Bob Iger
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The Walt Disney Co. announced its results for the second fiscal quarter on Wednesday, with the company broadly beating Wall Street expectations on most key metrics, including revenue.
As with any major entertainment company, streaming profitability (or lack thereof) is one of the most closely watched metrics. Losses at Disney’s direct-to-consumer business continued to decline, falling to $659 million for the quarter, down from $1.1 billion in the previous quarter and from the $1.5 billion peak from Bob Chapek’s final earnings report as CEO.
In a sign of how the company plans to address the economics of streaming, CFO Christine McCarthy said in a earnings call that Disney is in the process of reviewing the shows and films on its services and that it is “removing certain content from streaming platforms.” becomes”. McCarthy added that the company will take a $1.5 billion to $1.8 billion impairment on the removed content.
McCarthy added that the company expects streaming losses to increase by about $100 million in the next quarter.
And Disney CEO Bob Iger added that the company sees both price increases and advertising as growth opportunities. Iger said the company expects to increase the price of the ad-free tier, while the price of the ad-supported tier will remain “modest” thanks to superior economics.
“We anticipate there will be significant growth in digital advertising ahead of time,” Iger said, adding that the company will continue to push advertising on Disney+.
And Iger said the company will create a “one-app” offering for Disney+ and Hulu by the end of the year, though the services will remain separate for now.
In other streaming news, total Disney+ subscribers fell slightly to 157.8 million, compared to 161.8 million in the previous quarter. However, most of those declines were seen at Disney+ Hotstar, with Disney+’s domestic subscriptions falling by just 300,000, which is a surprise given that the price hike would have been largely noticeable to most consumers last quarter.
To that end, average revenue per user (ARPU) at Disney+ skyrocketed, growing 20 percent year over year for domestic users and 6 percent for international users excluding Hotstar.
Streaming revenue increased to $5.5 billion (+12 percent).
Disney’s total revenue for the quarter was $21.8 billion, up 10 percent year-over-year, while segment operating income was $3.3 billion, down 11 percent year-over-year .
The decline in revenue is almost exclusively due to the ongoing challenges in the linear TV business. Linear Networks revenue declined 7 percent year-over-year to $6.6 billion, while the division’s operating income fell 35 percent to $1.8 billion.
Higher sports rights and production costs at ESPN, coupled with lower affiliate and advertising revenue, were the culprits for cable, while ABC and the ABC stations saw lower advertising revenue, continuing a trend seen across the market.
Iger said the company’s plans for ESPN have not changed and that the company will transition ESPN to streaming when the timing is right and pricing is finalized. He added that “all of these things are connected,” from ESPN to the cable bundle to streaming profitability, and that certain things need to be clarified before the company moves forward.
In streaming, Hulu subscribers were more or less flat, with the ad-supported SVOD tier adding 200,000 subscribers and the live TV tier losing 100,000 subscribers. ESPN+ added 400,000 subscribers. Hulu ARPU slightly decreased due to lower ad revenue, while ESPN+ ARPU increased slightly due to higher ad revenue.
And, of course, Disney’s theme park business continued to grow exponentially: International parks revenue grew more than 100 percent to $1.2 billion thanks to the end of COVID-19 restrictions, while domestic parks revenue rose 14 percent to 5.6 billion dollars increased.
The revenue comes as Disney and Iger look to cut costs to make streaming profitable. These included a new organizational structure announced last quarter, as well as some 7,000 job cuts. The company has now seen two rounds of layoffs totaling around 4,000 jobs, and a third round will begin before the summer.
Disney reported $152 million in severance costs for the quarter, and McCathy indicated these will increase in the next quarter as more layoffs take effect.