Disney stressed on Tuesday that profitability for its flagship streaming service was on the horizon. But the company’s quarterly results did little to inspire confidence, with better-than-expected Disney+ subscriber growth, particularly in North America, offset by mounting financial losses for Disney’s direct-to-consumer division as a whole.
Bob Chapek, Disney’s CEO, added a qualifier to his latest claim that Disney+ would turn a profit by September: “assuming we don’t see a meaningful shift in the economic climate.”
Disney+ added an impressive 12.1 million subscribers worldwide in the quarter ended Oct. 1, including 1.9 million in the US and Canada, bringing its total number of subscribers to 164.2 million. Analysts polled by FactSet had expected the service to add 8.8 million customers worldwide. Michael Nathanson, a leading media analyst, had expected Disney+ to increase its domestic base by as little as 500,000.
“Hocus Pocus 2” was a monster hit for Disney+ in the quarter. “She-Hulk: Attorney at Law” also performed well, according to Nielsen viewership data.
Disney now has more than 235 million subscribers across its streaming portfolio, which includes Disney+, ESPN+ and Hulu. By comparison, Netflix last month said it had 223 million subscribers after it reversed a decline by adding 2.4 million in the quarter.
Disney’s direct-to-consumer unit posted a $1.5 billion loss in the quarter, up from $630 million in the same period a year ago. Disney said higher production, marketing and technology costs for Disney+ contributed to the “peak” losses in the latest quarter.
“We expect our DTC losses to decrease going forward,” Chapek said, noting that costs were “adjusted” and the price of a monthly subscription for the current ad-free version of Disney+ went up. Starting December 8, such subscriptions will cost $11, up from $8, a 38% increase. A new, ad-supported option remains $8. Insider Intelligence, a research firm, has estimated that Disney+ could generate $1 billion in ad sales by 2023.
Production and marketing costs also dented Hulu, which expanded its global subscriber base by 1 million, to 47.2 million. In contrast, ESPN+ improved financial results, in part due to higher ad sales; ESPN+ added 1.9 million subscribers, for a new total of 24.3 million.
In terms of average revenue per paid subscriber, a metric closely watched by investors, Disney+ fell in North America (to $6.10 from $6.81) and increased in most markets overseas (to $5.83 from $5.62) . The decline in North America was due to a larger number of subscribers from Disney’s discounted “bundle” offering that includes Disney+, ESPN+ and Hulu.
In total, Disney generated $20.15 billion in revenue in the quarter, up 9% from a year earlier. Analysts had expected $21.3 billion.
The profit amounted to 162 million dollars, or 9 cents per share, about the same level as the previous year. Excluding items affecting comparability, earnings per share for the last quarter were 30 cents. Analysts had expected closer to 50 cents.
Disney has relied primarily on revenue from its theme parks to fund the construction of Disney+ and pay off debt incurred during the height of the pandemic, when nearly all Disney operations were shut down. So far, those efforts have paid off: Disney’s domestic theme park resorts were hamstrung in the quarter, and spending on food and merchandise rose sharply.
Revenue at Disney Parks, Experiences and Products totaled $7.43 billion, up 36% from a year earlier, despite continued coronavirus restrictions at Shanghai Disneyland and the temporary closure of Walt Disney World in Florida due to Hurricane Ian. Operating profit more than doubled to $1.5 billion, in part because Disney’s cruise ships sailed again.
But analysts and investors are worried about a deteriorating US economy.
“A looming recession could dampen short-term demand” for theme park vacations, Macquarie analysts Tim Nollen and Max Schmitt told clients on Oct. 31. “We hope for a mild recession if unemployment does not rise and consumers continue to absorb inflationary pressures. , may not be nearly as bad this time around as in 2009.”
Disney has expressed its confidence by continuing to raise ticket prices and line card privileges. Price increases were introduced last month, making a single-day ticket at Disneyland in California cost as much as $179 over the Christmas period, up from $164 in 2019. Access to the Genie+ line-shortening system will add at least $25 per person, up from $20.