Good day, ladies and gentlemen, and welcome to the fourth quarter 2009 Discovery Communications Incorporated earnings conference call. My name is Latisha and I will be your operator for today. (Operator Instructions) The speakers on today’s call will be Discovery’s President and CEO, David Zaslav, Chief Financial Officer, Brad Singer and Chief Operating Officer, Peter Liguori. I would now like to turn the call over to your host for today, Mr. Craig Felenstein, Senior Vice President of Investor Relations. Please proceed, sir.

Thank you, Latisha. Good morning , everyone and welcome to Discovery Communications’ fourth quarter and full year 2009 Earnings Call. As Latisha mentioned, joining me today is David Zaslav our President and Chief Executive Officer, Peter Liguori , our Chief Operating Officer and Brad Singer our Chief Financial Officer. Hopefully you have all received our Earnings Release, but if not feel free to access it on our website at www.discoverycommunications.com. We will begin today’s call with some opening comments from David, Brad and Peter, after which we will open the call up for your questions. Before we begin I’d like to remind you that comments today regarding the company’s future business plans, prospects and financial performance are forward-looking statements that we made pursuant to the safe harbor provisions of the private securities litigation reform act of 1995. These statements are made based on management’s current knowledge and assumptions about future events and they involve risks and uncertainties that could cause actual results to differ materially from our expectations. In providing projections and other forward looking statements the company disclaims any intent or obligation to update them. For additional information on important factors that can effect these expectations, please see our Form 10-K for the year ended December 31st 2008 and our subsequent filings made with the U.S. Securities and Exchange Commission. And with that I’ll turn the call over to Brad.

Thanks, Craig. We appreciate the opportunity to discuss our fourth quarter performance and current operating environment with you. We enjoyed our strongest top-line growth of the year during the fourth quarter as advertising, pricing and demand strengthened sequentially in our domestic and international operations. Total revenues increased 7% compared to the prior year, led by 16% international revenue growth, excluding $19 million of favorable currency impact and complimented by 3% U.S. network growth. Our total operating expenses increased 2%, excluding $18 million of unfavorable currency impact. As we continue to reduce our SG&A spending. We lowered our SG&A costs by $16 million in the quarter, but increased our cost of revenues primarily due to content and period charge increases of $20 million compared to the fourth quarter of the prior year. Our adjusted OIBDA grew 8% to $390 million compared to the prior year. Please note our fourth quarter results reflect a deconsolidation of Discovery Kids reducing revenues by $11 million and adjusted OIBDA by $5 million and include $5 million in expenses related to the Oprah Winfrey network. Our net income increased to $155 million reflecting our improved operating performance and lower impairment charges, offset by mark-to-market increases in our share based compensation. Our free cash flow more than doubled to $236 million, primarily due to improved operating performance and favorable working capital during the quarter. Looking back on our full-year 2009 performance, our ability to grow revenues, adjusted OIBDA and free cash flow is a testament to the strength of our business model, and our ability to execute in a challenging economic environment. Our team produced 12% adjusted OIBDA and over 40% free cash flow growth, adjusted for the tax impact of the Kids’ transaction, while delivering a hard fought 2% revenue growth. David will take you through…

Thanks, Brad. Good morning, everyone, we appreciate you joining us for our year end call, it’s a great opportunity to reflect on what Discovery Communications accomplished over the past year and also look ahead to 2010. Brad has taken you through our fourth quarter results, a strong end to a year in which Discovery outperformed on nearly every single financial metric. Despite challenging economic conditions throughout most of 2009, we managed to deliver top-line revenue growth while diligently cutting costs leading to double digit adjusted OIBDA growth and free cash flow growth. Our growth was consistent with revenue and adjusted OIBDA gained every quarter excluding foreign currency. Our growth was diverse with both domestic and international platforms delivering advertising and subscription increases and our growth was balanced, with expansion from both revenue growth and targeted cost reductions. On our call 12 months ago we laid out the rational for why we were confident Discovery would outperform in 2009 and deliver real financial growth despite a tough macro environment. I’d like to revisit and underscore some of the strategic advantages that enabled us to deliver such strong results in 2009, as they also lay the foundation for why we expect to be successful again in 2010. First advantage we cited a year ago, one that was going to be especially valuable given the uncertain economic environment at the time, was that nearly 50% of our revenues come from recurring subscriber fees through our multi-year contractual relationships with our affiliate partners. Fees that provide top-line sturdiness and helped insulate the company from the choppy and difficult environment. These affiliate fees delivered sustained growth through 2009 with affiliate revenues of 8% excluding foreign currency in the removal of Discovery Kids. And this growth was geographically diverse, the U.S. program capitalized from the escalators…

Thanks, David. Good morning everyone. It's great to be here with you today. I met several of you in the last years from my old job at NewsCorp and I really look forward to sitting down with you in the future to talk about our story here at Discovery. I've only been here for about three and a half weeks so there's still plenty for me to learn, but what's fairly obvious is that Discovery is extremely well positioned with a diverse portfolio of strong brands married to an extensive distribution platform. Discovery has always been synonymous with high quality content and David and his team have continued this tradition while taking bold steps to transform the company, further positioning it for long term growth. My focus here will be on taking the company's diverse brands and refining and accelerating their audience appeal and their brand entitlement. There's no need for wholesale changes, we're already headed in the right direction. My goal is simply to help figure out the best way to get the most out of the assets that we have. We have unique opportunities ahead from further developing the global appeal of iconic brands such as Discovery and TLC to also finding the upside in existing brands such as Animal Planet and Science, where there are big opportunities to also building new brands from the ground up, such as ID or Investigation Discovery. And of course our joint ventures with Own and the Hub. As David said, we're focused on continuing Discovery's evolution from what is already a great platform company with strong brands into a great content company with engaged audiences around the globe. I'm very excited to be part of the team, and I couldn't be more excited to be working with David, Brad and everyone that they've assembled back at Silver Spring. So I look forward to meeting all of you again and down the road I hope we're going to be able to share some more time and I'm going to turn this back over to Craig.

Operator, we're ready to take the questions now.

(Operator's Instructions) Your first question comes from the line of Benjamin Swinburne. Please proceed.

Two questions for you, I guess. Starting with scatter pricing, Brad I think you mentioned scatter over scatter was a headwind in the fourth quarter, but it sounds like there's been improvement there. When I look at your advertising guidance for the U.S. I think you said low to mid-single digits. It would seem with your ratings strength if we start to get scatter over scatter being up year on year that could prove to be pretty conservative. I just wondered if you were making an explicit assumption about that pricing in your guidance or at least could comment on my thought process. And then second, maybe for Peter and David, when you look at the international business at Discovery and Peter when you compare that to what NewsCorp built in the Fox International business which has become a big business for NewsCorp. Is there anything you would take from the NewsCorp experience that you think could improve what Discovery's been doing internationally, or do you believe that the strategy of re-purposing U.S. content overseas which has been a huge margin driver for Discovery remains core and the way to move forward? Thank you.

Hey Ben, I'll take the first one then I'll turn it over to David and Peter to discuss the international operations. With regard to scatter pricing as you highlighted in the fourth quarter we might have been up 15% to 25% depending on which network but we were going up against premiums that were 35% you know with their broadcasts up front. In the first quarter of the prior year the premiums are not as high as they were in the fourth quarter of 2008. So right now we're running slightly ahead of the 2009 scatter market, where we're pricing today. And scatter premiums have picked up slightly from the fourth quarter so they're a bit higher than that 15 to mid-20's range. If that holds and the ratings hold you'd be at the higher end of our guidance and that's how it's conceived. Right now for the first quarter, given the map we've just walked through we'd be running around 5%-ish, maybe a little bit better, depending on if the ratings hold throughout the quarter. So I think that all the math you went through is consistent with how its playing out.

Okay, got you.

On your second question, in looking at the experience from NewsCorp versus Discovery, I really do feel that Discovery is at a specific advantage. When you look at the difference between scripted programming, especially things like comedy to non-fiction, you realize how non-fiction translates overseas almost flawlessly. You know, the world of science, natural history, investigative work, real people, real families – there's no known international boundaries – they're the same across the board. So I think these brands, especially with the content that's provided are particularly well positioned for overseas growth and I look forward to working with Mark on exploring the upside with our international distributors.

Thank you.

Your next question comes from the line of John Janedis with Wells Fargo. Please proceed.

Hi, thank you. Can you just talk a bit more about the ratings at the Discovery Channel. They've been a bit mixed (inaudible) I guess I'd say, David you mentioned Life but I'm wondering to what extent you've got some other mirrors coming over the next few months and if you've changed the number of new programming hours during prime time? Thanks.

Well we're very excited about Life and that will be premiering in March and we have a big promotion against that because we think it's break out programming like Planet Earth was – the same team put it together. Our series' are very strong, we're – Deadliest Catch will be coming back, a few of you may have read that we lost one of our captains last night, and it's been quite a dramatic season. But overall our series' remain very strong. We have a new leader in there, Clark Bunting and we're reinforcing the creative leadership team and Peter is working with Clark on that very simple mission which we started three years ago, which is what is Discovery at its best. So you'll be seeing us kind of leaning in, because we think that curiosity at it's very heart, which is what Discovery is all about has meaningful upside, domestically and around the world. So we're continuing to invest in that, and we think we can build it.

And Brad one other question related – or unrelated I should say. Can you help us think about the cost indebted in your outlet for Hasbro (inaudible) I'm sorry if I missed it earlier.

John, because of the accounting change for FAS 167 neither of those costs flowed through our current incomes statements. They're just picked up on an equity basis.

Next question Operator, please.

Your next question comes from the line of Jessica Reif Cohen of Bank of America Merrill Lynch. Please proceed.

Thank you. I had a couple questions. I was wondering if you could help us or elaborate a little more on the international potential. How much is the sub-growth growing over the next couple of years, how much upside is there on affiliate-cy rate increases. I think that the Disney Channel numbers showed surprising growth from outside the U.S. and how much of a share shift have we seen and how much more is there to go from advertising shifting from broadcasting to cable/satellite?

Hi Jessica. Let me deal with it generally. We've been rebuilding our ad sales team as you know. It's only been in the last two years that we've been selling in those markets and we're finding that and building the strength of our team around the world. We still have – the majority of the money we make outside of the U.S. is in affiliate fees, so on the affiliate side, as we build our brands and we grow our ratings that enhances our hand as our deals come up. About 70% of our deals are locked through the end of 2011 and so we will have an opportunity as we build those brands to take advantage of the fact that our channels are stronger and continue to grow. On the advertising side we showed in the fourth quarter that we've been able to build on our strength by having good people on the ground and by selling locally, we put up a very strong number 18% growth in the fourth quarter. And we still haven't taken full advantage of the additional viewership and market share that we've gotten around the world. In terms of the overall growth of subs, it really depends on the market but there are a number of markets that are like the U.S. in the late 90's – we're seeing significant growth in India, significant growth in Brazil and in Chile. A lot of the emerging markets are very strong and then it's a mixed bag. There are some markets like Southern Europe and the UK that are about as mature as the U.S. But on balance there are a number of big markets where we're well positioned with a number of channels in low channel position with good sub fees where as the market grows we will grow with it just by the fact that we were there early and we have market share.

And then, Brad commented specifically about first quarter trends in advertising. Can you guys give us some color on what you're seeing internationally in advertising?

Hey Jessica. It's a little early to tell. You know the favorable trends we had in the fourth quarter seem to be continuing but that market isn't as fully developed in terms of there's not a large upfront in many of the countries or anything that's an analog to that sales profit. So it does come together later. It's encouraging what we've experienced in January but we just don't have the same visibility that we have in the States.

And then one final question I guess I have for Peter. Peter you mentioned that Science you see a lot of upside. Can you just give some more specifics as to how you plan to direct the channel?

Yeah, you know just in my first few weeks here, going out to the creative community it is just remarkable how many big name storytellers look at all the Discovery networks – but you know especially a fascination with Science overall. And in just discussing what opportunities there are for content on Science you do see storytellers responding to it. David and Debbie and Clark have Steven Spielberg doing some work specifically on the Science channel to bring to life what would normally be considered somewhat of a dry topic, but bringing to life the stories around science innovation and the future of science. So when we look at that network it's going to be able to move more from an explanation of science to the life of science which we experience every day. So I'm highly encouraged by the reception that the creative community has had for that channel.

Thank you.

Next question, Operator please.

Your next question comes from the line of Anthony Diclemente of Barclays Capital. Please proceed.

Hi, good morning. Brad did you give an expectation for domestic advertising growth in the current quarter?

We did not. What I did highlight Anthony was that it's running right now – I'd call in the mid-single digits a little better than 5% potentially but again, we're not done with the quarter, our ratings aren't done – we still have the Olympics to go through but based on where we're at today that would be our expectation.

Okay, thanks. And then on your comments on use of free cash flow, I just wondered Brad if there are any acquisition or M&A opportunities that you see globally out there and if not any reason you wouldn't be in there buying your stock back right now?

Well, right now we probably have several things that we're looking at. They're not in the billion dollar range - they could potentially be an aggregate in the several hundred million dollar range. So there are opportunities that we think would be good returns on the capital we'd invest. If we cannot find productive uses that generate good returns you should anticipate it, we'll be repatriating money back to our shareholders over the course of this year.

What types of things are those? Are there international cable networks that are out there?

The one's that we're looking at right now are either potentially buying in parts of joint ventures we don't own, bringing in some capability, and they have basically for the most part been internationally oriented.

Okay, thank you. And then one for David just more broadly on your digital strategy. I think you've been a bit more reluctant to release some of your content onto new digital platforms, and I'm just wondering if you could update us all on your strategy for monetizing online content in view of the relationship you have with your cable operators? Thanks for the questions.

Sure. We have held back – we have a great library – 20 year library we own virtually all of our own content, but we haven't put out much long form because we really are holding it back for a business model that works which is our cable channels. But more importantly we found that we can very effectively get our content out there in best of and clips and in different ways by like having channels on YouTube where people upload myths that they can bust and have a communication back and forth with the Myth Busters. It's a much more effective way to build our brands as people play on all these other platforms, so that's number one. Number two is that we're really getting aggressive in what I would call social-viral community. As we look at one of the advantages that we have – because we're non-fiction across our 13 channels here in the U.S. and around the world, as you take a look at Facebook and YouTube and Twitter, we have a chance to lean in on those platforms because we have real people, that have real fan bases – whether it's the Captains from Deadliest Catch or Jamie and Adam from Myth Busters, or a lot of the great characters like Buddy from Cake Boss – so we've been really pushing all of our characters who have a real connection with viewers domestically and around the world to participate on all of the social platforms. And that seems to be working quite well for us and so as we look at new media we don't just look at it as ways of pushing our content out, we look at it as ways of reaching out to fan groups that can reinforce from a marketing perspective the importance of our personalities and our brands and our shows.

Thank you.

Your next question comes from the line of Doug Mitchelson of Deutsche Bank. Please proceed.

Thanks very much. A couple for Brad and then sort of a big picture question. Balance sheet then if you might start returning capital or have some deals lined up – what's the right long term leverage target? And then you talked Brad about advertising and didn't mention sellout at all. Can you give us a sense of what the sellout levels were in the first quarter for 2009 last year so we get a sense if there's upside there as well and then I have a question for David.

Sure, let me take them in order Doug and then I'll turn it over to David. In terms of balance sheet what we've said in the past and I think we're still in the same place is that we'd like to maintain an investment – you know great credit rating – so that generally will be three times-ish or slightly less is the maximum leverage. We could go up to three and a quarter if you read what the credit analysts from the agencies say. Right now where we're at in our leverage is about – it's under two and half times, so we're definitely within the comfort range and I think we'd like to maintain a sensible cost at capital, so we don't want to decline our leverage much more from where we are today either. With regard to sellout and expectations. Our sellout did increase in the fourth quarter. We saw it accelerate from starting kind of late in the third quarter into the fourth quarter so we are selling more in the cash market. That has continued in the first quarter and that's been part of the success. I mean we're ahead in the first quarter of where we were a year ago in terms of our pacing. And so – you know that is part of the process which is pricing firming up, the cash market is greater than it was a year ago and our ratings are up. And that's what's translating into an increase in advertising, but you are finding a little bit of low single digit upfront that made up a portion of that advertising base.

Got it, thanks. And then for David, I just wanted to further the digital conversation a little bit because the iPad had a lot of people talking about the potential for over the top video, and I know you sort of had a discussion about putting your shows online in terms of downloads or streaming or ad supported. But any thoughts about the potential if you know an Apple or Amazon came forward and wanted to wholesale your channels and aerate them and sell them online in a paid TV package would you support that?

Well, we're always looking for different ways to reach consumers, and if there were strong business models that can carry our content whether in long form or short form we're always aggressive about pursuing them. We're in talks with everybody – we just believe our content has significant value and we want to make sure we get paid meaningful value for our content. But we also recognize the value of the cable business and the value of the cable operators that are paying us more and more for our channels. So it's that balance.

Are there any contractual obligations that would hold you back from online streaming?

No. We have a right to do what we want with our content and we're just going to figure out the best way to reach our viewers and to go with the best business models we can find to create the best value.

Great, thank you very much.

Your next question comes from the line of Richard Greenfield of Pali. Please proceed.

Hi, a few questions – the first for Peter. I was wondering how you think about the opportunity – you have HD Theater, Fit TV and Military Channel, none of which seem particularly core or have a lasting brand image right now. I'm curious how you think about the potential of those three networks and what you could do with them? Two, a question on Own. Where is carriage right now for Discovery Health and do we know yet – is there any specific plan to have broader carriage by the time the network launches in early 2011? And then just lastly a question for Brad on Life versus Planet Earth. Planet Earth ratings were kind of a surprise and no one expected it to be as big as it is. How will Life be monetized and are you in a better position to monetize it – fully monetize ratings success versus Planet Earth and how does it flow through to DVD – what should the timing of that etc. be?

Let me take the Own one first because it's quick and then I'll pass it to you. Right now, Discovery Health is in about 75 million homes and we'll see some growth on that Rich before Oprah launches just by the natural growth that we'll get so figure 77 million, 78 million homes by the time we launch, maybe close to 80. But that doesn't take into account that we're building – we have a fantastic brand, we have Oprah behind us, we've got some great programming and a great leadership team, and we're going to go out there. We're going to be looking to get more carriage for the channel and to get a different compensation structure from the channel over time. And so our expectation is that over time the channel will grow, it will grow significantly, and over time we'll be able to get some meaningful fees for high quality content. And a great brand.

Let me discuss the Fit, HD, D of it all. Though your position is not necessarily being core, it's part of the core strategy to have a diverse portfolio of content. Now with all that being said and taking a look at some of those networks we're going to approach it on a couple levels. First we're going to look at natural growth within our cost structure to make sure that we're investing in content that can in fact bring more attention and more value to those networks and then two – you know we will continually recognize that there is strong distribution in place of those networks and that's beachfront property. If there were any larger strategic opportunities to take a look at those networks, we'll evaluate them on an individual basis. Fortunately, again those networks are locked in with many long term deals and it allows us the time and ability to look at certain investment opportunities.

One last thing on HD because it's an important point for us strategically. We have seven HD channels here in the U.S. we were a very early mover. We're now in 45 countries in HD. Maintaining our lead as a platform company is critical to us and I think it's starting to pay dividends. It's hard when you look at the research to really completely line it up, but at least anecdotally when you see how people view content when they get an HD set they spend a lot of their time on the HD tier. And that tier might have 30, 40, 50 channels, but we have six or seven of those. And so over time, having that platform advantage and the fact that our content looks great in HD, we think domestically and around the world will help us grow ratings and will help us grow brand value. And it's one of the reasons we were so quick to get out with 3D and we're going to be the first to launch a 24 hour 3D channel, and we're going to do that because our content looks great in HD and as people move to that closer to real in terms of the way that they view content, that they'll continue to view us as the place to go to see content that looks great closer to real.

And Rich, your last question with regard to Life and how we approach it, I think our sales teams have been very thoughtful in terms of working with potential advertisers and what's the best structure of how we partner with them, and we've done a really good job of monetizing and having a ratings expectation that is hopefully in line with what actually happens. And Life is no surprise to us in terms of the success I think people are working really hard and we have high expectations for it but we believe it should be delivered and our teams are working to monetize that delivery.

And you would expect the DVD out before the end of the calendar year?

Yeah, the DVD won't be out until the second half of the year but it will be out – the economics I think David mentioned aren't – we don't get off with 100% economics it's still part of our partnership with the BBC but we do get to monetize it in the second half of the year.

One thing that we did clean up this time is that last time there were two versions – we were selling it and the BBC was selling it. And there was an Attenborough version from the BBC and then there was our version. This time there'll be one version sold in the U.S. - it will be the Oprah version, it will be our version and it will be jointly sold by both of us and there will be a split. So we will be coordinated and will get some piece of everything that's sold.

Thank you.

Next question, Operator.

Your next question comes from the line of Imran Kahn of J.P. Morgan

Yes, hi. Thank you for taking my question. It's Imran Kahn from J.P. Morgan. Two questions, one for Brad and one for David. Brad, you know I'm trying to understand here – I think you talked about international advertising guidance in high single digits. Why are you assuming international ad revenue growth to decelerate, are you seeing any trend or are you taking a conservative view because of the macroeconomic trend. And for David a more high level question. What kind of revenue base do you need in the international market to take your (inaudible) to march in the international market closer to the U.S. level? Thank you.

Imran, with regard to our outlook for the international advertising we do take a conservative view in terms of our outlook. We have been achieving in the third and fourth quarter – we were at 9% in the third quarter we were at 8% in the fourth quarter and fourth quarter is typically our strongest quarter. So going into this year as we did our budgeting and we did a bottoms up the high single digits made it to low double digits. That was the range that we were comfortable looking at it from a ground up level. If the economies do improve around the world then we may do better than that.

On the margins side, international we'll never be able to sync up with where we are in the U.S. The U.S. is just an incredibly efficient operation – we serve 96 million homes essentially out of one factory. We are really – we're a true international company so we're doing business – we're not sending content around, we're actually doing business running channels all around the world. We have gotten more efficient – we think we can get more efficient in the way that we do our marketing and how we use our content. Having said that – so we think there's an opportunity to increase our margins in addition as Brad said as the revenues grow both in terms of our sub-fee revenue and our ad revenue, we've built a very strong engine in terms of having the overwhelming majority of that come down to operating cash flow. But having said all of that we will always have additional cost, we still do a fair amount of local content in the market – that's one of the reasons why we're able to build market share. You know, here in the U.S. Discovery has about a 1.5% market share. You go to some countries we have a 5% market share and part of that – that strength is in order to maintain that, we need to do some local content which we will continue to do.

Thank you.

We have time for one more question, Operator.

Your next question comes from the line of David Joyce of Miller Tabak and Company.

Thank you. I was just wondering if you could help frame the digital subscribers that you have, subscribers that are accessing Discovery content on digital tiers internationally. It's obviously a long run away of growth as the platform's just been upgraded but I was wondering if – since more programming would be likely available if you could help us think about that.

I'll give it to you generically. We have an average of five channels in 173 countries and in most cases three or four of those channels are on a lower tier. And so it is in many of these markets it's the paid TV tier that is beginning to accelerate the way it did here in the U.S. in the mid to late 90's. In those markets where they have a traditional analog pay TV tier, there's also digital that's being rolled out to a lot of the emerging markets and in Asia. In every case, because we have distribution teams on the ground we're adding our channels into those markets on digital. But the big driver for us in terms of the overall – our advertising upside at least in the next year or two will be more of the growth of the traditional paid TV tier around the world but we are well seated on the digital side. I don't have the exact number of digital.

David, a good way to think about it is – I mean a fully distributed network is Discovery internationally and Discovery grows in the high single digits. It has for 2009. So the digital growth rates are higher than Discovery because – it's the most fully distributed and analog in some countries only. So it really varies country by country. With certain parts like Western Europe which has a higher digital penetration and in other parts of the world you'll have a lower digital penetration, and some might be satellite reached which is all digital. And so you have to look at it market by market and how they're approaching it.

The other thing that you see that's sort of a companion to this – we saw this in the U.S. is that as the paid TV penetration grows, the advertisers get more and more comfortable going from the broadcast platform to the paid platform. And the CTM's also grow because of that as advertisers come – we saw that here, we're seeing that in a number of markets around the world which as a trend over the next few years should be helpful to us and the other players in that space.

Great, thanks for the color.

Thanks everyone, we appreciate your participation in our earnings call.

Operator, you can end the call now.

Thank your joining today's conference. This concludes the presentation, you may now disconnect. Good day.