Discovery is expected to have 23 million global streaming subscribers – including 8 million in the U.S. – by the end of 2021, according to UBS analyst John Hodulik.
That’s significantly higher than the 11 million Discovery announced in February. At the time, the company said it expected to hit 12 million paid subscribers by the end of February. Discovery CEO David Zaslav said that most of the 7 million direct-to-consumer streaming subscribers that Discovery added since the end of the third quarter were Discovery+ customers in the U.S.
UBS said that Discovery is starting off in a better position that its peers on DTC thanks to a content library that is largely unencumbered by licensing deals and a large international presence for driving subscriber growth. Despite strong share performance over the past 12 months, UBS downgraded Discovery from neutral to sell since it believes the streaming business upside is already more than priced into the stock.
“While discovery+ appears off to a strong start, we remain concerned regarding the ultimate scalability of the service in relation to the decline of the linear business and longer term impact on financials,” wrote Hodulik in a research note.
UBS estimated that Discovery will lose approximately 5 million U.S. linear subscribers per year through 2024.
Discovery CFO Gunnar Wiedenfels, speaking earlier this month at a Deutsche Bank investor conference, said his company should still be able to find common ground and win-win partnerships with its traditional distributors. However, he admitted that there will be some “reallocation of values” between Discovery’s different products.
“Clearly there is one big, new variable that’s in the mix now, so all of these discussions are one notch more complex than they used to be. But as we’ve said so many times, in the affiliate space, none of these deals have ever been super straightforward renewals,” said Wiedenfels. “But I feel very good about it and our partners are very excited. The ones we’ve partnered with for the Discovery+ rollout so far are very, very happy with the product.”