home on Discovery," said Hendricks.
In addition to offering advertisers airtime, Discovery also sold display space in the company's 120 Discovery stores. Discovery leveraged its global reach by selling companies such as Coca-Cola and Microsoft international ad packages, he said.
Looking forward, Hendricks said he saw room for growth in the United States and abroad. The company will be entering the French market for the first time this year and plans to push into China, South Korea, and Central and Eastern Europe, where pay television is a growing industry.
Discovery, which rolled out its Discovery HD Theater network in 2003, plans to expand its high-definition offerings which feature sharper pictures and better sound than conventional analog television. "We're very bullish on high definition," said Hendricks. "It's key to our growth in the future."
The company is also delving into television retailing. It recently formed a partnership with QVC, the cable television shopping network. Discovery hopes to take advantage of QVC's vast order fulfillment infrastructure, said Hendricks. In the future, viewers will be able not only to watch an exercise show on FitTV, Discovery's fitness network, but also to purchase a yoga mat with a few clicks on their remote.
In addition to television commerce, Hendricks said another market investors and market-watchers should not "underestimate" is education. In March, the company launched Discovery Education, a new division that provides classrooms with an online video encyclopedia. The new enterprise builds on Discovery's vast library and the company's acquisition last fall of United Learning, a producer and distributor of educational videos and video streaming. United Learning developed software that enables Discovery to tailor video clips to meet state-specific educational standards.
"I always felt Discovery is a natural brand for education. I think video-on-demand will be a terrific business in the future. I think it will extend to homes with school-age children," said Hendricks. "And we plan to be there."
Hendricks said Discovery is looking into other forms of distribution channels, including cell phones, games, the Internet, interactive television, enhanced television, and DVR.
"We don't associate with any particular technology. I learned a great lesson in the '80s when the major networks missed the opportunity to go into cable," he said. "We intend to explore all platforms of media."
Discovery's performance was a highlight of the Liberty Media presentation. On Monday, Liberty posted a $10 million first-quarter loss, compared with a $132 million profit for the same period a year earlier. After Hendricks's presentation, Liberty president and chief executive Robert R. Bennett quipped that Hendricks "reminds me of a line from an old country song."
" 'Can't wait until tomorrow because you get better looking every day.' "