Discovery+: The non-fiction Netflix?

Discovery+: The non-fiction Netflix?

Thursday, 17th December 2020
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Discovery is finally entering the global streaming market. Kate Bulkley asks if Discovery+ can succeed in such a crowded space

Victory is not always achieved by the first out of the blocks or the fastest car into the opening corner. Sometimes, steadiness of purpose and coming from behind is more effective. That sums up the strategy that Discovery has adopted in the uber-competitive streaming wars.

Having watched Netflix, Amazon Prime and, more recently, Disney+ and others enter the global streaming market, Discovery+ will launch its own service in the US only in January. Some observers have argued that it might be too little, too late.

However, a closer look at Discovery’s success in the US and the global pay and free TV markets, and at what it has learnt from its Dplay and Eurosport streaming services, suggests that the reverse might be true.

The broadcaster behind lifestyle channel HGTV and the Oprah Winfrey Network is betting that subscribers will be attracted to Discovery+ because it will give them the ability to binge on the entire back catalogues of shows such as Gold Rush, Wheeler Dealers and 90 Day Fiancé. Subscribers will also find new, exclusive content, including the latest series from DIY stars Chip and Joanna Gaines.

With typical bullishness, Discovery CEO David Zaslav told analysts earlier this month that Discovery+ could be “the non-fiction Netflix”.

Internationally, Discovery’s sports rights will also find a home on the new venture. In the UK, where Discovery+ launched on 12 November, Eurosport will be folded into the service sometime next year. Discovery owns the global digital rights to the Olympics to 2024, and the TV and digital rights to PGA Tour golf outside the US until 2030. In some Asian markets, Discovery+ will also have additional PGA Tour content, said Zaslav.

The USP for Discovery+ is clearly that it packages both sport and entertainment in one subscription. “We have been holding back content from [non-Discovery] platforms for several years now,” Zaslav told investors in November. “We think that, if we can get the right distribution behind us and we can get this to a global audience, we will be a very different company.”

Discovery will use its linear channels and pay-TV relationships as leverage to build up the new streamer. Unlike Disney, which cannibalised some of its existing revenues by pulling its channel brands from pay platforms such as Sky to launch Disney+, Discovery intends to continue working with pay providers.

“This is a big moment for our company,” said Zaslav. “This year, we will roll out Discovery+ in 25 countries but eventually it will be everywhere.… We have a good relationship with Roku and Amazon and we are confident that we’ll be able to get deals done with them.” 

In the UK, where Discovery operates six free-to-air and seven pay-TV channels, Discovery+ launched at £4.99 per month. Its exclusives included: Faking It: Jimmy Savile; Prince Andrew, Maxwell & Epstein; and Joe Exotic: Before He Was King.

On 19 November, the service debuted on Sky; Sky Q subscribers get it free for the first 12 months.

“People have strong feelings about how they consume media,” says James Gibbons, Discovery’s general manager for the UK and Nordics. “Our business is not trying to change that – instead, we are trying to give them optionality.”

Discovery’s annual spend on UK content – reportedly worth some £100m – will increase, with “a significant incremental budget for Discovery+ originals”, says Gibbons.

Indeed, Discovery+ will be building on a strong base: lockdown viewing in the UK drove up both its audience share and share of commercial impacts (SOCI). SOCI increased from 3.5% in 2017 to 8.5% today across Discovery’s 13-channel portfolio.

Most of Discovery’s 5.2 million web-streamed subscriptions are in non-US markets. This number is 225% up on 2018, when US research group Moffett­Nathanson calculated that Discovery had 1.6 million streaming subscriptions.

This suggests that, even with what might be described as a patchwork-­quilt approach to streaming, Discovery has been growing the business. “Most of the streaming subscribers we have gained [over the past several years] have come from offering windows for content before it premieres [on linear channels],” explains JB Perrette, President and CEO of Discovery International. “Therefore, the incremental content cost is zero. Plus, we have seen no cannibalisation attributable to those [streaming] subscribers.

“Of course, we see churn in the entire ecosystem… but we can’t point to evidence that [streaming] subscribers are driving cannibalisation.”

The streaming wars were further complicated in early December when WarnerMedia announced that it would release its entire roster of 2021 films on its HBO Max streaming service at the same time as they debut in US cinemas. This is another new business model for TV broadcasters (not to mention cinema owners) to consider when designing their own tactics.

Disney+ has proved to be a juggernaut, picking more than 73 million subscribers worldwide since its US launch in autumn 2019.

Zaslav has taken some pages out of the Disney playbook, including signing a US distribution deal with the telco Verizon. The Discovery+ user interface highlights super-fan brands across food, DIY and motoring, echoing how Disney highlights its Pixar, Marvel and Star Wars brands.

There are also plans to add personalisation tools, including artificial intelligence-driven recommendations to Discovery+ and targeted ads in those markets where the service will be funded by advertisements.

“The value of having linear channels to use as promotion tools is also beginning to be recognised,” said Zaslav in November. “Netflix bought a linear channel in France not so long ago. Well, we already own 12 to 15 channels in every country around the world.”

Discovery is betting that the new streaming business will generate a 20% profit margin, which is only half the margin of its traditional pay-TV business. Importantly, however, the company is convinced that this 20% will be incremental income rather than replacing money lost from its traditional business.

Discovery believes that the potential market for Discovery+ is big enough to give it the flexibility to retain both its traditional subscribers and grow its new, direct-to-consumer business.

The company estimates the number of potential subscribers at 400 million internationally, plus a further 70 million in the US, before factoring in potential subscribers from mobile and connected devices.

But media analyst Michael Nathanson at MoffettNathanson worries that cannibalisation of Discovery’s traditional pay-TV business is potentially the plan’s Achilles heel, particularly in markets outside the US. “Depending on the market, Discovery+ will include live feeds of its cable networks and free-to-air channels,” said Nathanson. “So, how many subscribers within the [potential market of] 400 million internationally will cut the cord, especially with Discovery+ including the Olympics and other sports programming?”

The proof, as they say, will be in the pudding but, outside the US, where Discovery has local-language services and known brands, it has a decent shot at being the number two or number three streaming brand behind Netflix and Disney+.

What could be decisive is top-notch sport. “Once the Olympics comes back to Europe in 2024, for the first time in 12 years, that will be a huge deal,” says Perrette.

He adds: “We are in a distinct lane because, in the [direct-to-consumer] market, there are 15-plus scripted-­series services and probably the same number of scripted movie services – where the cost of entry seems to be an unlimited chequebook.

“We have a much more tailored and clearer proposition.

“We don’t need to compete on a chequebook or scale level to have a hope of ever making any money. So, we feel pretty good about our hand.”