Disney streaming business turns a profit

The Walt Disney Company swung to a loss in its second quarter because of restructuring and impairment charges, but its adjusted profit topped expectations and its streaming business turned a profit. Theme parks also continued to do well and the company boosted its outlook for the year.

While Disney said Tuesday that it foresees its overall streaming business softening in the current quarter due to its platform in India, Disney+Hotstar, it expects its combined streaming businesses to be profitable in the fourth quarter and to be a meaningful future growth driver for the company, with further improvements in profitability in fiscal 2025.

The direct-to-consumer business, which includes Disney+ and Hulu, posted quarterly operating income of US$47 million compared with a loss of US$587 million a year earlier. Revenue rose 13 per cent to US$5.64 billion.

For the combined streaming businesses, which includes Disney+, Hulu and ESPN+, second-quarter operating loss shrunk to US$18 million from US$659 million, while revenue improved to US$6.19 billion from US$5.51 billion.

Disney+ core subscribers climbed by more than 6 per cent in the second quarter.

Yet the improved picture for Disney on streaming arrives with its cable business in decline. That segment saw revenue slide 8 per cent in the most recent quarter.

“Looking at our company as a whole, it’s clear that the turnaround and growth initiatives we set in motion last year have continued to yield positive results,” Disney CEO Bob Iger said in a prepared statement.

Speaking during Disney’s conference call, Iger said that the company plans to add an ESPN tab to Disney+ by the end of the year, a manoeuvre that was previously made with Hulu. This will give subscribers in the United States access to some live sports and studio programming within the Disney+ app.

ESPN, Fox and Warner Bros Discovery announced plans in February to launch a sports streaming platform in the fall that will include offerings from at least 15 networks and all four major professional sports leagues.

Iger also said that next month the company will start cracking down on password sharing for its streaming service in some markets, and will expand that crackdown globally in September.

While Disney has quality streaming content, Iger said that the company must now focus on building out its technology, similar to what rivals like Netflix have been doing. Those actions, including the password crackdown, are expected to improve profits.

It’s the first financial report since shareholders rebuffed efforts by activist investor Nelson Peltz to claim seats on the company board last month, standing firmly behind Iger as he tries to energise the company after a rough stretch.

Thomas Monteiro, senior analyst at Investing.com, said that some Disney investors may have been expecting more from the quarterly report, but that “the company has tilted its operation back to its core business model, which is more conservative by nature.”

Monteiro was focused on the company’s efforts to turn its streaming division profitable.

“The big surprise of the day came on the streaming front, which finally managed to bring profits – way ahead of predictions – amid Hollywood’s massive strike period,” Monteiro said. “This indicates that perhaps the more global, low-production-cost Netflix-like model is probably the way to go in an operation that needs to rethink its growth expectations as a whole.”

Revenue at Disney’s domestic theme parks rose 7.0 per cent, while its theme parks overseas reported a 29 per cent increase.

But Disney acknowledged wrestling with higher costs at its theme parks during the quarter due to inflation.

The company said that there was increased spending by guests at Walt Disney World due to higher ticket prices, while Disneyland guests boosted their spending due to an increase in ticket prices and hotel room rates.

Overseas, Hong Kong Disneyland benefited from the opening of World of Frozen, a section of the park that includes rides based on the popular Frozen movies, in November.

Similar to many tourist destinations, Disney is continuing to adjust to post-pandemic travel.

“While consumers continue to travel in record numbers, and we are still seeing healthy demand, we are seeing some evidence of a global moderation from peak post-COVID travel,” Chief Financial Officer Hugh Johnston said during the call.

For the period ended March 30, Disney lost US$20 million, or a penny per share. That compares with a profit of US$1.27 billion, or 69 cents per share, a year ago.

Restructuring and impairment charges surged to US$2.05 billion from US$152 million in the prior-year period.

Adjusted earnings, which stripped out the charges and other items, were US$1.21 per share, easily beating the US$1.12 per share that analysts polled by Zacks Investment Research predicted.

Disney said that due to its second-quarter performance, it now has a full-year adjusted earnings per share growth target of 25 per cent. It previously predicted growth of at least 20 per cent.

The Burbank, California, company’s revenue rose to US$22.08 billion from US$21.82 billion a year earlier, but was slightly lower than Wall Street estimates of US$22.13 billion.

Content sales and licensing revenue tumbled 40 per cent because Disney didn’t release any significant movie titles during the second quarter as compared with the prior-year period, which included the release of Ant-Man and the Wasp: Quantumania. The year-ago results were also helped by the ongoing performance of Avatar: The Way of Water, which was released in December 2022.

In February The Walt Disney Company said that it was making “significant cost reductions” and reduced its selling, general and other operations expenses by US$500 million in its first quarter. The company cut thousands of jobs in 2023.

In March allies of Governor Ron DeSantis and Disney reached a settlement agreement in a state court fight over how Walt Disney World is developed in the future following the takeover of the theme park resort’s government by the Florida governor.

Last month character performers at Disneyland in California and the union organising them, Actors’ Equity Association, said they had filed a petition for union recognition.

AP