Discovery signals content investments will peak this year, shares fall

(Reuters) -Discovery Inc said on Tuesday it expects content and marketing investments this year to be its highest ever, sending the media company’s shares down 6%.

FILE PHOTO: President and CEO of Discovery David Zaslav speaks during the Discovery portion of the Television Critics Association (TCA) Summer Press Tour in Beverly Hills, California, U.S., July 25, 2019. REUTERS/Danny Moloshok

Discovery’s relatively new streaming platform is in a race to retain paying customers in the crowded streaming market that includes Netflix Inc and Walt Disney Co’s Disney+, which coupled with increased cord-cutting means the company has had to make higher content investments.

“As we launch new markets during the second half of the year, we expect that we will continue to incur investment losses, though more or less in the same ballpark as this past quarter, mainly driven by content and marketing costs,” said Gunnar Wiedenfels, the company’s finance chief.

Discovery’s total paid streaming subscribers stood at 17 million globally at the end of the second quarter compared with Netflix and Disney’s 100 million-plus subscriber base.

Total costs and expenses amounted to $2.28 billion in the quarter ended June 30, up 25% year-on-year.

The Animal Planet and TLC-owner is also on the brink of combining with AT&T’s WarnerMedia unit to create a new media business, seeking scale to take on its streaming rivals.

“Arguably, streaming is not growing fast enough and financial metrics such as free cash flow are down significantly year-on-year,” said Paolo Pescatore, an analyst at PP Foresight.

However, the company’s bet is on unscripted programming, including food and home improvement. As the holder of the European rights to the Olympic Games, it is also on track to rake in viewers.

It said earlier on Tuesday that more than 275 million viewers have so far watched the Games through its platforms, representing a 10% higher reach compared with the 2018 Pyeongchang Winter Games.

Discovery posted revenue of $3.06 billion in the reported quarter, above estimates $2.99 billion, buoyed by higher subscriber additions and advertising sales on its network.

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