Discovery/WarnerMedia Banks On Streaming, But Linear TV Remains Potent

Although there has been a strong focus on potential Discovery-WarnerMedia deals around its streaming platform, the near term, linear TV businesses also remain a focal point.

Three years from now, in 2024, it's estimated that more than 80% of its cash flow -- earnings before interest, taxes, depreciation, and amortization (EBITDA) -- will still come from its linear TV networks, says MoffettNathanson Research.

The stock-market analysis company projects $9.7 billion for linear TV, with $2.3 billion coming from the “other” category -- with an average total of around $11 billion to $12 billion through 2024.

In addition, although Discovery will benefit from adding WarnerMedia’s Turner networks, in terms of leverage around growing affiliates fees and advertising, the company still faces issues in combating accelerating cord-cutting -- now at around 7% to 8% per year for the industry overall.



A combined Discovery-WarnerMedia will give the company an industry-leading 29% of all time viewed across broadcast and cable. But it would still be “under-monetized” -- getting just 20% of affiliate fees from pay TV distributors, and 22% of advertising revenue.

Also, it questions what the ultimate plan is for Turner networks in the direct-to-consumer world -- something that has, until now, taken a back seat for WarnerMedia’s HBO Max efforts.

“We have previously highlighted that the trade on a one-for-one subscriber basis is much more challenging for WarnerDiscovery than the accretive trade for Discovery standalone. ... This becomes more complicated depending on how Turner networks will be utilized in the D2C services going forward.”

On the streaming front, it sees discovery+ getting 23.4 million global subscribers by the end of this year, and for HBO Max, 35 million. By 2024, it projects that discovery+ will hit 50 million and HBO Max get 82.4 million.

At the end of 2020, the report says HBO Max reached 17 million U.S. subscribers, with the total for HBO linear/HBO Max at 41.5 million subscribers.

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