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Improved Advertising Sales Help Discovery Earnings

Updated at 10:30 p.m.

Discovery Communications said its profits rose as the media
and advertising business continued its recovery.

Net income  rose 80% to $305 million, or 74 cents a share, from $169
million, or 39 cents a share. The earnings include a $102 million gain from contributing
its Discovery Health network to the Oprah Winfrey Network joint venture.
Without one-time gains, earnings were up 20%.

Revenues rose 9% to $951 million.

"Discovery's strong first quarter results reflect the operating momentum
we are generating across our global portfolio in a continued favorable economic
climate. Our consistent investment in content over the past four years, along
with a drive to expand our subscriber base domestically and internationally,
has enabled Discovery to grow our audiences across the globe," David
Zaslav, president and CEO, said in a statement. "Once again this quarter,
we recognized the value of our increased viewership through double digit
advertising gains that further built upon the strength we demonstrated throughout

Discovery increased its outlooks for al of 2011, saying that  it expects
total revenue to be between $4.025 billion and $4.125 billion, with adjusted
earnings between $1.85 billion and $1.925 billion.

During the quarter, adjusted operating income rose 14% to
$334 million at Discovery's U.S.
networks and 18% to $144 million at its international networks.  

At Discovery's U.S.
networks, revenues were up 8% to $587 million, with ad revenues up 9% to $290 million
and distribution revenues up 6% to $274 million. Revenues at the international
networks were up 14% to $323 million.

The company said that the advertising revenue gains reflected increased prices
and higher sellouts, but were offset by  $14 million in revenues from
Discovery Health, now a part of the OWN joint venture.

Excluding Discovery Health from the 2010 results, ad revenues grew 15% in the
first quarter, distribution revenues were up 7%.

CFO Brad Singer said during the company's earnings call with
analysts, he expected similar ad sales gains in the next quarter. "The
attractive current market conditions continue to exist in 2011 and we
anticipate our second quarter domestic ad sales performance to approximate
first quarter levels, with positive or negative variability from our ratings

The favorable advertising outlook extended to the upcoming
upfront as well.  "Not only does this give us a great start to 2011, but
it puts us in a great position heading into what is sure to be a robust
upfront," Zaslav said. " While it is difficult to predict where the upfront
market will ultimately end up, with scatter volume strong, scatter pricing well
above last year's upfront, ratings momentum across our networks, a strong brand
portfolio and the best ad sales team in the business, we fully expect to see
significant increases in this year's upfront."

Discovery said that it was going to have to continue to pumpmoney into its joint venture with Oprah Winfrey, the Oprah Winfrey Network,
which has gotten off to a slow start with viewers, but has 21 new shows slated
for launch.

Zaslav also reiterated that Planet Green was likely to be
the next Discovery Network to be re-branded.
"The Planet Green concept hasn't worked out very well. We think it's
underperforming, he said. Discovery is having conversations with distributors
about the network and hopes to come up with a good idea for the channel in the
next nine months.

Zaslav was more upbeat about new programming at flagship
network Discovery, announcing that Gold Rush and Flying Wild
Alaska would return later this year, and that Auction Kings and Sons
of Guns would be back for second seasons.

Discovery stock closed at $43.14 on Thursday, up 75 cents per share. Analysts
said the company's first-quarter performance exceeded expectations.

Discovery " on call alluded to likely ‘robust' '11 upfront
(on strong scatter, ratings momentum for ID, Discovery, TLC, Animal Planet),
and modestly lifted key '11 financial targets," said Tuna Amobi, analyst for
Standard &  Poor's. "With cautious [long-term] optimism on nets
re-branding (Oprah, Hub, and now Velocity), and share buybacks, we keep our $55
PEG-based target price."

Anthony DiClemente of Barclays Capital said he raised his
full-year earnings estimates for Discovery and bumped his target price for
Discovery shares to $45. He said he saw no clear signs of an ad slowdown at the
company, estimating 14% ad sales growth (adjusting for moving Discovery Health
to the OWN joint venture.