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Ascent Drags Down Discovery

8/18/2006 8:00 PM Eastern

Merrill Lynch & Co. media analyst Jessica Reif Cohen maintained a “sell” rating on Discovery Holding Co. stock, after the company released second quarter earnings showing more stable ratings at Discovery Communications Inc. but continued weakness at its Ascent Media Group unit.

Discovery Holding was formed in July 2005 and includes Liberty Media Corp.’s 50% interest in DCI and its full ownership of Ascent Media, which provides production services to film and television companies.

In a research report, Reif Cohen wrote that ratings appear to be stabilizing for DCI’s flagship cable outlets Discovery Channel and TLC — advertising revenue in the quarter was up 3% to $326 million, beating her estimate by $17 million and affiliate revenue climbed 19%. Cash flow at the networks increased 4% to $191 million in the quarter, $20 million above her estimate.

The story was different at Ascent, where cash flow dipped 44% to $10 million and revenue was down 7% in the period.

So Reif Cohen revised her year-end estimates for DHC, upping revenue estimates at Discovery by $36 million but trimming revenue estimates at Ascent by $47 million.

Reif Cohen also reduced her cash flow estimate for Ascent by $10 million, while slightly decreasing cash flow estimates for Discovery to $693 million from $694 million.

September