Discovery Hires Kevin Mayer As Consultant To Help Craft Streaming Strategy As WarnerMedia Merger Approaches; Reports Q3 Earnings – Update

Discovery logo
Discovery

UPDATED with conference call comments: Discovery CEO David Zaslav said the company has hired Kevin Mayer to help guide its streaming strategy as the merger with WarnerMedia looks set to close mid-next year. Execs on a post-earnings conference are still working out what a combined offering will look like and said they expect to announce details fairly soon.

Zaslav called the former longtime Disney executive, who helped launch Disney+, “an old friend” with a “good brain” and a lot knowledge. Mayer was previously CEO of TikTok and has been rolling up media assets through a new venture with Tom Staggs backed by Apollo Global Management. Mayer is also chairman of sports streaming service DAZN.

Asked if Mayer might come on as a full-time executive, Zaslav said no, that Mayer remains committed to DAZN. “He’s a great entrepreneur and there are a lot of really exciting things he’s working on. This is one of them and I think is is going to be really helpful.”

Zaslav did unveil a few management details of the new combined company including that Discovery CFO Gunnar Widenfels will be chief financial officer for one — not a surprise. Discovery’s chief development, distribution and legal officer, Bruch Campbell, and Jean-Briac (JB) Perrette, president and CEO of Discovery Networks International, will play key roles, and Zazlav said he’s looking forward to welcoming an unspecified team from Warner (he called Andy Forssell, EVP & GM, WarnerMedia Direct-to-Consumer, “super”) and “to bringing in some outside experience.”

“We are really about the best people. I think we are going to be a really strong team,” he said.

He reiterated his belief that the two companies and their streaming services are extremely complementary between covering every demo and interest. Discovery is strong with women, in nonfiction and a sports leader in Europe, he noted. WarnerMedia has strong sports in Latin America, leading entertainment programming and a world news leader in CNN.

When mergers take this long to close businesses can tend to slow down and hold back on investments awaiting regulatory approval. Zaslav said that’s not happening, that both companies are spending on content leaning into the merger. “We both committed to do that to keep our ecosystems nourished and strong and growing so that when we come together we will come together in strength,” he said.

“We are cheering them on with the success of Dune around the world, with Ann and Toby on that side, and Casey Bloys having an incredible run of success with Succession and White Lotus and Mare of Easttown,” he said, referring to Ann Sarnoff,  chair and CEO, WarnerMedia Studios and Networks Group, Toby Emmerich, president of Warner Bros. and Bloys, the HBO/HBO Max content chief.

AT&T’s Warner Media and Discovery announced plans to merge in May. Under the terms of the deal, AT&T would receive $43 billion in a combination of cash, debt securities and WarnerMedia’s retention of certain debt, and AT&T’s shareholders would receive stock representing 71% of the new company. Discovery shareholders would end up owning 29% of the new company. The transaction will saddle the new combined entity with substantial debt, but Zaslav said today that after a careful review of WarnerMedia’s books it seems that leverage at deal close would be less than originally anticipated.

PREVIOUSLY: Discovery ended the September quarter with 20 million direct-to-consumer subscribers, up 3 million from the prior June quarter, it said Wednesday in reporting third-quarter earnings.

The paying subs are largely Discovery+ but also include a handful of other services. Discovery had 17 million subs at the end of June and 18 million by early August, when it reported its second quarter numbers.

Discovery is inching closer to a merger with AT&T’s WarnerMedia, expected to close in the middle of next year, which will see its offerings expand exponentially with the addition of HBO Max.

“We are very excited about our pending merger with WarnerMedia and the opportunity to bring these two companies together, combining iconic and globally cherished franchises and brands, and positioning us to more efficiently drive global scale across the combined portfolio,” said CEO David Zaslav. He may address the upcoming combination in more detail at a call skedded for 8 am ET.

In the quarter, total revenue of $3.15 billion was up 23%. Of that, U.S. ad revenues increased by 5% and distribution revenues by 21%. International advertising sales grew 28%, distribution revenues by 7%.

Net income came in at $156 million, down 48%, in part from higher expenses (up 26% from the year before to nearly $900 million). Diluted earnings per share was at $0.24.

Costs were led by the Olympics investment, third-party app store fees and growing content and marketing expenses for Discovery+.

Discovery stock, which has not been having a great run lately, is down just over 1% in pre-market trading.

The company attributed the 5% U.S. ad bump primarily due to higher pricing, monetization of content on next generation platforms and higher inventory — partly offset by lower overall ratings and secular declines in the pay-TV ecosystem. Gains in distribution sales were  driven by Discovery+ and increases in contractual affiliate rates — partially offset by a decline in linear subscribers.

Subscribers to Discovery’s fully distributed linear networks at September 30 were 3% lower than the year earlier. Total subscribers to linear networks were 8% lower, or 4% down excluding the impact from the sale of Great American Country.

“We made great strides in the quarter operationally, financially and creatively. The team drove solid momentum in our direct-to-consumer business, which we grew to 20 million paid subscribers at quarter end on the strength of our global brands and fan-favorite content, including the Summer Olympic Games and Shark Week. Additionally, we delivered double-digit growth in both advertising and distribution revenues, as we doubled next generation revenues year over year. This strong performance once again drove very healthy cash flows during the quarter, further strengthening our balance sheet and financial profile,” Zaslav said.

This article was printed from https://deadline.com/2021/11/discovery-discovery-plus-warnermedia-1234867001/