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 a 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.
When the channel 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.
Throughout 2012, industry analysts described OWN as a flop or an outright failure. Some predicted that Discovery would have to write off some of its investment.
But a series of changes that year, 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 the originally anticipated second half of the year goal of cash flow break even.”
“I want to congratulate Oprah and the entire team at OWN for this significant milestone,” Mr. Zaslav said. “We remain very bullish on its long term trajectory and our ability to drive continued asset appreciation in the future.”
The addition of Mr. Perry’s sitcoms was 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.
As always in cable, subscriber fees were also crucial. In January — shortly before Ms. Winfrey’s biggest interview in several years, that of Lance Armstrong, who confessed to use of performance-enhancing drugs — OWN started receiving higher per-subscriber fees, 20 cents a month in some cases, thanks to long-term contracts with cable and satellite providers.
A Discovery spokesman declined to say how much OWN earned in the second quarter, making it difficult to predict how long it might take the venture to repay its loans. 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.
The positive earnings 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.
Article source: http://www.nytimes.com/2013/07/31/business/media/own-winfreys-network-turns-around-financially.html?partner=rss&emc=rss