Discovery Wants to Be Your Other Streaming Service

MarketsMotley Fool

As more consumers cut the cord and more companies launch streaming video services, Discovery (NASDAQ: DISCK) (NASDAQ: DISCA) (NASDAQ: DISCB) thinks it can still find a place in consumers' homes.

While Netflix (NASDAQ: NFLX), Disney (NYSE: DIS), Amazon (NASDAQ: AMZN), and Apple (NASDAQ: AAPL) are all focused on big-budget scripted series and films, Discovery's brands offer some of the best in unscripted content. The company is going to try to leverage that brand recognition in the direct-to-consumer world by offering streaming services that complement, rather than compete with, Netflix and all the other major streaming services.

Continue Reading Below

Discovery plans to launch a video service with a natural history theme by 2020, including content from a new decade-long partnership with the BBC. Discovery CEO David Zaslav says the company will slice its content into other streaming plans focused on food, home improvement, golf, cycling, or any of the other niches Discovery's networks dominate. Zaslav said the company plans to partner with on-screen talent who have a big following in their particular niches, like home improvement gurus Chip and Joanna Gaines and chef Bobby Flay, as well as respected brand names like Motor Trend.

Is there room for Discovery's streaming services and will anyone actually subscribe?

How many streaming services are too many?

Consumers are increasingly willing to subscribe to multiple streaming video services. According to a Leichtman Research survey from last summer, 43% of U.S. households subscribe to more than one streaming service. Average consumers say they'll subscribe to as many as six different services and pay $38 per month for them, according to a survey from Magid Research.

If consumers ditch their cable bundle for a la carte streaming options, there's certainly room in the budget for a Discovery-branded streaming service or two. Zaslav says the natural-history streaming service will cost less than $5 per month. Other streaming U.S. services from the company ought to have similar sub-$5 price points, but could reach as high as $20 in some markets where Discovery holds valuable content, such as European sports.

Discovery could make pricing more attractive and increase subscriber retention by bundling multiple services. Disney CEO Bob Iger said the company will explore bundling its Disney+ service with Hulu and ESPN+ when it launches later this year.

Zaslav points out that 50% of time spent watching television is to view scripted series. And while there are tons of services competing for that 50%, very few are competing for the other 50% of time spent watching unscripted television. Disney's ESPN+ is, perhaps, the best example of a streaming service dedicated to niche unscripted television. And it has managed to reach 2 million subscribers in less than a year since start-up.

Will people pay for Discovery directly?

Consumers might be willing to pay for multiple streaming services, but it's not clear that Discovery has the type of content consumers will explicitly pay for. They want its networks as part of a package of channels, but operating as a stand-alone service is another beast entirely.

Netflix recently started increasing the amount of unscripted content on its platform. And while consumers engage with the content, its chief content officer Ted Sarandos has said unscripted originals don't attract or retain subscribers as well as scripted originals.

ESPN has done well with its over-the-top service, but it specializes in a staple of live television: sports. Fans have proven more than willing to pay top dollar for sports content. The same can't be said of nature shows and home renovation tutorials. Nobody rushes home because there's a House Hunters marathon on TV that they have to watch. (Discovery does own valuable sports rights outside of the U.S.)

Discovery could improve its services' discoverability in the crowded streaming market by partnering with Apple or Amazon for their Channels products. Apple TV Channels and Amazon Channels integrate multiple subscription streaming services into a single interface and a single bill, recommending certain services based on a customer's streaming habits. Amazon Channels account for a high percentage of subscriptions for even some of the strongest brands' direct-to-consumer streaming services.

Discovery may also want to consider an ad-supported model or freemium model where customers can pay to remove ads. Ad-supported streaming video on demand is growing much faster than subscription video on demand, and it could be the ticket to accelerate Discovery's revenue growth.

Discovery's challenge won't be that there's not enough room in consumers' budgets or that consumers already have enough streaming services; it's going to be convincing consumers that the service and its content are worth signing up for at all.

10 stocks we like better than Discovery (A shares)When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has quadrupled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Discovery (A shares) wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

*Stock Advisor returns as of March 1, 2019

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Adam Levy owns shares of Apple and Amazon. The Motley Fool owns shares of and recommends Amazon, Apple, Netflix, and Walt Disney. The Motley Fool has the following options: short January 2020 $155 calls on Apple and long January 2020 $150 calls on Apple. The Motley Fool has a disclosure policy.