Disney Q4 earnings, Bob Chapek comments show streaming profits don’t come easy

Disney Q4 earnings, Bob Chapek comments show streaming profits don’t come easy

Before we get to today’s main topic – the small cracks emerging in Disney’s streaming strategy – a few extra thoughts on today’s biggest story.

Meta notified employees Wednesday morning that it is laying off about 11,000 employees, or 13% of its workforce, the company’s first major restructuring in its history. Mark Zuckerberg took responsibility for the cuts, admitting that he failed to predict how many people would scale back their app use as life returned to normal before the pandemic.

The big question, still unanswered, is how Meta will distribute these layoffs. In his message to employees, Zuckerberg said all parts of the company would feel pain, particularly signaling recruiting and business teams. But as discussed here Monday, Zuckerberg’s prized yet massively unprofitable Reality Labs unit — responsible for developing augmented reality, virtual reality and metaverse technologies — likely won’t feel the brunt of the job cuts.

A certain perspective on Meta’s layoff figures is also in order. While 13% is certainly a significant share of the Facebook and Instagram parent’s workforce, these layoffs only return Meta to employees as of early 2022. And while Reality Labs accounts for a significant portion of its hiring over the past year, Meta’s employees are in marketing . and sales divisions increased by 14% and general and administrative units grew by 30% during that time.

All in all, the meta should be able to restructure without having to dramatically revise the master plan.

Now, to the House of Mouse.

Disney slightly disappointed Wall Street on Tuesday, announcing fourth-quarter financial results that showed record losses at its streaming business, which includes Disney+, Hulu and ESPN+. The unit posted an operating loss of nearly $1.5 billion for the quarter, up from about $1.1 billion in the previous quarter.

CEO Bob Chapek and his management team attributed the growing woes to rising content costs and some unexpected areas of soft revenue, including declines in ad sales for Hulu and Disney+ Hotstar, its service for Indian subscribers.

Chapek continued to maintain his position that Disney’s streaming business will reach profitability by 2024, with the previous quarter representing peak losses. He cited that beginning in December with price increases and the arrival of an ad-supported Disney+ tier, along with continued subscriber growth and some realignment of costs, as reasons for optimism.

For now, Chapek still makes a viable case for streaming profitability.

Disney+, which accounts for 70% of the company’s 235.5 million streaming subscriptions, has been a bargain at $7.99 per month compared to top rivals, suggesting there is room to raise prices. Even after the price increase in December to $10.99 per month for ad-free programming, Disney+ will remain significantly cheaper than Netflix ($15.49 per month for ad-free service) and HBO Max ($14.99 per month). Disney should also be able to stave off too much churn as a result of the price increase via the ad-supported tier, which will cost $7.99 per month.

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At the same time, it does not appear that Disney has reached market saturation quite yet. The company added another 14.6 million subscribers last quarter, beating analysts’ expectations. Half of this growth came from international markets where subscribers pay top dollar for the service. (Disney’s Indian customers get Hotstar at deeply discounted rates.)

Still, small cracks are emerging in the foundation of Disney’s strategy – which could develop into fractures if the ground moves under the streaming industry.

Disney’s price hikes come at a rather unfortunate time, as the world economy falters in the face of stubborn inflation and geopolitical strife. Chapek acknowledged as much Tuesday, saying for the first time on an earnings call that his profitability timeline assumes “we don’t see a meaningful shift in the economic climate.”

Disney’s hefty content spending also puts extra pressure on attracting and retaining consumers. Heading into a period of uncertainty for subscribers, Disney executives said their content budget for the current fiscal year will be in the range of $30 billion, a fractional increase from the previous year. For context, Netflix officials expect to spend about half that amount on content this year.

Wall Street also left Tuesday pondering the significance of a 10% drop in average revenue per Disney+ subscriber in the US and Canada. Company executives attributed that in part to more customers opting to bundle Disney+, Hulu and ESPN+, prompting some analysts to question whether subscriber growth is a bit inflated.

As PP Foresight analyst Pablo Pescatore said, according to Reuters: “Expect more bumps ahead and further losses in the streaming business as there is no silver bullet for profitability.”

Want to send thoughts or suggestions to Data sheet? Drop me a line here.

Jacob is a carpenter


Ad nausea. TikTok is reduce the ad revenue target for 2022 with at least $2 billion, the latest example of a deteriorating ad market to hit a social media giant, the Financial Times reported Wednesday. The ByteDance Unit now projects advertising revenue of $10 billion this year, down from an earlier estimate of $12 billion to $14.5 billion, four people familiar with the matter said. Times. The sources also said ByteDance has officially scrapped fading plans for an initial public offering in Hong Kong this year.

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No dancing on graves. Binance CEO Changpeng “CZ” Zhao employees told Wednesday that the rival almost collapses FTX has “severely shaken” confidence in the cryptocurrency industry and will lead to greater regulatory scrutiny, CoinDesk reported. Zhao’s comments came a day after Binance, the world’s largest crypto exchange, reached a non-binding agreement to buy FTX, the world’s second largest exchange, amid a liquidity crisis at the latter company. CoinDesk also reported on Wednesday that Binance is “highly unlikely” will go through with the acquisition after reviewing FTX’s financial condition, citing a source familiar with the matter.

Twice as nice. Taiwan Semiconductor Manufacturing Co. intend to build a second multi-billion dollar chip factory in Arizona, a potential victory for US policymakers pushing to land more semiconductor production The Wall Street Journal reported. The world’s largest chipmaker has not disclosed plans for the facility, but sources said Journal that the factory will announce the project in the coming months. The investment is expected to mirror the $12 billion factory under development by TSMC on the outskirts of Phoenix.

Twitter didn’t come cheap. Tesla CEO Elon Musk unloaded nearly $4 billion worth of stock in the electric car company in recent days, continuing a selloff that began with his decision earlier this year to buy Twitter for $44 billion, the Associated Press reported Wednesday. The latest move brings Musk’s total Tesla stock sales since April to $19 billion. Musk arranged financing and equity investors to take Twitter private, leaving his final financial obligations related to the purchase unclear.


Don’t forget them. Complaints about “Big Data” often center around Google, Amazon, and a few other oft-criticized tech outfits. But as law professor and author Sarah Lamdan writes in a new book excerpts from Wednesday THE CABLEthe lesser known firm Reed Elsevier LexisNexis has emerged as a leading publisher and data broker, while avoiding the same level of public scrutiny as its tech brethren. RELX has grown into a billion-dollar business in part by collecting and selling data related to millions of people, with law enforcement, government agencies and employers among its top customers. Companies like RELX have operated with relatively minimal scrutiny from federal officials, in part because Congress hasn’t passed comprehensive privacy laws since the Internet’s dawn.

From article:

These companies and institutions use RELX’s “risk” products to make decisions about whether to hire you for a job, have custody of your children, have access to certain types of medication, and even whether to detain or arrest you. RELX’s LexisNexis products have helped the government spy on protesters’ social media accounts and monitor immigrants. Police have abused LexisNexis systems to spy on exes and even blackmail women using the personal information the company’s police products provide.

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Using RELX products for data monitoring is problematic because the company funnels a deluge of unfiltered, uncontrolled data through biased data processing algorithms. The combination of bad data and bad algorithms leads to public systems that bake historically racist, xenophobic police practices and result in a Minority Report-like digital police dystopia.


The Binance/FTX acquisition could be a major blow to crypto VCby Anne Sraders and Lucy Brewster

Sam Bankman-Fried quietly deletes the claim that FTX customer funds are safeby Christiaan Hetzner

Crypto’s golden boy Sam Bankman-Fried sees $14.6 billion wiped from his personal fortune overnight after agreeing to FTX bailout dealby Cheyenne Ligon and CoinDesk

The quality of the Twitter conversation has “decayed” since Elon Musk’s takeoverby Alena Botros

Twitter adds a gray new twist to chaotic verification overhaulby Barbara Ortutay and the Associated Press

Generative AI is fun. Just don’t assume it will lead to AGIby Jeremy Kahn

Big Tech is laying off employees – but their skills are needed elsewhere. Here’s how former tech workers can bridge the aerospace talent gapby Teresa King


Next ad up. The FTX calamity has some corners of the sports world playing defense. As Bloomberg noted Tuesday, cryptocurrency exchanges served as a major sponsor for various athletics companies, leaving their high-profile, multimillion-dollar deals in flux. FTX currently owns the naming rights to the Miami Heat’s NBA arena under a 19-year, $135 million deal signed last year. The exchange also advertises with Major League Baseball – umpires donned the company’s logo on their uniforms – and a top Formula One racing team. Sports franchises and leagues have embraced crypto-entrepreneurs in recent years, with Bloomberg find marketing deals worth $2.4 billion reached since early 2021. But with the crypto industry dropping the ball, some Monday morning quarterbacking may be in order.

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