Disney Shrinks Streaming Losses to $512M, Ups Cost-Cutting Goal From $5.5B

Alex Weprin
·5 min read
  • Oops!
    Something went wrong.
    Please try again later.

The impact of Bob Iger’s restructuring of The Walt Disney Co. is apparent in the company’s latest quarterly earnings report.

The Disney CEO says that the company is now set to exceed its initial goal of $5.5 billion in cost savings. The company reduced its workforce by about 7,000 jobs, with much of the cuts happening last quarter (Disney reported $210 million in severance costs).

More from The Hollywood Reporter

“In the eight months since my return, these important changes are creating a more cost effective, coordinated, and streamlined approach to our operations that has put us on track to exceed our initial goal of $5.5 billion in savings as well as improved our direct-to-consumer operating income by roughly $1 billion in just three quarters,” Iger said in a statement. “While there is still more to do, I’m incredibly confident in Disney’s long-term trajectory because of the work we’ve done, the team we now have in place, and because of Disney’s core foundation of creative excellence and popular brands and franchises.”

As Iger noted, losses in the company’s direct-to-consumer business continued to improve, hitting $512 million, compared to $1.1 billion a year ago, and $659 million last quarter.

It was a mixed bag when it came to meeting Wall Street estimates, with the company beating on earnings per share and income, but missing on revenue.

Disney reported total revenue of $22.3 billion, up 4 percent from a year ago, with operating income of $3.6 billion, in line with last year.

During the company’s quarterly earnings call, Iger said that he expects three areas to be growth drivers for Disney moving forward: It’s film studios, theme parks, and streaming, “all of which are inextricably linked to our brands and franchises.”

Among Disney’s divisions, its linear TV business continues to be profitable but on the decline, with revenues falling 7 percent to $6.7 billion and operating income slipping by 23 percent to $1.9 billion. Lower viewership and advertising revenue at ABC were a problem, as were higher sports costs at ESPN, offset by higher ad-revenue at the cable sports powerhouse.

Iger elaborated on his desire to explore options for its linear businesses on the earnings call.

ESPN this week announced a deal to partner with Penn Entertainment on an ESPN-branded sports book called ESPN Bet. The deal, which includes $1.5 billion in cash and $500 million in stock warrants, will kick in later this year.

“Why Penn? Because Penn stepped up in a very aggressive way and made an offer to us that was better than any of the competitive offers by far,” Iger said.

Likely in connection with that deal, Disney reported Wednesday that it had sold its roughly 5 percent stake in DraftKings, taking a $90 million gain.

“We received notable interest from many different entities and we look forward to sharing more details at a later date,” Iger said of potential strategic partner interest in ESPN.

In direct-to-consumer, revenues rose 9 percent to $5.5 billion, while the losses improved to $512 million. The company says that lower costs at Disney+ and ESPN+, combined with higher operating income at Hulu, helped the division. The company also saved money compared to last year thanks to not renewing its IPL deal in India.

However, the end of the company’s IPL rights did impact total Disney+ subscribers. While the company notes that its core Disney+ subscriber base (which excludes the low-price Disney+ Hotstar) rose to 105.7 million in the quarter, its Disney+ Hotstar base fell to 40.4 million, a loss of about 12.5 million subs compared to last quarter.

The company’s ESPN+ and Hulu subscriber bases remained steady from last quarter. ARPU at Disney+ and Hulu also improved thanks to better advertising performance.

Iger also announced on the earnings call that the company would be hiking prices for its ad-free tiers of Disney+ and Hulu, while launching a new duo bundle of the services. Disney will also begin to more aggressively crack down on password sharing.

Notably, last quarter Disney also announced that it would remove some content from its streaming platforms. While Disney CFO Christine McCarthy predicted that the company would take an impairment charge of between $1.5 billion-$1.8 billion, the company said Wednesday that it actually took a charge of more than $2.4 billion.

At the film studio, Iger said that “we’re focused on improving the quality of our films, and on better economics, not just reducing the number of titles we release, but also the cost per title.”

“And we’re maximizing the full impact of our titles by embracing the multiple distribution windows at our disposal, enabling consumers to access their content in multiple ways,” he added.

The company says that it expects its total content spend this year to be $27 billion, lower than forecast, thanks in part to the ongoing strikes.

However Iger also opted to try and be diplomatic when discussing the matter, telling analysts that “it is my fervent hope that we quickly find solutions to the issues that have kept us apart these past few months. And I am personally committed to working to achieve this result.”

Disney’s parks and experiences division continues to be a bright spot for the company, with revenues rising 13 percent to $8.3 billion, and operating income improving 11 percent to $2.4 billion.

Best of The Hollywood Reporter

Click here to read the full article.