Disney in the most recent quarter marked a profit for the entertainment arm of its direct-to-consumer streaming businesses, with Disney+ and Hulu generating $47 million in operating income in the second quarter of the company’s fiscal year 2024.
And while Disney+ Hotstar in India is expected to drive DTC losses next quarter, Disney CEO Bob Iger said the combined streaming businesses, inclusive of ESPN+, are on track for profitability in FY Q4, with steps prioritized to set up streaming as a meaningful company growth driver in the future.
On Tuesday’s earnings call Iger announced an upcoming addition to Disney+, which will see an ESPN tile added by the end of the year that provides all U.S. subscribers access to select live sports games and studio programming within the subscription app.
“We see this as the firs step to bringing ESPN to Disney+ viewers as we ready the launch of our enhanced standalone ESPN streaming service in the fall of 2025,” Iger said.
The CEO described the ESPN tile on Disney+ as having “modest amount of programming,” but essentially is meant as a first step to get subscribers accustomed to the idea that they can access sports and ESPN content through the service.
“It also will help us in terms of overall engagement with our bundle,” he noted.
And under current plans, according to Iger, those that subscribe to ESPN+ will be able to access it through the ESPN tile on Disney+ as well.
Disney’s ESPN+ app saw subscribers decline 400,000 in fiscal year Q2 compared to the end of 2023, for a base of 24.8 million. Declines were attributed largely to typical seasonality, where there’s usually a sports subscriber drop off at the end of the college football season.
Disney has multiple plans for ESPN, which now encompass the existing ESPN+, a forthcoming flagship ESPN app, and a yet-to-be-named streaming service developed through a joint venture with Fox and Warner Bros. Discovery. The latter combines the companies’ respective sports assets into one direct-to-consumer app that’s expected to launch this fall (although has received pushback including a federal antitrust lawsuit filed by sports-focused virtual MVPD Fubo).
With the impending launch of a flagship ESPN app, Iger noted those who subscribe to the new DTC service will get all ESPN+ programming, while ESPN+ will continue to be offered as a standalone service. Consumers will also have the new option to access ESPN content through the tile on the Disney+ app – which in March just expanded general entertainment programming by fully integrating Hulu content on the platform for Disney Bundle subscribers.
Password sharing crackdown in September
Disney also plans to implement a streaming password sharing crackdown in select markets next month, followed by a global rollout in September.
Iger said the company is “heartened by the results that Netflix has delivered” for its own paid sharing initiative that launched last May and expects password sharing restrictions to be a driver of growth for Disney streaming going forward.
When it comes to driving engagement on the platform, Iger pegged programming as the leading factor, where Disney is utilizing a combined linear and streaming approach. On the call, he noted that in the quarter, series that aired on Disney’s linear networks accounted for 17 of the top 20 series its streaming platforms, with nearly 3 billion hours. For content in the period, FX’s Shogun was a particular stand out. That series, according to Iger, is tracking “as FX’s most-watched show ever on our streaming platforms,” driving the second-largest number of signups to its services since 2022 – only behind Black Panther: Wakanda Forever.
“This is a great example of how we are successfully reaching wider audiences with our combined linear and streaming ecosystem,” Iger said. “Our linear channels are deeply embedded in our direct-to-consumer strategy as they continue to deliver high quality content that reaches demographics not captured on streaming alone, allowing us to broaden our audiences and leverage our unmatched content engine across an expansive base.”
In the quarter, Disney reported $2.76 billion in revenue for its linear entertainment networks, down 8% year over year, as the company generated lower affiliate revenue and a decline in ad revenue tied to impacts of subscriber and average viewership declines. In its sports segment, ESPN saw domestic revenue grow 4% yoy to $3.86 billion.
Building and rolling out the tech to underpin password sharing crackdowns and fuel improved content recommendations are among steps Disney’s taking to help drive growth and engagement, with Iger also pointing to bundling as an opportunity to boost engagement, including with sports and the new ESPN tile.
Open to licensing, will be selective
Investment analysts on the call asked about Disney’s approach to licensing its own content to other, sometimes competing platforms like Netflix, versus keeping exclusive to its own services (as others have seen success, such as NBCUniversal licensing the first eight seasons of Suits to Netflix – while keeping the final ninth season exclusive to Peacock - and generating the so-called “Netflix effect”).
The company has interest in and already does some licensing to third-party platforms but is being selective. Previously, Disney thought keeping its own content exclusive to its own platforms “had huge value,” Iger said, adding that the approach definitely has “some value.” But he indicated more openness to licensing to rival streamers, pointing to benefits like increased traction and awareness that boosts the value of content not only financially but in cultural popularity.
“We’re looking at it with an open mind, but I don’t think you should expect that we’ll do a significant amount of it,” Iger said.
In the quarter, revenue from content sales, licensing and other was down 40% yoy to $1.38 billion. Disney attributed decreases in the segment’s operating results to worse results for theatrical distribution due to a lack of significant title releases in the current quarter, alongside higher film cost impairments.
DTC earnings results:
Here are some DTC metrics from Disney for the three month period ending March 30, 2024:
- DTC Entertainment revenue (excluding ESPN+) grew 13% yoy to $5.6 billion, including $4.8 billion in subscription revenue and $762 million in ad revenue.
- Disney achieved quarterly entertainment DTC operating income (excluding ESPN+) of $47 million, compared to a loss of $587 million a year ago. The company attributed the improvement to growth in subscription revenue thanks to streaming service price increases and subscriber growth at Disney+, lower distribution costs, increased ad revenue because of higher impressions partially offset by lower rates, higher marketing costs.
- DTC revenue inclusive of ESPN+ rose 12% yoy to $6.2 billion, while operating losses narrowed to $18 million in the period, compared to a $659 million loss the same period a year prior.
Subscribers:
- Disney+ Core subscribers (excluding Hotstar in India) increased by 6.3 million compared to the end of 2023, for a global base of 117.6 million. Disney+ Core ARPU rose to $7.28.
- Domestic (US and Canada) Disney+ subs increased by 7.9 million for a base of 54 million. A higher mix of wholesale subscribers contributed to domestic ARPU decreasing by 15 cents to $8 in the period.
- International Disney+ core subs declined by 1.6 million, totaling 63.6 million at the end of March. International Disney+ ARPU rose to $6.66.
- Disney+ Hotstar in India lost 2.3 million subs for a base of 36 million. Hotstar ARPU was down to $0.70.
- Total Hulu subscribers ticked up by 500,000 for a base of 50.2 million.
- That includes adding 700,000 SVOD-only Hulu subs for an SVOD base of 45.8 million. Hulu SVOD ARPU declined to $11.84.
- Virtual MVPD Hulu Live TV + SVOD lost 100,000 subscribers for a total of 4.5 million. Hulu + Live TV ARPU rose to about $95.
- ESPN+ subscribers decreased by 400,000 for a base of 24.8 million. ARPU was up 3% to $6.30.
- Disney+ ended the quarter with 22.5 million ad tier subscribers globally.