has info from conference call
https://www.nytimes.com/2022/11/08/business/media/disney-earnings.html
Disney+ Adds 12 Million Subscribers, but Cites ‘Peak Losses’
The confidence generated by the subscriber growth was offset by widening financial losses for the company’s direct-to-consumer division over all.
Profit at Disney’s theme park division more than doubled to $1.5 billion. But a potential recession has analysts concerned.Credit...Octavio Jones/Reuters
By
Brooks Barnes
Nov. 8, 2022Updated 5:51 p.m. ET
Disney emphasized on Tuesday that profitability for its flagship streaming service was on the horizon. But the company’s quarterly results did little to instill confidence, with better-than-expected Disney+ subscriber growth, particularly in North America, offset by widening financial losses for Disney’s direct-to-consumer division as a whole.
In a statement,
Bob Chapek, Disney’s chief executive, also added a qualifier to his latest assertion that Disney+ would turn a profit in the fiscal year that starts next fall: “assuming we do not see a meaningful shift in the economic climate.”
Disney+ added 12.1 million subscribers worldwide in the quarter that ended on Oct. 1, including 1.9 million in the United States and Canada, lifting its total count to 164.2 million. Analysts polled by FactSet had expected the service to add 8.8 million worldwide. Michael Nathanson, a leading media analyst, had expected Disney+ to increase its domestic base by as little as 500,000.
Disney now has more than 235 million subscriptions across its streaming portfolio, which comprises Disney+, ESPN+ and Hulu. To compare,
Netflix said last month that it had 223 million subscribers after it reversed a decline by adding 2.4 million in the quarter.
On the downside, Disney’s direct-to-consumer unit racked up $1.5 billion in losses in the quarter, up from $630 million a year earlier. Disney said higher Disney+ production, marketing and technology costs had contributed to the “peak” losses in the most recent quarter.
“We expect our D.T.C. losses to narrow going forward,” Mr. Chapek said, noting that costs were being “realigned” and that the price of a monthly subscription for the current ad-free version of Disney+ was going up. Starting on Dec. 8, such subscriptions will cost $11, up from $8, a 38 percent increase. A new, ad-supported option will remain $8.
Insider Intelligence, a research firm, has estimated that Disney+ could generate $1 billion in ad sales in 2023. Other analysts say $800 million is a more realistic target.
“Peak losses are now behind us,” Christine M. McCarthy, Disney’s chief financial officer, told analysts on a conference call on Tuesday.
Climbing production and marketing costs also dented Hulu, which expanded its subscriber base by one million, to 47.2 million. In contrast, ESPN+ financial results improved, Disney said, in part because of higher advertising sales; ESPN+ added 1.9 million subscribers, for a new total of 24.3 million.
In terms of average revenue per paid subscriber, a metric closely watched by investors, Disney+ declined in North America (to $6.10 from $6.81) and increased in most markets overseas (to $5.83 from $5.62). The decline in North America was due to a larger number of subscribers from Disney’s discounted “bundle” offering of Disney+, ESPN+ and Hulu.
In total, Disney generated $20.15 billion in revenue in the quarter, a 9 percent increase from a year earlier. Analysts had expected $21.3 billion.
Profit totaled $162 million, or 9 cents a share, roughly flat from a year earlier. Excluding items affecting comparisons, per-share profit for the most recent quarter was 30 cents. Analysts had expected closer to 50 cents.
It is a rarity for Disney to miss expectations on both revenue and earnings per share. Disney shares fell 9 percent in after-hours trading, suggesting that the market remains skeptical of the company’s Disney+ profitability pledge.
Disney has primarily relied on revenue from its theme parks to fund the construction of Disney+ and to pay down debt incurred during the height of the pandemic, when almost all Disney businesses
were shut down. So far, that bet is paying off: Disney’s domestic theme park resorts were jammed in the quarter, and spending on food and merchandise soared.
Operating profit at Disney Parks, Experiences and Products totaled $1.5 billion, more than double from a year earlier, despite continuing coronavirus restrictions at Shanghai
Disneyland and the closure of Walt Disney World in Florida for a time because of Hurricane Ian. (Shanghai Disneyland recently closed entirely, and Disney said on Tuesday that it had no idea when the Chinese authorities might allow it to reopen.) Revenue in the parks division climbed 36 percent, to $7.43 billion.
But analysts and investors are worried about a deteriorating U.S. economy.
“A looming recession could dampen near-term demand” for theme park vacations, the Macquarie analysts Tim Nollen and Max Schmitt told clients on Oct. 31. “We are hopeful that a mild recession, if unemployment does not spike and consumers continue to absorb inflationary pressures, might not be nearly as bad this time as in 2009.”
Ms. McCarthy told analysts on the conference call that she saw no evidence of vacation belt tightening, but did not offer specific hotel bookings information, as she had often done.
“We are still seeing robust demand at our domestic parks and are expecting a strong holiday season,” she said, adding that tickets for some Disney parks have been selling out on certain days.
Disney has expressed its confidence by continuing to
increase prices for tickets and line-shortening privileges. Price increases were introduced last month, making a single-day ticket at Disneyland in California cost as much as $179 over the Christmas period, up from $164 in 2019. Access to Disneyland’s
Genie+ line-shortening system will add at least $25 per person, up from $20.
Disney issued its report at the end of an earnings season that has been bleak for most of the big media companies, with weakness in advertising sales as a particular problem. “We are looking for meaningful efficiencies,” Ms. McCarthy said, referring to companywide cost cutting and restructuring that could result in layoffs.
Across Hollywood, companies are laying off workers and cutting production budgets as they adjust to Wall Street’s new expectations that streaming services turn a profit. That pressure is increasing, in part, because cable television hookups are falling off a cliff. Comcast, for instance, lost 10 percent of its cable customers over the last year.
Disney said advertising sales at its cable channels declined in the quarter. Cable was a particular weakness for Disney overseas, where revenue decreased 18 percent, to $1.1 billion. Over all, revenue for Disney’s television business, including ABC, declined 5 percent, to $6.3 billion.
Lower cable programming costs allowed Disney’s television unit to deliver a 6 percent increase in operating profit, to $1.74 billion.
“Looking ahead, we expect to see linear subscriber declines accelerate in line with industry trends,” Ms. McCarthy said.
