“I’m pleased with how much we’ve gotten done in such a short period of time, but I also know we have a lot more to do.” – Disney CEO Bob Iger
It’s increasingly clear that Disney CEO Bob Iger is in transformation mode. And the calmer, gentler Bob is giving way to the new Bob who calls it like he sees it even as feathers ruffle loudly beyond the mountains of Sun Valley. Whether it’s Disney’s $3/mo price hikes this week for Disney+ and Hulu, its new crusade to slash even more costs beyond $5.5 billion, a looming password crackdown, or a tough stance on the Hollywood strikes, Iger is sending a message that he’s not here to make friends. He’s here to set up Disney for the next 30 years. Take his comments during its fiscal Q3 earnings call that named film, parks, and streaming as what “will drive the greatest growth and value creation over the next five years.” That completely leaves out traditional linear TV, perhaps doubling down on that CNBC Sun Valley interview in which he suggested TV is no longer Disney’s core. In Q2, linear revenue declined by 7% YOY, with operating income down 23% YOY to $1.9 billion, as Iger confirmed this week he’s on the hunt for “strategic partnerships for ESPN,” although he stressed Disney wants to retain control. Interestingly, ESPN ad revenue was up 4% despite a decline in Disney’s overall linear ad revenue. Still, Iger sees that film-parks-streaming trifecta as Disney’s best chance to spin its IP flywheel into a global money-making frenzy. And this week he reaffirmed that Disney expects direct-to-consumer profits by year-end 2024, which would be quite a feat considering that Disney’s DTC segment posted a $512 million operating loss in the quarter. That’s a more than 50% improvement over Q2 2022 and part of a $1 billion loss reduction over three quarters as interim CFO Kevin Lansberry revealed that Disney will reduce its content spend in 2023 to $27 billion, $3 billion less than 2022, partly because of the strikes but also as part of Iger’s campaign to “rationalize” content costs. As for DTC growth, Disney+ netted nearly 800,000 new global subscribers in the quarter (1.1 million added internationally, offset by 300,000 lost in the U.S. and Canada) to end with 105.7 million global subs (excluding Hotstar). Hulu added 100,000 subs in the quarter to end with 48.3 million while ESPN+ lost 100,000 to end with 25.2 million. Meanwhile, Disney continues to improve Disney+ domestic ARPU, which was up 16.6% YOY, although Hulu ARPU declined by 4.1% YOY even as higher per-sub ad revenue pushed it up 5.6% sequentially. DTC ARPU could rise significantly in Q3 because of those $3/mo price hikes, but it will depend on how many cancel service, downgrade to ad tiers, or take discounted Hulu-Disney+ bundle options. On password sharing, Iger declined to reveal how many are sharing but said it’s “significant” and that “we’re going to get at this issue” in 2024. “We certainly have established this as a real priority, and we actually think there’s an opportunity here to help us grow our business,” he said. Disney has no shortage of those opportunities, but pleasing Wall Street, Hollywood, and consumers will be a tricky balancing act. Iger’s life would have been easier in retirement, but what’s the fun in that?
