“We are executing against our ambitious strategic priorities with both speed and determination.”– Disney CEO Bob Iger
Disney sits at an intriguing crossroad, this week posting a quarterly profit on its direct-to-consumer business while spooking Wall Street with some of its projections for the rest of the year. But these days, Disney’s $47 million in non-sports DTC operating income for the quarter ending March 31 (its fiscal Q2) feels like a win as the company marches toward sustained DTC profitability by year-end, with CFO Hugh Johnston vowing “further improvements in profitability in fiscal 2025.” However, he warned that “the path to long-term profitability is not a linear one” as he forecast more DTC losses in the current quarter ending July 31. And softness at ESPN+ led to an overall $18 million DTC loss in Q1. Overall, investors could find plenty to love: Disney+ posted a net gain of 4 million subscribers after adding 7.9 million domestic subscribers, losing 1.6 million international subscribers and 2.3 million on the Disney + Hotstar side. Hulu, meanwhile, grew to 45.8 million subscribers, up nearly 5% year-over-year. But it wasn’t all rosy as Hulu + Live declined by 100,000 users amid tough virtual MVPD competition to end the quarter at 4.5 million subs, and ESPN+ – which admittedly is in a bit of transition as Disney plans to launch a standalone DTC version of ESPN next year – lost 400,000 subs to finish with 24.8 million, down 2% sequentially. Overall, however, Disney’s DTC revenue rose a healthy 13% YOY to $5.6 billion as Disney+ core ARPU increased by 6% YOY to $7.28. Buoying some of that was the recent carriage deal with Charter, which included access to the higher-
ARPU Disney+ ad tier for millions of Charter’s higher-end video subs. Only a couple months in, Johnston said “we’re happy with it so far” as “we obviously have gotten added subscribers” with cannibalization “not… very high.” But he cautioned that the structure may not work for all: “As for it being a template for the future, I don’t think I would go to that level. Each of these deals in many ways has to be architected to the specific needs of the partner as well as our needs.” Disney ended the quarter with 22.5 million global ad tier subs. If anything, Wall Street appeared confused by growth and rising ARPU, combined with a choppy forecast, as well as CEO Bob Iger’s admission that the post-COVID bump for the experiences division may be waning just as the company embarks on a $60-billion plan to upgrade its parks over the next decade. But on the entertainment side, the secular decline of linear video cast a shadow, with Disney’s linear revenue down 8% YOY as flat ad spending and more ad tiers than ever dilute the pool of ad money out there. But as more eyeballs shift to streaming, one potential growth engine remains Disney’s planned password-sharing crackdown, which begins next month in some markets and will roll out globally in the fall. “We feel quite bullish about it,” said Iger. “Obviously, we’re heartened by the results that Netflix has delivered in their password sharing initiative and believe that it will be one of the contributors to growth.” Don’t expect Disney to emulate others like Warner Bros. Discovery and start licensing more properties to Netflix, however. Iger said he will proceed “selectively” on that front but has an “open mind” about the traction that licensing certain properties can create. As for Disney’s evolving sports strategy, Iger said an ESPN “tile” will show up on Disney+ this year “with a modest amount of programming” as ESPN makes “a pivot toward digital, but without abandoning linear.” Of course, that strategy also includes the planned standalone ESPN DTC app along with a separate “Spulu” virtual MVPD set to launch in a few months with partners Fox and WBD. Interestingly, the planned virtual MVPD didn’t come up during Disney’s earnings call, but later in the week Disney announced a new streaming bundle with WBD to combine Disney+, Hulu, and Max, with details “to be shared in the coming months” for a summer launch. And speaking of Hulu, reports this week suggest Disney is still haggling with Comcast about the value of its one-third stake, with a multi-billion-dollar gulf between their valuations at the moment. Enthralling times. Try to keep up.
