Discovery Hits 22M Paying Streaming Subs, U.S. Ad Revenue Rises 5 Percent
Discovery, led by CEO David Zaslav, said Thursday that it reached 22 million paying streaming subscribers worldwide to its direct-to-consumer services, including Discovery+, as of the end of 2021, up from 20 million as of Sept. 30.
Wells Fargo analyst Steven Cahall had in his earnings preview forecast a streaming subscriber gain of 2 million in the final quarter of 2021, with the company’s results being in line with that.
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In its fourth-quarter earnings report, the company also recorded a U.S. advertising revenue gain of 5 percent despite global supply chain issues, “primarily due to higher pricing, the continued monetization of content offerings on our next-generation platforms and higher inventory, partially offset by secular declines in the pay-TV ecosystem and lower overall ratings.” U.S. distribution rose 17 percent, helped by Discovery+ and increases in contractual affiliate rates, “partially offset by a decline in linear subscribers.”
Discovery’s international ad revenue grew 10 percent, or 12 percent when excluding foreign-exchange impacts, “driven by improved overall performance in all regions as advertising markets continued to recover from the impact of COVID-19.”
Fourth-quarter total revenue of $3.19 billion increased 10 percent, while earnings of $38 million fell 86 percent. Another profitability metric, adjusted operating income before depreciation and amortization rose 13 percent to $1.14 billion. The firm beat most financial estimates, but adjusted earnings per share came in below expectations.
Full-year 2021 free cash flow, a profitability metric focused on a company’s ability to fund its investments without the need for outside financing, handily exceeded management’s $2.1 billion projection with more than $2.4 billion.
The Discovery+ streaming service launched in the U.S. on Jan. 4 of 2021 with a monthly price of $4.99 with ads and $6.99 without ads. It has also been expanding in international markets.
Discovery is expected to close its merger with AT&T’s entertainment unit WarnerMedia in the second quarter. In mid-May, Discovery unveiled the mega-deal, with Zaslav set to lead the combined company, to be called Warner Bros. Discovery, as CEO. The merged firm is expected to have $52 billion in revenue in 2023, and the companies are targeting $3 billion in cost synergies. Discovery shareholders will vote on the deal, which recently received U.S. antitrust clearance, next month.
Zaslav said Thursday: “2021 was by all measures an exceptional year for our company, in which we achieved significant operational, financial, and strategic objectives. We grew our global direct-to-consumer paying subscribers to 22 million, a tailwind for our strong distribution revenue growth of 11 percent, while global advertising revenues grew 10 percent due to continued strength in our key markets and share gains.”
“The fourth quarter could mark the last reporting quarter for stand-alone Discovery as we know it,” Cahall had written in his earnings preview. “Thus, we think most of the quarter’s attention will focus on what the combined Warner Bros. Discovery company looks like post-merger.”
In line with that, Zaslav also emphasized in Thursday’s earnings report that the company ended the year “with nearly $4 billion of cash on hand and generated robust cash flows, supporting our ability to invest in growth initiatives.”
And Zaslav said: “Further, the successful recent broadcast of our second Winter Olympic Games across Europe, on the heels of our first broadcast of the Summer Olympic Games, underscores one of our key differentiators: in-language and locally relevant content. All of which position us well to take advantage of the remarkable opportunities ahead for Warner Bros. Discovery, which we believe will be among the world’s most dynamic media companies.”
The Discovery CEO noted the upcoming shareholder vote, on March 11, on the WarnerMedia combination. “Assuming the deal is approved by our stockholders, we expect to be on track to close in the second quarter,” he said.
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