Disney+ continues to grow rapidly as the streaming service takes Walt Disney Co. into the entertainment of the future. But the effort to stay dominant in the Netflix era is costing the Burbank giant dearly.
Disney’s direct-to-consumer division, which also includes Hulu and ESPN+, reported an operating loss of nearly $1.5 billion on Tuesday, more than double its $630 million loss in the same quarter a year ago.
Armed with shows and movies from the Star Wars and Marvel franchises, Disney+ added 12.1 million subscribers during the company’s fiscal fourth quarter, bringing its total to 164.2 million, including cheap subscriptions from India.
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However, the losses have led the company to look at consumption and pricing in order to reach the profitability targets. Disney said in August that it would raise the monthly fee for Disney+ by $3 to $11 a month starting next month in December, while introducing an ad-supported version at the current rate of $8 a month.
Disney CEO Bob Chapek said in a statement Tuesday that the company still expects Disney+ to be profitable in fiscal 2024, with losses peaking this year.
“By adjusting our costs and realizing the benefits of price increases and Disney+ ad-supported tiering coming December 8, we believe we will be on track to achieve a profitable streaming business that will drive continued growth and generate shareholder value well into the future,” said Chapek.
Overall, Disney posted quarterly results that were nearly flat with the same period a year ago, with net income of $162 million. Revenue and sales fell short of analysts’ expectations, despite a big continued recovery from Disney’s massive parks business. Excluding certain items, earnings came in at 30 cents a share, missing Wall Street estimates of 56 cents, according to FactSet. Revenue rose 9% to $20.2 billion, while analysts had forecast $21.3 billion.
The challenges in streaming illustrate a central dilemma for media and entertainment companies trying to battle Netflix for subscription dollars. Creating the premium content that generates sign-ups costs billions of dollars a year. That, plus marketing expenses, means companies are losing money at a rapid clip while cannibalizing their traditional TV and film businesses.
Warner Bros. Discovery CEO David Zaslav has made clear his opinion that bolstering an online subscription business at any cost is foolhardy, even as the company looks to combine HBO Max with Discovery+.
“The strategy to collapse all windows, starve linearly [television] and theatrical [box office] and spending money with abandon, while earning a fraction in return, all in the service of a growing minority, has ultimately proven, in our view, to be deeply flawed,” Zaslav said last week.
With that view and a debt load of $50 billion, Warner Bros. Discovery cut costs and canceled a number of shows, including “Westworld.” Even Netflix, which has no box office or TV channels to sacrifice, has taken steps to put the brakes on consumption while changing its model by introducing a cheaper, advertising-based tier.
Of the traditional entertainment companies diving into streaming, none has moved more aggressively than Disney, which introduced Disney+ in November 2019 at a price of $6.99 in the US. It grew quickly thanks to hits like “The Mandalorian” and “WandaVision,” but much of its subscriber base has come from India, where the Disney+ Hotstar offering costs little to viewers and generates little revenue for Disney. The company lowered its subscriber forecasts after losing streaming rights to Indian Premier League cricket matches.
Recent Disney+ shows include the “Star Wars” prequel “Andor” and Marvel’s “She-Hulk: Attorney at Law.”
But Disney also relies on the theatrical box office, parks and its linear television networks, including ABC and ESPN.
Its parks, experiences and consumer products rose 36% to $7.43 billion in sales during the fourth quarter, a sign that a weakened economy has not dampened demand for family outings to Disneyland and Walt Disney World since pandemic restrictions were lifted. Operating income from the segment more than doubled to $1.5 billion.
The TV network’s revenue shrank 5% to $6.3 billion, while operating income grew 6% to $1.7 billion. Content sales, which include theatrical box office for movies, fell 15% to $1.74 billion, with an operating loss of $178 million, due in part to lower results from licensing shows and movies to other streaming services and TV networks. Disney released the blockbuster “Thor: Love and Thunder” during the quarter. Next up for Disney’s movie studio is “Black Panther: Wakanda Forever,” which hits theaters Friday.