Discovery Eyes Market of 70 Million U.S. Homes for Discovery Plus Streaming Service

Discovery expects its forthcoming Discovery Plus streaming service to have an addressable market in the U.S. of at least 70 million homes — and at least 400 million households globally.

That’s based on the assumption that there are 300 million broadband-only homes in the United States and about 80 million pay-TV homes, Discovery CFO Gunnar Wiedenfels said in a presentation for investors.

“All of a sudden, with this product, we’re able to address a much, much larger global community here,” he said.

Wiedenfels said over the long term “once we hit scale,” Discovery Plus is expected to deliver margins of 20%. In the U.S., Discovery Plus will launch Jan. 4 with a monthly price of $4.99 with ads and $6.99 without ads.

Discovery’s average revenue per pay-TV household in the U.S. is $7 per month, Wiedenfels said, and “I’m very confident that, with our Discovery Plus product, we’re going to be able to achieve at least that same ARPU number — if not more — and that can be achieved even in the near term.” He estimated that Discovery Plus ad rates, thanks to digital targeting, will be three times what the cabler gets for linear pay TV.

Discovery CEO David Zaslav acknowledged that the company isn’t sure to extent to which Discovery Plus might cannibalize its pay-TV business. Asked about the potential for cannibalization, “we’ll see, but people love our channels… We’ve never been stronger to the cable bundle,” he said, claiming that Discovery’s networks are “effectively like the NFL times five right now for women.”

In the U.S., Verizon is a key launch partner for Discovery Plus. The pact is an “an incredible endorsement, I think, for our product [and] an amazing opportunity to get access to a large number of homes very, very quickly,” Wiedenfels said. The streaming service will be free for 12 months to the telco’s customers on select plans (available to new 5G Home Internet and Fios Gigabit subs, as well as new and existing wireless customers with a Play More or Get More Unlimited plan). For Disney Plus’ U.S. launch, Verizon had offered the service free for one year to all unlimited wireless subscribers.

For now, Discovery does not have deals to distribute Discovery Plus on Roku and Amazon Fire TV, but the media company is in talks with those companies and others, Wiedenfels said.

In 2020, Discovery’s direct-to-consumer services will generate $800 million of revenue with losses from the investments in the streaming initiatives in the $500 million range, according to Wiedenfels. For 2021, the company expects to incur an additional $200 million-$300 million hit to earnings (on top of its $500 million run rate) with the investment in Discovery Plus. He declined to provide a top-line forecast but said Discovery expects “significant” revenue growth for 2021.

Currently, Discovery has 5.2 million streaming subscribers worldwide, up threefold from 2018, most of which are Discovery Plus customers in the U.K., Ireland and India where the service has already launched. In the U.S., the company’s direct-to-consumer streaming services are Food Network Kitchen and MotorTrend OnDemand; in Europe, it has offered Eurosport Player and Dplay, which will be converted to Discovery Plus.

All told, in the U.S., Discovery Plus will offer more than 55,000 episodes from Discovery’s channels (including Discovery Channel, TLC, Food Network, HGTV and Animal Planet) as well as the BBC’s Natural History collection, A&E Networks, Group Nine and originals including an exclusive first look at content from the Magnolia Network, the forthcoming multiplatform joint venture with Chip and Joanna Gaines.

“We will be spending more on an aggregate level” on content, Wiedenfels said, without quantifying the increase. He added that the company expects some originals first windowed on Discovery Plus to eventually hit linear TV channels as well.

Overall, Discovery plans to launch the direct-to-consumer offering across more than 25 markets in 2021, including the Nordics, Italy, the Netherlands and Spain. Discovery Plus will also launch in Latin American markets, including a planned launch in Brazil, and in parts of Asia. In the U.K., Sky is currently offering the service to its Sky Q customers for 12 months at no extra cost, and Discovery has a deal with TIM in Italy for its launch in the country in early 2021.