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Oprah's
High-Flying Partner
Shares
in the talk show host's new cable partner, Discovery, are
outperforming all other media stocks—including
Google's.
By Richard Siklosa
February
1, 2008
 Headlines
about Oprah Winfrey last week focused, quite rightly, on the
icon's plans to start her own cable television channel. But
there's another story to be told about Winfrey's partner in
the venture, Discovery Communications, and how its relatively
new CEO is on a mission to remake the company.
In fact, if you
were to guess the best-performing media stock of the past
12 months you might be surprised to know that it's not newsmakers
like News Corp, Disney, Scripps, Viacom, or even mighty Google.
Instead, it's Discovery
Holding Company, an oddly-constructed public vehicle for housing
the 66 percent stake that Liberty Media holds in Discovery
Communications (more on Discovery Holding later). Since former
NBC Universal executive David Zaslav took the reins of Discovery
Communications in late 2006, shares in Discovery Holding have
increased more than 50 percent, even after some recent declines
with the market turmoil.
The planned Oprah
Winfrey Channel—or OWN—will be a relaunch of a
snoozy channel called Discovery Health, and the plan is to
flip the switch between the two channels some time next year.
In a nifty bit of deal-brokering, Oprah will be chairman and
contribute her existing Oprah.com website and, sometime when
the contracts for her hit syndicated daytime show expire in
2011, will probably move it onto the channel she will "own"
half of.
But Oprah isn't
the only star of this show. Based on his first year, Zaslav
himself could easily headline his own program, where he catapults
into a sleepy or ailing channel (“Next week: Extreme
makeover of channel 464, the Farming Channel!”) and
whips it into shape. Kinetic, unsubtle, and thoughtful, Zaslav
was a corporate lawyer in private practice when he became
enamored of media (Discovery co-founder John Hendricks was
a law firm client back in Discovery's early years). He eventually
quit the law practice and joined NBC Universal, where he helped
launch CNBC, oversaw distribution, and eventually ran the
business side of the General Electric Unit's cable channels.
As Discovery's
CEO, he's shaken up the senior management ranks, and pulled
the company out the retail business—all while taking
a fresh look at Discovery's cable channel assets and boosting
investment in online and multimedia businesses.
There is plenty
to work with. The heart of the business is the namesake Discovery
Channel, which is known for non-fiction fare like "The
Deadliest Catch" (following the lives of lobster fishermen),
the self-explanatory "Dirty Jobs," and its annual
"Shark Week" scary fish-fest. On paper, Discovery
boasts an impressive lineup and reach: More than a dozen channels
with distribution in more than 170 countries with upwards
of 1.5 billion subscribers. (And, unlike other big networks
that rely on syndicated or licensed fare for much of their
schedules, Discovery owns the vast majority of its shows outright
so it can "repurpose" them at will internationally
or for video-on-demand or online or what have you.) The rub,
however, is that too much of the programming the company has
produced over the years has been pleasantly forgettable.
In the United States,
the company boasts 13 cable channels but, as analyst Richard
Greenfield of Pail Research says, the business is "extremely
lopsided." The core Discovery Channel and TLC account
for 80 percent or more of the overall company's cash flow.
Indeed, the subscriber fees it has negotiated with cable and
satellite operators to carry Planet Health, now in 70 million
homes, are so small that they contribute little to Discovery's
ledger sheet. Presumably, Zaslav's plan is to leverage Oprah's
star power into higher subscriber fees.
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