Discovery Communications: Resilience Speaks to the Strength of Cable

Discovery Communications (DISCA) reported better than expected third quarter results on Friday. Based on these numbers, the newly public cable TV company that owns its eponymous Discovery Channel, as well as Animal Planet, TLC and the new Oprah Channel is off to a strong start (it was previously part of Discovery Holdings).

The company reported an 11 percent increase in revenue to $835 million, thanks to 16 percent increase in revenue for its international networks and a 6 percent increase here in the US. Earnings per share came in at 44 cents, up from 3 cents in the year-ago quarter, and far exceeding analysts' expectations of 18 cents per share.

The current company, Discovery Communications, went public in September, after in June Discovery Holding Co. announced its plan to combine its 67 percent interest in Discovery Communications with Advance/Newhouse Programming Partnership's one-third stake of the company. (To allow for fair comparisons, the company separated out the same units in the year-ago period.)

Discovery's strong numbers are all the more striking considering the dramatic toll the economic downturn has taken on the media sector. Discovery's stock has fallen about 45 percent year-to-date and CEO David Zaslav acknowledged: "There is no question we are currently operating in uncertain times and have to plan accordingly." But far more remarkable, Zaslav said the company expects ad revenue to *increase* during the fourth quarter. While Zaslav said that last-minute buying of ads, or the "scatter" ad market is slowing, he also said that the level of cancellations this year is not unusual.

Discovery's resilience speaks to the strength of cable; a category that also proved strong for other media giants. First, there's the subscription element that should stay strong as consumers are unlikely to cancel their basic cable packages, even during an ad downturn. Then there's the fact that advertising on cable is still appealing—or relatively appealing—as it allows advertisers to reach a targeted, and often very loyal, audience.