Disney+ Sheds 4 Million Subscribers in Second Straight Quarterly Drop, Streaming Losses Narrow by 26%

From Variety:

Primary takeaways -

• Disney+ lost 4 million subscribers in Q2 2023, marking its second consecutive quarterly drop.
• However, the company narrowed its streaming business losses by $400 million YoY.
• The sub drop was driven by a 4.6 million sequential decline at Disney+ Hotstar, the version of the service offered in India and parts of Southeast Asia.
• In the US/Canada, Disney+ lost about 300,000 subscribers while it added nearly 1 million in international markets excluding Disney+ Hotstar.
• Hulu gained 200,000 in the quarter to stand at 48.2 million, and ESPN+ increased by 400,000 to 25.3 million.
• Hulu content will be introduced on Disney+ later this year in a “one-app experience.”
• Disney is “in the process of reviewing the content on our DTC services to align with the strategic changes in our approach to content curation” and “will be removing certain content from our streaming platforms.”
• Disney’s Parks, Experiences and Products group saw revenue climb 17% to $7.8 billion and operating income rise 23% to $2.2 billion.
• The company's Direct-to-Consumer revenue for the quarter rose 12%, to $5.5 billion, while its operating loss decreased 26% to $1.1 billion.
• Disney's content spending cuts will hit primarily in 2024, because so much has already been committed this year.

Disney+ shed another 4 million subscribers in the first three months of 2023, marking the streamer’s second consecutive quarterly drop after closing 2022 with its first-ever decline. On the bright side, the Mouse House also managed to narrow its streaming business losses by $400 million, down 26% year over year.

On Wednesday, CEO Bob Iger and Co. beat Wall Street estimates for Disney’s quarterly earnings and revenue due to an impressive January-March showing at the company’s theme parks. That win comes during a fiscal Q2, which concluded April 1, plagued by company-wide layoffs, a looming (and now active) writers strike and a turf war with Florida Gov. Rick DeSantis.

Disney ended the quarter with 157.8 million subscribers at Disney+, significantly missing Wall Street’s estimate of 163.17 million subs. That projected figured would have been up from the 161.8 million subs Disney+ fell to the prior quarter.

This second sub drop was driven by a 4.6 million sequential decline at Disney+ Hotstar, the version of the service offered in India and parts of Southeast Asia. Last year, Disney lost streaming rights to Indian Premier League (IPL) cricket matches, which prompted it to lower growth targets for Disney+ Hotstar in India.

In the U.S./Canada, Disney+ lost about 300,000 subs (to reach 46.3 million), while it added nearly 1 million in international markets excluding Disney+ Hotstar.

Hulu gained 200,000 in the quarter to stand at 48.2 million, and ESPN+ increased by 400,000 to 25.3 million.

During Disney’s earnings call with analysts later Wednesday, Iger — who returned to his post as CEO last fall upon the ousting of Bob Chapek — announced that Hulu content will be introduced on Disney+ later this year in a “one-app experience.”

Also on the call, CFO Christine McCarthy announced Disney is “in the process of reviewing the content on our DTC services to align with the strategic changes in our approach to content curation” and “will be removing certain content from our streaming platforms.”

According to McCarthy, Disney expects a writedown in Q3 of $1.5-$1.8 billion from removing the content. McCarthy also said “going forward we intend to produce lower volumes of content in alignment with this strategic shift.”

The content spending cuts will hit primarily in 2024, because so much has already been committed this year.

Wall Street forecast earnings per share (EPS) of 93 cents on $21.78 billion in revenue, according to analyst consensus data provided by Refinitiv. Disney reported adjusted EPS of 93 cents on $21.82 billion in revenue.

Disney posted negative free cash flow of $168 million for the quarter.

Starting with its fiscal Q2 2022, Disney restructured its financial results into two segments: Disney Media and Entertainment Distribution and Disney Parks, Experiences and Products.

Disney’s Direct-to-Consumer revenue for the quarter rose 12%, to $5.5 billion, while its operating loss decreased 26% to $1.1 billion — which was better than analysts forecasted.

At Disney’s linear TV networks, revenue dropped 7% to $6.6 billion, and operating income decreased 35% to $1.8 billion.

Revenue for Disney’s domestic TV channels business, which include ABC and ESPN, decreased 4% to $5.6 billion and operating income decreased 33% to $1.6 billion. The drop in operating income was attributable to lower ad revenue and higher sports programming and production costs.

International channels’ revenue for the quarter dropped 18% to $1.1 billion and operating income fell 65% to $85 million.

The brightest spot for Disney in the quarter was its Parks, Experiences and Products group, which saw revenue climb 17% to $7.8 billion and operating income rise 23% to $2.2 billion, reflecting increased guest spending at international and domestic parks and experiences (primarily at Disney’s international parks and resorts).

Content Sales/Licensing and Other revenues, which includes box office revenue, increased 18% to $2.2 billion and saw an operating loss of of $50 million, down from an increase of $16 million year over year.

Per Disney, “the improvement at theatrical distribution was due to the continued success of ‘Avatar: The Way of Water,’ which was released in the first quarter of the current year, partially offset by the comparison to co-production income in the prior-year quarter from Marvel’s ‘Spider-Man: No Way Home.’ The current quarter included the release of ‘Ant-Man and the Wasp: Quantumania’ whereas the prior-year quarter included the release of ‘Death on the Nile.'”

Disney stock closed Wednesday at $101.14 per share. The regular U.S. stock markets will reopen Thursday at 9:30 a.m. ET.