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Discovery Earnings Fall as Direct-to-Consumer Subs Increase by 3 Million

Discovery Plus user interface
Discovery said its direct-to-consumer platforms such as Discovery Plus added some 3 million subs in Q3. (Image credit: Discovery Plus)

Discovery’s third-quarter earnings fell as it invested in its direct-to-consumer business, which added 3 million subscribers, bringing its total to 20 million, and incurred expenses covering the Olympics in Europe.

Net income dropped 48% to $156 million, or 24 cents a share, from $300 million, or 44 cents a share a year ago.

Revenue rose 23% to $3.15 billion.

Also read: Discovery Claims 18 Million Direct-to-Consumer Customers

The numbers were above Wall Street estimates. The company is largely focused on preparing for its merger with AT&T’s WarnerMedia unit.

“Discovery is in a holding pattern as it looks to continue to drive consumer engagement on NextGen [its direct-to-consumer business], but is increasingly mindful of how its services and content will integrate with simultaneous efforts at WarnerMedia,” Wells Fargo Securities media analyst Steven Cahall said. 

Cahall said he is s looking forward to hearing more about how Discovery's NextGen business is performing, its go-to-market strategy for the months ahead and more details on the regulatory process and time to close the WarnerMedia deal on the company‘s conference call with analysts Wednesday morning.

Discovery said its next generation revenue was $425 million, nearly double a year ago.

Operating income for Discovery’s U.S. networks group rose 1% to $963 million. 

Revenue went up 12% to $1.86 billion. Domestic ad revenue rose 5% to $991 million and distribution revenue grew 21% to $841 million.

The company said distribution revenue was driven by Discovery Plus. Subscribers to Discovery’s fully distributed cable networks were down 3% from a year ago. 

Operating expenses rose 26% as the company invested in Discovery Plus and paid third-party app store fees.

Also read: Discovery Adding Kevin Mayer to Direct-to-Consumer Team

International networks had a $79 million loss in adjusted operating income as revenues rose 44% to $1.3 billion. Operating expenses increased 77% and cost of revenues rose 94% because of costs related to the Olympics.

International ad revenue rose 28% and distribution revenue rose 7%.

“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 CEO David Zaslav.

“Additionally, we delivered double-digit growth in both advertising and distribution revenue, 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,” Zaslav said. “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.”