Oprah's new TV partner came from humble roots too

AP News
Posted: Nov 23, 2009 3:39 PM

Oprah Winfrey's new partner on cable TV is a bit like her: It came from humble beginnings to become a big force in the media business.

After launching in 1985 with 156,000 subscribers, Discovery Communications Inc. now has a global audience of millions and owns several hot cable properties, including Discovery Channel and TLC, home of the tabloid sensation "Jon & Kate Plus 8."

Its stock has more than doubled since the start of the year, and the company's market value is nearly $9 billion. Ratings at its most well-known channels are up, thanks in part to the gossip about Jon and Kate Gosselin and their eight children, whose finale was airing Monday night.

Winfrey's announcement Friday that she was ending her broadcast-syndicated talk show in 2011 capped a long period of speculation that began when she announced the launch of OWN: The Oprah Winfrey Network, in a 50-50 partnership with Discovery in January 2008.

It also marked another victory for cable TV, which has drawn advertisers, audiences and talent away from broadcasters ABC, NBC, CBS and Fox and their TV station affiliates.

One strength of cable network owners such as Discovery is that they generate steady and rising subscription fees from cable and satellite TV providers, which pay to show channels to their subscribers. That has helped cable networks weather the economic downturn far better than broadcasters.

OWN is set to launch in January 2011 in 80 million U.S. homes, replacing Discovery Health. Research firm SNL Kagan estimates the channel generates 12 cents per month in fees per subscriber, but that is expected to rise to 17 cents by 2013 after Winfrey settles in.

The amount Winfrey earned in her broadcast contract, in which CBS Corp. syndicated her show to stations nationwide, was not revealed. But Anthony DiClemente, an analyst at Barclays Capital, said the deal on cable "can provide higher value."

"I'm sure she has mixed emotions about leaving broadcast for cable. But if you look at it from an economic point of view, the recurring subscription fee which occurs on cable is very alluring for both Oprah and Discovery corporate," DiClemente said.

Discovery was launched in 1985 by John Hendricks, a history buff who saw value in telecasting enlightening documentaries. A group of investors who included media mogul John Malone helped get the company off the ground, literally, with its first subscribers getting the feed via satellite.

S.I. Newhouse Jr.'s Advance/Newhouse Communications Inc., which also had a stake in Discovery, helped the company go public in September of last year. Both Malone and Newhouse's company, which is a subsidiary of the one behind the Conde Nast magazine group, still hold significant stakes. Discovery is 33 percent owned by Newhouse's group, while Malone owns 3 percent. But Malone's shares have more voting power, and combined, Newhouse and Malone have nearly 50 percent voting control of the company on major issues.

The new venture fit perfectly for both Winfrey and Discovery.

A couple of years ago, when CEO David Zaslav was looking for what to do with Discovery Health, one of the company's least successful channels, his wife handed him a copy of "O, The Oprah Magazine."

He approached Winfrey about a partnership. As it happened she had recently come upon an entry in her diary dated May 24, 1992, when she wrote about her idea for creating her own network.

"David came and really spoke about the vision I'd been having for 15 years," she said last year. "It felt like, `I can't believe you're saying this.'"

Since taking his position in January 2007, Zaslav has made similar changes in the lineup of 13 cable channels Discovery has in the U.S.

The company turned its Discovery Times channel into a home for true-crime shows such as "Call 911" and renamed it Investigation Discovery in January 2008.

Discovery Home became Planet Green in June 2008, and Discovery Kids is due to be relaunched in late 2010 in a partnership with toy maker Hasbro Inc.

There's no doubt that Winfrey's average audience, more than 7 million this fall, will be a boost to Discovery Health, which had an average prime-time audience of just 238,000 in the third quarter.

The talk show powerhouse also will be entering a segment of television that is on the rise.

Cable's share of the prime-time TV audience has grown from 41 percent in 1999 to 61 percent during the most recent season, according to Nielsen Co.

And that shift has allowed cable networks to take a bigger share of the advertising dollars that get spent on commercials. In 1998, cable accounted for just 24 percent of total television ad spending, according to Magna Global, a market research firm. By 2008, it was getting 39 percent.

Next year, Barclay's analyst DiClemente sees cable coming back stronger as well, with a 5.5 percent rise in ad revenue, while broadcasters are expected to post 4 percent growth.

Perhaps Winfrey herself would count cable's ascendance as one more on the "yellow brick road of blessings" she cited Friday in announcing her departure from broadcast TV.


AP Business Writer Andrew Vanacore in New York contributed to this report.