Discovery Says New Streaming Service Can Rival Netflix, Disney+ In Unscripted; Aims For “Tens Of Millions” Of Subscribers

Discovery boldly compared its newly unveiled direct-to-consumer service to Netflix and Disney+ in the unscripted genre and anticipated lively uptake globally by “superfans” of its defining cooking, home improvement, history, true crime and other nonfiction genres.

The service will launch January 4 with 5.2 million subscribers and CEO David Zaslav said in a presentation to investors Wednesday that he expects “tens of millions” of them over an unspecified timeframe. “We think this can be very big.”

Discovery shares ended up 2.51% today, well outpacing the broader market.

It was one of the only big launch announcements over the past year-and-a-half – multi-hour affairs with sizzle reels, stars and an investor breakout — not to include specific subscriber targets. Execs did tout a “total addressable market” of 470 million, including 70 million in the U.S. and 400 million overseas, where Discovery has a major footprint, operating in 200 countries and territories in more than 50 languages.

Analyst John Janedis of Wolfe Research said that three deals (with Verizon, Sky and Telecom Italia) in hand to launch Discovery+ alone likely approach 10 million subs and more are likely to come globally, putting year-one subs “well ahead of expectations.” He thinks the relatively lower production costs of Discovery content compared with peers could lead to profitability in thee to four years.

In the U.S., Discovery+ will launch with more than 55,000 episodes of 2,500 current and classic shows from Discovery’s portfolio of networks including HGTV, Food Network, TLC, ID, OWN, Travel Channel, Discovery Channel and Animal Planet — hitting the market with as much content as Netflix, Zaslav said.

“As Barry Diller said to me, nonfiction is out there for the taking. And if we could own it, we could be a competitive service to Netflix globally,” he added, referring to the founder and chairman of IAC/Interactive Corp and longtime media entrepreneur.

“If you think about Disney+ … you see five handles or portals and it tells people, ‘I love Disney Family, or Marvel,’ and they want to go there. We have that same thing. We have superfans that love crime or food or science or natural history. The advantage is that we have channels around the world that have superfans already watching.”

He called the nonfiction fare Discovery+ offers a great “complement” or “companion” to the firmly established leader and super fast-growing up and comer that focus on scripted content.

Execs noted PepsiCo, Kraft and a handful of initial sponsors for the $4.99-a-month subscription, with light ads. Its ad-free options is $6.99 a month. CFO Gunnar Wiedenfels said other partners will follow the distribution deal with Verizon in the U.S. including Roku and Amazon. Negotiations with the two are ongoing and, “This is a when, not if, situation,” he promised.

Zaslav stressed the service’s dual revenue stream.

Janedis of Wolfe said advertising is a key. Discovery’s linear television subscribers generate $7 per sub per month between affiliate fees and advertising and management believes Discovery+ comes in higher, at $7-$9. The analyst said demand for Discovery content has pushed CPMs higher, which should benefit the premium inventory on Discovery+. He believes advertising per sub will be around $4 a month.

Weidenfels anticipates losses from investment, which includes content, marketing and technology in that order, will be in the $500 million range this year and $200 million-$300 million more than that next year, when they’ll peak at $700 million-$800 million. Those numbers include estimated revenue so “the spending was a lot more than that,” he said, but didn’t give a figure. Janedis said the spend “was not as bad as feared … with peers pouring billions into streaming,”

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