Discovery+ Streaming Reveal Gets Tepid Response From Wall Street

President and CEO, Discovery, Inc. David Zaslav - Getty - H 2020
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"It remains unclear whether 'original' unscripted programming will be as much of a draw for a pay TV/OTT service as scripted originals on other platforms," says one analyst.

Discovery has entered a crowded global streaming arena and Wall Street analysts have reacted coolly to its lifestyle programming juggernaut set to launch on Jan. 4.

Absent subscriber targets for its new streamer — Discovery only said it sees a market of 70 million U.S. households and another 400 million internationally — analysts were left to judge the new global streaming platform as a complement to Discovery's legacy linear TV business amid cord-cutting and changing viewer habits.

"Differentiating factors include the unscripted content base, size of the library, scope of distribution deals from cable to CTV to mobile, and global reach. As the service rolls out, success will depend on sub growth in a crowded field, ability to monetize subs including through advertising, and any further offsetting pay TV declines as Discovery finally tries to seize DTC (direct-to-consumer)," Macquarie analyst Tim Nollen wrote in an investor note.

Discovery+ will cost $5 per month with ads and $7 per month without ads as it combines programming from across the media giant's brands, including HGTV, Food Network, TLC, Animal Planet and OWN.

The service will also include programming from A&E Networks channels A+E, History and Lifetime as Discovery+ subscribers access to more than 55,000 episodes of over 2,500 shows at launch.

But that has analysts questioning whether that wall of unscripted fare will be enough to draw subscribers away from Netflix, Disney+ and other scripted TV streaming giants.

"Pretty much every media platform we have ever seen lives or dies based on the strength of its original content, and while Discovery has significant expertise with unscripted programming, it remains unclear whether 'original' unscripted programming will be as much of a draw for a pay TV/OTT service as scripted originals on other platforms, such as Game of Thrones (HBO), Stranger Things (Netflix), or The Mandalorian (Disney+)," Cowen analyst Doug Creutz wrote in his own investor note.

Discovery+ will launch in 25 countries within its first year, including the Nordics, the Netherlands, Italy and Spain. The service has already been marketed to subscribers in the U.K. and Ireland through Discovery's partnership with Sky, which is offering the service to its subscribers for 12 months at no additional cost.

MoffettNathanson analyst Michael Nathanson addressed the question of whether Discovery+ will be more like CBS All Access, or grow its critical mass to resemble Disney+ down the road.

His answer was possibly both as Discovery+ launched into a crowded U.S. streaming market alongside HBO Max and Showtime, and behind leaders like Netflix, Amazon Prime and Hulu.

And yet internationally, especially in Europe where Discovery+ will be the home to the Olympic Games, Nathanson forecast the service could excel as a differentiated player much like Disney+.

"Our quick take is that investors are sceptical of the U.S. ramp, but possibly underestimating the longer-term potential of this international opportunity," he argued.

Discovery during its virtual presentation on Wednesday not offering long-term financial targets for Discovery+ had analysts left to determine whether it had enough runway after the Jan. 4 launch to secure a critical mass of customers and become profitable in an increasingly crowded global streaming arena.

Michael Morris of Guggenheim like a host of other analysts raised his share price target for Discovery as its ad-lite and ad-free streaming services were unveiled, but added about its stock rating that "we remain neutral as the long-term return on the investment remains uncertain."

And a near-term increase in investment and operating costs required for Discovery+ was the main reason MKM Partners analyst Eric Handler chose to downgrade stock in Discovery from a buy to neutral.

Handler forecast "a considerable offset to the revenue contributions as increased content and promotional spending for the service is anticipated to cause adjusted OIBDA loss for the business to increase by a higher than estimated $200mn-$300mn in (2021)."