Disney on Wednesday reported curbing losses for its direct-to-consumer streaming segment but saw subscriber growth stall across Disney+ and Hulu in the first three months of 2023.
In Disney’s fiscal year Q2, DTC revenues of $5.5 billion were up 12% year over year, and operating losses of $700 million decreased by $200 million. Disney attributed the decrease to better results at Disney+ and ESPN+, partially offset by lower operating income at Hulu.
Disney CFO Christine McCarthy during the earnings call reiterated that peak DTC losses are behind it, but anticipates losses widening by $100 million next quarter related to the timing of releases, before narrowing again.
Notably, by the end of the year, Disney plans to launch a revamped app where Hulu content is incorporated into Disney+ for a single experience – for more on that effort read here.
For Disney+, the company cited higher subscription revenue - with domestic Disney+ average revenue per paid subscriber increasing from $5.95 to $7.14 as Disney increased retail pricing – and lower marketing costs.
On the earnings call, Disney said it plans to increase the price of the ad-free version of Disney+ later this year as it looks to drive greater subscription revenue. It pointed to minimal Disney+ subscriber losses in the quarter after implementing a $3 price hike in December to the ad-free version as indication there’s room for further increases. Executives also expressed a desire to create “a wider delta” between its ad-supported and ad-free versions of Disney+ as it looks to push more to the former, which promises opportunity for higher ARPU and revenue streams as advertisers look to reach viewers on streaming.
Programming and production costs rose at Hulu in the quarter while the service also saw a decrease in advertising revenue, which was partially offset by growth in subscription revenue. Disney said the costs at Hulu were due to increases in subscriber-based fees for programming the virtual MVPD Hulu + Live TV service because of rate increases and more subscribers, alongside expanded content on the platform and higher average costs per hour. Lower ad revenue for Hulu was attributed to fewer impressions, partially offset by an increase in ad rates.
The decreases at Hulu and Disney+ were partially offset by improvements at ESPN+, which saw subscription revenue increase on the back of subscriber growth and higher retail pricing.
Overall Disney saw tepid subscriber growth in the period ending April 1, 2023, and counted losses for Disney+ domestically as well as the Hulu + Live TV virtual MVPD service.
As of April 1, Disney+’s domestic base decreased 1% (or by 300,000) from the prior period, now counting 46.3 million. International Disney+ subs (excluding Disney+ Hotstar in India) grew 2% to 58.6 million, for a total core Disney+ base of 104.9 million.
Disney said it expects core subscriber growth to rebound in the fourth quarter.
The Hulu SVOD saw subscribers stay relatively flat at 43.7 million (still 200,000 fewer than it had as of December 31, 2022), while Hulu + Live TV subscribers declined 2% to 4.4 million. ESPN+, meanwhile, saw 2% subscriber growth over last quarter to 25.3 million.
Disney’s Media and Entertainment Distribution unit posted a 42% drop in operating income to $1.1 billion – primarily driven by decreases in linear networks. Revenue from linear networks decreased 7% to $6.62 billion, and operating income dropped 35% to $1.8 billion.
Overall Disney reported a 13% bump in consolidated revenues year over year to reach $21.8 billion, while total segment operating income declined 11% to $3.28 billion.