Discovery CEO says SVOD success won’t end its TV-bundle role

Discovery president and CEO David Zaslav essentially brought a declaration of independence to a MoffettNathanson conference Wednesday, saying his employer could easily afford to swap pay TV viewers for Discovery+ subscribers—while pay TV operators could not get away with dropping Discovery’s channels.

Zaslav, speaking at the market-research firm’s 8th Annual Media & Communications Summit, opened by saying Discovery makes about $7 a month for each cable or satellite subscriber, about half from affiliate fees (which Zaslav said seriously undervalue its contribution to viewership) and half from ads.

That figure lines up almost exactly with the $6.99/month cost of Discovery+ without ads and is $2 under the $4.99 with-ads version that Zaslav said delivers much better CPMs than pay TV.

“If we’re making $7, our ARPU is the same or better as what we make on a cable sub,” Zaslav said. “With our ad-light product, we’re dramatically higher than that, 30 to 40% higher.”

So a lost cable subscriber represents a win for the company.

“If we lost a million subs,” he continued, “all we need to do is pick up 650,000 subs in order to be making more money.”

Zaslav did not share Discovery+ subscriber totals, although he said in April that the company had reached 15 million paid subscribers across all its streaming properties and that most in the U.S. were Discovery+ subs. Earlier, UBS analyst John Hodulik predicted that Discovery would hit 23 million paid subscribers worldwide by the end of 2021, 8 million in the U.S.

Zaslav added that the math skews even more strongly in favor of Discovery+ internationally, where Discovery’s pay-TV carriage is much thinner than in the U.S. Europe in particular should be a strong market, thanks to Discovery’s Olympic coverage rights there: “If you want to get the entire Olympics, you’ve got to get it on D+.”

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And while much of the rest of the world isn’t vaccinating its way out of the pandemic at the speed of the United States, Zaslav said that had zero effect on Discovery’s ad business: “Every region is up on the advertising side.”

Asked what had surprised him since that service’s January 4 launch, Zaslav cited its churn rate, the appeal of its library and its viewing hours.

He called the U.S. churn rate “very significantly below how we thought it would be, how we modeled it, and much different from our peers.”

Discovery’s content library, meanwhile, is benefiting from presentation and access impossible on linear TV: “95% of our library is being consumed, and, you know, that was a surprise to us.”

Finally, that’s yielded binge-grade viewing times of three to four hours a day.

Zaslav discounted theories that pay TV operators would respond to Discovery viewers fleeing to Discovery+ by dropping its channels.

“We believe we’re the core to any bundle,” he said. “News, sports and us: Those are the three things in all of our research.”

Imagining a cable subscriber’s response to seeing Discovery channels vanish from her program grid—“they’re not there? and now I have to figure out how to get that?”—Zaslav said “the reaction of customers would be extremely negative.”

Instead, he advised cable operators to follow the example of Comcast, which recently added Discovery+ to its Xfinity Flex and X1 platforms after the SVOD service debuted with apps on streaming platforms from Apple, Amazon and Roku, among others.

“Why let Amazon and Roku be the channel stores?” he asked. “Those channel stores are going to have massive value.”