Discovery Communications goes public, stock sinks*

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*UPDATE: Discovery Communications Inc. ‘A’ common shares roared back on their second day of trading, gaining 25% in value, or $3.48 a share, to close at $17.29. The cable programming company’s new ‘C’ shares, meanwhile, closed at $16.70 a share, up 70 cents.

On Discovery’s first day of trading as a public company, C shares (trading under the symbol DISCK) gained while A shares (trading under DISAD) plummeted.

Discovery is known for its cable shows that offer breathtaking views of nature and insight into the behavior of animals. Today it found out just how fierce the sharks on Wall Street can be.

On its first day as a publicly traded company, the shares of Discovery Communications Inc. were pummeled by investors, closing in Nasdaq trading at $13.81 after opening at $18.53. The Silver Spring, Md.-based media company, which owns cable channels Discovery, Animal Planet and TLC, was hoping its new status as a public company would bring clarity to its murky financial structure and complicated ownership.

The steep drop was curious on a day that saw the roiling stock market close with a gain. A company spokesman blamed the volatility on confusion over shares trading under two different ticker symbols, DISAD and DISCK. Further complicating matters is that next month Discovery will return to its previous symbol, DISCA.

Until today, only 66% of Discovery was traded through an entity called Discovery Holding Co. that Colorado cable baron John Malone set up several years ago to monetize his stake in the company. Malone has wanted to take Discovery public for years, but has been hamstrung by its complicated ownership structure. Last year Cox Communications sold its stake in Discovery to Malone and Advance/Newhouse. But it wasn’t until Advance/Newhouse agreed to fold its 34% stake into the newly formed Discovery Communications that the whole company could go public. Discovery now has a unique niche as pure-play cable television programmer specializing in nonfiction shows such as ‘Meerkat Manor,’ ‘Deadliest Catch,’ and ‘What Not to Wear.’

‘We have a very sturdy business model, half of our revenue comes from cable subscriber fees, and this will give us a public currency,’ says Discovery Chief Executive David Zaslav, who sounded the opening bell for Nasdaq on Thursday along with Chairman John S. Hendricks, the former university consultant who founded Discovery nearly 25 years ago. ‘This is the beginning of a great Chapter Two for the company,’ Zaslav said.

Taking Discovery public provides the company with a more transparent structure and the ability to leverage its cash flow for acquisitions. It should also be able to lure new executives by offering stock options as part of their compensation package.

Pali Research media analyst Richard Greenfield, who covers Discovery, called the move ‘a very important step both financially and from a management standpoint,’ and one that could eventually lead to a buyout of the company by a larger media giant. ‘But the goal right now is to broaden this company out and improve the operations of most of their channels,’ Greenfield said. ‘They really have only two channels that are working well right now.’

Those two channels, Discovery and TLC, generate much of the revenue. The company has recently replaced the head of TLC, rebranded the Discovery Home Channel as Planet Green, and plans to pull the plug next year on Discovery Health Channel and supplant it with the Oprah Winfrey Network, a joint venture with the mega-popular TV star.

-- Meg James

Discovery