Talk show queen Oprah Winfrey is expected to turn her attention to the cable channel she co-owns with Discovery Communications Inc. once her daytime show ends in September 2011, and RBC analysts said Monday that is bullish for Discovery.
The analysts, David Bank, Ross Sandler and Stephen Ju, said Discovery stands to make a 20 percent or higher return on its investment in 'OWN: The Oprah Winfrey Network.' The new cable channel is equally owned by Winfrey and Discovery and slated to debut in January 2011.
The analysts said that while Discovery shares are trading more expensively than other media stocks, they believe the company's growth prospects for the long term are good. It has a strong lineup of cable channels _ including Discovery, TLC and Animal Planet _ and Winfrey's new network should boost earnings in the future.
RBC raised its target price for Discovery by a dollar to $34.
Discovery Health Channel will be rebranded as 'OWN: The Oprah Winfrey Network.' That's a good thing because Discovery Health hasn't met expectations in attracting audiences and generating profit.
The analysts believe Winfrey's shows on OWN could boost affiliate fees from the 1-cent per subscriber at Discovery Health to 17 cents per subscriber by 2014 as the Winfrey network. Cable, satellite TV and phone companies pay cable channels affiliate fees for the right to carry them on their systems.
Winfrey's involvement should also attract more advertising revenue.
"Given that Oprah will be actively involved in new programming and that she'll likely have a fairly significant on-air presence on the network, we think OWN will be at least moderately successful in attracting new ad dollars," the analysts said in a research note.
Changing Discovery Health to OWN also could boost its audience reach. Discovery Health currently reaches 76 percent of all subscription-TV homes and could reach full coverage over five years. That's what happened to TLC, from 77 percent in 1996 to over 95 percent in 2001.
Shares of Discovery, based in Silver Spring, Md., rose 8 cents to $31.46 in afternoon trading after rising as high as $31.89 earlier in the session.