Disney reports first profit in streaming business
The Walt Disney Company has reported its first profit in the streaming entertainment unit. The profit in the streaming business comes two quarters ahead of the expectation; Disney had promised that its streaming operation would become profitable by September. The company has reported a 17% jump in its operating income from all segments – entertainment, sports and experiences- in the second quarter earnings released on Tuesday.
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However, the company recorded an overall revenue growth of just 1% for the quarter ending March 30, 2024, at $ 22.08 billion compared with $ 21.8 billion in the same quarter previous fiscal.
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During the earnings call, the company’s CEO Bob Iger said, “The turnaround in growth initiatives we set in motion last year have continued to yield positive results and we're executing against our ambitious strategic priorities with both speed and determination.” The company saw a 2% increase in sports revenue in Q2 at $4.3 billion, while the entertainment revenue declined by 5% from $10.3 billion in Q2 the previous year to $9.7 billion in Q2 2024. Experiences revenue climbed by 10% to $8.3 billion in Q2 this fiscal, from $7.6 billion in the same period previous year. According to the company, Q2 ended with 22.5 million ad tier subscribers globally but anticipates a loss for entertainment segment in the next quarter due to Disney + Hotstar’s ICC cricket rights. “We're pleased with the progress we're making in streaming although as we said before, the path to long-term profitability is not a linear one. On that note, we are forecasting a loss for entertainment DTC in the third quarter. The vast majority of which is due to Disney + Hotstar’s ICC cricket rights. We also do not expect to see core subscriber growth at Disney+ in the third quarter, but anticipate sub-growth will return in Q4,” said Disney CFO Hugh Johnston. He said that Star yielded higher results in Q2 versus the prior year due to the impact of a decrease in programming and production costs, attributable to the non-renewal of BCCI cricket rights. “Looking ahead, note that we are currently expecting to incur linear ICC rights expense at Star India at Q3,” Johnston said. There was a decline in the entertainment revenue from linear networks by 8% in Q2 FY24 and a 40% decrease in revenue from content sales and licensing which was reported at $1.3 billion in Q2 FY24, down from $2.3 billion in Q2 FY23. The company also saw a decline in the sports revenue from Star India by 17%. The same stood at $105 million in Q2 FY24, down from $127 million in Q2 FY24. However, operating loss at Star India came down by 73% from $99 million in the second quarter last fiscal to $27 million this fiscal. The company attributed it to lower programming and production costs attributable to the non-renewal of BCCI rights, partially offset by an increase in costs for Indian Premier League matches due to more matches aired in the current quarter compared to the prior-year quarter. On being asked about advertising market during the conference call, Iger said that advertising market is healthy right now and that “certainly live and sports are playing out very well.” Talking about password sharing initiative, he said it will begin next month in select markets. “Password sharing beginning next month in very select markets we're starting to go after people who are sharing passwords improperly. And that will roll out in earnest or across the globe in September,” he said, adding that it was a productive next step. “We're improving the business from a bottom-line perspective. And that starts with password sharing... I feel good about this being a necessary and very productive next step in terms of rolling out the technology that we need to get to the double-digit margins,” he said. Responding to a question on what he hopes to achieve in his tenure before the next CEO takes over, Iger said, the board is heavily engaged in the process and has appointed a succession planning committee that is meeting on a regular basis to not just discuss but also to manage the process. “I'm confident that they will choose the right person at the right time. To the extent I can we'll participate in a smooth transition,” he said. From Q1 ending December 31, 2023 to Q2 ending March 30, 2024, Disney+ Hotstar average monthly revenue per paid subscriber decreased from $1.28 to $0.70 due to lower advertising revenue, the company said. It also said that in the current quarter, the company recorded charges of $2.05 billion due to goodwill impairments related to Star India and entertainment linear networks. “The impairment at Star India was a result of the Company entering into a binding agreement in the current quarter to contribute our Star India operations into a new joint venture. In the prior-year quarter, the Company recorded charges of $152 million primarily for severance,” it said.