Disney sees major gains in streaming subscribers and revenues in Q1

The news: Disney's direct-to-consumer streaming platforms, including Disney+, Hulu, and ESPN+, made notable strides in Q1, per the company’s Tuesday earnings report.

• The combined losses for these services dramatically narrowed to just $18 million, compared with a $659 million loss in the same period last year.
• Excluding ESPN+, Disney's streaming services achieved a significant milestone by reporting operating income of $47 million, with revenues up 13% to $5.64 billion.
• Adjusted earnings per share rose by 30% year over year, surpassing expectations, leading Disney to raise its full-year adjusted EPS growth target from 20% to 25%.

Subscriber surge: One of the key highlights from Disney's recent success is the growth for Disney+ Core (excluding Hotstar), which added 6.3 million subscribers, pushing the total to 117.6 million globally.

• A strategic partnership with Charter Communications that allowed some Spectrum TV customers free access to Disney+ helped.
• Although this deal aided subscriber growth in the US and Canada, it led to a dip in average revenues per user (ARPU) in these regions to $8—though, globally, ARPU rose by 6% to $7.28.

Challenges remain: Despite these gains in streaming, Disney's linear networks are facing continued difficulties, with revenues declining by 8% and operating income falling by 22%.

• This downturn was exacerbated by a dispute with Charter, which dropped eight Disney cable channels last fall, and a general decline in linear ratings.
• In a contrasting performance, ESPN managed a 3% growth in revenues, though its operating income dropped by 9% due to increased programming costs and subscriber losses.

Strategic adjustments: Disney announced several strategic plans to strengthen its streaming services. They include adding an ESPN content tile within the Disney+ platform by late 2024 and plans the launch of standalone ESPN streaming service in 2025.

• Moreover, Disney CEO Bob Iger revealed that the company would start enforcing measures against password sharing starting in June, following a model similar to Netflix.

Our take: Disney's significant reduction in streaming losses and its ability to drive subscriber growth despite regulatory challenges suggest it can successfully transition from traditional TV to digital streaming.

• The continued struggles of its linear networks and the impact of external challenges like global travel trends on its parks business indicate that Disney must maintain a flexible and innovative strategy to ensure long-term success and stability in a rapidly changing entertainment industry.