2009 Annual Report 25 Years of Satisfying Curiosity
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2009 ANNUAL REPORT 25 YEARS OF SATISFYING CURIOSITY CANADA UNITED STATES LATIN AMERICA The world’s #1 nonfi ction media company MORE THAN 100 WORLDWIDE NETWORKS IN OVER 170 COUNTRIES AND 38 LANGUAGES UNITED KINGDOM EUROPE ASIA MIDDLE EASTST AFRICA AUSTRALIA DISCOVERY COMMUNICATIONS 2009 ANNUAL REPORT DEAR SHAREHOLDERS, 6% affi liate revenue growth. Internationally, Discovery’s networks leveraged the continued secular growth trends of As Discovery Communications celebrates our 25th pay-TV around the globe to expand its subscriber base and anniversary in 2010, we are proud to report that the state of deliver 9% affi liate revenue growth, excluding the impact of the company is strong and we are well positioned to deliver foreign currency fl uctuations. value for our shareholders by building upon our mission of Given the opportunities to further expand Discovery’s satisfying curiosity and making a difference as the world’s leadership overseas, near the end of 2009, we announced number one nonfi ction media company. that 18-year veteran Mark Hollinger would assume total This past year, in the face of the most challenging economic oversight of our international businesses. Elevating this environment in a generation, Discovery was able to function and placing it in the hands of one of our most increase top-line revenue and diligently cut costs, leading to experienced and capable leaders demonstrates our double-digit adjusted OIBDA and free cash fl ow growth. commitment and steadfast approach to expanding both our international revenues and margins. Overall, for the year, total revenue increased 2% to $3,516 million, primarily driven by 4% growth at U.S. Networks and 3% growth at International Networks. Despite the Brand Strength and Ratings Momentum challenging economy, Discovery was able to grow revenue every quarter in 2009. Adjusted OIBDA in 2009 increased Another advantage for Discovery in 2009 was the strength 12% to $1,464 million led by 8% growth at U.S. Networks of the company’s brand portfolio and our investment in and 16% growth at International Networks. Adding to high-quality content. In the U.S., every one of Discovery’s these accomplishments, Discovery Communications also rated channels grabbed additional viewers in 2009 and was named to FORTUNE magazine’s list of the “World’s ratings for the portfolio as a whole grew in every quarter. Most Admired Companies.” Discovery ranked #2 in the Primetime ratings delivery across Discovery’s domestic Entertainment Industry, demonstrating the strength of our networks was up 8% among key demographics in 2009. brand, workforce and leadership. This ratings strength enabled Discovery to post U.S. advertising revenue growth of 2% in 2009, despite the weak Discovery’s success in 2009 was a testament to the ad market. company’s strong execution, as well as the fundamental strategic advantages that we believe will contribute to Helping to drive this growth was strong performance at expanded growth in 2010. These include: TLC, which had its highest audience in fi ve years and is now a top 10 network for women with 10 shows averaging over one million total viewers. Animal Planet also performed Balanced and Diverse Revenue Streams strongly, increasing its viewership 16% among adults 25-54 and delivering its best ratings in six years. Finally, Nearly 50% of Discovery’s revenue is generated from Investigation Discovery (ID) has grown its target audience recurring subscriber fees through multi-year contractual nearly 200% since its January 2008 debut. All of these relationships with our distribution partners. This long-cycle networks continue to perform strongly year-to-date in 2010. revenue provides top-line sturdiness and helps insulate the company from choppy and diffi cult environments, such Similarly, the international networks experienced as we experienced this past year. Importantly, Discovery’s double-digit viewership increases in 2009 across EMEA, revenue is also geographically diverse with more than one Latin America and Asia-Pacifi c, which translated into 10% third generated outside of the U.S., including many of the advertising growth, excluding foreign currency. This fastest-growing pay-TV markets in the world. momentum positions the company to capture an even larger share of international advertising revenue as local economies For 2009, Discovery U.S. networks capitalized on the around the world continue to improve in 2010. escalators embedded in our affi liate contracts, as well as the 5% expansion of the subscriber base primarily from With a goal of super-charging our brands and marketing further penetration of our digital networks, to deliver and accelerating our ratings momentum, we recruited Peter Liguori, one of the best marketing minds and programming is currently Discovery Kids. Discovery also invested talents in the industry, to serve as Chief Operating Offi cer. in organic growth with successful new brands like Already, Peter’s creative leadership is taking hold, as Investigation Discovery, with the goal of capitalizing on evidenced by the company’s fi rst-ever cross-network our U.S. distribution strength with meaningful brands that simulcast of the premiere episode of LIFE, the follow-up can sustain long-term growth. series to PLANET EARTH, across seven of our U.S. Lastly, at the beginning of 2010, Discovery announced networks, with an additional six HD simulcasts. a partnership with Sony and IMAX to launch the fi rst 24-hour 3D television network. This announcement was a continuation of Discovery’s long heritage of innovation, Operating Flexibility and Cost Management which began with the launch of Discovery Channel in 1985, The fi nal strategic advantage that boosted Discovery in the fi rst suite of digital cable networks in 1996 and the fi rst 2009 was the company’s operating fl exibility and stringent 24-hour HD channel in 2002. focus on reducing our cost structure. Throughout the This past year was challenging, but ultimately made the year, the company took signifi cant steps to restructure the company stronger, as Discovery delivered on expectations, workforce, refi ne marketing spending and reduce research achieved real growth, outperformed our peers and costs, while continuing to invest in quality content for our strengthened our brand portfolio to set the stage for the networks. next generation of growth. As we head into 2010, in what The net result of these efforts was a 2% reduction in we anticipate will be an improved operating environment, operating expenses, with programming investments we believe strongly that the company’s sustained ratings more than offset by reductions in SG&A spending. momentum, distribution strength and the leaner cost When combined with revenue growth, this resulted structure position Discovery to deliver another strong in real operating leverage with our operating margins performance in the year ahead. expanding to 42%. In the year ahead, we plan to further invest in our brands and original content, but the focus will remain on success-based investment that generates a return. As a result, we expect margins to continue to Thank you for your continued support. rise driven primarily by revenue expansion and a focus on maintaining a stable cost base, rather than largely through cost reductions. Looking Toward the Future We also moved aggressively this past year to better position Discovery for long-term growth. The highest profi le of these initiatives was the continuing preparation for the January 1, 2011, launch of OWN: THE OPRAH WINFREY NETWORK. In early 2010, OWN announced fi ve series that will be part of the network’s initial slate, including a behind-the-scenes series featuring Oprah Winfrey that will document the last season of The Oprah Winfrey Show. Additionally, in 2009, Discovery formed a joint venture with Hasbro to launch a new children’s and family entertainment network, The Hub, in 2010, on what John S. Hendricks David M. Zaslav Founder and Chairman President and Chief Executive Offi cer DISCOVERY COMMUNICATIONS 2009 ANNUAL REPORT 25 YEARS OF DISCOVERY Since the launch of Discovery Channel in 1985, Discovery Communications has been dedicated to the original mission of Founder and Chairman John Hendricks – to satisfy curiosity and make a difference in people’s lives with the highest quality content, services and products that entertain, engage and enlighten. Now, as Discovery embarks on its 25th anniversary year, we celebrate the “wow” moments and milestones that have taken us from a single network in fewer than 200,000 U.S. homes to the world’s number one nonfi ction media company reaching nearly 1.5 billion cumulative subscribers in nearly 40 languages and more than 170 countries around the globe. THE JOURNEY BEGINS DISCOVERY COMMUNICATIONS 2009 ANNUAL REPORT 1985 1986 Discovery Channel launches in the U.S. Discovery Channel celebrates a successful fi rst reaching 156,000 subscribers. anniversary serving seven million subscribers. The fl agship Discovery Channel made its debut on June 17, 1985, with the airing of ICEBERG ALLEY, featuring high-quality images of some of the most awe-inspiring natural objects on the planet. The launch of Discovery Channel – the company’s most widely distributed global brand – marked a new era in television, introducing cable’s fi rst nonfi ction network devoted to satisfying curiosity and making a difference with high-quality content that entertains, engages and enlightens. The stunning visuals captured in ICEBERG ALLEY, and the airing of the fi rst live television from the Soviet Union two years later, set the stage for future iconic Discovery Channel specials, such as BLUE PLANET, PLANET EARTH and 2010’s LIFE, all of which empower viewers to explore their world in ways that were never before possible. 1987 RUSSIA: LIVE FROM THE INSIDE airs on Discovery Channel, providing U.S. viewers with 66 hours of live Soviet television. DISCOVERY COMMUNICATIONS 2009 ANNUAL REPORT 1988 SHARK WEEK, the fi rst-ever branded programming event on cable television, debuts on Discovery Channel.