Discovery Plus Exceeds Internal Targets For Viewing And Churn, Execs Say, But Ad Sales Decline Drags Down Q1 Results – Update

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UPDATED with executive comments. Discovery executives gave an updated snapshot of streaming flagship Discovery+, saying it is ahead of internal targets for viewing time, average revenue per user and churn.

The company reported having 15 million total streaming subscribers, with most paying for Discovery+, which launched in January. The tally in December was a bit more than 5 million. Discovery reported the subscriber total along with spotty first-quarter results, which saw a 4% downturn in ad revenue and earnings per share well below Wall Street expectations.

CFO Gunnar Wiedenfels said active viewers are spending more than three hours a day on Discovery+ and the service’s average revenue per user is at the high end of the industry scale. ARPU for the ad-free version of Discovery+ is more than $10.

About half of Discovery+ subscribers are also pay-TV subscribers, CEO David Zaslav noted. The comprehensive scope of the service, as opposed to individual expensive programming bets, he said. “We don’t have the one hit show, or the one hit movie, but I think as a result of that we’re seeing much lower churn than our peers and usage that is a lot more. That’s generating real economics for us on the advertising side. It’s surprised us, the kind of economics we’re generating.”

Zaslav noted that the initial pitch to ad buyers was that the ad-supported tier of Discovery+ would have five minutes of brand messages per hour. After demand and healthy rates materialized, the company decided to lower the ad time to four hours, which has helped with engagement and app ratings. It could always increase the ad time down the line, opening up more revenue opportunities.

Wiedenfels added that while it is too early to specify a figure for churn — the term referring to the number of customers canceling their subscriptions — it should be in the low-single digits over the next year. That compares favorably with Netflix, whose churn has long been the envy of the streaming sector. One factor in Discovery’s outlook, however, is a distribution deal with Verizon, which offered its wireless customers a year of Discovery+ at no extra charge.

Zaslav said Discovery will “continue to experiment with moving IP around” between streaming to linear networks. The return of Fixer Upper co-hosts Chip and Joanna Gaines as well as BBC programming have been examples of exclusive streaming shows. Other items like installments of the 90 Day Fiancée franchise have toggled between linear and streaming. Zaslav says pay-TV operators have not complained about the streaming effort, citing Comcast’s recent decision to integrate Discovery+ into its Xfinity broadband and TV packages.

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Discovery Communications says its streaming portfolio, led by Discovery+, has racked up 15 million paying subscribers — 2 million of them in April alone.

Despite the upbeat digital trend, the company’s first-quarter results were hurt by a decline in advertising revenue, for decades the financial lifeblood of the TV programmer. Operating income fell 24% to $837 million, while diluted earnings per share fell by more than half from year-ago levels, to 21 cents. Wall Street analysts’ consensus forecast was for earnings of 63 cents a share.

Total revenue met Wall Street expectations, rising 4% to $2.79 billion. In the U.S., ad revenue dropped 4%, while proceeds from distribution gained 12%. In its earnings release, the company said the ad slide was “primarily due to lower overall ratings, and to a lesser extent secular declines in the pay-TV ecosystem and lower inventory.”

Internationally, the ad story was more favorable, with revenue rising 16% (or 8% without currency exchange effects) to $435 million.

Discovery+ launched last January in the U.S. and other global territories and is continuing its expansion. The streaming service is a venue for original programming as well as tens of thousands of episodes from the company’s networks, including its Discovery flagship, TLC, Food Network and HGTV. In addition to Discovery+, the company operates a number of niche-oriented services targeted to golf, cooking, motorsports and other interests.

Total streaming reached 13 million by the end of the quarter, the company said, before adding 2 million more through the last week of April.

In rolling out Discovery+, the company has not broken it out its subscriber numbers or announced the kind of subscriber projections that its media industry peers have offered. During the call, executives declined to offer any new targets or a prediction of when the service would become profitable, but they said repeatedly that it was ahead of internal expectations.

Like other media companies, Discovery is balancing the potential of direct-to-consumer streaming with the still-lucrative dual revenue stream offered by pay-TV. While its networks remain highly penetrated in the U.S. and globally, there is a secular decline in pay-TV subscriptions overall, which hit double digits in 2020 and are expected to continue. The task for Discovery is to grow streaming more quickly than the traditional business declines.

This article was printed from https://deadline.com/2021/04/discovery-streaming-portfolio-reaches-15m-subscribers-but-advertising-decline-hits-q1-results-1234745600/