How Discovery Makes Money

Discovery Inc. (DISCA) is a global media company that provides content through a variety of different distribution platforms, including pay-TV, broadcast television, and direct-to-consumer (DTC) subscriptions. Its content spans a wide range of genres, such as natural history, sports, general entertainment, home, food, travel, and more. Some of Discovery’s prominent television brands include Discovery Channel, HGTV, Food Network, TLC, Animal Planet, and Science. The company primarily generates revenue through the sale of advertising, distribution fees, and subscription services.

In mid-May 2021, Discovery announced that it had reached an agreement to combine assets with WarnerMedia, a division of AT&T Inc. (T). The $43 billion blockbuster merger would create a leading global entertainment company, combining Discovery’s prominent brands with HBO, Warner Bros., DC Comics, and other popular brands owned by WarnerMedia. The new company also would be poised to become a dominant player in the rapidly growing global streaming market.

Discovery competes with other production studios, television networks, and online-based content providers to develop, acquire, and distribute premium content. Some of the company’s competitors include The Walt Disney Co. (DIS), Comcast Corp.’s (CMCSA) NBCUniversal, ViacomCBS Inc. (VIAC), DISH Network Corp. (DISH), and China-based Phoenix New Media Ltd. (FENG).

Discovery’s Financials

Discovery announced in late April financial results for the first quarter (Q1) of its 2021 fiscal year (FY), the three-month period that ended on March 31, 2021. The company reported net income attributable to common shareholders of $140 million, a sharp year-over-year (YOY) decline of 62.9%. Quarterly revenue grew 4.1% compared to the year-ago quarter, rising to $2.8 billion. The company also reports adjusted operating income before depreciation and amortization (OIBDA), a measure of profitability that focuses on a company’s core activities. Adjusted OIBDA for the first quarter fell 24.8% to $837 million. Discovery’s costs and expenses increased at a faster pace than revenue grew, weighing down net income for the quarter.

The company noted that selling, general, and administrative (SG&A) expenses in its U.S. Networks business increased 89.4%, primarily due to higher marketing-related expenses to support the launch of discovery+, its new DTC streaming service. This contributed to an increase in Discovery’s consolidated SG&A expenses of 62.9%. The company’s discovery+ service was launched in the United States in January 2021. It had previously launched in the United Kingdom, Ireland, and India.

Discovery’s Business Segments

Discovery operates as two reportable segments: U.S. Networks and International Networks. The company provides a breakdown of revenue and adjusted OIBDA for each segment. Discovery also presents a “Corporate, inter-segment eliminations, and other” category, which accounts for differences between the combined totals of financial results for its two operating segments and the company’s consolidated results. We take a closer look at the company’s breakdown of financial results for its two business segments below.

U.S. Networks

Discovery’s U.S. Networks business consists primarily of its domestic television networks and digital content services. The segment generates revenue through a variety of fees, including fees charged to content distributors, advertising fees, fees from network distribution services, licensing fees on branded consumer products, and other types of fees. The U.S. Networks segment posted adjusted OIBDA of $823 million in Q1 FY 2021, down 19.0% YOY. The segment accounts for approximately 84% of company-wide-adjusted OIBDA. Revenue for the segment rose 2.8% to $1.8 billion, comprising about 65% of total revenue.

International Networks

The International Networks business is composed primarily of international television networks and digital content services. It consists of national and pan-regional television networks and brands that are distributed across multiple platforms. The segment generates revenue via operations in virtually every pay-TV market in the world. A significant amount of revenue is generated through free-to-air (FTA) and broadcast networks. The International Networks segment posted adjusted OIBDA of $151 million in the first quarter, down 27.1% YOY. The segment accounts for about 16% of total adjusted OIBDA for the company. The segment’s revenue rose 6.9% to $987 million, comprising approximately 35% of company-wide revenue.

Discovery’s Recent Developments

On June 1, Discovery announced that the new company formed by its merger with WarnerMedia would be named Warner Bros. Discovery. The proposed merger, which still must be approved by shareholders and regulators, is expected to close in mid-2022.