And the solid quarter comes at a critical moment for Disney, which is now once again being led by CEO Bob Iger. The street expects Iger to outline a corporate strategy to bring profitability to streaming, and possibly how he plans to deal with thorny issues like what to do with Hulu or ESPN.
“After a solid first quarter, we are embarking on a significant transformation, one that will maximize the
potential of our world-class creative teams and our unparalleled brands and franchises,” said Iger in a statement. “We believe the work we are doing to reshape our company around creativity, while reducing expenses, will lead to sustained growth and profitability for our streaming business, better position us to weather future disruption and global economic challenges, and deliver value for our shareholders.”
On the company’s earnings call, Iger outlined a new corporate structure, and substantial layoffs will follow, all in the name of bringing streaming toward profitability.
Indeed, streaming remains a critical area of focus, with overall Disney+ subscribers declining by 1 percent quarter to quarter to 161.8 million, due to lower results at Disney+ Hotstar (down 6 percent), and with U.S. and Canada essentially flat (46.6 million in Q1, compared to 46.4 million last quarter). Streaming losses, which made headlines last quarter after hitting $1.5 billion, remain elevated, with the company reporting $1.1 billion in losses in Q1. However, that is better than forecast last quarter, when CFO Christine McCarthy said they expected a $200 million improvement.
Disney+ average revenue per user (ARPU) also declined slightly, with the company chalking that up to more subscribers signing up for a bundled offering (like the Disney Bundle, or the Disney+-Hulu bundle).
“There’s a lot to accomplish,” Iger said on the company’s earnings call. “But let me be clear, this is my number one priority. We’re focused on the success of our streaming business and the return it generates for our shareholders long into the future.”
“The streaming business, which I believe is the future and has been growing, is not delivering the kind of profitability or bottom-line results that the linear business delivered for us over all over a few decades,” Iger added. “And so we’re in a very interesting transition period, but one I think, is inevitably heading towards streaming.”
In fact, Iger added on the call that the company’s current situation in streaming was because “we were as a company in a global arms race for subscribers.”
“In our zeal to go after subscribers, I think we might have gotten a bit too aggressive in terms of our promotion,” Iger added. “We took our pricing up substantially on Disney plus, and… we only suffered a de minimis loss of subs. That tells us something. It may also tell us that the promotion to chase subs that we’ve been fairly aggressive at wasn’t absolutely necessary.”
Disney reported revenues of $23.5 billion, up 8% from a year ago, with total segment operating income of $3 billion, down 7% from a year ago.
Revenues at Disney’s linear networks were $7.3 billion, down 5% from a year ago, while direct to consumer revenues were $5.3 billion, up 13% from a year ago. Operating income at linear was $1.3 billion, down 16% from a year earlier, and direct to consumer reported losses of $1.1 billion, down 78% from a year earlier.
Hulu was also impacted last quarter, with slight subscriber gains (both the SVOD and live TV tiers rose by 2% to 43.5 million and 4.5 million subs respectively) offset by “higher programming and production costs and a decrease in advertising revenue.”
The challenges in linear TV would be familiar to other companies in the sector, with cord cutting eating into carriage revenue, and a difficult economic environment hitting advertising revenue. Hulu, which is the most successful ad-supported subscription service (Netflix CEO Reed Hastings said that Hulu’s success in the space was a big reason why his company launched an ad-supported tier), also felt the pain, with higher costs associated with its live TV tier, and lower ad revenue.
Disney’s parks, experiences and products division continued its banner run, reporting revenues of $8.7 billion, up 21% from a year earlier. Operating income rose by 25% to $3.1 billion.
Former CEO Bob Chapek used the pandemic to reimagine Disney’s parks business, adding reservations and new premium add-ons like Genie+ and Lightning Lanes that added new revenue streams, but at the cost of goodwill from regular visitors.
Iger, after returning as CEO, made some tweaks to the parks business, including eliminating or reducing some fees.
The earnings report also comes as Disney finds itself battling activist investor Nelson Peltz, who is seeking a seat on the company’s board of directors.
On the earnings call, Iger referenced one of Peltz’s key arguments by announcing that the company would seek to reinstate a dividend by the end of this fiscal year.
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