Discovery said its third quarter profit tumbled significantly due to higher expenses for its broadcast of the 2021 Summer Olympics and costs associated with its new direct-to-consumer businesses, even as its traditional lines of revenue increased and it added three million more subscribers for its streaming-video operations.
The company is slated to take over WarnerMedia, currently owned by AT&T, in a transaction that is expected to be complete by the middle of 2022.
The New York owner of the Food Network, Discovery Channel and TLC said net income fell to $156 million, down 48% when compared with $300 million in the year earlier period. Revenue, meanwhile, rose 23%, to $3.15 billion compared with $2.56 billion a year earlier. The company said U.S. revenue rose 12% while international revenue rose 44%. Results came in ahead of Wall Street’s expectations.
“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,” said David Zaslav, the company’s chief executive, in a prepared statement. “Additionally, we delivered double-digit growth in both advertising and distribution revenues.”
Discovery, like other media companies, continues to face headwinds as consumers embrace new technology to help them connect to their favorite programming. The company said total subscribers to its linear networks on a like-for-like basis were down 4%, excluding the impact from its sale of Great American Country.
But there was momentum found in many of Discovery’s traditional lines of business, as it enjoyed a lift from consumer activity as the world tries to emerge from the coronavirus pandemic. Discovery said U.S. advertising revenue rose 5% on higher pricing, while U.S. distribution revenue increased 21% on subscriptions to Discovery Plus, the company’s new streaming-video hub. Overseas, advertising revenue rose 28%. due in part to Olympics broadcasts, while distribution revenue rose 7%.
During a call with investors, executives focused largely on the looming WarnerMedia merger, suggesting they had a “go to market plan” for an array of new streaming services that both companies offer. Zaslav suggested the combined company’s reach into news and sports would give it an advantage in competing with Netflix or Disney’s Disney Plus, which do not offer those types of programs. The company also cautioned that advertisers, while still paying higher rates for commercial inventory, may back down from spending levels in the not too distant future, owing to supply chain issues created by the pandemic.