Disney+ Loses More Subscribers But Overall Streaming Losses Improve As Company Posts Solid Quarterly Report

Disney+ Loses More Subscribers But Overall Streaming Losses Improve As Company Posts Solid Quarterly Report

May 10, 2023

The Walt Disney Co. reduced losses in its streaming business by 26% (about $200 million) in its fiscal second quarter as the company’s overall results matched Wall Street expectations.

The streaming story included some mixed indicators, however. Flagship service Disney+ had its second straight quarter of sequential decline in subscribers following three years of strong and steady growth. It closed the quarter on April 1 with 157.8 million global subscribers, down 4 million from the prior quarter, with the biggest drag coming from Disney+ Hotstar, whose base shrunk by 8%.

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Excluding certain items, Disney posted diluted earnings of 93 cents a share, down from $1.08 in the same quarter a year ago. Total revenue increased 13% to $21.8 billion. The EPS number met Street forecasts, while revenue slightly exceeded them.

Theme parks, which have returned to full strength after some lingering Covid setbacks in 2022, powered the quarterly performance in a throwback to non-pandemic times. The Parks, Experiences and Products division posted a 17% gain in revenue and a 23% rise in operating income.

In the company’s earnings release, CEO Bob Iger said the results reflect “the strategic changes we’ve been making throughout the company to realign Disney for sustained growth and success.” A major 2023 initiative has been laying off 7,000 workers across the company, including many in the streaming area, as the company pursues a goal of $5.5 billion in cost savings. The job cuts are slated to conclude this summer.

Iger last quarter reaffirmed that the company intends to be profitable in streaming by the end of fiscal 2024, and the latest quarterly numbers suggest those plans are largely on track. Since returning to the CEO role in November 2022, Iger has said Disney had become too fixated on boosting subscriber levels during the nearly two years when Bob Chapek was running the company. Instead, it needs to refocus on profitability, retention and other metrics given the complexities of shifting away from sizable and still-lucrative linear operations.

Average revenue per user, a vital measure of how valuable each subscriber is in streaming, showed significant headway domestically for Disney+, rising from $5.95 to $7.14. The company credited
a recent price increase, which took effect late last year as the company also added an ad-supported tier.

Hulu, counting its live TV bundle, added 200,000 subscribers to reach 48.2 million, while ESPN+ inched up 2% to 25.3 million. Revenue in the direct-to-consumer segment increased 12% to $5.5 billion. Streaming losses came in at $659 million, down from $887 million a year ago and well ahead of analysts’ consensus of $850 million. Disney has said it recently passed the peak of its planned losses on streaming, a massive multi-billion-dollar effort that began almost eight years ago and drove the company to acquire most of 21st Century Fox for $71.3 billion, among other moves.

While Iger has set about dismantling the centralized Media and Entertainment Distribution structure implemented by Chapek, in terms of showing its results to investors, the company is sticking with its existing setup through the end of the fiscal year.

Other areas within DMED painted a picture of a company in transition. The Linear Networks unit saw a 7% slide in revenue to $6.6 billion, while operating income fell 35% to $1.8 billion. Domestic Channels revenue slipped 4% to $5.6 billion, while operating income decreased 33% to $1.6 billion. The domestic declines were due to factors across cable networks, ABC and owned local broadcast stations.

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