Disney Nears Streaming Profitability, Narrows Loss to $18 Million in Q2

Disney is getting closer to achieving profitability in streaming, with the entertainment giant narrowing its direct-to-consumer operating losses 97% to $18 million during its second quarter of 2024.

When excluding ESPN+, its entertainment DTC business was profitable during the quarter, with a net profit of $47 million, compared to a loss of $587 million in the prior-year quarter.

“While we are expecting softer Entertainment DTC results in Q3 to be driven by Disney+ Hotstar, we continue to expect our combined streaming businesses to be profitable in the fourth quarter, and to be a meaningful future growth driver for the company, with further improvements in profitability in fiscal 2025,” the company noted in its earnings release.

Here are the top-line results:

Net loss: $20 million, compared to a profit of $1.2 billion a year ago.

Earnings Per Share: A loss of 1 cent per share, compared to earnings per share of 69 cents in the prior-year quarter. Excluding certain items, EPS was $1.21, compared to $1.11 expected by analysts surveyed by Zacks Investment Research

Revenue: $22.1 billion, in line with the $22.1 billion expected by analysts surveyed by Zacks Investment Research

Subscribers: Added more than 6 million core Disney+ subscribers for a total of 153.6 million globally.

Shares of Disney fell 5.9% in pre-market trading on Tuesday following the release of the results.

The direct-to-consumer division saw revenue increase 12% year over year to $6.19 billion. When excluding ESPN+, the DTC entertainment business posted a 13% revenue increase to $5.64 billion.

Disney+ reported a total of 117.6 million core subscribers for the quarter. The figure included 54 million subscribers in the U.S. and Canada and 63.6 million international subscribers excluding Disney+ Hotstar, which reported 36 million subscribers. 

Domestic Disney+ average monthly revenue per paid subscriber fell 2% quarter over year quarter $8.15 to $8.00 due to a higher mix of wholesale subscribers, partially offset by increases in retail pricing. International Disney+ (excluding Disney+ Hotstar) ARPU grew 13% quarter over quarter from $5.91 to $6.66 due to increases in retail pricing and a lower mix of subscribers to promotional offerings.Disney+ Hotstar ARPU fell 45% quarter over quarter from $1.28 to $0.70 due to lower advertising revenue.

Hulu reported a 1% quarter over quarter increase to 50.2 million subscribers, including 45.8 million SVOD-only subscribers, a 2% quarter over quarter increase, and 4.5 million SVOD and Live TV subscribers, 2% quarter over quarter decrease .

Hulu’s SVOD-only ARPU fell 4% quarter over quarter from $12.29 to $11.84 due
to lower advertising revenue, partially offset by increases in retail pricing. Hulu Live TV + SVOD ARPU grew 1% quarter over quarter from $93.61 to $95.01
due to increases in retail pricing and a lower mix of subscribers to promotional offerings, partially offset by lower advertising revenue.

ESPN+ subscribers fell 2% quarter over quarter to 24.8 million, while ARPU for the streamer rose 3% quarter over quarter from $6.09 to $6.30 due to increases in retail pricing and higher advertising revenue.

In the linear networks segment, revenue fell 8% year over year to $2.76 billion and operating income fell 22% year over year to $752 million. Domestic revenue fell 7% to 2.27 billion, while international revenue fell 11% year over year to $496 million.

Domestic operating income fell 18% year over year to $520 million, which was driven by lower affiliate revenue due to a decrease in subscribers, including the impact of the nonrenewal of carriage of certain networks by an affiliate, partially offset by higher contractual rates, as well as a decline in advertising revenue attributable to a decrease in impressions reflecting lower average viewership, partially offset by higher rates. International operating income fell 44% year over year to $92 million, due to a decrease in affiliate revenue primarily attributable to fewer subscribers and contractual rate decreases.

In its content sales licensing and other segment, revenue fell 20% to $1.39 billion, while its operating income swung to a loss of $18 million from a profit of $83 million a year ago, reflecting lower theatrical distribution results due to no significant film titles released and higher film cost impairments during the quarter.

The Sports segment, which includes ESPN, ESPN+ and Star India-branded sports channels, saw revenue increase 2% year over year to $4,31 billion, and operating income of $778 million, down 2% year over year.

ESPN revenue grew 3% year over year to $4.21 billion, including $3.87 billion in domestic revenue and $341 million in international revenue. ESPN operating income fell 9% to $799 million, including $780 million domestically and $19 million internationally, due to an increase in programming and production costs attributable to airing an additional College Football Playoff game, lower affiliate revenue driven by fewer subscribers, advertising revenue growth due to increases in rates and, to a lesser extent, average viewership, and growth in ESPN+ subscription revenue due to higher rates.

Meanwhile, Star India revenue fell 17% year over year to $105 million and its operating loss narrowed 73% year over year to $27 million. The improvement in operating losses was due to lower programming and production costs
attributable to the non-renewal of Board of Control for Cricket in India 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.

In February, Disney announced an $8.5 billion deal with Reliance Industries to merge Star India with Viacom18. The deal, which is is expected to close in late 2024 or early 2025, will give Reliance and its affiliates a 63% ownership stake in the joint venture, while Disney will have a 37% stake.

Revenue in the Experiences segment, which includes Disney’s theme parks and consumer products division, grew 10% year over year $8.39 billion. Operating income grew 12% to $2.29 billion.

Domestic Parks & Experiences revenue and operating income grew 7% year over year to $5.96 billion and 6% to $1.6 billion, respectively, driven by higher operating results at Walt Disney World Resort and Disney Cruise Line, partially offset by lower results at Disneyland Resort.International revenue grew 29% year over year to $1.52 billion and operating income rose 87% to $292 million, driven by an increase in operating results at Hong Kong Disneyland Resort.

Consumer products revenue 3% year over year to $913 million and operating income grew 7% year over year to $387 million, driven by higher games licensing revenue.

The latest quarterly results mark the first since Disney beat activist investors Trian Fund Management and Blackwells Capital during a board vote at its annual meeting in April.

According to the preliminary results, Iger won with 94% of votes cast in his favor, while Trian co-founder Nelson Peltz received less than a third of that at just 31%. Maria Elena Lagomasino, a current board member Trian was attempting to oust, beat Peltz by twice as many votes and former Disney chief financial officer Jay Rasulo by five times as many votes. 

The final results showed Iger receiving a total of 1,118,465,241 “for” votes, and 73,022,334 “withhold” votes. In comparison, Peltz received 370,974,890 “for” votes and 819,744,149 “withhold votes and Rasulo received 141,546,437 “for” votes and 1,049,145,182 “withhold” votes. Lagomasino, who had the most withhold votes out of any Disney director at 441,873,001, received 749,857,222 votes in her favor. Michael Froman, the other current Disney board member Trian attempted to replace, received 1,041,407,854 votes in his favor and 150,327,335 withhold votes. 

Disney has approximately 1.83 billion outstanding shares.

More to come…

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