FOR DISNEY, STREAMING LOSSES AND TV’S DECLINE ARE A ONE-TWO PUNCH
Bob Iger’s urgent need to overhaul Disney — to turn its streaming division into a profitable enterprise and pull back on its troubled traditional television business — came into sharp relief Wednesday.
Disney’s streaming operation lost $512 million in the most-recent quarter, the company said, bringing total streaming losses since 2019, when Disney+ was introduced, to more than $11 billion. Disney+ lost roughly 11.7 million subscribers worldwide in the three months that ended July 1, for a new total of 146.1 million.
All the decline came from a low-priced version of Disney+ in India. (Last year, Disney lost a bid to renew the expensive rights to Indian Premier League cricket matches.) Excluding India, Disney+ gained 800,000 subscribers, primarily overseas.
To make streaming profitable, Iger, Disney’s CEO, has shifted the focus at Disney+ away from brisk subscriber growth, which requires expensive marketing campaigns. Instead, Disney has been trying to make more money from the Disney+
subscribers it already has. The monthly price for access to an ad-free version of Disney+ rose to $11 in December, from $8.
Another hefty price increase is on the way. Starting Oct. 12, the ad-free version will cost $14, Disney said. Hulu, which is also controlled by Disney, will begin charging $18 for ad-free access, up from $15. As an incentive, Disney will begin selling a new streaming package — ad-free access to both Disney+ and Hulu — for $20 a month starting Sept. 6.
The ad-supported options for both Disney+ and Hulu will remain the same, at $8. “We’re obviously trying with our pricing strategy to migrate more subs to the advertiser-supported tier,” Iger told analysts on a conference call. The pricing news, along with a vow by Iger to follow Netflix by cracking down on password sharing, sent Disney shares up roughly 2 percent in afterhours trading.
Disney still relies on oldline channels like ESPN and ABC for roughly one-third of its operating profits — and those outlets are being maimed by cord cutting, sports programming costs and advertiser pullback. Disney’s traditional channels had $1.9 billion in quarterly operating income, down 23 percent from a year earlier. Disney cited lower ad sales at ABC, partly because of viewership declines, and lower payments from ESPN subscribers, along with higher sports programming costs. (On a positive note, ESPN ad sales increased 10 percent.)
It was the second consecutive quarter in which Disney’s traditional TV business recorded a sharp decline in operating income.
Disney is exploring a once-unthinkable sale of a stake in ESPN. Not all of it, Iger has made clear. But he wants “strategic partners that could either help us with distribution or content,” he said during an interview with CNBC last month. Disney has held talks with the NFL, the NBA and MLB about taking a minority stake.
Earlier this summer, Iger brought in two former senior Disney executives, Kevin Mayer and Tom Staggs, to consult on ESPN strategy with James Pitaro, the channel’s president, and help put together any deal. Mayer and Staggs were both viewed as possible successors to Iger when they were at Disney, ultimately leaving when they were passed over to start their own media company, Candle Media, with private equity firm Blackstone as the backer.
Their return has sent the Hollywood and Wall Street gossip mills into overdrive. Are Mayer and Staggs back in the running for Disney’s top job? Is Blackstone a potential investor in ESPN? Maybe the whole company is being prepped for a sale — with Apple as the buyer?
The first two questions did not come up on Disney’s conference call, and Iger batted away the third. “I just am not going to speculate about the potential for Disney to be acquired by any company, whether it’s a technology company or not,” he said. “Obviously, anyone who wants to speculate about these things would have to immediately consider the global regulatory environment. I’ll say no more than that.”
Iger is also contending with dual strikes in Hollywood. Screenwriters have now been on strike for 100 days and actors for 27. They want higher pay from streaming services and guardrails around the use of artificial intelligence by studios.
Disney’s quarter included some encouraging signs. The $512 million streaming loss was 32 percent less than analysts had predicted, for instance. “While there is more to do, I’m incredibly confident about Disney’s long-term trajectory,” Iger said in a statement.
An 11 percent increase in profitability at Disney’s theme park division — despite unusual weakness at Walt Disney World in Florida — allowed the company to salvage the quarter, to a degree. Companywide revenue totaled $22.3 billion, a 4 percent increase from a year earlier; analysts had expected slightly more. About $2.7 billion in one-time restructuring charges resulted in net loss of $460 million, compared with $1.4 billion in profit a year earlier.