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Analyst Not Bullish on Discovery, TLC

If ratings erosion at Discovery Channel and TLC doesn’t stop before this upfront, Discovery Communications Inc. will “continue to be negatively impacted by weak advertising revenue and margin compression,” according to Merrill Lynch & Co. media analyst Jessica Reif Cohen.

In her April 28 report, Reif Cohen said she is holding with her prior estimates -- she expects DCI’s ad revenue to decrease 2% year-to-year, to $276 million in the first quarter and $1.16 billion for 2006.

DCI has “no apparent momentum” going into the cable upfront, Reif Cohen wrote, since even with new programming initiatives, audience is down for Discovery and TLC.

Her report said that season-to-date ratings at Discovery and TLC in the adult 25-54 demographic are down 20% and 25%, respectively.

“Without an imminent turnaround in ratings for both Discovery Channel and TLC in advance of this year’s cable upfront, we expect Discovery to continue to be negatively impacted by weak advertising revenue and margin compression due to programming expenses,” Reif Cohen wrote.

She also projected that DCI will see 9% revenue growth for the first quarter and full year, as well as 10% EBITDA (earnings before interest, taxes, debt and amortization) growth for the quarter and 11% for the year.

“Our estimates reflect weak 2005 results and no significant catalyst to drive growth in 2006,” Reif Cohen wrote.