Disney Pares Streaming Losses; Shares Fall on Loss, Earnings Outlook
Disney said it is close to making its streaming business profitable, but its shares fell about 10% Tuesday after the company reported a loss and projected earnings growth that narrowly missed Wall Street expectations.
The media company’s streaming unit lost $18 million in the March quarter, an improvement from a $659 million loss in the year-earlier quarter. Chief Executive Bob Iger said the company is on track to achieve streaming profitability in the final quarter of the fiscal year that ends in September.
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The company’s flagship Disney+ streaming service—home to movies such as “Wish” and TV shows including “Bluey”—added more than six million customers in the March quarter, meeting a rare subscriber forecast that it provided to investors in February.
Disney raised its guidance for full-year adjusted earnings per share growth to 25%, below Wall Street expectations of 25.3%.
Before Tuesday, Disney stock had risen 29% so far this year.
Iger is in the throes of building a streaming-centric future for the entertainment company as cable viewership declines. Disney’s performance in the March quarter is a sign that it is making progress in achieving Iger’s vision but must still execute several important strategic initiatives, including targeting profit margins and growth more in line with what rival Netflix has produced.
Iger has spent the past year aggressively cutting costs, modernizing ESPN and reinvigorating Disney’s studios after box-office stumbles.
As part of that right sizing, Disney merged its Star India operations—which includes its TV networks and the Hotstar streaming service—into a new joint venture with Reliance Industries and Viacom18. The company took a roughly $2 billion charge in the March quarter related to the India deal and to its linear television networks and swung to a loss of $20 million, from net income of $1.27 billion a year earlier.
Companywide revenue rose about 1% to $22.08 billion in the March quarter but fell slightly short of the average analyst estimate on FactSet.
Disney bought the India business in 2019 as part of its $71.3 billion acquisition of most of 21st Century Fox’s global entertainment assets. It was considered a crown jewel of the deal, largely because of several key packages of cricket rights that Star held. When the company lost some of those rights, customers canceled.
The impairment indicates that the India business is today valued at about $2 billion less than when Disney first purchased it, Disney Chief Financial Officer Hugh Johnston said.
Disney last month triumphed over activist investors Nelson Peltz, who unsuccessfully sought a board seat and pushed for budget cuts and other measures, and Blackwells Capital.
Corporate expenses jumped $112 million for the quarter to $391 million, as a result of costs related to its proxy battle—one of the most expensive shareholder fights ever—and annual meeting, as well as higher compensation and other cost inflation. Iger’s total compensation doubled in fiscal 2023 from the previous year to $31.6 million.
The number of domestic Disney+ subscribers rose to 54 million in the March quarter from 46.1 million at the end of December. Overall global subscribers to Disney+, including its Hotstar service in India, increased to 153.6 million in the March quarter, from 149.6 million at the end of December.
Disney is working to increase and deepen customer engagement with its streaming offerings, including by limiting password sharing, improving its recommendation engine and integrating a new Hulu tile into Disney+. Iger said that the company will add an ESPN tile to Disney+ before the end of the year.
“We’ve got a lot of levers that give us strong reasons to believe that there’s good growth in front of us,” Johnston said Tuesday on a call with analysts.
A crackdown on improper password sharing for Disney+ will begin next month in select markets, Iger said, and will roll out across the globe in September.
“Obviously we’re heartened by the results Netflix has delivered” in cracking down on password sharing, Iger said on the call.
The company’s streaming business includes Disney+, ESPN+ and a majority stake in Hulu, home to fare such as “Shōgun” and “The Bear.” It is also working to create a stand-alone direct-to-consumer offering of its flagship ESPN TV channel and is joining with Fox and Warner Bros. Discovery on a new sports-streaming service that offers all of their live-sports programming.
Disney’s sports segment was hit during the quarter by increased programming and production costs related to the timing of College Football playoffs as well as lower affiliate revenue from cord-cutting. Sports revenue rose 2% to $4.31 billion, while operating income in the business fell 2% to $778 million.
Iger said that April was a particularly strong month for ESPN viewership and that sports generally are driving higher engagement with streaming subscribers.
“I see sports continuing, basically, to shine in a world where there’s just considerably more choice,” Iger said. “Live matters.”
Sports are coveted assets for streaming services and cable companies alike vying for customers. Disney, a major TV partner to the National Basketball Association, is in the midst of a high-stakes battle for a new rights package. Iger said he is optimistic that Disney will end up with a long-term NBA deal that is in the company’s best interest.
Excluding sports, Disney’s streaming business earned a profit of $47 million for the quarter. The company forecast a loss for its entertainment direct-to-consumer business in the third quarter in large part because of the cost of cricket rights for Disney+ Hotstar.
Disney’s traditional TV business continues to suffer from declining viewership and was hurt in the quarter by a decline in advertising revenue. It also brought in lower affiliate revenue as a result of its new deal with Charter Communications, which includes the cable company dropping eight of Disney’s cable networks. In return, Disney will get paid for its Disney+ service, which Charter offers to a majority of its customers.
Iger said he has been working with the studio to reduce output and focus more on quality, particularly within its Marvel projects. He highlighted coming releases, including “Kingdom of the Planet of the Apes” this weekend and “Deadpool & Wolverine” in July.
The experiences division, which includes theme parks, cruises, videogames and consumer products, was a bright spot for the quarter.
Revenue increased 10% from a year earlier to $8.39 billion, while operating income rose 12% to $2.29 billion, partly the result of higher average ticket prices. Income rose at Florida’s Walt Disney World and the cruise segment but fell at Disneyland Resort in California, where costs rose because of inflation, Disney said.
Write to Robbie Whelan at robbie.whelan@wsj.com
