What changed in this filing

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Item 1A. Risk Factors

2022-02-24 compared with 2021-02-22 · 187 added, 119 removed, 245 unchanged (56% of the section changed)

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Investing in our securities involves risk.

In addition to the other information contained in this report, you should consider the following risk factors before investing in our securities.

In addition to the other information contained in this Annual Report on Form 10-K, you should consider the following risk factors before investing in our securities.

Additional risks and uncertainties not presently known to us or that we currently believe not to be material may also adversely impact our business, results of operations, financial position and cash flows.

Risk Factors Related to the Combination of Discovery and AT&T’s WarnerMedia Business

On May 17, 2021, the Company, our wholly owned subsidiary Drake Subsidiary, Inc., AT&T Inc.

(“AT&T”) and AT&T’s wholly owned subsidiary Magallanes, Inc.

entered into definitive agreements pursuant to which and subject to the terms and conditions therein (1) AT&T will transfer the business, operations and activities that constitute the WarnerMedia segment of AT&T, subject to certain exceptions (the “WarnerMedia Business”) to Magallanes, Inc.

(such transfer, the “Separation”), (2) AT&T will distribute to its stockholders the issued and outstanding shares of common stock of Magallanes, Inc.

held by AT&T (such distribution, the “Distribution”) and (3) Drake Subsidiary, Inc.

will merge with and into Magallanes, Inc.

with Magallanes, Inc.

as the surviving entity and wholly owned subsidiary of the Company (such merger, the “Merger” and the Separation, Distribution and Merger collectively, the “Combination”).

The pendency of the proposed Combination may cause disruption in our business.

The definitive agreement and plan of merger (the “Merger Agreement”) related to the Combination restricts us from taking specified actions without AT&T’s consent until the Combination is completed or the Merger Agreement is terminated, including making certain significant acquisitions or investments, entering into certain new lines of business, incurring certain indebtedness in excess of certain thresholds, making non-ordinary course capital expenditures, amending or modifying certain material contracts, divesting certain assets (including certain intellectual property rights), and making certain non-ordinary course changes to personnel and employee compensation.

These restrictions and others more fully described in the Merger Agreement may affect our ability to execute our business strategies and attain our financial and other goals and may impact our financial condition, results of operations and cash flows.

The pendency of the proposed Combination could cause disruptions to our business or business relationships, which could have an adverse impact on our results of operations.

Parties with which we have business relationships, including distributors, advertisers and content providers, may be uncertain as to the future of such relationships and may delay or defer certain business decisions, seek alternative relationships with third parties or seek to alter their present business relationships with us.

Parties with whom we otherwise may have sought to establish business relationships may seek alternative relationships with third parties.

The pursuit of the Combination and the preparation for the integration of the WarnerMedia Business is expected to place a significant burden on our management and internal resources.

The diversion of management’s attention away from day-to-day business concerns and any difficulties encountered in the transition and integration process could adversely affect our financial results.

We have incurred and will continue to incur significant costs, expenses and fees for professional services and other transaction costs in connection with the Combination.

The substantial majority of these costs will be nonrecurring expenses relating to the Combination, and many of these costs are payable regardless of whether or not the Combination is consummated.

We are also subject to litigation related to the proposed Combination, which could prevent or delay the consummation of the Combination and result in significant costs and expenses.

Failure to complete the Combination in a timely manner or at all could negatively impact the market price of our common stock, as well as our future business and our financial condition, results of operations and cash flows .

We currently anticipate the Combination will be completed in the second quarter of 2022, but the Combination cannot be completed until conditions to closing are satisfied or (if permissible under applicable law) waived.

The Combination is subject to numerous closing conditions, including approval by Discovery’s stockholders, receipt of certain regulatory approvals from governmental authorities and AT&T's receipt of a special cash payment in accordance with the terms of the Separation and Distribution Agreement by and among Discovery, AT&T and Magallanes, Inc.

Governmental authorities may not approve the Combination, may impose conditions to the approval of the Combination, or may require changes to the terms of the Combination.

Any such conditions or changes could have the effect of delaying completion of the Combination, imposing costs on or limiting the revenues of the combined company following the Combination, or otherwise reducing the anticipated benefits of the Combination.

We can provide no assurance that these conditions, terms, obligations or restrictions will not result in the abandonment of the Combination.

The satisfaction of the required closing conditions could delay the completion of the Combination for a significant period of time or prevent it from occurring.

Further, there can be no assurance that the conditions to the closing of the Combination will be satisfied or waived or that the Combination will be completed.

If the Combination is not completed in a timely manner or at all, our ongoing business may be adversely affected as follows:

• we may experience negative reactions from the financial markets, and our stock price could decline to the extent that the current market price reflects an assumption that the Combination will be completed;

• we may experience negative reactions from employees, customers, suppliers or other third parties;

• we may be subject to litigation, which could result in significant costs and expenses;

• management’s focus may have been diverted from day-to-day business operations and pursuing other opportunities that could have been beneficial to Discovery;

• our costs of pursuing the Combination may be higher than anticipated.

In addition to the above risks, we may be required, under certain circumstances, to pay AT&T a termination fee equal to $720 million and/or to reimburse or indemnify AT&T for certain of its expenses.

If the Combination is not consummated, there can be no assurance that these risks will not materialize and will not materially adversely affect our stock price, business, financial condition, results of operations or cash flows.

Although we expect that the Combination will result in synergies and other benefits to us, we may not realize those benefits because of difficulties related to integration, the achievement of such synergies, and other challenges.

Discovery and the WarnerMedia Business have operated and, until completion of the Combination, will continue to operate, independently, and there can be no assurances that our businesses can be combined in a manner that allows for the achievement of any financial or other benefits.

If we are not able to successfully integrate the WarnerMedia Business with ours or pursue our direct-to-consumer strategy successfully, including coordinating our streaming services for global customers, the anticipated benefits, including synergies, of the Combination may not be realized fully, if at all, or may take longer than expected to be realized.

Specifically, the following issues, among others, must be addressed in combining the operations of Discovery and the WarnerMedia Business in order to realize the anticipated benefits of the Combination:

• combining the businesses of Discovery and the WarnerMedia Business in the time frame currently anticipated;

• maintaining existing agreements with customers, distributors, providers, talent and vendors and avoiding delays in entering into new agreements with prospective customers, distributors, providers, talent and vendors;

• combining certain of the businesses’ corporate functions;

• determining whether and how to address possible differences in corporate cultures and management philosophies;

• integrating the businesses’ administrative, accounting and information technology infrastructure;

• integrating employees and attracting and retaining key personnel, including talent;

• managing the expanded operations of a significantly larger and more complex company, including with Discovery’s limited prior experience in running a studio or scripted content;

• coordinating the businesses’ direct-to-consumer streaming services for global customers;

• resolving potential unknown liabilities, adverse consequences and unforeseen increased expenses associated with the Combination.

Even if the operations of our business and the business of the WarnerMedia Business are integrated successfully, the full benefits of the Combination may not be realized, including, among others, the synergies that are expected.

These benefits may not be achieved within the anticipated time frame or at all.

Additional unanticipated costs may also be incurred in the integration of our business and the business of the WarnerMedia Business.

Further, it is possible that there could be loss of key Discovery or WarnerMedia Business employees, loss of customers, disruption of either or both of Discovery’s or WarnerMedia Business’ ongoing businesses or unexpected issues, higher than expected costs and an overall post-completion process that takes longer than originally anticipated.

All of these factors could materially adversely affect our stock price, business, financial condition, results of operations or cash flows.

Our consolidated indebtedness will increase substantially following completion of the Combination.

This increased level of indebtedness could adversely affect us, including by decreasing our business flexibility.

Our consolidated indebtedness as of December 31, 2021 was approximately $15.2 billion.

Upon completion of the Combination, we will become responsible for up to approximatel y $43.0 billion of additional debt, including existing debt of the existing WarnerMedia Business, and debt that may be issued by Magallanes, Inc.

to fund the transactions, with the ultimate amount of such debt to be issued subject to certain adjustments, including for net working capital.

In addition, subject to certain conditions, availability under our revolving credit facility will increase from $2.5 billion to $6.0 billion.

The increased indebtedness could have the effect of, among other things, reducing our flexibility to respond to changing business and economic conditions, increasing our vulnerability to general adverse economic and industry conditions and limiting our ability to obtain additional financing in the future.

In addition, the amount of cash required to pay interest on our indebtedness levels will increase following completion of the Combination, and thus the demands on our cash resources will be greater than prior to the Combination.

The increased levels of indebtedness following completion of the Combination could also reduce funds available for capital expenditures, share repurchases, investments, mergers and acquisitions, and other activities and may create competitive disadvantages for us relative to other companies with lower debt levels.

Following consummation of the Combination, our corporate or debt-specific credit rating could be downgraded, which may increase our borrowing costs or give rise to a need to refinance existing indebtedness.

If a ratings downgrade occurs, we may need to refinance existing debt or be subject to higher borrowing costs and more restrictive covenants when we incur new debt in the future, which could reduce profitability and diminish operational flexibility.

Risks Related to Our Industry

Our businesses operate in highly competitive industries .

Our businesses operate in highly competitive industries, and if we are unable to compete effectively, our business, financial condition and results of operations could suffer.

The entertainment and media programming industries in which we operate are highly competitive.

We compete with other programming networks for distribution, viewers and advertising.

We face increased competition from subscription based streaming services and DTC offerings, including our recently launched discovery+ product, and we also compete for viewers with other forms of media entertainment, such as home video, movies, periodicals, on-line and mobile activities.

In particular, websites and search engines have seen significant advertising growth, a portion of which has moved from traditional cable network and satellite advertisers.

We face increased competitive pressure from subscription based streaming services and DTC offerings, including our discovery+ product, and expansion by other companies—in particular, technology companies—into the content production and distribution space.

We also compete for viewers with other forms of media entertainment, such as home entertainment (such as digital products), feature films, periodicals, interactive entertainment, user-generated content, live sports and other events, social media and diverse on-line and mobile activities.

Internet-based advertising, including through websites and search engines, has seen significant growth, placing pressure on traditional advertising models tied to television networks, including on free-to-air, cable network and satellite delivered channels.

Businesses, including ours, that offer multiple services, or that may be vertically integrated and offer both video distribution and programming content, may face closer regulatory review from the competition authorities in the countries in which we currently have operations.

If our distributors have to pay higher rates to holders of sports broadcasting rights, it might be difficult for us to negotiate higher rates for distribution of our networks.

The ability of our businesses to compete successfully depends on a number of factors, including our ability to consistently supply high quality and popular content, access our niche viewership with appealing category-specific content, adapt to new technologies and distribution platforms and achieve widespread distribution.

The ability of our businesses to compete successfully depends on a number of factors, including our ability to consistently supply high quality and popular content, access our targeted audience with appealing category-specific content, adapt to new technologies, distribution platforms and business models and achieve widespread distribution.

In addition, our television networks, premium pay-TV and basic tier television services and the discovery+ platform also face competition from other television networks, online platforms/streaming video service providers, pay-TV service providers and independent producers that develop, produce, acquire and sell entertainment and sports content.

As competition from these networks, service providers and producers continues to increase, we may not be able to acquire or create popular entertainment, sports and news content or acquire it at a cost-effective price.

As a result of an increasing number of market entrants in the programming space, we have seen upward pressure on programming costs in recent years, including in connection with the licensing and acquisition of entertainment and sports content from third parties, as well as with the commissioning of original production.

We may also be impacted by such upward pressures driven by increasing investment by competitors.

In certain international markets, regulations concerning content quotas or content investment requirements may be a further factor driving increasing programming costs.

There can be no assurance that we will be able to compete successfully in the future against existing or new competitors, or that increasing competition will not have a material adverse effect on our business, financial condition or results of operations.

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The commercial success of our content also depends upon the quality and acceptance of competing content available in the applicable marketplace.

Other factors, including the availability of alternative forms of entertainment and leisure time activities, general economic conditions, piracy, and growing competition for consumer discretionary spending may also affect the audience for our content.

Audience sizes for our media networks are critical factors affecting both the volume and pricing of advertising revenue that we receive, and the extent of distribution and the license fees we receive under agreements with our distributors.

Consequently, reduced public acceptance of our entertainment content may decrease our audience share and adversely affect our results of operations.

Other factors, including the availability of alternative forms of entertainment and leisure time activities, our ability to maintain or develop strong brand awareness and target key audiences, general economic conditions, piracy, and growing competition for consumer discretionary spending, time and attention may also affect the audience for our content.

Audience sizes for our media networks are critical factors affecting both the volume and pricing of advertising revenue that we receive with respect to advertising-supported services, and the extent of distribution and penetration and the license fees we receive under agreements with our distributors with respect to subscription-based services.

The appeal, success and performance of our content with consumers, as well as with third-party licensees and other distribution partners, are also critical factors that can affect the revenue that we receive with respect to our content-related business.

Consequently, reduced public acceptance of our entertainment content may decrease our audience share and customer/viewer reach and adversely affect our results of operations.

There has been a shift in consumer behavior as a result of technological innovations and changes in the distribution of content, which may affect our viewership and the profitability of our business in unpredictable ways.

Technology and business models in our industry continue to evolve rapidly.

Changes to these business models include (a) the presence of streaming services, which are increasing in number and some of which have a significant and growing subscriber base, and (b) the increased video consumption through subscription steaming services and time-delayed or time-shifted viewing of television programming through on-demand services and DVRs.

Consumer behavior related to changes in content distribution and technological innovation affect our economic model and viewership in ways that are not entirely predictable.

Consumers are increasingly viewing content on a time-delayed or on-demand basis from traditional distributors and from streaming services, connected apps and websites and on a wide variety of screens, such as televisions, tablets, mobile phones and other devices.

Additionally, devices that allow users to view television programs on a time-shifted basis and technologies that enable users to fast-forward or skip programming, including commercials, such as DVRs and portable digital devices and systems that enable users to store or make portable copies of content may affect the attractiveness of our offerings to advertisers and could therefore adversely affect our revenues.

There is increased demand for short-form, user-generated and interactive content, which have different economic models than our traditional content offerings.

Likewise, distributors are offering smaller programming packages known as “skinny bundles,” which are delivered at a lower cost than traditional offerings and sometimes allow consumers to create a customized package of networks, that are gaining popularity among consumers.

Technology and business models in our industry continue to evolve rapidly in an environment of fast-paced changes in consumer behavior as well as innovation.

Changes to these business models include (a) consumers’ increasing demand to consume video content on their own terms, including on the screen of their choice, at the time of their choice, and with enhanced functionality;

(b) the presence of streaming services, which are increasing in number and some of which have a significant and growing subscriber base;

(c) the proliferation of high speed internet connections and the expansion of 5G networks able to support high-quality streaming video within increasingly interactive and interconnected digital environments;

and (d) the increased video consumption through subscription streaming services and time-delayed or time-shifted viewing of television programming through on-demand services and DVRs as well as the availability of video content through other distribution outlets, including digital home entertainment (such as electronic sell-through and transaction video-on-demand).

Consumer behavior related to these changes in content distribution, viewership and technological innovation are not entirely predictable but remain key factors in our economic model;

such changes may accordingly materially adversely affect our business, financial condition and results of operations.

Consumers are increasingly viewing content on a time-delayed or on-demand basis from traditional distributors and from streaming services, apps and websites and on a wide variety of screens, such as televisions, tablets, mobile phones and other devices.

The inability to meet consumer demands and expectations in today’s highly mobile, multi-screen and multi-platform environment for video delivery may affect the attractiveness of our offerings.

Ineffective technology and product integration, lack of specific features and functionalities, poor interface design or ease of use, or platform performance issues, among other factors, may cause viewers to favor alternative offerings.

In addition, there is increased demand for short-form, user-generated and interactive content, which have different economic models than our traditional content offerings.

Likewise, distributors are seeking to offer smaller programming packages known as “skinny bundles,” which are delivered at a lower cost than traditional offerings and sometimes allow consumers to create a customized package of networks, that are gaining popularity among consumers.

If our networks are not included in these packages or consumers favor alternative offerings, we may experience a decline in viewership and ultimately the demand for our programming, which could lead to lower distribution and advertising revenues.

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Networks portfolio subscribers declined 8% while subscribers to our fully distributed networks declined 4%.

In order to respond to changes in content distribution models in our industry, we have invested in, developed and launched DTC products including dplay, JOYN, MotorTrend and our new discovery+ product.

In order to respond to subscription declines and changes in content distribution models in our industry, we have invested in, developed and launched DTC products including our discovery+ product.

There can be no assurance, however, that our viewers will respond to our DTC products or that our DTC strategy will be successful, particularly given the increase in DTC products on the market.

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If we cannot ensure that our distribution methods and content are responsive to our target audiences, our business could be adversely affected.

If our new subscription streaming product, discovery+, fails to attract and retain subscribers, our business may be adversely impacted.

In January 2021, Discovery launched an aggregated DTC product, discovery+.

The COVID-19 pandemic appears to have accelerated some existing trends.

Lockdowns during the pandemic, for example, encouraged households to experiment with digital offerings including subscription video-on-demand or to stack subscriptions.

Although we expect these trends to continue in the coming years, our viewership and the profitability of our business may be impacted in unpredictable ways as a result thereof.

Moreover, there can be no assurance of the continuation of these trends.

If our DTC product, discovery+, fails to attract and retain subscribers, our business, financial condition and results of operations may be adversely impacted.

In January 2021, Discovery launched an aggregated DTC product, discovery+, in the U.S.

We have incurred and will likely continue to incur significant costs to develop and market discovery+ and there can be no assurance that consumers and advertisers will embrace our offering or that subscribers will activate or renew a subscription.

Our discovery+ offering is a subscription-based streaming product.

The subscription-based streaming service marketplace is crowded and competitive, and our success will also be largely dependent on our ability to initially attract, and to ultimately retain, subscribers.

Competitors to discovery+ include traditional linear programming networks, including our own linear channels, and other subscription-based streaming services and DTC offerings.

Our discovery+ offering is a subscription-based streaming product and is among many such services in a crowded and competitive landscape.

Its success will also be largely dependent on our ability to initially attract, and ultimately retain, subscribers.

Competitors to discovery+ include traditional linear programming networks, including our own linear channels, competing subscription video-on-demand services, and other digital entertainment platforms and offerings all vying for consumer time, attention and discretionary spending.

If we are unable to effectively market discovery+ or if consumers do not perceive the pricing and related features of discovery+ to be of value versus our competitors, we may not be able to attract and retain subscribers.

Our ability to attract and retain subscribers to discovery+ will also depend in part on our ability to provide compelling content choices that are differentiated from that of our competitors and that are more attractive than other sources of entertainment that consumers could choose in their free time.

In particular, decreases in consumer discretionary spending where discovery+ is offered may reduce our ability to attract and retain subscribers to discovery+, which could have a negative impact on our business.

Relatedly, a decrease in viewing subscribers on our advertising-supported offering of discovery+ could also have a negative impact on the rates we are able to charge advertisers for advertising-supported services.

The ability to attract and retain subscribers will also depend in part on our ability to provide compelling content choices that are differentiated from that of our competitors and that are more attractive than other sources of entertainment that consumers could choose in their free time.

Furthermore, our ability to provide a quality subscriber experience and our relative service levels, may also impact our ability to attract and retain subscribers.

If we are unable to attract and retain subscribers to discovery+, our business could be adversely affected.

Consolidation among cable and satellite providers, both domestically and internationally, could have an adverse effect on our revenue and profitability.

Consolidation among pay-TV programming and satellite providers, both domestically and internationally, could have an adverse effect on our business, financial condition and results of operations.

Consolidation among cable and satellite operators has given the largest operators considerable leverage in their relationships with programmers, including us.

In the U.S., approximately 95% of our distribution revenues come from the top 10 distributors.

We currently have agreements in place with the major cable and satellite operators in U.S.

Networks and International Networks which expire at various times through 2023.

Networks segment, 84% of our distribution revenue comes from the top 10 distributors.

We currently have agreements in place with the 10 largest cable and satellite operators at U.S.

Networks that expire at various times from 2022 through 2025.

Some of our largest distributors have combined, and as a result, have gained, or may gain, market power, which could affect our ability to maximize the value of our content through those platforms.

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Because our networks are licensed on a wholesale basis to distributors, such as cable and satellite operators, which in turn distribute them to consumers, we are dependent upon the maintenance of distribution agreements with these operators.

These distribution agreements generally provide for the level of carriage our networks will receive, such as channel placement and programming package inclusion (widely distributed, broader programming packages compared to lesser distributed, specialized programming packages) and for payment of a license fee to us based on the number of subscribers that receive our networks.

While the number of subscribers associated with our networks impacts our ability to generate advertising revenue, these per subscriber payments also represent a significant portion of our revenue.

Our distribution agreements generally have a limited term which varies by market and distributor, and there can be no assurance that these distribution agreements will be renewed in the future or that they will be renewed on terms that are favorable to us.

A reduction in the license fees that we receive per subscriber or in the number of subscribers for which we are paid, including as a result of a loss or reduction in carriage for our networks, could adversely affect our distribution revenue.

While the number of subscribers associated with our networks impacts our ability to generate advertising revenue, subscription-based revenue also represents a significant portion of our revenue.

Our distribution agreements generally have a limited term which varies by territory and distributor, and there can be no assurance that these distribution agreements will be renewed in the future or that they will be renewed on terms that are favorable to us.

A reduction in the license fees that we receive or in the number of subscribers for which we are paid, including as a result of a loss or reduction in carriage for our networks or a reduction in distributor penetration, including as a result of changes in consumer habits, could adversely affect our distribution revenue.

Such a loss or reduction in carriage could also decrease the potential audience for our programs thereby adversely affecting our advertising revenue.

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We and our partners rely on various technology systems in connection with the production, distribution and broadcast of our programming, and our on-line, mobile and app offerings, as well as our internal systems, involve the storage and transmission of personal and proprietary information.

From time to time, hackers target Discovery and our service providers, and our service providers’ systems may be breached due to employee error, malicious code, hacking and phishing attacks, or otherwise.

Any such breach or unauthorized access could result in a loss of our proprietary information, which may include user data, a disruption of our services or a reduction of the revenues we are able to generate from such services, damage to our brands and reputation, a loss of confidence in the security of our offerings and services, and significant legal and financial exposure, each of which could potentially have an adverse effect on our business.

From time to time, hackers and other malicious actors target Discovery and our service providers.

Our systems and our service providers’ systems have been breached in the past due to cybersecurity attacks.

These systems may continue to be breached in the future due to employee error, malicious code, hacking and phishing attacks, or otherwise.

If our information security systems or data are compromised in a material way, such compromises could result in a disruption of services or a reduction of the revenues we are able to generate from such services, damage to our brands and reputation, a loss of confidence in the security of our offerings and services, and significant legal and financial exposure, each of which could potentially have an adverse effect on our business.

Additionally, outside parties may attempt to fraudulently induce employees or users to disclose sensitive or confidential information in order to gain access to data and systems.

Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures, notwithstanding our ongoing efforts to develop and implement robust data security tools, practices, and protocols.

We may not have adequate insurance coverage to compensate us for losses associated with cybersecurity and privacy events.

In addition, we face regulatory risk associated with the acquisition, storage, disclosure, use and protection of personal data, including under the E.U.

We also face regulatory risk associated with the acquisition, storage, disclosure, use and protection of personal data, including under the E.U.

GDPR, the CCPA, and various other domestic and international privacy and data security laws and regulations, which are continually evolving.

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Risks Related to the COVID-19 Pandemic

The ongoing COVID-19 pandemic has disrupted, and is expected to continue to disrupt our business operations and poses risks to our business, results of operations and financial position, the nature and extent of which are highly uncertain, rapidly changing and unpredictable.

The continuing global spread of the coronavirus disease 2019, commonly called “COVID-19,” has created significant worldwide operational volatility, uncertainty and disruption.

Countries throughout the world have imposed stringent restrictions on social and commercial activity in an effort to slow the spread of the illness.

These restrictions vary by location and have had a significant adverse impact upon many sectors, including the media industry in which we operate.

The extent of the impact to our business, customers, employees, vendors, and our distribution, advertising and production partners will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity and the extent of future surges of COVID-19 and the actions to contain the virus or treat its impact, among others.

Any negative effect on these third parties could materially adversely impact us.

In particular, our advertising revenues, which represented 52% of our consolidated revenues in 2020, may decrease significantly if our advertising partners in certain sectors (such as travel) continue to reduce their advertising spending, or if we are limited in our ability to create and air new content due to prolonged production shutdowns and delays.

The COVID-19 pandemic has caused some of our advertisers to reduce their spending, and future declines in the economic prospects of advertisers or the economy in general due to COVID-19 could continue to negatively impact their advertising expenditures in the future.

We may continue to experience decreases in advertising revenues related to live sporting events, which have been cancelled or postponed due to the pandemic.

For example, the International Olympic Committee and the Tokyo 2020 Organizing Committee agreed to postpone the 2020 Olympic Games to 2021.

The postponement of the Olympic Games has delayed our expected Olympic-related revenue.

Further, a prolonged, global recession due to COVID-19 may put pressure on household budgets and cause a decrease in consumer discretionary spending, which may decrease our subscriber numbers, distribution revenues and the rates we are able to charge for advertising.

In addition, we continue to implement remote work arrangements in various geographic locations.

While these arrangements have not materially affected our ability to maintain our business operations to date, these arrangements may adversely impact our business operations in the future.

The extent to which COVID-19 will adversely impact our business, financial condition and results of operations will depend on numerous evolving factors, which are highly uncertain, rapidly changing and cannot be predicted, including:

• the duration and scope of the outbreak, including the extent of future surges of the disease, vaccine distribution and other actions to contain the virus or treat its impact;

• governmental, business and individual actions that have been and continue to be taken in response to the outbreak, including travel restrictions, quarantines, social distancing, work-at-home, stay-at-home and shelter-in-place orders and shut-downs;

• the impact of the outbreak on the financial markets and economic activity generally;

• the effect of the outbreak on our investments, customers, vendors and production partners;

• the impact of the outbreak on the health, well-being and productivity of our employees and the potential for disruption to our ability to conduct our operations;

• the ability of our customers to pay for our services during and following the outbreak.

The COVID-19 pandemic has caused substantial disruption in financial markets and economies worldwide, both of which could result in adverse effects on our business, operations, stock price and ability to raise capital.

The COVID-19 pandemic has negatively impacted the global economy and created significant volatility and disruption in the credit and financial markets, and while some economic disruption may ease from time to time, such disruption is expected to continue and may worsen for an undetermined period of time.

The pandemic and continued spread of COVID-19 has caused a global recession.

There is a significant degree of uncertainty and lack of visibility as to the extent and duration of such slowdown or recession;

however, a prolonged slowdown or recession may adversely affect our credit ratings, stock price, ability to access capital on favorable terms and ability to meet our liquidity needs.

The COVID-19 pandemic has caused substantial disruption in television production, financial markets and economies worldwide, both of which could result in adverse effects on our business, operations, stock price and ability to raise capital.

The COVID-19 pandemic has negatively impacted the global economy and continues to create significant volatility and disruption in the credit and financial markets, and while some economic disruption may ease from time to time, such disruption is expected to continue and may worsen for an undetermined period of time.

There is a significant degree of uncertainty and lack of visibility as to the extent and duration of the global economic disruption caused by COVID-19;

however, a prolonged disruption, slowdown or recession could materially adversely affect our credit ratings, stock price, ability to access capital on favorable terms and ability to meet our liquidity needs.

Our businesses, as with other businesses globally, have been significantly affected by the COVID-19 pandemic both domestically and internationally, including as a result of governmentally imposed shutdowns, workforce realignments, labor and supply chain interruptions, and quarantines and travel restrictions, among other factors.

Shutdowns and/or restrictions relating to television production activity have impacted, and may continue to impact, various aspects of project scheduling, completion and budgets, as well as revenue streams tied to projected release or availability dates.

All such impacts may continue for an indefinite length of time.

Our actions to limit the adverse effects of COVID-19 on our financial condition may not be successful, as the extent and duration of the adverse effects of the pandemic is not determinable and depends on future developments, which are highly uncertain and cannot be predicted.

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If adequate funding is not available, we may be required to reduce expenditures, including curtailing our growth strategies and reducing our product development efforts, or forego acquisition opportunities.

Risks Related to our International Operations

We are subject to risks related to our international operations.

Risks Related to Domestic and Foreign Laws and Regulations and Other Risks Related to International Operations

Changes in domestic and foreign laws and regulations and other risks related to international operations could adversely impact our business, financial condition and results of operations.

Programming services like ours, and the distributors of our services, including cable operators, satellite operators and other multi-channel video programming distributors, are regulated by U.S.

federal laws and regulations issued and administered by various federal agencies, including the FCC, as well as by state and local governments, in ways that affect the daily conduct of our video content business.

These obligations and regulations, among other things, require closed captioning of programming for the hearing impaired, require certain content providers to make available audio descriptions of programming for the visually impaired, limit the amount and content of commercial matter that may be shown during programming aimed primarily at an audience of children aged 12 and under, and require the identification of (or the maintenance of lists of) sponsors of political advertising.

See the discussion under “Business – Regulatory Matters” that appears above.

Congress, the FCC and the courts currently have under consideration, and may adopt or interpret in the future, new laws, regulations and policies regarding a wide variety of matters that could, directly or indirectly, affect the operations of our U.S.

media properties or modify the terms under which we offer our services and operate.

Similarly, the foreign jurisdictions in which our networks are offered have, in varying degrees, laws and regulations that govern our business.

We have operations through which we distribute programming outside the United States.

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• laws and policies affecting trade and taxes, including laws and policies relating to the repatriation of funds and withholding taxes, and changes in these laws;

• changes in local regulatory requirements, including restrictions on content, imposition of local content quotas and restrictions on foreign ownership;

• local regulatory requirements (and any changes to such requirements), including restrictions on content, censorship, imposition of local content quotas, local production levies and restrictions or prohibitions on foreign ownership, outsourcing, consumer protection, intellectual property and related rights, including copyright and rightsholder rights and remuneration;

• our ability to obtain the appropriate licenses and other regulatory approvals we need to broadcast content in foreign countries;

• differing degrees of protection for intellectual property and varying attitudes towards the piracy of intellectual property;

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• anti-corruption laws and regulations such as the Foreign Corrupt Practices Act and the U.K.

Bribery Act that impose stringent requirements on how we conduct our foreign operations and changes in these laws and regulations;

Bribery Act, and programs administered by the Office of Foreign Assets Control, that impose stringent requirements on how we conduct our foreign operations and changes in these laws and regulations;

• foreign privacy and data protection laws and regulation and changes in these laws;

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sources, which could have a material adverse effect on our business, financial condition, operating results, liquidity and prospects.

Acts of terrorism, hostilities, imposition of sanctions, or financial, political, economic or other uncertainties could lead to a reduction in revenue or loss of investment, which could adversely affect our results of operations.

Furthermore, some foreign markets where we and our partners operate may be more adversely affected by current economic conditions than the U.S.

We also may incur substantial expense as a result of changes, including the imposition of new restrictions, in the existing economic or political environment in the regions where we do business.

Acts of terrorism, hostilities, or financial, political, economic or other uncertainties could lead to a reduction in revenue or loss of investment, which could adversely affect our results of operations.

This is of particular concern in Poland, where we own and operate TVN, a portfolio of free-to-air and pay-TV lifestyle, entertainment, and news networks.

On December 17, 2021, a proposed amendment to the Polish Broadcasting Act commonly referred to as “LEX TVN” was presented to the lower chamber of the Polish Parliament (the “Sejm”) for consideration and was subsequently passed by the Sejm.

LEX TVN would prohibit the granting of licenses for television and radio broadcasting channels in Poland, such as the TVN portfolio of channels, to broadcasters with more than 49% of their share capital directly or indirectly controlled by an entity with a registered seat outside of the European Economic Area, essentially precluding non-European Economic Area ownership of media entities in Poland.

LEX TVN was presented to the President of Poland for consideration and, on December 27, 2021, the President of Poland vetoed LEX TVN.

In the future, if legislation similar to LEX TVN is enacted, it could, directly or indirectly, affect the future operations of our Polish media properties and/or modify the terms under which we offer our services and operate in that market in the future.

Global economic conditions may have an adverse effect on our business.

Our business is significantly affected by prevailing economic conditions and by disruptions to financial markets.

Our business is significantly affected by prevailing economic conditions, including inflation and fluctuations in interest rates, and by disruptions to financial markets.

We derive substantial revenues from advertisers, and these expenditures are sensitive to general economic conditions and consumer buying patterns.

Financial instability or a general decline in economic conditions in the U.S.

and other countries where our networks are distributed could adversely affect advertising rates and volume, resulting in a decrease in our advertising revenues.

and other countries where our networks are distributed could adversely affect the businesses of our partners who might reduce their spending on advertising, which could result in a decrease in advertising rates and volume and our advertising revenues.

Decreases in consumer discretionary spending in the U.S.

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Similarly, a decrease in viewing subscribers would also have a negative impact on the number of viewers actually watching the programs on our programming networks, which could also impact the rates we are able to charge advertisers.

Economic conditions affect a number of aspects of our businesses worldwide and impact the businesses of our partners who purchase advertising on our networks and might reduce their spending on advertising.

Economic conditions can also negatively affect the ability of those with whom we do business to satisfy their obligations to us.

The general worsening of current global economic conditions could adversely affect our business, financial condition or results of operations, and the worsening of economic conditions in certain parts of the world, specifically, could impact the expansion and success of our businesses in such areas.

As a company that has operations in the United Kingdom, the United Kingdom’s withdrawal from the E.U.

could have an adverse impact on our business, results of operations and financial position.

On January 31, 2020, the United Kingdom (“U.K.”) formally withdrew from the E.U., commonly referred to as “Brexit.” The transition period, during which the pre-Brexit rights and obligations on trade, travel and business for the U.K.

continued to apply, ended on December 31, 2020.

As of January 1, 2021, the relationship between the U.K.

is governed by the EU-UK Trade and Co-operation Agreement (“TCA”), which is effective provisionally pending ratification by the European Parliament.

As a result of Brexit, the single market and country of origin principles which have facilitated our cross-border activities from the U.K.

into the E.U.

have ceased, which could have an adverse impact on our operations and business activities.

We have incurred, and may continue to incur, costs, including due to reestablishment of broadcasting entities from the U.K.

into the E.U., staff relocations and business travel, to minimize disruption to our businesses in the E.U.

There remains potential legal uncertainty and potentially divergent national laws and regulations as the U.K.

determines which E.U.

laws to replace and/or replicate.

The announcement and implementation of Brexit has caused significant volatility in global stock markets and currency exchange rate fluctuations.

With the expansion of our international operations, our exposure to currency exchange rate fluctuation has increased.

This increase in exposure could have an adverse effect on our results of operations and net asset balances, due, in part, to currency fluctuations impacting the British pound and the Euro.

Brexit may also create global uncertainty, which may cause a decrease in consumer discretionary spending.

Decreases in consumer discretionary spending may affect cable television and other video service subscriptions where our networks are distributed.

A decrease in the number of subscribers receiving our programming could have a negative impact on our distribution revenues and the rates we are able to charge for advertising.

In addition, different market requirements for advertising content may impact our advertising revenues.

Any of the foregoing factors may adversely affect our business, results of operations or financial position.

Foreign exchange rate fluctuations may adversely affect our operating results and financial conditions.

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As a result, we have exposure to foreign currency risk as we enter into transactions and make investments denominated in multiple currencies.

In addition, unforeseeable changes in foreign currency exchange rates could materially adversely affect our calculations of interest coverage and leverage ratios, which are used by independent rating agencies to assign short and long-term debt ratings.

Lower debt ratings could increase our cost of borrowing or make it more difficult for us to obtain future financing, which could materially adversely affect our operating results and financial conditions.

The value of these currencies fluctuates relative to the U.S.

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jurisdictions.

Many foreign jurisdictions are contemplating additional taxes and/or levies on media advertising, including the recently announced proposed levy on media companies under consideration by the Polish government.

Many foreign jurisdictions are contemplating additional taxes and/or levies on over-the-top services, as well as media advertising.

In addition, many foreign jurisdictions have increased scrutiny and have either changed, or plan to change, their international tax systems due to the Organisation for Economic Co-operation and Development’s (“OECD”) Base Erosion and Profit Shifting (“BEPS”) recommendations.

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We continue to address and comply with these compliance and reporting requirements.

Recently, officials from 136 jurisdictions, including the U.S., agreed upon a framework for overhauling the taxation of multinational corporations that includes, among other things, profit reallocation rules and a 15% global minimum corporate income tax rate.

These provisions, if implemented, could have a material effect on our income tax liability.

Additional complexity has also arisen in state aid:

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The potential impact of these rulings is difficult to assess and our transfer pricing analyses conducted pursuant to accepted OECD methodologies may not sufficiently mitigate risk associated with our past or current agreements.

Continued access, at historical levels, to production incentive schemes, such as tax credits, may also be affected by proposed changes in the laws currently under examination.

In addition, the determination of our worldwide provision for income taxes and current and deferred tax assets and liabilities requires judgment and estimation.

Our income taxes could also be materially adversely affected by earnings being lower than anticipated in jurisdictions that have lower statutory tax rates and higher than anticipated in jurisdictions that have higher statutory tax rates, by changes in the valuation of our deferred tax assets and liabilities, or by changes in worldwide tax laws, regulations, or accounting principles.

In the U.S., President Biden put forth several corporate income tax proposals during his campaign, including a significant increase in the corporate income tax rate and changes in the taxation of non-U.S.

I n the U.S., the Biden administration has issued guidance on certain tax law changes that it would support, which include, among other things, a significant increase in the corporate income tax rate, a new alternative minimum tax on book income and changes in the taxation of non-U.S.

There has been recently released proposed legislation that includes, among other things, a new interest deduction limitation for certain domestic corporations that are member of certain multinational groups.

While it is too early to predict the outcome of these proposals, if enacted, they would have a material impact on our income tax liability .

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We are a holding company, and our sources of cash include our available cash balances, net cash from the operating activities of our subsidiaries, any dividends and interest we may receive from our investments, availability under our credit facility or any credit facilities that we may obtain in the future and proceeds from any asset sales we may undertake in the future.

The ability of our operating subsidiaries, including Discovery Communications, LLC, to pay dividends or to make other payments or advances to us will depend on their individual operating results and any statutory, regulatory or contractual restrictions, including restrictions under our credit facility, to which they may be or may become subject.

The ability of our operating subsidiaries, including Discovery Communications, LLC, ("DCL") to pay dividends or to make other payments or advances to us will depend on their individual operating results and any statutory, regulatory or contractual restrictions, including restrictions under our credit facility, to which they may be or may become subject.

Under the 2017 Tax Cuts and Jobs Act, we were subject to U.S.

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• the existence of authorized and unissued stock which would allow our Board of Directors to issue shares to persons friendly to current management, thereby protecting the continuity of our management, or which could be used to dilute the stock ownership of persons seeking to obtain control of us.

We have also adopted a shareholder rights plan in order to encourage anyone seeking to acquire us to negotiate with our Board of Directors prior to attempting a takeover.

While the plan is designed to guard against coercive or unfair tactics to gain control of us, the plan may have the effect of making more difficult or delaying any attempts by others to obtain control of us.

Holders of any single series of our common stock may not have any remedies if any action by our directors or officers has an adverse effect on only that series of common stock.

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Theft of our content, including digital copyright theft and other unauthorized exhibitions of our content, may decrease revenue received from our programming and adversely affect our businesses and profitability.

The success of our business depends in part on our ability to maintain the intellectual property rights to our entertainment content.

We are fundamentally a content company, and piracy of our brands, television networks, digital content and other intellectual property has the potential to significantly and adversely affect us.

Piracy is particularly prevalent in many parts of the world that lack copyright and other protections similar to existing law in the U.S.

It is also made easier by technological advances allowing the conversion of content into digital formats, which facilitates the creation, transmission and sharing of high-quality unauthorized copies.

Unauthorized distribution of copyrighted material over the Internet is a threat to copyright owners’ ability to protect and exploit their property.

The success of our business depends in part on our ability to maintain and enforce the intellectual property rights underlying our entertainment content.

We are fundamentally a content company, and piracy of our content (including digital content), television networks, brands and other intellectual property has the potential to significantly and adversely affect us.

Piracy is particularly prevalent in parts of the world that do not effectively enforce intellectual property rights and laws, in contrast to territories such as the U.S.

and much of Europe, and the Oceania territories.

Even in territories like the U.S., legal frameworks that are unresponsive to modern realities, combined with the lack of effective technological prevention and enforcement measures, may impede our enforcement efforts.

Our enforcement activities depend in part on third parties, including technology and platform providers, whose cooperation and effectiveness cannot be assured to any degree.

In addition, technological advances that allow the almost instantaneous unauthorized copying and downloading of content into digital formats without any degradation of quality from the original facilitate the rapid creation, transmission and sharing of high-quality unauthorized copies.

Unauthorized distribution of copyrighted material over the internet is a threat to copyright owners’ ability to maintain the exclusive control over their copyrighted material and thus the value of their property.

The proliferation of unauthorized use of our content may have an adverse effect on our business and profitability because it reduces the revenue that we potentially could receive from the legitimate sale and distribution of our content.

Litigation may be necessary to enforce our intellectual property rights, protect trade secrets or to determine the validity or scope of proprietary rights claimed by others.

Domestic and foreign laws and regulations could adversely impact our operating results.

Programming services like ours, and the distributors of our services, including cable operators, satellite operators and other multi-channel video programming distributors, are regulated by U.S.

See the discussion under “Business – Regulatory Matters” above.

media properties or modify the terms under which we offer our services and operate.

Similarly, the foreign jurisdictions in which our networks are offered have, in varying degrees, laws and regulations governing our businesses.

Programming businesses are subject to regulation on a country-by-country basis.

Changes in regulations imposed by foreign governments could also adversely affect our business, results of operations and ability to expand our operations beyond their current scope.

Financial markets are subject to volatility and disruptions that may affect our ability to obtain or increase the cost of financing our operations and our ability to meet our other obligations.

Increased volatility and disruptions in the U.S.

and global financial and equity markets may make it more difficult for us to obtain financing for our operations or investments or increase the cost of obtaining financing.

Our borrowing costs can be affected by short and long-term debt ratings assigned by independent rating agencies which are based, in significant part, on our performance as measured by credit metrics such as interest coverage and leverage ratios.

A low rating could increase our cost of borrowing or make it more difficult for us to obtain future financing.

Unforeseeable changes in foreign currencies could negatively impact our results of operations and calculations of interest coverage and leverage ratios.

We may need to spend significant amounts of money on improvement of technological platform security and enforcement activities, including litigation, to protect our intellectual property rights.

Any impairment of our intellectual property rights, including due to changes in U.S.

or foreign intellectual property laws or the absence of effective legal protections or enforcement measures, could materially adversely impact our business, financial condition and results of operations.

Acquisitions and other strategic transactions present many risks and we may not realize the financial and strategic goals that were contemplated at the time of any transaction.

From time to time we make acquisitions, investments and enter into other strategic transactions, such as the Scripps Acquisition.

From time to time we make acquisitions, investments and enter into other strategic transactions, such as the Scripps Acquisition and the pending Combination.

In connection with such acquisitions and strategic transactions, we may incur unanticipated expenses, fail to realize anticipated benefits, have difficulty incorporating the acquired businesses, disrupt relationships with current and new employees, subscribers, affiliates and vendors, incur significant debt, or have to delay or not proceed with announced transactions.

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Our business depends upon the continued efforts, abilities and expertise of our corporate and divisional executive teams and entertainment personalities.

Following the completion of a merger, like the Scripps Acquisition, current and prospective employees may experience uncertainty about their future roles with Discovery and choose to pursue other opportunities, which could have an adverse effect on Discovery.

Following the completion of a merger, like the Scripps Acquisition or the pending Combination, current and prospective employees may experience uncertainty about their future roles with Discovery and choose to pursue other opportunities, which could have an adverse effect on Discovery.

If key employees depart, our business may be adversely affected.

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If we fail to retain key individuals or if our entertainment personalities lose their current audience base, our operations could be adversely affected.

The market price of our common stock has been highly volatile and may continue to be volatile due to circumstances beyond our control.

The market price of our common stock has fluctuated, and may continue to fluctuate, widely, due to many factors, some of which may be beyond our control.

These factors include, without limitation:

• the pendency and completion of the Combination, including AT&T's decision to conduct the Distribution as a pro rata distribution;

• large stockholders exiting their position in our common stock;

• an increase or decrease in the short interest in our common stock;

• comments by securities analysts or other third parties, including blogs, articles, message boards, and social and other media;

• actual or anticipated fluctuations in our financial and operating results;

• risks and uncertainties associated with the ongoing COVID-19 pandemic;

• risks and uncertainties related to material effects of climate change;

• development and provision of programming for new television and telecommunications technologies and the success of our discovery+ streaming product;

• spending on domestic and foreign television advertising;

• changes in the distribution and viewing of television programming, including the expanded deployment of personal video recorders, subscription video on demand, internet protocol television, mobile personal devices, and personal tablets and their impact on television advertising revenue;

• fluctuations in foreign currency exchange rates;

• public perception of us, our competitors, or industry;

• overall general market fluctuations.

Stock markets in general and our stock price in particular have recently experienced extreme price and volume fluctuations that have been unrelated or disproportionate to the operating performance of those companies and our company.

Market fluctuations and anomalous trading activities, including sales of large blocks of our Series A common stock and Series C common stock, have caused and may in the future cause the market price and demand for our common stock to fluctuate substantially, which may negatively affect the price and liquidity of our common stock.

Unresolved Staff Comments.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors