Disney+ Has 28.6M Subscribers, Disney Says As It Beats Q1 Estimates – Update

Jill Goldsmith
·7 min read

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UPDATED with Bob Iger comments on Star Wars franchise and Disney+ content. The Disney+ streaming service, which launched in November, has 28.6 million subscribers as of February, the company said Tuesday as it reported fiscal first-quarter earnings after the bell. The sub number is higher than the 20 million-25 million anticipated. Disney+ had 26.5 million subscribers at the end of the quarter on December 31.

In announcing financial results, the media giant reported that revenue surged 36% to $20.9 billion. Earnings per share, excluding certain items that impact comparability, dipped 17% to $1.53. Comparisons were complicated by the $71.3 billion acquisition of most of 21st Century Fox last March.

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At a conference call to chew over the numbers, Iger discussed the subtleties of Star Wars fandom around the world and why The Mandalorian will work in some markets while the Skywalker legacy might not, as well the new streamer’s broader programming strategy.

“One of the interesting things about Star Wars and The Mandalorian, because there were some things written after The Rise of Skywalker that Star Wars in certain international markets has never caught on, one of the reasons for that is that there isn’t a Star Wars legacy in many of these markets, China being a main one. People didn’t grow up on that franchise or that brand. So, when they tuned into or heard about the Skywalker legacy there was too much that had already gone on in the past that wasn’t familiar to them. They didn’t really want to get onboard late,” he said.

“That’s not true with Mandalorian because Mandalorian, even though it’s based on certain Star Wars elements, characters and places, you don’t have to know anything about the history of Star Wars in terms of an access point or your interest.” Iger said.

He said the Disney brand globally has never been more popular and interest and affinity among young people in particular in the brand has actually risen thanks to Disney+. “I think a lot of that has to do with the relevance of the platform, the technology, the manner of presentation and I think it’s a loud statement about what’s going on in the world today in terms of consumer tastes.”

And he noted how challenging it can be for a company to pivot in a new strategic direction, particularly when it involves navigating between emerging and established business models. “But since we announced our intention to shift our strategy, we’ve made an extraordinary amount of progress,” he said.

In response to a question about his biggest takeaways two months in from the Disney+ launch and if he’s planning any adjustments, Iger said he’s pretty pleased by the rollout, the array of content consumed and time spent on the service.

He sees the strong results thus far as a testament – “without wanting to brag” – to the company’s heavy investment in IP over the past years and to the current programming strategy of moving slowly with originals, which is possible because there’s so much else for fans to watch on the service.

“We’ve been heartened by the fact that there’s been, basically, consumption of a broad array of product across all of our brands. It’s not just about original programming or Disney library. It’s really about everything,” he said. “We feel that validates that collection of brands and a blend of product,” he said.

He noted that the trajectory in terms of investment in original programming on the service is roughly the same as it was before launch. “We haven’t really changed that that much. Clearly, the original shows that we decided to invest in, mainly The Mandalorian, have worked. And we knew when we decided to invest we were launching with a modest amount of programming and it would build over time. … We’re comfortable with the volume of programming that we’re creating.”

Hulu ended the quarter with 30.4 million subs, including its live TV and on-demand subscription services, and had 30.7 million as of Monday.

Breaking down the numbers, Studio Entertainment revenues for the quarter increased from $1.8 billion to $3.8 billion, and operating income tripled from $309 million to $948 million. Increases in theatrical and TV/SVOD distribution results at legacy operations were bright spots, partially offset by a loss from the consolidation of the 21st Century Fox businesses.

Theatrical distribution was powered by Frozen 2 and Star Wars: The Rise Of Skywalker in the quarter — compared with Ralph Breaks the Internet in the prior-year quarter. The fiscal 2019 quarter also included Mary Poppins Returns and The Nutcracker and the Four Realms. The current quarter includes Maleficent: Mistress of Evil.

Growth in TV/SVOD distribution results was due to sales of content to Disney+, partially offset by a decrease in pay television sales to third parties.

Operating results at the Fox businesses reflected income from TV/SVOD distribution, which was more than offset by a loss from theatrical distribution and general and administrative costs. TFCF theatrical releases in the current quarter included Spies in Disguise, the Oscar-nominated Ford v. Ferrari and Terminator: Dark Fate.

Cable Networks revenues rose 20% to $4.8 billion and operating income increased 16% to $862 million due to the consolidation of the Fox businesses (primarily the FX and National Geographic networks), partially offset by a decrease at ESPN. The decrease at ESPN was due to an increase in programming and production costs and lower advertising revenue, partially offset by higher affiliate revenue.

Higher programming and production costs were driven by rate increases for NFL, the College Football Playoffs and other college sports programming as well as costs for the ACC Network, which launched in August. Lower advertising revenue was due to lower average viewership.

Affiliate revenue growth was due to an increase in contractual rates, partially offset by a decrease in subscribers.

Broadcasting revenues for the quarter increased 34% to $2.6 billion and operating income increased 41% to $575 million, reflecting the consolidation of TFCF, program sales, and a timing benefit from new accounting guidance, partially offset by lower results at legacy operations.

At the beginning of fiscal 2020, the company adopted new accounting guidance, which removes certain limitations on the capitalization of episodic television production costs. Compared to the previous accounting, programming and production expense will generally be lower in the first half of the fiscal year and higher in the second half of the fiscal year as the capitalized costs are amortized.

The decrease at legacy operations was due to lower advertising revenue, a decrease in ABC Studios program sales and higher network programming and production costs, partially offset by an increase in affiliate revenue due to higher rates.

Lower advertising revenue reflected decreases at the owned television stations and in average network viewership, partially offset by higher network rates. The decrease in ABC Studios program sales was driven by the comparison to the prior-year sale of The Punisher. Higher network programming and production costs were driven by a higher cost mix of programming in the current quarter compared to the prior-year quarter.

Parks, Experiences and Products revenues for the quarter increased 8% to $7.4 billion, and segment operating income increased 9% to $2.3 billion.

Operating income at international parks and resorts was lower due to softer results at Hong Kong Disneyland Resort, partially offset by growth at Shanghai Disney Resort. Lower results at Hong Kong Disneyland were due to decreases in attendance and occupied room nights reflecting the impact of recent events. At Shanghai Disney, higher operating income was driven by an increase in attendance.

That was last quarter. Both parks are temporarily closed now due to the Coronavirus epidemic in China.

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