Discovery, Inc saw its net income drop in the third quarter of 2021, despite revenue and subscriber growth, the company reported on Wednesday (Nov. 3).
The company’s net income dropped to US$156 million from $300 million in Q3 2021. Meanwhile, total revenues spiked 23% from the previous year’s quarter to $3.15 billion. Discovery also ended Q3 with 20 million direct-to-consumer subscribers, increasing that total by three million since the end of Q2. Discovery’s performance was boosted by the Tokyo 2020 Summer Olympic Games, which reached more than 372 million viewers in Europe across TV and digital platforms.
As part of the company’s overall revenue increase, Discovery saw U.S. ad revenues rise 5% and distribution revenues increase by 21%, with international ad revenues rising by 28% and distribution revenues up 7%. Discovery attributed its rising advertising revenue to higher pricing, continued monetization of content offerings on next-generation platforms, and higher inventory. This was still partially offset by lower overall ratings and secular declines in the pay-TV ecosystem.
Improved distribution revenue was primarily driven by Discovery+ and contractual affiliate rate increases, but they were partially offset by a decline in linear subscribers.
As of Sept. 30, subscribers to Discovery’s fully distributed linear networks were 3% lower than the same date in 2020. Total linear subscribers were 8% lower, partially due to Discovery’s sale of the Great American Country cable net.
Discovery expanded its service in Q3, launching the Discovery+ streaming platform in Canada and the Philippines. The company also finalized multi-year U.S. distribution agreements with DirectTV and Verizon.
Total U.S. networks revenues increased 12% this past quarter to roughly $1.86 billion compared to the year-ago quarter. On the international networks side, total revenues increased 44% to roughly $1.30 billion.
“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,” said David Zaslav, president and CEO of Discovery in the Q3 report.
“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. 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.”
In an earnings call to discuss the results, Zaslav elaborated on that theme, stating that according to the company’s data, “we believe less than half of Discovery+ subscribers are also HBO Max subscribers, which with the right packaging provides a real opportunity to broaden the base of our combined offering.”
Zaslav also told investors that both WarnerMedia and Discovery, Inc. are “spending more money on content and leaning in” to bolster the portfolio of the combined company. In addition, he revealed that Kevin Mayer, former chairman of DTC and international for The Walt Disney Company, former TikTok CEO and currently chairman for sports streaming service DAZN, will be consulting with the Discovery team on its streaming strategy as the merger moves forward. “He’s super excited about getting in the car with us and helping us with everything that he’s learned,” Zaslav said.
(With files from Barry Walsh)