Bridge between Urban & Mainstream
After several grueling years, Oprah Winfrey’s cable channel OWN has turned the corner toward profitability, her business partners at Discovery Communications said on Tuesday, six months ahead of its previously stated goal.
In the second quarter, OWN was cash-flow positive for the first time, said David M. Zaslav, Discovery’s chief executive. He credited investments in programming, including two new shows from Tyler Perry, and increases in subscriber fees from cable and satellite providers.
OWN, which is a joint venture between Ms. Winfrey and Discovery, is now “starting to pay down the investment Discovery has made in the venture,” Mr. Zaslav said in his company’s annual earnings conference call.
The positive announcement for OWN came amid a somewhat disappointing quarter for Discovery over all. While its earnings — $300 million in the quarter, 82 cents a share — were up 2.4 percent from the period a year earlier, analysts were expecting profit of $328 million and 90 cents a share on average. The company also trimmed its full-year outlook.
When OWN was announced in mid-2008, Discovery said it would provide the cable shelf space for Ms. Winfrey (by converting the Discovery Health Channel into OWN) and $300 million in loans. Amid the hoopla that accompanied its debut on the first day of 2011, Discovery briefly predicted that the channel would make a profit in its first year. But the ratings soon sagged, resulting in lower-than-expected advertising revenue and no small amount of soul-searching by Ms. Winfrey and Mr. Zaslav. Discovery repeatedly chipped in more money. Its loans now total $510 million.
A series of changes in early 2012, including the layoffs of some staff members and the scrapping of an expensive talk show by Rosie O’Donnell, helped lay the groundwork for a turnaround. Shortly after those steps were taken, Mr. Zaslav started predicting that OWN would break even sometime in the second half of 2013. On Tuesday, he noted that the channel’s breakthrough was ahead of schedule and said Discovery remained “very bullish” on OWN’s long-term trajectory.
The addition of Mr. Perry’s sitcoms has been particularly important. Mr. Perry agreed last fall to direct all his future television production to OWN, in exchange for a small equity stake in the channel and other undisclosed payments. His first two shows, “The Have and Have Nots” and “Love Thy Neighbor,” had their debuts in the second quarter. Mr. Zaslav called them “bona fide hits” and said that they, along with new seasons of existing shows, had helped improve ad revenue at OWN.
A Discovery spokesman declined to say how much OWN earned in the second quarter. But one person with direct knowledge of the business, who insisted on anonymity to share closely held financial information, projected that OWN would come out “tens of millions of dollars” ahead for the full year. The person acknowledged that it would take “a few years” for Discovery’s full investment to be recouped, and noted that it was earning interest in the meantime.