Digital Media Operations Review

July 29, 2010

EXECUTIVE SUMMARY

Dramatic changes in ad market and our internal operations have generated upside in revenues and AOIBDA v. LY and v. Plan

Priorities now are PROFITABILITY and GROWTH

Critical Success Factors are:

1. Audience/inventory growth2. Ad systems/operations3. Platform migration/stability4. Meeting Network expectations5. Developing expertise in emerging platforms

2

DIGITAL BUSINESS UPDATE

2010 OBJECTIVES ACCOMPLISHMENTS

1. SCALE OUR CONTENT MODEL

2. GROW TRAFFIC/INVENTORY

3. MONETIZE BETTER

1. SUPPORT AUTHENTICATION AND SOCIAL MEDIA

• Increased revenue by 21% while reducing OpEx

• New TLC and Health sites, powered by HSW

• Original, sponsored web series

• Uniques +9%• Streams +66%, over 560M this year

• STR on premium display nearly doubled• Avg deal size $158K, +105% v. LY• “Anchor” deals have become standard

• Significant growth in Digital Distribution business

• Trials underway for authenticated long-form

• Over 5MM fans across brands; sharing responsibility w/Corp Comm

3

OVERVIEW

$53 $55$49

$0$10$20$30$40$50$60

2008A 2009A 2010F

$49

$7$3

($1) ($3)

$55

2009A Ad Sales VOD PF Video GN 2010F

($38)

($7)

($20)

2008A 2009A 2010F

+12%-7%

Net Revenue($ in millions) CAGR `08-`10 =

2%

AOIBDA($ in millions)

+48% +63%

Net Revenue Drivers($ in millions)

($20)

$6 $7

($1)

$1

($7)

2009A Revenue HC Commn Other 2010F

AOIBDA Drivers($ in millions)

CAGR `08-`10 = 56%

Other includes production & G&A expense cut-backs offset by increased behavioral targeting expenses 4

(in 000's)

Total 2010 Total 2010 Total 2009Description Forecast Plan $ % Actual $ %

National Spot Advertising 47,662 45,940 1,722 4% 38,791 8,871 23%

Google 2,964 3,887 (922) -24% 3,430 (466) -14%

Contra Advertising (6,086) (5,824) (263) 5% (4,777) (1,309) -27%

Net Other Revenue 10,440 6,769 3,671 54% 8,063 2,376 29%

Total Operating Revenue 55,049 50,772 4,278 8% 45,507 9,542 21%

Cost of Revenue 15,684 15,601 (83) -1% 13,664 (2,020) -15%

Total Personnel 33,189 33,116 (74) 0% 38,637 5,447 14%Total Marketing 3,008 2,156 (852) -40% 2,647 (361) -14%Total Research 1,922 1,051 (871) -83% 1,088 (834) -77%Total Other Selling, General & Admin 8,478 8,698 221 3% 8,659 182 2%Selling, General, and Administrative 46,597 45,021 (1,576) -4% 51,031 4,434 9%

Operating Expenses 62,281 60,622 (1,659) -3% 64,695 2,414 4%AOIBDA (7,232) (9,851) 2,618 27% (19,188) 11,956 62%NOTE:2009 and 2010 exclude discontinued ops (GN and PF Video)

Variance Growth

Actual vs Budget Actual vs Prior Year

2010 OBJECTIVES: FY 2010 FORECAST

5

2010 PROGRAMMING HIGHLIGHTS

Content Verticals• TLC Home, Family, Style,

Weddings• Health relaunch

2010 PROGRAMMING HIGHLIGHTS Original Programming

• Conception Story with First Response

• Gulf Oil Spill + Haiti earthquake coverage

8

1. New show site templates

2. New TLC and Health content verticals

3. Discovery News enhancements

KEY PRODUCT INITIATIVES: 1H10

9

SITE PERFORMANCE 1H10

1H 2010 Avg Monthly UVs Display Impressions[1

]

Video Impressions

[1]

Actual 40.6M 3.9B 106.8M

Plan 39.4M 4.0B 89.5M

% Variance to Plan 3.1% (1.2%) 19.3%

LY 37.8M 4.0B 65.7M

% Growth YoY 7.5% (0.7%) 62.5%

[1] Includes Domestic and INTL for US Nets; Domestic only for HSW[2] Q2 Average

SOURCE: Omniture

June: Record month in Video Impressions - 21.5M O&O (+73% v. LY)

10

TRAFFIC AND INVENTORY FORECAST – 2010*

Avg. Monthly UVs Total Display IMPs Total Video IMPs [1]

MM Vs 2009 MM Vs 2009 MM Vs 2009

Discovery.com [2] 6.4 16.2% 970.8 (3.9%) 72.4 72.4%

TLC.com 3.2 10.9% 530.2 (35.4%) 66.1 68.0%

AnimalPlanet.com 2.0 14.9% 496.2 0.2% 62.9 106.5%

Emerging Nets [3] 3.6 12.8% 845.7 (22.1%) 20.3 37.4%

HowStuffWorks.com [4] 17.2 6.6% 1,464.4 2.2% 13.4 (10.8%)

Petfinder 4.9 5.6% 3,343.0 1.9% 1.1 71.7%-

TreeHugger 3.2 8.4% 351.1 23.2% -- --

Total 40.5 9.3% 7,639.6 (3.6%) 236.1 66.1%

*Ranked by Total Video IImpressions

[1] Includes only O&O performance[2] Includes Discovery News[3] SCI, MIL, ID, DHLTH, PG[4] Includes domestic IMPs on HSW only

SOURCE: Omniture

VIDEO PERFORMANCE

2010 Growth Drivers New show site template

Google/SEO optimization

Social media/sharing

Improved video player design, performance & promotion

Smarter production investments

MySpace & MSN syndication deals

11

12

1H 2010 ACHIEVEMENTS: AD SALES REVENUE

12

1H 2010 Key Trends

• 38% Ad Sales Revenue growth vs. PY

•75% Sold Impression growth vs. PY

• Premium sell-through rate increased by 79% vs. PY

in '000s

Ad Sales Sold Revenue $ Actual Budget Variance % 2009 Actual PY Growth %

Display 16,009 15,648 2% 11,929 34%Video 2,035 1,668 22% 1,184 72%Total 18,044 17,316 4% 13,112 38%

IMP's Sold Actual Budget Variance % 2009 Actual PY Growth %

Display 1,702,546 1,372,474 24% 984,565 73%Video 94,510 57,851 63% 39,561 139%Total 1,797,056 1,430,326 26% 1,024,126 75%

PREMIUM STR Actual Budget Variance % 2009 Actual PY Growth %

Display 41% n/a n/a 23% 78%Video 89% n/a n/a 68% 31%Total 43% n/a n/a 24% 79%

NOTE: DATA IS AS SOLD PAID IMPRESSIONS, NOT DELIVERED.

YTD June Actual

YTD June Actual

YTD June Actual

13

OUTPACING A RECOVERING MARKET

US Online spending +10.8% v. 2009

• Display market +8%

Discovery Digital +60% in display revenue

Sold CPM Actual Budget Variance % Prior Year Growth %

Display $9.4 $11.4 -18% $12.1 -22%Video $21.8 $28.8 -24% $29.9 -27%Total $10.0 $12.1 -17% $12.8 -22%

Premium/Remnant Combined CPM Actual Budget Variance % Prior Year Growth %

Display $5.0 n/a n/a $4.0 26%Video $21.8 $28.8 -24% $29.9 -27%Total $5.4 nav nav $4.0 26%

YTD June Actual

YTD June Actual

Premium display STR +78% v. 1H09; Use of ad networks -27% v. 1H09 Average CPMs down YOY as a result increased sell through and 2009 upfront bundling

Display CPMs are recovering; 4Q10 booked CPMs are 12% higher than 1Q10 booked CPMs

14

SELLING MORE THAN MEDIA

Discovery Digital is now offering highly differentiated value propositions in the digital ad marketplace• We’re not simply selling banners and buttons

85% + of sold deals include customized services

Sales team is empowered with and regularly trained to sell pre-packaged solutions • Packages optimal mix of media elements

Established new roles focused on intense client stewardship and account management• Driving client retention and renewal

We’re winning with scalable strategies that make use of our brands and digital capabilities and expertise - giving brands

unique opportunities to have digital presence

15

2010 AD SALES TOP DEALS

15

Increased Deal Sizes• 2010 average deal Size

$158k gross, 105% YOY; 19% increase in number of advertisers spending $250k+

• Attracting New Advertisers• 94 New Advertisers in 2010• Top 10 New Advertisers

generated $3.7M in revenue, 11% of booked revenue to date

TOP 10 NEW ADVERTISERS 2010 FYTDChurch & Dwight $532,820Mederma $476,471Motorola $470,588Busch Media Group $406,529Johnson & Johnson $352,941Bayer $323,529CubCadet $299,997National Association of Realtors $294,118Whirlpool $294,118Physician's Mutual Insurance $250,000Total $3,701,111

TOP 20 ADVERTISERS 2010 FYTDToyota $4,405,867Procter & Gamble $4,401,389Unilever $1,923,123Volkswagon of America $1,235,294Shell $1,176,471Home Depot $1,127,015Nestle Purina Pet Care $1,091,051Nationwide $953,091Sprint $794,117Clorox $693,259Walmart $669,537SC Johnson $641,006Mars Pedigree $635,366Church & Dwight $532,820ConAgra $520,695Mederma $476,471Motorola $470,588Target.com $456,824Michelin $411,765Busch Media Group $406,529Total $23,022,276

% Growth in Top 20 Accounts 11%

Top 20 % of Total 67%

16

FY 2010 FORECAST: AD SALES REVENUE

16

Forecast• Revenue forecasted to exceed budget by 9%, and by 2009 by 59%

• Continued growth in impressions sold in line with 1H 2010 Opportunity• Utilize all new ad inventory, display and video•Continue to differentiate our value props and offer brands access to customized services and opportunities

• Continued reduction of 3rd party remnant share of inventory

in '000s

Ad Sales Sold Revenue $ Actual Budget Variance % 2009 Actual PY Growth %

Display 35,995 33,446 8% 22,458 60%Video 4,437 3,519 26% 2,922 52%Total 40,432 36,965 9% 25,380 59%

IMP's Sold Actual Budget Variance % 2009 Actual PY Growth %

Display 3,445,904 2,965,782 16% 1,913,897 80%Video 186,657 135,964 37% 116,302 60%Total 3,632,561 3,101,746 17% 2,030,199 79%

FY Forecast

FY Forecast

DIGITAL DISTRIBUTION

EST Mobile Video

Mobile Other BBS Total

Forecast (Jan-Dec) $7,608,849 $2,056,733 $291,617 $300,783 $9,995,532

% of Plan 205% 100% 114% 150% 161%

Partners AppleX-BoxSony PS3AmazonNetflix

V-CastSprintFox MobileQuickplayMobiTVFlo TV

ApplicationsRingtones

YouTubeMySpaceMSNFancast

Drivers +Apple pacing above ‘09+Netflix renewal

+Fox Mobile deal+Flo TV deal−Sub losses for V-Cast & Sprint

+Ad supported applications−Paid applications

+YouTube monetization enhancements+MSN Deal

17

DRAFT

2011 AND BEYOND: HOW DO WE GROW?

PATH TO NEAR-TERM PROFITABILITY

GROWING THE WEBSITES

GROWING PLATFORMS BEYOND THE WEB

18

2011 PATH TO PROFITABILITY

18% growth in national ad sales v. 7% market forecast↑display and video inventory↑CPMs↑ investment in ad operations infrastructure

3% increase in COR

3% decrease in SG&A↓plane expenses

* Challenge is to continue to reduce/shift costs on unmonetizable assets while investing in new platforms, higher CPM/sold-out areas of the sites

19

LEVERS TO DRIVE WEBSITE GROWTH

ON-AIR PROMOTION/RATINGS

CURIOSITY

SEO/CONTENT PRODUCTION

SOCIAL MEDIA

PAID MEDIA

ACQUISITION/PARTNERSHIPS – BIG IDEAS!

20

BEYOND THE WEBSITE LONG-FORM DISTRIBUTION/TV EVERYWHERE

• Could see scale in 2012• Need to determine windowing strategy, sales strategy• C3 ratings in 2011, what about beyond C3?

OVER THE TOP• Netflix• Hulu Plus• Google TV

EMERGING PLATFORMS (iPAD, MOBILE)• Hub and Spoke Model• Paid v. Ad-Supported• In-house v. Licensed• Apps v. HTML5• Android/Chrome• Building in-house expertise

21

APPENDIX

22

ORGANIC GROWTH TIED TO RATINGS

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

10,000,000

0

0.1

0.2

0.3

0.4

0.5

0.6

DSC UVs

DSC Ratings

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

0

0.1

0.2

0.3

0.4

0.5

0.6

TLC UVs

TLC Ratings

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

0

0.05

0.1

0.15

0.2

0.25

0.3

APL UVs

APL Ratings

DSC UVs vs Ratings – Jan 2008 to Jun 2010

APL UVs vs Ratings – Jan 2008 to Jun 2010

TLC UVs vs Ratings – Jan 2008 to Jun 2010

23

(in 000's)

Jun 2010 Jun 2010 Jun 2009Description Actual Plan $ % Actual $ %

National Spot Advertising 21,944 20,328 1,615 8% 18,572 3,372 18%

Google 1,375 1,761 (386) -22% 1,724 (349) -20%

Other Net Ad Revenue 582 1,073 (491) -46% 1,332 (749) -56%

Contra Advertising (3,025) (2,935) (90) 3% (2,559) (466) -18%

Net Other Revenue 6,010 3,820 2,191 57% 5,310 700 13%

Total Operating Revenue 26,882 24,047 2,835 12% 24,416 2,465 10%

Content Amortization 295 278 (17) -6% 437 142 32%Total Production costs 2,127 3,009 882 29% 2,815 688 24%DPG I/C 432 529 97 18% 619 188 30%Total Distribution Costs 1,481 1,692 212 12% 2,130 650 31%Total Sales Commissions 1,677 1,795 119 7% 1,227 (449) -37%Total Other Cost of Revenue 1,114 749 (365) -49% 877 (237) -27%Cost of Revenue 7,125 8,051 926 12% 8,105 980 12%

Total Personnel 16,266 16,511 244 1% 20,290 4,024 20%Total Marketing 1,255 1,107 (148) -13% 1,279 24 2%Total Research 928 524 (403) -77% 673 (254) -38%Total Other Selling, General & Admin 3,650 4,441 791 18% 4,485 835 19%Selling, General, and Administrative 22,099 22,583 484 2% 26,727 4,628 17%

Operating Expenses 29,224 30,635 1,411 5% 34,833 5,609 16%AOIBDA (2,342) (6,588) 4,245 64% (10,416) 8,074 78%

Variance Growth

Actual vs Budget Actual vs Prior Year

1H 2010 ACHIEVEMENTS: VS BUDGET AND PY

24

24

HEADCOUNT

25

• $7M yoy savings in direct headcount to the division

in '000s

FY Filled ForecastFY Vacant Forecast FY 2010 Forecast Headcount, Filled Headcount, Vacant FY Budget Headcount, Budget

Interactive Tech $5,533 $300 $5,833 40 5 $6,238 45 Ad Sales $4,135 $310 $4,445 33 5 $4,959 39 Exec $2,526 $0 $2,526 7 - $1,966 8 Petfinder $2,461 $41 $2,502 20 1 $2,449 21 Online $2,438 $36 $2,474 19 1 $2,451 20 Editorial $2,068 $32 $2,099 29 1 $2,100 30 Home Entertainment $1,751 $0 $1,751 16 - $1,697 16 TH-PG $1,443 $0 $1,443 12 - $1,419 12 Product Development $1,400 $0 $1,400 12 - $906 6 Strategy & Research $1,358 $0 $1,358 10 - $1,689 9 Creative Services $1,195 $0 $1,195 9 - $1,171 9 Pub Ops & Analytics $982 $0 $982 11 - $1,479 16 Marketing & Communications $652 $30 $682 6 1 $692 7 Other Adj $577 $0 $577 - - $0 - Facilities $63 $0 $63 1 - $63 1 HR $0 $0 $0 1 - $105 1

$28,582 $749 $29,331 226 14 $29,382 240

Note

1/ Headcount as of May close2/ Excl Finance, Domestic Dist, Ad Sales, Commerce allocations

25