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Discovery’s Q1 squeezed by streaming costs, lower ad sales

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Discovery, the owner of Food Network, HGTV and TLC, reported first quarter results that fell short of Wall Street’s projections due to higher-than-expected costs related to the launch of its streaming service Discovery+ and declining advertising sales.

Shares of Discovery slumped over 7 percent on the news on Wednesday. It recently traded down 5.9 percent to $36.65 a share.

The New York-based firm said quarterly net income tumbled 63 percent to $140 million, or 21 cents a share, missing analysts’ expectations of 65 cents a share.

Revenue rose 4 percent to $2.79 billion even as ad sales fell 4 percent in the quarter.

Discovery boss David Zaslav said the ad sales dip was “primarily due to lower overall ratings” and lower ad inventory — not systematic declines in pay TV or cord cutting.

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Lower ad inventory was due in part to the company’s own promotions for its new Discovery+ service occupying ad space on its networks, the company said. The streaming service launched on January 4 at a price of $5 a month with ads and $7 for an ad-free version.

The CEO shrugged off the decline and emphasized the importance of the streaming service, which is stocked with various network shows like Oprah Winfrey’s “Super Soul,” TLC’s “90 Day Fiancé” and Chip and Joanna Gaines’ home remodeling series, “Fixer Upper.”

Oprah Winfrey talks with Broadway great Lin-Manuel Miranda during a taping of her "Super Soul" show, which is featured on Discovery's streaming service.
Oprah Winfrey talks with Broadway great Lin-Manuel Miranda during a taping of her “Super Soul” series, which streams on Discovery.
Kevin Mazur/Getty Images

“The global rollout of Discovery Plus is off to a fantastic start by any measure,” Zaslav said. “Key metrics, including subscriber additions, customer engagement and retention, are exceeding our expectations and demonstrating sustained momentum into the second quarter.”

Zaslav said the service ended the first quarter in March with more than 13 million subscribers, up from 11 million subscribers in February.

The CEO said there are many growth opportunities ahead for Discovery+, including new markets like Italy, Germany and Brazil, adding that he sees “a healthy inflection in our revenue trajectory” thanks to the growth of the streaming service.

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