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Discovery Saw $400 Million NextGen Loss Building Discovery Plus

Discovery's David Zaslav announcing Discovery Plus
Discovery CEO David Zaslav announcing the launch of Discovery Plus (Image credit: Discovery+)

The launch of Discovery Plus contributed to a loss of about $400 million in what Discovery calls next generation operating income in the first quarter, the company said.

Discovery’s earnings were lower than Wall Street expectations, sending its share down 7% in mid-day trading.

Speaking on the company's earnings call with analysts Wednesday, Discovery CFO Gunnar Wiedenfels said the loss was the result of spending on marketing and technology.

“We expect a modest sequential improvement in NextGen losses in Q2 as continued substantial marketing efforts to roll out in additional territories and requisite content and tech spend will be offset by more material revenue,” he said.

Wiedenfels said the quarterly losses could continue into 2002, but that “we continue to remain confident that 2021 will represent the peak year for losses from our investment initiatives.”

Discovery CEO David Zaslav was upbeat about the growth in Discovery’s direct-to-consumer subscriber growth and some of the other statistics surrounding consumer response to Discovery Plus.

Discovery reported that it now had 15 million DTC subs, up from 11 million in February.

“But our sub count tells only part of the story,” Zaslav said. “We are equally encouraged by early metrics and KPIs across engagement, churn, monetization and ARPU.”

Zaslav said that between 80% and 85% of people who take a free trial of Discovery Plus become paid subscribers.

Engagement is high, with viewing subscribers spending about 3 hours per day on the service, a number that’s well ahead of linear, he said.

“Retention is strong, giving us confidence that, while early, monthly churn is trending towards low single digits,” he said. 

The $4.99 version of Discovery Plus with four minutes of advertising is generating more than $10 of ARPU. Zaslav said that was ahead of Discovery’s long-term goal and still trending up.

The ARPU for a blend of both the light ad version and the ad free version is around $7, which Zaslav said was in line with what Discovery’s liner channels generate.

“On a global blended basis, we are seeing ARPU of over $5,” he said. That figure is “encouraging us to lean in from an investment standpoint when to come to marketing, content and technological capability in order to maximize this meaningful growth opportunity.”