Discovery revealed the big challenge behind getting involved in the media industry’s streaming wars: A new broadband hub can bring in millions of new customers — but it also requires millions of dollars in investment.
The New York owner of Food Network, HGTV, TLC and its flagship Discovery cable outlet said Wednesday that its first-quarter profit slumped after it ramped up spending for content and marketing related to Discovery Plus, the streaming-video outlet it launched in the U.S. on January 4. The company said it attracted 13 million direct to consumer customers in the first quarter, and had reached 15 million of those customers overall, though it did not specify how many of them were signed directly to its new outlet.
Net income in the first quarter fell 63%, to $144 million from $377 million, even as revenue for the period rose 4% to $2.79 billion from $2.68 billion in the year-earlier period. The company said costs related to launching Discovery Plus were substantial during the first three months of the year. And even as Discovery pivoted to its new streaming venture, it saw some subscriber erosion at its mainstay TV service. Subsfcirbers fell 2% at its main linear networks during the period while overall subscribers to its cable portfolio fell 4% overall.
“Our strong direct-to-consumer performance underscores the outstanding value and appeal of our content, brands and personalities to both consumers and distribution partners alike,” said Discovery CEO David Zaslav in a prepared statement.
Like many of its media-industry counterparts, Discovery is betting on the allure of streaming video to fuel its operations of the future. ViacomCBS, WarnerMedia, NBCUniversal and others are among those bringing new subscription-based streaming outlets to market in recent months, and hoping to lure subscribers and ad revenue to them that may offset some of the drops they are seeing in their traditional businesses. But success is not guaranteed: There is a new glut of streaming offerings flooding the marketplace, and the costs of keeping them running and relevant are high.
Revenue at Discovery’s U.S. operations rose 3% to nearly $1.81 billion, largely due to a 12% increase in distribution fees. Advertising fell 4% during the period, Discovery said, and operating expenses rose 33% during the period due to investments in content and marketing for Discovery Plus.
Revenue from Discovery’s overseas operations rose 7% to $987 million, due mainly to a 16% increase in advertising sales. Operating expenses rose 17% due to the launch of Discovery Plus.