Disney Reports Strong Fiscal Q3 Earnings, Mixed Message On Streaming Business

The hype about the value of streaming video services seems to be ebbing as competition heats up with so many different choices in the market. Warner Bros. Discovery on its earnings call 8/1 emphasized the value of being a diversified media company and when the Walt DisneyDIS
Company on 8/10 reported their earnings, Bob Chapek, CEO & Director emphasized the full array of assets they own.

“Our results showcased the ability of the Walt Disney Company’s uniquely diversified businesses to power our ecosystem and explore growth opportunities across industries and distribution channels,” said Chapek. “And I am pleased to say that our creative engines are firing on all cylinders across franchise, general entertainment and sports,” he continued.

They also gave mixed messages on their streaming businesses. On the one hand, they boasted that Disney+ gained 14.4 million subscribers in their latest quarter, but nearly all of them were from outside of North America.

However, adding in ESPN+ and Hulu, the streaming services now top 221 million subscribers, surpassing NetflixNFLX
for the first time. On the other hand, they lowered their forecasts for their fiscal year ending September of 2024 from a range of 230-260 million previously for Disney+ and Disney+ Hotstar to a range of 215-245 million.

The company had previously announced a price increase for ESPN+ beginning on August 23. The monthly fee goes from $6.99/month to $9.99/month and the annual fee goes up significantly as well, from $69.99/year to $99.99/year, and the company had more news on price increases.

The fact that the company introduced a significant price increase on ESPN+ and it did not result in a large number of cancellations emboldened management to expand increases to their other streaming services. “One only needs to look at our recent significant increase on ESPN, which had the exact same impact of really no meaningful impact at all on our churn. And we believe that we’ve got plenty of price value left to go,” said Chapek.

Beginning on October 10, Hulu without ads goes from $6.99/month to $7.99/month or you can opt in to pay annually which goes up from $69.99 a year to $79.99/year.

Beginning on December 8, an ad supported version of Disney+ will debut at a $7.99 price point while ad-free Disney+ goes from $7.99/month to $10.99 per month, and the annual subscription price goes up from $79.99 to $109.99. However, they are cautiously dipping their toes in the water on the advertising front.

“We’re taking an intentionally limited approach to it, meaning we’re launching with a lower ad load and a lower frequency than say, Hulu.” Said Christine McCarthy, EVP & CFOCFO
. “But because of that disciplined lower ad load, lower frequency and the strong advertising demand that we’ve had, that translates into some of the industry-leading CPM rates at the most recent upfront for Disney+,” she continued.

“It is clear that our unmatched portfolio continues to be highly sought after by advertisers. Combined with our deep expertise in ad tech, we are in a position of strength with record upfront advertising commitment leading into the launch of our ad-supported Disney+ tier,” said Chapek.

The price increases are likely closely tied to content spend. Chapek said, “As you know, Disney+ is still a young business and we are learning more every day about the services’ ability to attract new fans to our powerhouse franchises. For example, in addition to driving engagement amongst tens of millions of existing Marvel fans, we have seen each new Disney+ original Marvel series attract incremental viewership and new subscribers that hadn’t previously engaged with Marvel content on the service, thanks to the episodic format that enables us to explore new characters and genres”.

All in, it was a great quarter, with fiscal Q3 revenue up 26% to $21.5 billion, segment operating income up 50% to $3.6 billion and net income from continuing operations up 53% to $1.4 billion. Investors responded favorably, with shares in DIS rising 4.6% (+$5.16) to $117.69 on August 11.