Disney Cuts Streaming Red Ink, Posts Higher Q2 Profits

Disney Plus
(Image credit: Getty Images)

The Walt Disney Co. reported higher fiscal second-quarter profits as it cut its streaming losses and saw big gains at its parks and experiences unit.

Disney’s direct-to-consumer business — streamers Disney Plus, ESPN Plus and Hulu — lost $659 million, down from the $1.05 billion the company lost in the prior quarter. A year ago, the DTC business lost $887 million. 

Disney said DTC losses peaked in third quarter of fiscal 2022, but will increase by $100 million in the upcoming third quarter before continuing to decline.

Direct-to-consumer revenues increased 13% to $5.5 billion from $4.9 billion a year ago as total subscribers to Disney streaming services dipped to 231.3 million from 234.7 at the end of 2022.

On Disney’s previous earnings call, CEO Bob Iger announced a cost-cutting plan designed to reduce expenses by $5.5 billion and eliminate 7,000 jobs. Disney, like other big media companies, shifted its priorities in streaming from adding subscribers to reducing losses and eventually becoming profitable.

“We’re pleased with our accomplishments this quarter, including the improved financial performance of our streaming business, which reflect the strategic changes we’ve been making throughout the company to realign Disney for sustained growth and success,” Iger said. “From movies to television, to sports, news and our theme parks, we continue to deliver for consumers, while establishing a more efficient, coordinated, and streamlined approach to our operations.”

Iger said Disney will offer a one-app experience, letting domestic subscribers watch Hulu content through Disney Plus, by the end of the year. Hulu, ESPN Plus and Disney Plus will continue to be offered as stand-alone services.

“This is a logical projection of DTC offerings that will provide greater opportunities for advertisers while giving bundle subscribers access to more robust and streamlined content, resulting in greater audience engagement and ultimately leading to a more unified streaming experience,” Iger said.

Iger also said the ad-supported version of Disney Plus will be rolled out in Europe this year.

On Disney's earnings call, Iger said he expected to meet or exceed his target for cost-cutting.

Disney will also be removing content from its streaming services and expects to take an impairment charge of $1.5 billion to $1.8 billion in the third quarter, chief financial officer Christine McCarthy added.

Disney took a $150 million charge in the second quarter mainly related to severance costs of staff layoffs. There will be additional severance charges of about $180 million over the remainder of the year, she said.

At the end of the second quarter, Disney Plus had 157.8 million subscribers, down from 161.8 million at the end of the last quarter and down from 161.8 million a year ago.

Domestic Disney Plus subscribers fell to 46.3 million from 46.6 million at the end of the previous quarter and 46.6 million a year ago.

ESPN Plus had 25.3 million subscribers, up from 24.9 million in the previous quarter and 24.9 million a year ago

Hulu had 48.2 million subscribers, up from 48 million subscribers last quarter and up from 48 million a year ago. It had 43.7 million SVOD-only subscribers, up from 43.5 million last quarter. Hulu Plus Live TV had 4.4 million subscribers, down 100,000 from the previous quarter and down from 4.5 million a year ago.

Hulu ARPU declined 6% to $11.73 for its SVOD service because of softness in the addressable advertising market, McCarthy said. ARPU increased for Hulu Live TV by 5% to $92.32.

Iger said that Disney will be raising prices on the ad-free tier of Disney Plus in order to incent more subscribers to take the ad-supported tier, which should produce more revenue per user.

"We have only just begun to scratch the surface on what we can do with advertising on Disney plus and I'm incredibly bullish on our long-term advertising positioning," he said.

Disney is leaning into digital and addressable advertising, which now accounts for about 40% of the company's ad revenue.

"We are also focused on the growth opportunity in programmatic advertising, and we are well-positioned to scale if the market improves and audiences continue to grow," Iger said. "We have added more than 1,000 advertisers over the past year and now have 5,000 advertisers across our streaming platforms with over one-third buying advertising programmatically today."

For Disney, second-quarter net income was $1.27 billion, or 69 cents a share, up from $470 million, or 26 cents a share a year ago.

Revenue rose 13%, to $21.8 million

Operating income for Disney Media and Entertainment Distribution fell 42%, to $1.1 billion, as revenues rose 3% to $14 billion.

Operating income for Disney’s linear networks fell 35% to $1.8 billion as revenues dropped 7%. Both cable and broadcast networks saw declines. Cable was hurt by higher sports programming and production costs. Broadcast declines reflected decreases in advertising revenue across the ABC Network and the ABC owned TV stations, McCarthy said.

Second quarter domestic linear advertising revenue declined 10% year-over-year. ESPN ad revenue was up 2%.

"The sports advertising marketplace is currently stable with quarter to date ESPN domestic linear cash ad sales pacing up," McCarthy said. "However, the overall entertainment advertising marketplace has been challenging. While the weakness has moderated somewhat, we anticipate the some softness may continue into the back half of the fiscal year."

Operating income for Disney Parks, Experiences and Products rose 23 to $2.2 billion as revenues rose 17% to $7.8 billion.

Jon Lafayette

Jon has been business editor of Broadcasting+Cable since 2010. He focuses on revenue-generating activities, including advertising and distribution, as well as executive intrigue and merger and acquisition activity. Just about any story is fair game, if a dollar sign can make its way into the article. Before B+C, Jon covered the industry for TVWeek, Cable World, Electronic Media, Advertising Age and The New York Post. A native New Yorker, Jon is hiding in plain sight in the suburbs of Chicago.