• by Wayne Friedman , May 8, 2012

Discovery Communications witnessed 13% higher advertising sales in the first quarter for its U.S. networks in reporting its financial results. But its investment in OWN: Oprah Winfrey Network continues to draw closer inspection.

Increased ratings and higher inventory sell-out levels were the main reasons for the company’s higher advertising sales results, totaling $329 million for the period. Distribution revenues climbed 23% to $337 million. Overall U.S. revenue rose 16% to $681 million. 

Discovery's international channels witnessed somewhat better gains. Revenue rose 18% to $380 million, with distribution revenue growth of 14% (to $239 million) and advertising revenue growth of 22% (to $124 million). 

But overall net income sank by 28% to $221 million.

All this compares to a year ago, when Discovery had a $102 million gain in the first quarter as it shifted from Discovery Health Network to the OWN joint venture with Harpo Studios. Without that gain of a year ago, Discovery said its net income would have improved 9%.

Discovery says current quarter results reflect that it is now recording 100% of OWN’s net losses as ‘other expense’, “as accumulated operating losses at OWN exceeded the equity contributed to OWN.” That amounted to $50 million for the company, up from $7 million the year before.

Discovery has spent over $300 million in starting up the network, but has not revealed what losses it has incurred from the venture. David Zaslav, president and chief executive officer of Discovery, told analysts OWN would break even in 2013.

Overall first-quarter revenues gained 15%, or $152 million, to $1.1 billion. The company expects that for 2012 overall, total revenue will be between $4.550 billion and $4.650 billion.

Zaslav said, in a release: “Discovery is off to a great start in 2012 with strong first quarter results that built upon the consistent financial and operating momentum we generated throughout 2011.”

But investors were not happy. In mid-day trading, Discovery Communications stock was down 6.6% to $50.50.