Disney‘s entertainment streaming segment, anchored by Disney+, scored its first profitable quarter, helping to partially offset continued weakness in the media conglomerate’s linear TV business for the first three months of 2024.
To be sure, Disney’s overall streaming business was still in the red for the quarter when factoring in ESPN+, which had an operating loss of $65 million. The company reiterated its expectation that its combined streaming operations will achieve profitability in the September 2024 quarter.
Overall, Disney revenue for the quarter ended March 30 was in line with Wall Street expectations, while it beat on adjusted earnings per share. The Mouse House’s results got their biggest lift from the theme parks division, where revenue rose 10% and operating income was up 14%. Disney’s theatrical revenue dropped year over year “as there were no significant titles released” in the quarter, and revenue in the linear networks segment declined 8%.
Disney’s entertainment direct-to-consumer business, encompassing Disney+, Hulu and Disney+ Hotstar, turned a profit in the quarter: Operating income was $47 million (compared with a loss of $587 million a year ago) on revenue of $5.64 billion (up 13%) for the period, which was the company’s Q2 of fiscal 2024.
Disney+ Core (which excludes Disney+ Hotstar in India and other Southeast Asian countries) gained 6.3 million subscribers in the period to hit 117.6 million — above forecasts — up 6% sequentially. The company previously projected Disney+ Core subscriber net adds of 5.5 million-6 million.
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“While we are expecting softer Entertainment DTC results in Q3 to be driven by Disney+ Hotstar, we continue to expect our 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 company said.
Disney credited the improved DTC entertainment results to subscription revenue growth — driven by price hikes for Disney+ and Hulu, as well as subscriber growth in Disney+ Core — along with higher ad revenue and lower distribution costs. Average monthly revenue per subscriber for Disney+ Core globally rose 6% sequentially to $7.28 while it dropped 2% in the U.S./Canada to $8.00. Subscriber growth jumped 17% sequentially in the U.S./Canada region, which netted 7.9 million new Disney+ customers to reach 54.0 million — helped by its deal with Charter to offer Disney+ to select Spectrum TV customers for no additional charge. Meanwhile, Disney+ Core lost 1.6 million paid users in the rest of the world (-2% quarter over quarter) to sit at 63.6 million.
CEO Bob Iger said in prepared remarks, “Our strong performance in Q2, with adjusted EPS up 30% compared to the prior year, demonstrates we are delivering on our strategic priorities and building for the future. Our results were driven in large part by our Experiences segment as well as our streaming business. Importantly, entertainment streaming was profitable for the quarter, and we remain on track to achieve profitability in our combined streaming businesses in Q4.”
By the end of 2024, the company will add an ESPN tile to Disney+ to provide a “modest amount” of live games and other sports programming to all Disney+ U.S. subscribers, Iger said on the call, saying that’s “the first step to bringing ESPN to Disney+ viewers” ahead of the launch of a standalone ESPN streaming service in 2025. In addition, the plan is to give ESPN+ subscribers access to that content through Disney+, he said. Iger framed the move in the context of the “encouraging” results of the integration of Hulu with Disney+.
Iger also noted that Disney will begin cracking down on streaming users who are “improperly” sharing passwords starting in some markets in June, followed by a wide rollout in September.
Alluding to Disney’s lack of big movie premieres in the March quarter, Iger said, “We have a number of highly anticipated theatrical releases arriving over the next few months.” On the call, he cited upcoming films including “Kingdom of the Planet of the Apes” (premiering May 10) followed by “Inside Out 2” and “Deadpool & Wolverine.”
The results come after Iger and the 11 other incumbent Disney-backed board members last month won reelection by a wide margin at the annual shareholders meeting. That followed a contentious, months-long proxy fight brought by activist investor Nelson Peltz, whose Trian Partners had unsuccessfully lobbied to get a pair of board seats. Peltz had argued that Disney’s stock underperformance required new directors to provide fresh thinking.
For the March quarter, Disney’s domestic linear TV revenue dropped 7%, to $2.27 billion, and operating income slumped 22%, to $520 million. Disney attributed the decrease in operating income to “the impact of the nonrenewal of carriage of certain networks by an affiliate” (a reference to Charter dropping eight cable networks last fall) and a decline in ad revenue reflecting lower average viewership.
ESPN revenue was up 3%, to $4.21 billion, and operating income declined 9%, to $799 million. ESPN+ dropped 400,000 subscribers in the quarter, declining 2% sequentially to 24.8 million.
Overall, Disney posted revenue of $22.08 billion (up 1.2%) and a net loss of $20 million (versus net income of $1.27 billion in the year-earlier period), or a loss of 1 cent per share.
The company’s bottom line took a hit from a one-time $2.05 billion charge for goodwill impairments related to Star India and unspecified “entertainment linear networks.” The impairment at Star India was a result of the company’s deal with Reliance Industries to merge Star India operations with Reliance’s Viacom18 in a new joint venture. Goodwill impairment occurs when a company has acquired an asset for more than its fair-market value and then the value of that asset declines.
Disney shares were down more than 5% in premarket trading Tuesday. As of Monday, May 6, the stock was up 29% year to date.
Excluding the $2 billion goodwill impairment charge (as well as amortization of 21st Century Fox and Hulu intangible assets and fair value step-up on film and TV costs), Disney’s adjusted earnings per share for the quarter came in at $1.21 — up 30% year over year. Wall Street analysts on average expected revenue of $22.12 billion and adjusted earnings per share of $1.10 for the quarter, according to data provider LSEG.
As a result of the “outperformance” in the second fiscal quarter, Disney raised its full-year adjusted EPS growth target to 25% (from “at least 20%” previously). The company said it repurchased $1 billion worth of shares in the quarter and that it “look[s] forward to continuing to return capital to shareholders.”
