Disney+ loses 4m subs; Hulu combo planned
May 11, 2023
The Walt Disney Company, amidst its 100th anniversary, has reported its Q2 2023 earnings. Revenues were at $21.81 billion (€19.94bn), an increase of 13 per cent on the same period last year. Disney+ lost 4 million subscribers (now at 157.8 million), mostly via its Hotstar service in Asia, after losing 2.4 million in the previous quarter – but at the same time narrowed its losses by $400 million.
“We’re pleased with our accomplishments this quarter, including the improved financial performance of our streaming business, which reflect the strategic changes we’ve been making throughout the company to realign Disney for sustained growth and success,” said Bob Iger, Chief Executive Officer, The Walt Disney Company. “From movies to television, to sports, news, and our theme parks, we continue to deliver for consumers, while establishing a more efficient, coordinated, and streamlined approach to our operations.”
Iger used the company’s quarterly earnings call to reveal plans to combine content from Hulu and Disney+ into a “one-app experience” by the end of the year, which he described as “a logical progression of our DTC offerings that will provide greater opportunities for advertisers, while giving bundle subscribers access to more robust and streamlined content, resulting in greater audience engagement and ultimately leading to a more unified streaming experience.”
Hulu and Disney+, as well as the ESPN+ platform, will continue to be available as standalone services. Consumers in North America are able subscribe to a package that bundles the three platforms together at a discounted rate.
Speculation in recent months has surrounded Disney’s plans for Hulu, in which it has some 67 per cent stake, with the remaining 33 per cent is controlled by Comcast.
It’s certainly a turbulent time for Disney, with Florida Governor Ron DeSantis taking action against Walt Disney theme park operations; a restructuring of the company seeing 7,000 employees axed; and now a writer’s strike hitting its TV, movie and DTC offerings. Shares in Disney fell 4.4 per cent in after-hours trading.
Summary of results in key segments
Linear Networks
Linear Networks revenues for the quarter decreased 7 per cent to $6.6 billion, and operating income decreased 35 per cent to $1.8 billion.
Domestic Channels
Domestic Channels revenues for the quarter decreased 4 per cent to $5.6 billion, and operating income decreased 33 per cent to $1.6 billion. The decrease in operating income was due to lower results at both Cable and Broadcasting.
The decrease at Cable was attributed to higher sports programming and production costs and, to a lesser extent, lower affiliate and advertising revenue. The increase in sports programming and production costs was attributable to higher College Football Playoffs (CFP) and NFL programming costs and, to a lesser extent, contractual rate increases for NBA programming and an increase in production costs. The increase in costs for CFP programming was due to the timing of games relative to Disney’s fiscal periods as the current quarter included three CFP games compared to one game in the prior-year quarter. Higher NFL rights costs were due to the timing of costs under a new agreement compared to the prior NFL agreement. Lower affiliate revenue resulted from a decline in subscribers, partially offset by higher contractual rates. Advertising revenue decreased because of lower impressions at the non-sports channels, partially offset by the timing of the CFP.
The decrease at Broadcasting was due to lower results at ABC and the owned television stations, both of which reflected lower advertising revenue. The decrease at ABC was driven by lower average viewership, while the decrease at the owned television stations was due to lower rates.
International Channels
International Channels revenues for the quarter decreased 18 per cent to $1.1 billion and operating income decreased 65 per cent to $85 million. The decrease in operating income was primarily due to lower advertising revenue, partially offset by a decrease in programming costs.
Lower advertising revenue was due to decreases in impressions and rates and an unfavourable foreign exchange impact. Lower impressions were attributable to decreases in average viewership at our sports and non-sports channels. The decrease at our sports channels was primarily due to cricket programming, which reflected airing fewer Indian Premier League (IPL) matches in the current quarter compared to the prior-year quarter as the 2023 IPL season started approximately one week later than the 2022 season. This decrease was partially offset by airing more Board of Control for Cricket in India matches in the current quarter compared to the prior-year quarter.
Programming costs decreased compared to the prior-year quarter due to a favourable foreign exchange impact, partially offset by costs for new soccer rights.
Direct-to-Consumer
Direct-to-Consumer revenues for the quarter increased 12 per cent to $5.5 billion and operating loss decreased $0.2 billion to $0.7 billion. The decrease in operating loss was due to improved results at Disney+ and ESPN+, partially offset by lower operating income at Hulu.
The improvement at Disney+ was due to higher subscription revenue and a decrease in marketing costs, partially offset by higher programming and production costs and, to a lesser extent, increased technology costs. Higher subscription revenue was attributable to subscriber growth and increases in retail pricing, partially offset by an unfavourable foreign exchange impact. The increase in programming and production costs was due to more content provided on the service.
Improved results at ESPN+ were attributable to growth in subscription revenue due to an increase in retail pricing and subscriber growth.
The decrease in operating income at Hulu was due to higher programming and production costs and lower advertising revenue, partially offset by subscription revenue growth and, to a lesser extent, lower marketing costs. The increase in programming and production costs was attributable to more content provided on the service and an increase in subscriber-based fees for programming the Live TV service, partially offset by a lower average cost mix of SVoD content. Higher subscriber-based fees for programming the Live TV service were due to rate increases and more subscribers. The decrease in advertising revenue resulted from lower impressions, partially offset by higher rates. Subscription revenue growth was due to increases in retail pricing and subscribers.
Domestic Disney+ average monthly revenue per paid subscriber increased from $5.95 to $7.14 due to an increase in average retail pricing.
International Disney+ (excluding Disney+ Hotstar) average monthly revenue per paid subscriber increased from $5.62 to $5.93 due to a favourable foreign exchange impact, a lower mix of wholesale subscribers and an increase in wholesale pricing.
Disney+ Hotstar average monthly revenue per paid subscriber decreased from $0.74 to $0.59 due to lower per-subscriber advertising revenue.
ESPN+ average monthly revenue per paid subscriber increased from $5.53 to $5.64 driven by higher per-subscriber advertising revenue, partially offset by a higher mix of subscribers to multi-product offerings.
Hulu SVoD Only average monthly revenue per paid subscriber decreased from $12.46 to $11.73 due to lower per-subscriber advertising revenue and a higher mix of subscribers to multi-product offerings, partially offset by an increase in average retail pricing.
Hulu Live TV + SVoD average monthly revenue per paid subscriber increased from $87.90 to $92.32 primarily due to an increase in average retail pricing, partially offset by lower per-subscriber advertising revenue.
Content Sales/Licensing and Other
Content Sales/Licensing and Other revenues for the quarter increased 18 per cent to $2.2 billion and operating results decreased from income of $16 million to a loss of $50 million. The decrease was due to lower TV/SVoD distribution results, partially offset by an improvement at theatrical distribution.
The decrease in TV/SVoD distribution results was primarily due to lower sales volumes of film content, which included the impact of the shift from licensing our content to third parties to distributing it on our DTC streaming services.
The improvement at theatrical distribution was due to the continued success of Avatar: The Way of Water, which was released in the first quarter of the current year, partially offset by the comparison to co-production income in the prior-year quarter from Marvel’s Spider-Man: No Way Home. The current quarter included the release of Ant-Man and the Wasp: Quantumania whereas the prior-year quarter included the release of Death on the Nile.
Responding to the results, Paolo Pescatore of PP Foresight said: “Everyone is still fixated on subscriber net additions. Striking a fine balance between customer acquisition versus financial performance is no easy feat.”
“Any subscriber losses in streaming is only a blip. Disney including all rival traditional media giants are all pivoting towards a streaming future. The journey feels somewhat akin to Netflix’s path. Therefore, expect more bumps ahead and further losses in the streaming business as there’s no silver bullet to profitability. It is encouraging to see Disney+ ARPU increase in its core markets. Disney still has all the key assets and remains better placed than other media giants. By having a diversified and broad business, it has and will continue to weather any storm,” he added