華納兄弟探索 (WBD) 2010 Q3 法說會逐字稿

Good day, ladies and gentlemen, welcome to the Q3 2010 Discovery Communications earnings conference call.

My name is Keith, and I will be your Operator for today.

At this time, all participants are in a listen-only mode.

Later we will conduct a question-and-answer session.

(Operator Instructions).

As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Mr.

Craig Felenstein, Senior Vice President of Investor Relations.

Please proceed, sir.

Thank you, Keith.

Good afternoon, everyone, and welcome to Discovery Communications' third quarter 2010 earnings call.

Joining me today is David Zaslav, our President and Chief Executive Officer; Peter Liguori, our Chief Operating Officer; and Brad Singer, our Chief Financial Officer.

Hopefully you have all received our earnings release, but if not feel free to access it on our web site at www.discoverycommunications.com.

On today's call we'll begin with some opening comments from David and Brad, after which we'll open the call up for your questions.

Before we begin, as is customary, I would like to remind you that comments today regarding the Company's future business plans, prospects and financial performance are forward-looking statements that we make pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

These statements are made based on Management's current knowledge and assumptions about future events, and they involve risks and uncertainties that could cause actual results to differ materially from our expectations.

In providing projections and other forward-looking statements, the Company disclaims any intent or obligation to update them.

For additional information on important factors that could affect these expectations, please see our Form 10-K for the year ended December 31, 2009, and our subsequent filings made with the US Securities and Exchange Commission.

And with that, I'll turn the call over to David.

Thanks, Craig.

Good afternoon, everyone, and thank you for joining us.

It has been two years since our first earnings call as a public company, and while economic conditions have been widely disparate over that timeframe, Discovery's consistent execution against the focused strategy has enabled the Company to repeatedly outperform and deliver sustained growth.

Our priority has been to strengthen the quality and global utility of our content while delivering consistent operating leverage.

We have focused on building bigger brands, better programming and taking that content around the world across our best-in-class global distribution platform, investing in areas that provide the greatest advertising and affiliate opportunities, while controlling costs to deliver margin expansion and free cash flow growth.

This strategy generated consistent gains throughout 2009, despite the challenging environment for much of that year, and our growth has accelerated in every quarter of 2010.

Discovery's investment in content and brands is translating into increased audience share across our global portfolio, and the result has been escalating advertising revenue as we capitalize on the current robust global ad environment.

Today I want to discuss several of the key programming initiatives underpinning our strategy, which are beginning to gain significant traction, while also providing some detail on our current content investment.

Domestically, despite the rocky economy over the last few years, our commitment to investing in high-quality content centered on building the next generation of growth, while further strengthening our core flagship channels.

As a result of these investments, we saw viewership growth of 8% across our domestic networks in 2009, and we have sustained that momentum with ratings up 7% thus far in 2010.

One of the standouts of our programming strategy remains ID, Investigation Discovery.

ID continues to be the fastest growing network in all of cable, with viewership this year up 52% among adults 25 to 54.

With incremental investment over the last few years, ID has become the leading brand for viewers looking for high-quality investigative storytelling, and it has moved from the 49th ranked network in the US for women 25 to 54 to the 39th ranked network today.

ID is now in over 70 million homes, and as we look to further increase our distribution, we expect that ranking to continue to improve.

ID's strong performance underscores our investment in programming and marketing over the past 2.5 years.

It is delivering real value to our affiliate and advertising partners, helping us generate strong returns for this new brand and passionate viewer category.

The same can be said for Animal Planet.

We had a strong brand, terrific distribution, but limited ratings.

So we installed new creative leadership, revamped the programming filter and increased our investment by 15% over the last couple of years.

And it's working.

The result has been eight quarters of year-on-year audience growth, including 11% growth this past quarter, led by Whale Wars, which grew its audience 27% versus last season.

Animal Planet is now a Top 30 network, and with a broader brand proposition that is resonating with viewers, it is delivering consistent ad revenue growth that is far outpacing our investment.

Beyond Animal Planet and ID, we are investing in our other wholly-owned emerging networks as appropriate, including most notably the Science Channel, whose ratings were up 42% this past quarter on the strength of Through the Wormhole with Morgan Freeman.

Our commitment to building the next generation of growth also includes our key joint ventures in The Hub and OWN.

In both cases we teamed up with high-quality partners, with strong brands, creative expertise and intellectual property to build a more compelling consumer offering.

Each of these ventures is entering into the next phase of their development.

The Hub launched last month, and we are very pleased with the initial results.

In less than 1.5 years of development, Margaret Loesch and her team have done a tremendous job putting together a dynamic brand and broad programming line-up that is starting to really resonate with its target audience.

Since its launch, The Hub has experienced significant viewership gains from what Discovery Kids was delivering, doubling and tripling in some demos such as total households.

It is building off of a very small base, but the early signs are encouraging.

It is not just viewers taking notice.

Advertisers also see the potential in this network, and they are coming on board.

Thus far this year, we have 50 new advertisers, including many game and toy companies.

We still have a long way to go with The Hub, but the goal remains to build a kids platform with the Hasbro team that appeals to consumers and can drive value for our affiliate and advertising partners as well as our shareholders.

We're also making significant progress at OWN as we head toward the January 2011 launch.

Christina Norman and her creative team, led by Lisa Erspamer, have worked with Oprah to develop a diverse schedule that reflects Oprah's vision, and I'm excited to say that the next time we discuss our earnings, OWN will be on the air.

OWN has already announced 16 shows that will be part of its schedule, including the addition of Rosie O'Donnell, a proven audience generator and someone who will add to the creative appeal of the network, as well as Gayle King, Sarah Ferguson and Oprah's Next Chapter.

And as we announced yesterday, The Judds and the O'Neals, Ryan and Tatum, will be on the network this summer.

We're spending a lot of time on the launch, Oprah is really all in, and we're feeling great about how the creative brand and promotional plans are coming together.

While we are buoyed by the success and opportunity at our wholly-owned emerging platforms and excited about the potential of our joint ventures, it is vital that we remain focused on further strengthening our flagship channels, Discovery and TLC.

Discovery Channel ratings in the third quarter were up 11%, fueled by returning favorites, most notably Deadliest Catch, which delivered its highest ratings ever in its sixth season, and was the highest rated non-sports program in all of cable during the quarter.

Shark Week, in its 23rd season, also delivered its highest ratings ever, and The Colony returned with double-digit gains over its first season.

But it was not just returning hits which fueled the network.

New series, Dual Survivor and Man, Woman, Wild, also performed well, and we're excited about the upcoming slate that Clark Bunting and his team have developed over the last nine months, including Brew Masters, which premieres later this month, and Gold Rush, which premieres in early December.

TLC also grew its ratings this past quarter despite some difficult comparisons a year ago due to Jon & Kate Plus 8.

With 21 series now averaging over one million viewers, including Cake Boss, Say Yes to the Dress, and American Chopper, Eileen O'Neill and her team have built a Top 10 women's cable network that on several nights has been the number one network in America for women.

And it's not just returning series.

New shows such DC Cupcakes and Sister Wives have performed very well.

In fact, Sister Wives averaged 2.2 million viewers in its first season, a 70% increase over its prime time average.

When you combine a stable of established hits, with several new series that are performing well, and a promising slate ahead, including the highly anticipated Sara Palin's Alaska, which airs next Sunday, TLC is poised to build upon its rating success and garner additional ad dollars.

Overall, domestically, with our emerging networks growing rapidly and our flagships further strengthening their audiences, we grew viewership 12% this past quarter.

This broadbased strength translated into 16% domestic ad growth in Q3 on top of ad gains of 5% a year ago.

Brad will provide you with some additional color on advertising in a moment, but we continue to see pricing strength and strong national demand, which gives us confidence in the rest of 2010.

As for 2011, it is still too early to predict what happens, but with a strong up-front base, we are optimistic about next year.

Aside from driving ratings and advertising domestically, strong US content also helps drive our international portfolio, where approximately 50% of our content is sourced from our US networks.

While Discovery Channel is the main supplier to our international networks with approximately 75% of its content utilized globally, we also benefit from a stronger Animal Planet, a growing pipeline from ID, and from Science Channel, which is now in over 80 countries.

Leveraging and building better brands and programming across our best-in-class international platform is a third anchor to our investment strategy.

Discovery has an -- was an early entrant 20 years ago in the international pay TV market.

And as a result we have an unmatched infrastructure of between two and 13 channels in 180 countries, with which to deliver content.

Expanding our market share internationally, delivering a broader audience proposition, and capturing a greater piece of the growing ad and affiliate markets around the world are our strategic priorities.

A key initiative behind this strategy is to make TLC the new global brand.

We are in the process of rolling out TLC to 100 million homes by the end of next year, a great example of our commitment to building a stronger and broader international portfolio.

TLC will help build a female complement to Discovery, much like we have here in the US, which is a great value proposition for advertisers.

We're still in the early stages, but TLC Global is off to a strong start.

The network has launched in 27 markets across Europe and Asia and is now available in 50 million homes outside the US, plus in China.

As part of this roll-out, I recently traveled to Europe, including stops in Turkey and Russia.

It is remarkable to see just how strong the Discovery brand is worldwide and how well-positioned we are in these and many emerging markets around the world.

In Russia, we have eight channels, plus TLC is launching in January, and in Turkey, we have eight channels, a very big presence.

And that presence gives us a unique opportunity to capture audience share as the pay TV market continues to expand around the world.

Our investment in broadening our portfolio has resulted in audience gains around the globe, with ratings up 12% thus far in 2010.

We are seeing particular strength in the UK and emerging markets, and our stronger content is driving advertising revenue growth of 26% this quarter, after delivering 9% growth in the international markets in Q3 a year ago.

Much like in the US, with our international market share expanding and with a broader audience proposition, we remain well-positioned to capture a larger share of the available ad dollars in the marketplace heading into 2011.

It's important to note that as we invest in content globally, our focus is on spending smarter, rather than spending more.

In fact, our content spend in 2010 will be similar to 2009, between $750 million and $800 million.

This consistency is partly a result of our success in developing strong slates across many of our channels as returning series keep development costs down, and partly due to our focus on incrementally spending where we think we can get a return, such as Animal Planet and ID, while reducing our content spend in areas that are less fruitful.

We also remain focused on keeping our overhead costs in check.

As expected, SG&A was up slightly this quarter, as we spent to market some of our returning and new series, but we are still forecasting minimal increases to SG&A this year.

We will continue to aggressively fine-tune our cost structure over time to ensure we deliver real operating leverage as we drive revenue growth going forward.

Our third quarter results were very much a continuation of the first half of 2010.

We delivered strong revenue growth from our affiliate contracts around the globe, while leveraging our audience and subscriber growth into increased advertising dollars in a strong marketplace.

And despite taking a multitude of strategic steps to strengthen our competitive position for the long term, we continued to expand margins and grow free cash flow, creating additional value for our shareholders.

And with that, let me turn the call over to Brad.

Thanks, David.

As David highlighted, we have continued to deliver on the operating initiatives we discussed with you in the beginning of the year.

Total revenues in the third quarter increased 11% compared to the prior year, led by an 18% increase in advertising from a combination of continued favorable conditions and sustained execution globally.

Our domestic and international operations equally contributed to our revenue growth, highlighting the broad strength of our portfolio.

Total operating expenses increased 7% during the quarter, primarily due to higher sales commissions and personnel costs related to stock-based and incentive compensation, as well as from increased marketing spend at our domestic networks.

Our ability to grow our revenues while thoughtfully investing in our cost structure resulted in adjusted OIBDA growth of 14% to $418 million.

Net income increased to $186 million, reflecting the improved operating performance, lower long-term incentive compensation, and $25 million of positive impact in our discontinued operations from the sale of our Antenna Audio business and the release of certain tax reserves.

Most impressively, our free cash flow increased over $300 million from the prior year to $346 million.

The significant increase of free cash flow was driven by our improved operating performance, the timing of certain working capital items and $140 million in tax payments a year ago related to the gain on the sale of a portion of our Kids network and certain prior-period taxes.

We anticipate significant free cash flow generation in the fourth quarter from continued strong operational performance.

For the full year, we expect free cash flow between $625 million and $675 million, which incorporates between $750 million and $800 million of programming investment, as David mentioned, cash taxes of $375 million to $400 million, interest payments of approximately $200 million, total long-term incentive compensation of $160 million based on current market values, and $138 million of debt-and-swap extinguishment comps.

Please note that cash taxes include approximately $75 million related to the expiration of the accelerated tax deductions for domestic production costs.

The impact of the accelerated deductions will reduce each of the next two years.

Turning to our operating units.

US operations continued to perform well during the third quarter.

Domestic revenues increased 11%, with distribution increasing 9% from higher rates and expanded distribution of our digital networks, as well as from lower launch fee amortization.

Excluding the launch fee amortization our domestic distribution revenues grew 7% on a cash basis.

Our domestic ad sales team delivered one of the strongest quarterly performances, growing revenue 16%, primarily through higher pricing in the scatter and direct response markets, greater audience delivery, and to a lesser extent, higher sales.

Our overall pricing was mid-single digits above the prior year, with scatter premiums averaging high teens or greater above our broadcast up-front and low-double digits above the prior year.

We remain encouraged by the continued strength of scatter pricing, as well as by the gains we garnered during this year's broadcast up-front.

As a result, we anticipate domestic fourth-quarter advertising revenues growth in the mid-teens depending on our programming performance.

Our domestic operating expenses increased in the third quarter by $20 million, or 9% compared to the prior year.

The increase was primarily due to higher content amortization, resulting from greater levels of programming investments over the past several years, and higher marketing costs as we continue to build momentum across the networks.

The strong revenue growth and selective marketing investment produced adjusted OIBDA growth of 12% compared to the prior year.

In our international operations, revenues increased 10%, which included a 23% increase in advertising and a 4% increase in affiliate revenues.

Excluding the negative impact of foreign exchange, overall revenues grew 12% and advertising and affiliate revenues grew 26% and 8% respectively.

Our international advertising revenue momentum continued from the first half of the year, with a 26% increase in the third quarter led by pricing and delivery growth in the UK and Asia and stronger market conditions in Latin America, complemented by double-digit growth in EMEA due to higher sellthrough.

International affiliate revenue increased 8% due to strong growth in Latin America and Eastern Europe, primarily from subscriber growth.

Looking ahead, we anticipate international affiliate revenue growth at comparable to slightly lower levels than the third quarter performance.

Our international operating costs were up 2%, or 3% excluding the impact of foreign exchange for the quarter.

The increase was driven by higher personnel costs, offset by a content write-off in the prior year.

Excluding the prior-year write-off, operating cost increases 5%, primarily due to SG&A costs.

Our international operations demonstrated strong operating leverage, increasing adjusted OIBDA 23% for the prior year and 29% excluding the impact of foreign exchange.

As we look forward to the remainder of 2010, we are encouraged by the continued strength of the global advertising markets.

For 2010 we are increasing our revenue and adjusted OIBDA outlook.

We are forecasting a revenue range of $3.75 billion to $3.8 billion.

Our revenue outlook incorporates mid-teens US ad growth and high single-digit international ad growth, excluding foreign currency and a $6 million positive one-time item in the fourth quarter of 2009.

We continue to believe affiliate revenues will grow in the mid-to-high single digits.

We anticipate 2010 adjusted OIBDA of $1.675 billion to $1.725 billion.

Our adjusted OIBDA growth will be primarily driven by our revenue growth, with the majority of the incremental revenue translating to adjusted OIBDA.

We expect operating expenses will increase mid-single digits in 2010.

Looking forward to 2011, we anticipate higher content amortization expense of approximately $50 million, as our amortization catches up to our cash spending levels, which have been relatively flat over the past three years.

We are also enthusiastically anticipating the debut of the Oprah Winfrey Network in January 2011.

The OWN team continues to work hard on the launch, and we invested $30 million during the third quarter, and $107 million to date.

Please note that next year, with the launch of OWN, we will no longer be recognizing the financial impact of the Discovery Health Network in 2011, which represents approximately $80 million in revenues and $30 million in adjusted OIBDA this year.

Our net-income outlook for 2010 remains unchanged, as higher-than-previously-anticipated long-term incentive expense due to the increase in our share price is offset by our greater-than-previously-forecasted operating performance.

With our significantly strengthened financial position and strong operating performance, we ended the quarter with over $1 billion in cash.

Our second quarter earnings announcement we initiated a share re-purchase plan that balances our strategic use of capital between investing in our core business, expanding through potential strategic opportunities and returning capital to our shareholders, while maintaining a thoughtful financial position.

As a result this past quarter, in accordance with the 10b-5 plan we put in place during August, we successfully repurchased 1.12 million of our Class C shares for an average price of $33.61.

We'll continue to monitor the most efficient use of our cash and we'll evaluate the parameters of our buyback plan within the context of strategic opportunities as well as market fluctuations.

Before I finish up, I hope everyone tunes into to Discovery for the premiere of Brew Masters and Barack Obama's appearance on MythBusters, as well as Sarah Palin's Alaska on TLC and the returns of Fatal Attraction on Animal Planet and Disappeared on ID.

David, Peter and I will now be happy to take your questions.

(Operator Instructions).

Your first question is from the line of Imran Khan with JPMorgan.

Please proceed.

Yes, hi, thank you so much for taking my questions.

A couple of questions, first regarding buyback, you have a $1 billion buyback out there, and obviously next year free cash flow will grow significantly faster.

Could you give us some sense what are the key parameters that you're looking into in terms of the pace of buyback?

I think this quarter you bought 1.12 million shares.

How should we think about the pace of buyback going forward?

And secondly, in the international market, the growth rate.

Can you give us some color like [would geographic -- in the] market, in the international market in advertising is growing faster, some of your peers recently said that Latin America has been particularly strong, could you give us more detail -- some more color on the international market?

That would be helpful.

Thank you.

Hi, it's David, I'll take the second question and then Brad can take the first.

We saw pretty broad-based strength in the international markets, we grew over 15% in all of our markets.

Having said that, Latin America is strong, particularly Mexico, Chile, Colombia, Turkey, and Russia, and India are also very strong.

So the emerging markets in Latin America are very strong.

The UK, it looks pretty good right now, but part of that is that the UK was down, and so on a year-over-year basis, it's showing a lot more strength than maybe on a longer-term look is really appropriate.

But as you look around the world, we saw 15%-plus, and in some markets over 25%, so pretty broad.

Brad, your turn.

Imran, with regard to your question on share repurchase, I think consistent with our prior comments and the comments I made today, is our primary focus on utilizing our capital is to invest in our business, and whether it's our core operations or strategic opportunities, that's where we're first and foremost focused.

Having said that, we do have several things that we are looking at that will use part of that capital.

To the extent that we have excess capital, we seek to do a share repurchase.

We set up a plan after our last earnings call under 10b5 and it had parameters to buy back stock, our stock went up 20% during that time.

As we mentioned, we are looking to take advantage of the natural volatility of the stock and since it was a straight increase, we did not buy as much volume as we probably would have anticipated when we set up the plan.

So we'll re-calibrate the plan in conjunction with our strategic activity and try to figure out what makes sense as we move forward.

Great.

Thank you so much for taking my questions.

Your next question is from the line of David Bank with RBC Capital Markets.

Please proceed.

Thanks.

A couple of questions, I guess, first, the growth was obviously incredibly robust.

Domestic ad growth was like 16%, but I think the biggest question is there wasn't a material amount of margin expansion, and you referenced the increased SG&A and the marketing costs.

What is your hurdle for kind of normal -- you said you see that coming to an end, so what is your near- to intermediate-term hurdle for margin expansion, would be -- on that kind of growth, would be the first question.

The second question is could you give us a little bit more color on what the impairment and restructuring charges were about?

And the last question is the OWN network in particular, I think, has -- it's fully distributed on digital but not fully -- or close to, I think, but not fully distributed on like an analog tier.

Do you think it's possible to get there?

What does it take to move from fully distributed digital to fully distributed analog?

Hey David, it's Brad, I'll take the first and then I'll turn it back over to David for the OWN distribution question.

With regard to margins, I think we're targeting for the year somewhere between 65% and 70%, if you look at our guidance in terms of incremental margin, probably closer to 65%.

If you look at where the growth came, we made selective investments in marketing around certain networks, so that was a significant portion.

Another portion came from our stock-based compensation, as part of our SG&A.

It's not the long-term incentive plan, but actually the stock option expense as we move from a more public-company-type of compensation.

That was a significant portion, it was about a $5 million increase this quarter if you compared it against the prior year.

That's part of it, and that increase will continue into the fourth quarter.

The other part is our commissions on our advertising is another part of the rise, and as advertising goes up, we do pay out commissions related to that advertising growth.

So those were the big elements of the increase within SG&A.

As we move forward, all things being equal, we still target a close to 65%, 70% incremental margin, having, as I mentioned, we do have next year another step up in amortization, which will impact that.

We're not paying more in cash for the programming, but it is catching up over the last three years and we had a similar step-up last year, but that was offset with some impairments we had in 2009.

With regard to the restructuring charges we took, there were some personnel moves we made in our international operations, which were the majority of those charges, and that we eliminated certain positions and restructured others and that's where the cost went.

Okay.

David, do you want to answer the question regarding OWN?

Sure, on OWN, look, today, Discovery Health, which will become OWN on January 1 is in 78 million homes, and it's actually not a digital network.

One of the values of the network is that a very substantial amount of that carriage is analog.

It's an unusual platform for us, because we don't have significant sub-fees on that platform, which we think presents some upside opportunity for us, but it was the most broadly distributed of our networks outside of TLC, Discovery, and Animal Planet.

So it has 78 million homes.

We think we're putting some great talent, maybe the best brand in media on it with Oprah, and when you take Oprah and Rosie and all of Oprah's friends, we've been able to -- as part of our overall network, as we announced on Monday, there will be some presence by Dr.

Phil and Dr.

Oz and Suze Orman.

So the whole gang is going to be there along with some great content.

We think that brings an enormous amount of value to the industry.

We've been able to recognize that value in the up-front on the advertising side, and over time we'll look to try and capture that value from the distribution side, both in terms of going from 78 million homes to try and pick up that extra 15 million to be over 90 million, and also to get some value from the distributors because we think we're bringing a lot of value with the content that we bring.

Okay.

Another question, Operator?

Your next question is from the line of Ben Swinburne with Morgan Stanley.

Please proceed.

Thank you.

Good afternoon.

I wanted to go back, maybe David or Peter or both, on the TLC Global initiative, and specifically, I think all of us understand how the US market evolved over time in launching new channels, and the launch support process and then eventually evolve and drive distribution affiliate fees, drive ratings, get advertising.

But how does the international markets play out when you're launching a new channel, particularly one like TLC, which is programming that at least is not obviously exportable, to make up a word, from the US the way we think Discovery and Animal Planet is?

I'm just trying to get an understanding of what's the ramp look like as you launch this business?

As you go in market, David, what do those conversations with the cable satellite distributors like?

Are you getting affiliate fees right out of the gate?

And advertisers, how are they looking at this channel as you roll it out?

And then I have one follow-up.

Sure.

Peter's overseeing the broad rollout of TLC, but one of the real advantages that we have is Discovery, I think, is the best platform media company in the world, and we show that strength particularly outside the US.

So we have channels that are on analog with meaningful sub-fees, on average about five and 180 countries.

So we have Discovery, we have Animal Planet, we've launched Science.

In some markets, we also -- like in Latin America, we have a Kids network or a Hub network, but the way that we're doing this is we're not taking TLC into the market and asking for carriage.

We're taking existing channels that we have that are -- that have broad distribution.

So when we say we have 100 million homes, for us we can literally flip a switch and it's just a matter of Peter working with the teams around the world to flip an existing channel that we have, and we have channels that have a description that allow us to do this, into a more compelling network.

Let me pass to Peter about how he's going to brand those and program those over the next 18 months.

Yes.

Let's first talk about your exportability question and then I'll add some color to the launches.

In terms of exportability, what we're really exporting is the spirit of the TLC brand, which is a female flagship lifestyle brand.

We're able to take some shows which are highly exportable, the Say Yes to the Dresses of this world, et cetera, and recognize that if you get some hyper-localized shows, they're not going to export.

But given the strength of the brand, given the strength of the mission, we're actually able to get some local shows and actually get some other female acquisitions.

Don't Tell the Bride, Date to Lose Weight, are the types of shows we're actually able to add to the portfolio overseas, which again exports the brand and not necessarily program-by-program specifics.

Where are we?

We're aggressively looking to grow distribution by fourth quarter 2011, potentially reaching out to over 100 million households.

In 2010, seven months in, we've launched in 25 markets reaching nearly 50 million homes.

In Europe we're in five countries, about 6.5 million homes.

In Asia, 20 countries, almost about 40 million, 45 million households, not including China.

We're looking ahead to Russia in January, Romania in January, Sweden in February, Denmark in the second quarter, et cetera.

In terms of ratings, we're trending upwards.

In Norway, we're seeing steady share growth, now about four times higher than when we launched.

In general, the initial feeling is very strong, very exportable and looking upward.

The real strategic value for us is, here in the US by having a top 10 network for women and a top five network for men, we see every advertiser.

And we've found that gives us real value for from an advertiser perspective in terms of generating extra economics and it helps us on the distribution side.

So far, we're pleasantly surprised that more and more of the content is usable, and to the extent that we have to buy content, it's not very expensive to do so locally in market.

That makes sense.

And just if I could squeeze one more in.

You grew your US advertising at 16% this quarter.

Certainly TV budgets aren't growing that quickly, so as you look across your networks, where do you think you're taking share from?

I guess this just sort of dovetails with the last question.

If you think about the women's demo, TLC, in the US, is that coming out of Lifetime and other big women's markets and also -- female markets, or is general entertainment broadcast really where the big dollars are that you guys are clearly eating into?

How should we think about the market share gains here?

Hey, Ben, part of the market share gains, a third of it, was really by our rating performance, so we delivered more inventory because our ratings were up.

So one-third of that 16% -- or maybe slightly less, was driven by our delivery.

I'll turn it over to David and Peter.

When you look at the weakness of the broadcast networks, clearly there is audience to be gathered by the likes of us.

When you look in the female segment, most especially broadcasters is hurting there.

Clearly TLC and ID have helped fill that void.

In addition, when you look at the Lifetimes of this world, again, that becomes available audience that TLC and ID and Animal Planet specifically are doing a very good job of grabbing audience, but it's the strength of the shows, the availability of the audience, we're filling the gap.

Thanks a lot.

Your next question is from the line of Richard Greenfield with BTIG.

Please proceed.

Hi, was just thinking about when you look at your leverage, you need to finish your buyback between now and the end of 2011, buy back essentially $1 billion of stock.

Your leverage is going to fall sub-one-and-a-half times.

The only major acquisition you've made over the last few years is HowStuffWorks, and you haven't really talked a whole lot about that deal since shortly after it occurred.

And just wondering, what are the types of things, if you're not going to be buying back multiples of where you are now, what are the types of things that you think can be additive from a high level?

David, what are the areas for acquisition that could actually add value and be additive, without naming specifics, but would just love to think about how you are thinking about M&A?

It clearly seems like there's opportunities given how strong your balance sheet is becoming.

Thanks, Rich.

Look, the first place that we look is outside the US.

Because we're so strong in Latin America and Asia and India, throughout Europe, because we have real operating teams all around the world, we think we have a really unique advantage.

Because we would have some synergy if could make the right kind of acquisition, we have local people on the ground, we're selling locally - in some markets we're selling for other major media companies, and so we have very strong teams around the world and we know the markets well.

I'm spending a significant amount of my time, I was just in Europe two weeks ago, I'm going again to Europe for a week next week, and those are opportunities if we could find some assets that we think can help us grow faster.

In the meantime, we have a lot of channels here in the US and around the world that we're doing very well with by building our brands, investing in content and growing our business more organically.

And so we would like to deploy a lot our capital to grow, and the first place would be internationally, but we have to find the right deal so that we can feel we can grow faster by doing that deal.

And we look at everything, we look domestically as well.

HowStuffWorks was a good acquisition for us.

We're still losing a little bit of money in the new media online area, but they provided a strong competency for us, they helped change our culture, and we have over 40 million uniques.

We're now one of the top sites for men and TLC is building very strong for women, and so we're playing in that space.

I don't think -- that's not a place we're going to look to to build, because we feel like we're doing quite well there.

And we'll wait and see for our business mettle to develop.

So we're going to be careful, and in the meantime we have our stock buyback and we have other options if we can't deploy our capital strategically.

And what do you think the right leverage is?

If you're targeting -- going well below two, where would you like leverage to go over time?

I think, Rich, we've promised to maintain an investment grade rating, where we're at.

So that leverage target should be below 3.25% or so based on current parameters.

Anywhere between 2% and 3% is probably a comfortable leverage.

We want to ensure we have flexibility when we want to use it.

So you never probably want to be at the edge of your leverage targets, and I think the best way for us to create value as a company is to take our capital and use to get good returns, and that ultimately benefits the shareholders.

And that's really how we think about the best way to deploy it when we think of capital structure.

Thanks.

Your next question is from the line of Anthony DiClemente with Barclays Capital.

Please proceed.

Hi, thanks for taking my question.

So first question is for Brad.

I think for 2011 you called out two, I think two headwinds that you have.

So one of them is the deconsolidation of the $30 million that presumably will go below the line, but then the question that I have was about the $50 million of content amortization.

Could you walk us through what that is and why that hasn't been matched to revenue in 2010?

Sure.

Let's take both of them.

I don't know if Health is a headwind, it's the way the accounting works.

So you're basically going to be turning on the Oprah Winfrey Network, which will be building shareholder value through the Oprah Winfrey Network rather than it operating as the Health network, it's just no longer accounted for as a wholly-owned subsidiary, or a wholly-owned operation.

So that's the way to think about it is it just is a equity pick-up rather than something we were recognizing at the time as revenue and expenses.

With regard to -- (multiple speakers).

Okay, so, but is that $30 million -- should we model that as a steady state, $30 million 2011 over 2010 and then just modeling it as an equity pick-up below the line as opposed to consolidating it?

Well, you don't have the Health network existing anymore, it becomes the Opera Winfrey Network.

So now you have the Oprah Winfrey Network moving forward.

It launches, and that has its own set of revenues, which should be substantially above the Health network, and as it performs well -- or as we hope it performs well, we should do very well in terms of the economic impact.

Okay.

Got you.

So that's just -- because the 50/50, it's equity pick-up rather than a wholly-owned consolidated entity.

I guess I was trying to get you to give us a little bit of an idea of what you think the operating income from Oprah would be for next year, but I guess it's too early to get that granular.

It's too early to tell.

We're enthusiastic about the product that we'll be launching.

The team has done a great job putting it in position.

And so we'll just have to see how it rates.

The advertiser acceptance appears very good right now in terms of the volume we've sold, it's substantial beyond where the Health network was, and so we're very encouraged by everything, as well.

And so the second question with regard to the content amortization, we have a policy of how we write off our content, which is we amortize 50% the first year for most networks, 25% the second, 15% the third and 10% the fourth.

And so we've been investing about $750 million to $800 million of content for the last three years, and so what you've gradually seen is a step-up in that content cost as it catches up to where the cash amortization -- or the cash investment was in, let's call it 2007, which was significantly below -- or was below those levels.

And so you're just catching up, and so each year the amortization steps up roughly $40 million or $50 million as that occurred over the last couple of years.

In 2009, though, we had $75 million of content impairments, which we don't have that level this year, and so you don't have quite as big a step-up because you had a larger amount of impairments in 2009.

So I guess a way to summarize it is that you were spending cash on programming that you weren't fully amortizing the cost of through the GAAP reported income statements, and so you have got to reconcile and true-up the reporting or the amortization of those costs in 2011 in order to match what the cash expenditure was in prior years, is that right?

Probably a better way to think about it is, we were basically amortizing to the play patterns of the investment.

So it was matched very closely to how we actually utilized the programming, and when you go to the statement of cash flows, you see we break out the amortization and then we break out the payments, and so you can see the difference.

And we highlighted this last year and we highlighted it again this year, and it's just to ensure people understand how that process works to match the revenues to the usage of that investment.

And so it is a matching concept from the terms of how it's being utilized.

Okay.

Thank you, and then last question and then I'll stop, which is there were $15 million of restructuring impairment charges in the quarter.

I'm sorry if you said this already, but what was the impairment?

For the cash impairment side, was restructuring, it was about $4 million related to certain operations in terms of eliminating certain positions.

We had an $11 million non-cash impairment charge related to one of our subsidiaries as we wrote off some goodwill.

Not -- it wasn't one of our networks.

Which subsidiary?

I don't want to be specific, but it was not one of the cable networks operations.

It goes in the other category between education, creative sound services, that area.

Okay.

Thank you very much.

Your next question is from the line of Doug Mitchelson with Deutsche Bank.

Please proceed.

Thanks very much.

A couple things, I guess first for David, I'm not sure [of] this answer, but any yardstick we can use to measure success with OWN?

Expectations are going to be high going in since it's Oprah, right?

But what's the goal you'd like investors to focus on with this channel?

Should we look at an average viewership, or should it be a top 10 network for females?

What would you like investors to focus on for success levels of OWN?

Okay, I'll kick it off and then I'll move it to Peter, who has been spending a lot of time with Oprah and the team.

But look, every cable network takes time to find a voice.

This is a very unique launch because we're going to be launching to 80 million homes.

We're launching with one of the -- maybe the best brand in media.

We have Oprah, we have Gayle King, we've got all these great personalities.

But they are being feathered in, so that we'll get Ryan and Tatum O'Neal, and we'll get -- The Judds will be in the summer, Rosie will be coming in the summer or in the fall.

Oprah will have a significant presence, but after she leaves broadcast; she'll come a little bit later.

We'll have a lot of personalities sooner, but -- and we have a lot of great programming, but we're going to be listening to the viewer.

We have Oprah.com, which is one of the top sites in America for women.

That's a way for us to hear what they like and what they don't like.

And we're going to need to figure out how to nourish that audience and find the right voice, and if we do, we think we're going to have a very big asset that has a great future for us and for Oprah, in terms of building a great media company.

But Peter's been on the ground there for the last few months a few days a week, so.

So measure of success.

Clearly if we have good creative [in our own] brand, that's first and foremost.

In terms of some metrics, look, we have to compare ourselves to where we currently are with Health, and if we are able to significantly increase our health ratings, be that by doubling, et cetera, that's measure one, seeing that we're actually feeding our audience.

We have a full slate.

We know we have a couple of step-ups when Rosie joins us and then when Oprah's Next Chapter comes in and we have a full slate of programming.

We clearly expect to do better on a ratings front than where we were with Health.

In terms of success from a business standpoint, advertiser acceptance.

We've had extremely robust ad sales scheduled with OWN.

Blue chip advertisers, deep commitments, commitments that go beyond just spots and dots to full integrations.

Again we have to have the ratings in order to pay off that advertiser investment and confidence.

And the last part is where we are with affiliates, and David has added some color on that.

But it is clearly our goal to make sure that we are providing great value to our affiliates and hope that they'll see the merit and value in the network so that we can both extend distribution as well as be worthy of the fees that should be concomitant with the network, and we'll work in partnership with our affiliates to get there.

I'm curious, Peter, have a lot of these ad deals been multi-year deals where you sort of lock in -- you get to lock in some advertising revenue up front, which is nice but then you've slow growth in rate the next couple of years, or have you let these deals float in on shorter-term ad deals?

There have been some multi-year deals, and they have recognized what the anticipation is in terms of inflation in the marketplace, but what's positive about that is deep, strong advertiser relationships.

Again, I'm mostly heartened by the fact that it's not merely a spot and dot relationship, but it's one where they're heavily involved and integrated in our programming, which really is a hedge against the daily variances of ratings.

It speaks to a longer-term relationship and investment.

As we look at the deals that the team, Joe Abruzzese and the OWN sales team have been able to put together, they've been unusual.

The advertisers -- they've been multi-year, the terms have been favorable for us.

We think they're favorable for the advertisers because we think the network's going to provide a lot of value.

It's going to take time, but we're very optimistic.

When you look at what's out in the marketplace, the amount of original content we have, the great brand, Oprah, that we have the chance to build something that's really significant.

And then can I just ask a follow-up finance question for Brad?

Brad, if I'm reading the guidance correctly, if I just use the midpoint of the range it provides 4Q revenue growth something around 6% and OpEx down 1%, and both of those are a bit lower than trend.

Anything unusual in revenue or OpEx for 4Q that we should consider?

I think the revenue should be a little bit higher.

I mean, it's pre-FX, so you do have a little bit of negative FX in there for the fourth quarter.

On an organic basis it's probably a couple - 100 basis points higher.

With regard to the OpEx, last year we had an impairment charge in the fourth quarter in 2009, and so we don't anticipate the same level of impairment charges that we took in 2009, and that's the biggest difference in our operating costs.

Right.

Okay.

Thank you very much.

Your next question is from the line of John Janedis with UBS.

Please proceed.

Hi, thank you.

Just a couple quick ones.

First, David, to your comments earlier, OWN obviously has a lot of established talent.

Does this translate to higher costs relative to the $189 million commitment?

Well, we've been able to bring on a lot of strong talent, and I just want to remind everyone that we've committed to spend $189 million, but that's a loan and that gets paid back with interest and first-out dollars.

We're happy to do that, because we think, with this being Oprah's Next Chapter, and with her engagement and excitement and the brand and the amount of talent that she brings with her and the energy that she brings, is going to make for a terrific network.

We've committed to $189 million, we have a full slate, and so far we're on track.

Okay.

And then just separately, you mentioned the international value proposition from an ad perspective between TLC and Discovery.

I'm wondering, is there much advertiser overlap internationally from a revenue perspective for the two networks?

I'm sorry, one more time?

Just talking about the value proposition between TLC and Discovery, you mentioned -- meaning non-US, I'm just wondering from an advertiser perspective, given that proposition, do most of them or many of them advertise in both of those networks in any particular country?

The overlap is meaningful, but the number of advertisers that only advertise with women versus men is also significant.

And as you look at Discovery outside the US, we tend to skew more male.

We're more of a -- in the US we're about 62%.

Outside the US, we could be as much as 70% or 75%.

And so the differential between the advertisers that are trying to reach women and men outside the US is probably broader than inside the US.

And I think that's a good thing, because it allows us to see other advertisers and bring them in.

And Animal Planet is kind of right down the middle, it leans maybe a little bit more female but we can bring advertisers into that.

We've launched ID in a number of markets around the world, TLC will help that, and Discovery kind of trolls and is a helper to Science.

Thank you.

Your next question is from the line of David Miller with Caris & Company.

Please proceed.

Yes.

Hi.

I was just curious about the unions.

Can you talk about, of all the content that you guys film here in the United States and abroad and so on and so forth, specifically here in the United States, how often do you use union crews, how often you don't.

My understanding is that you don't really use union crews all that much because you're basically filming reality and reality just doesn't out of the auspices of the union, but we're hearing on the ground here in Los Angeles that that could change with regard to union negotiations going forward, and I was wondering what your reaction is to that?

Sure.

Basically how we look at it, it's a show-by-show, territory-by-territory basis.

Unions have not been much of a role for Discovery, so it's not something except in some limited countries that we really deal with or see.

Yes.

Operator, we have time for one last question please.

Okay.

Our final question comes from the line of David Joyce with Miller Tabak & Co.

Please proceed.

Thank you.

With your margins being so strong, I was wondering with this continual $750 million or $800 million of programming, how could we think about where you've been deploying that capital in terms of yes, you've had very strong ratings at ID, for example, and you've got the $180 million for OWN, but are some of your channels, by their nature do they have higher costs of the programming?

Just want to know how to think about the different gross margins for the different networks.

When you think about what you spend in programming, you really -- as you're in a development cycle, you're developing a lot of shows and you're trying to figure out which ones work.

We own almost all of our content, so for Eileen O'Neill and her team, when they develop 21 shows that have over 1 million viewers, they've developed a bunch of shows that we can count on now that make it less expensive for us.

Because even if we, as we extend those shows, even if we have to pay a little bit more to hold on to those for longer periods of time, we don't have to do as many pilots.

We don't have to have as many specials and new series to try and replace.

So to the extent that Animal Planet and TLC and Discovery and ID have more returning series, that gives us an ability to be more efficient, that's number one.

Number two is, we used to order series in books of 12.

So we've started to do it in three- and six-packs.

If a show works then we can order more, but we were ordering a fair number of series, we'd offer a 12-pack and we'd figure out after three or four that it didn't work, so we've been more efficient about how we use it.

But in terms of where we deploy it, Animal Planet and ID and Science have been big drivers for us, so we're pushing more against them because they have a creative team that has been successful, and then we continue to reinforce Discovery and TLC, and then we look around for opportunities.

Where do we have creative ideas that we think are going to work and how do we reinforce them?

Great.

Thank you.

Thank you, everyone, for joining us and if you have any follow-up questions, please give us a call and we'll help you out as best we can.

Ladies and gentlemen, that concludes today's conference.

Thank you for participating.

You may now disconnect.

Everyone have a great day.