Q3 Earnings Highlights: Disney and Scripps  

I believe we are well positioned for future long-term growth, and I am confident in the path forward.
– Disney CEO Bob Chapek


Disney execs emanated positive vibes this week as they look to 2024 to bring profitability to their direct-to-consumer efforts, but Wall Street seems impatient with the idea that DTC subscribers can rise nearly 7% sequentially and 19% year-over-year to 235.7 million global accounts but still produce a $1.5 billion quarterly loss, nearly 40% worse than Disney’s $1.06 billion DTC loss in Q2. CNBC’s David Faber and Jim Cramer spent a whole segment this week beating up on Disney’s model, with Faber insisting that “the entire equation there is under question” and pointing out that DTC is “not shaping up to be the same business as the linear cable business has been.” That’s perhaps the entire theme of 2022, starting with Netflix’s surprising Q1 subscriber loss and infecting every major media company all year. It’s gone from “show me the subscribers” to “show me the money” in three seconds flat, and that mantra seems certain to follow us into 2023.

A few things are happening here, none of them apocalyptic but sure to vex Disney for at least a few quarters. First, The Mouse is clearly on a DTC spending spree as it works to acquire subs, produce original content, and dominate competitors. Revenue, meanwhile, faces pressure because of the macroeconomic climate and an unfavorable foreign exchange rate that has depressed international receipts. But perhaps the biggest reason why DTC revenue is down from Q2 even though Disney added 14.6 million new subs comes down to one word familiar to all of us: Bundling. The Disney bundle of Disney+, Hulu, and ESPN+ is almost a victim of its own success at this point, with a whopping 40% of Disney’s DTC subs now leveraging the bundle discount rather than buying services separately. As a result, average revenue per user (ARPU)  has declined 10% YOY for Disney+ to $6.10. Hulu’s ARPU  is down 4% YOY (ESPN+’s ARPU, however, has actually ticked up slightly).  But here’s the thing: Disney is about to get a big revenue boost on December 8 when it launches its ad-supported tier at $7.99/mo and simultaneously raises DTC prices across the board, including the Disney bundle (the $19.99 ad-free bundle will stay the same). The new ad revenue and higher sub fees should modestly impact the quarter ending December 31 (CFO Christine McCarthy forecast a $200 million improvement) but really pack a punch in the first quarter of 2023 when all that revenue flows across a full three months. The unknown factor is how consumers will respond to the increases. Options include downgrading from a premium tier to take the cheaper ad tier or “upgrading” to a bundle, either of which could play havoc with Disney’s ARPU numbers. But a certain number of people might cancel altogether, fed up with yet another price increase amid a sea of them over the last few weeks across streaming, TV, broadband, and wireless. In a time of economic strife, those costs add up for families. And hard choices follow. The good news for Disney is that few if any companies can match its global portfolio. 

Next? Disney may be down, but it’s most certainly not out. In fact, signs are good that the company will not only emerge relatively unscathed but much stronger after this period of growth and investment has matured into a more sustainable juggernaut that straddles streaming, movies, linear TV, gaming, parks, cruises, experiences, and perhaps even the metaverse with IP that no other major media conglomerate can yet match. This week, rumors started flying that Apple is sniffing around Disney now that its stock has hit such depths, an indication that Apple CEO Tim Cook sees a bargain basement sale for a family-friendly, globally respected, insanely well synergized marketing machine falling victim to Wall Street’s Short-Term Thinking Intelligencia. During Disney’s earnings call this week, CEO Bob Chapek told investors that “we still have some opportunity for continued price value exploration on all of our services.” Could the December price hikes become an annual tradition?  “Our history shows that when we have taken price increases across our streaming businesses that we don’t meaningfully increase churn or cancellations,” he said, noting additional “headroom.” As pundits debate the DTC model, perhaps Warner Bros. Discovery CEO David Zaslav is onto something when he clings to more traditional monetization. As for Disney, don’t worry about Mickey. He’s a smart mouse.


We’re just getting started and expect that strategy to fuel continued revenue growth against an impressive run rate.– Scripps President & CEO Adam Symson


The Scripps Networks division of E.W. Scripps continues to play a bigger role in the company’s revenue and profits, which in Q3 were up 10% and 13% year-over-year, respectively. Of that, Scripps Networks revenue was up 4% at $235 million, with CTV revenue growing 57% YOY as Scripps launched more streaming services and FAST-live channels. Execs now expect $100 million in CTV revenue in 2023. President & CEO Adam Symson told investors during this week’s Q3 earnings call that Scripps now engages with 70 million viewers per month on over-the-air and streaming platforms largely unaffected by cord-cutting trends hitting others that rely on traditional MVPD carriage. “This has led us to growing distribution and reach in growing marketplaces, growing audience shares, growing CPMs, and growing revenue,” he said. So while Scripps may face some headwinds (political advertising spend came in lower than expected in Scripps markets, for example), the company’s CTV growth is an increasingly bright spot that might only get more luminous in 2023.


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