Disney+ Hits 112.6 Million Core Subscribers, Adding Nearly 7 Million in Q4

Shares of Disney jumped 3% in after-hours trading on Wednesday after the company beat Wall Street expectations for its fourth quarter of 2023, bolstered by a 7% boost in Disney+ core subscribers.

The entertainment giant, which is facing a challenging TV advertising market and the lingering impact from the Hollywood strikes, reported net income of $264 million, or earnings from continuing operations of 14 cents per share, for its fourth quarter of 2023. Excluding certain items, earnings came in at 82 cents per share. Total revenue for the quarter increased 5% year over year to to $21.24 billion.

“Our results this quarter reflect the significant progress we’ve made over the past year,” Disney CEO Bob Iger said in a statement. “While we still have work to do, these efforts have allowed us to move beyond this period of fixing and begin building our businesses again.”

Analysts surveyed by Zacks Investment Research were expecting earnings of 68 cents per share on revenue of $21.32 billion.

Iger laid out a plan for Disney to grow its streaming business, cut its 2024 content spending by 7% to $25 billion and “turbocharge” its parks and experiences segment. He also said the company was finding potential cost savings in its linear television business, including ESPN, even as it discusses a possible sale of the sports network with potential buyers.

The Entertainment segment, which includes the company’s linear networks, Disney+, Hulu, saw revenue grow 2% year over year during the quarter to $9.5 billion. Operating income was $236 million, compared to a loss of $608 million a year ago.

The direct to consumer division’s revenue grew 12% year over year to $5.03 billion, while its operating loss narrowed 70% year over year $420 million. Disney continues to expect that its streaming business will be profitable by the end of fiscal year 2024, though it noted that progress “may not look linear from quarter to quarter.”

Disney+ added nearly seven million core subscribers during its fourth quarter for a total of 112.6 million, a 7% quarter over quarter increase. Nearly all the increase came from overseas, with Disney+ subscribers in North America only growing by 1% to 46.5 million. When including Disney+ Hotstar’s 37.6 million subscribers, the company’s had 150.2 million total subscribers.

Ad supported Disney+ increased by 2 million subscribers during the quarter for a total of 5.2 million. More than 50% of new Disney+ subscribers during the quarter chose the ad-supported tier.

Domestic Disney+ average monthly revenue per paid subscriber increased from $7.31 to $7.50 due to higher advertising revenue. International Disney+ (excluding Disney+ Hotstar) average monthly revenue per paid subscriber
increased from $6.01 to $6.10 due to an increase in average retail pricing, partially offset by a higher mix of subscribers to promotional offerings.
Disney+ Hotstar average monthly revenue per paid subscriber increased from $0.59 to $0.70 due to a lower mix of wholesale subscribers and higher advertising revenue.

Hulu reported a total of 48.5 million subscribers, including 43.9 million SVOD only subscribers and 4.6 million Live TV and SVOD subscribers. Hulu SVOD Only average monthly revenue per paid subscriber decreased from $12.39 to $12.11 primarily due to lower advertising revenue and a higher mix of subscribers to multi-product offerings. Hulu Live TV + SVOD average monthly revenue per paid subscriber decreased from $91.80 to $90.08 primarily due to lower advertising revenue.

Disney, which plans to pay at least $8.61 billion for Comcast’s minority stake in Hulu, will complete an appraisal process in 2024 to determine the asset’s full value. The company plans to launch a beta version of a combined Disney+ and Hulu app offering in December, before an official rollout in early spring 2024.

Linear TV networks revenue fell 9% year over year to $2.63 billion, while operating income was flat year over year at $805 million. Domestic and international revenue each fell 9% year over year to $2.09 billion and $529 million, respectively.

Domestic revenue was impacted by a decrease in advertising revenue primarily at the ABC Network and owned TV stations, lower network advertising revenue attributable to fewer impressions from lower average viewership, a decrease at the owned TV stations due to lower political advertising revenue, lower affiliate revenue reflecting a decline in subscribers, partially offset by higher contractual rates; lower marketing costs driven by fewer season premieres; and a decrease in programming and production costs due to lower costs at the ABC Network in part driven by the impact of guild strikes.

Sale of Linear Networks Still Possible

In July, Disney CEO Bob Iger told CNBC the company’s linear networks “may not be core” to the company, suggesting he would be willing to potentially offload them to the right buyer. In September, media mogul Byron Allen made a $10 billion bid to purchase the ABC television network and its local stations, and the FX and National Geographic cable channels.

Bloomberg reported that Disney has also had “exploratory,” “initial” discussions with Nexstar Media Group regarding a potential sale of ABC. During a Bank of America investor conference in September, Nexstar senior advisor Tom Carter suggested the company could onboard ABC’s eight local affiliate stations with “relatively little friction” if they were put up for sale.

“We continue to evaluate options for each of our linear networks with the goal of identifying the best strategic path for the company and maximizing shareholder value,” Iger told analysts Wednesday. “However, our review of the business thus far has uncovered significant long term cost opportunities, which we’re implementing while continuing to deliver high quality content.”

Content sales and licensing revenue fell 3% year over year $to 1.86 billion and while its operating loss grew over 100% to $149 million. The operating loss increase was due to the performance of “The Haunted Mansion” in the current quarter compared to “Thor: Love and Thunder” in the prior-year quarter, partially offset by lower theatrical marketing costs for future releases, as well as an increase in home entertainment distribution results driven by higher unit sales.

The Sports segment, which includes ESPN, ESPN+ and Star India-branded sports channels, posted revenue of $3.9 billion, flat year over year, and operating income of $981 million, up 14% year over year.

ESPN revenue grew 1% year over year to $3.81 billion, including $3.45 billion in domestic revenue and $363 million in international revenue. Meanwhile, Star India revenue fell 21% year over year to $91 million. ESPN+ subscribers grew 3% quarter over quarter to 26 million.

Higher domestic ESPN operating results were primarily due to a decrease in programming and production costs reflecting lower college football costs
attributable to the non-renewal of certain contracts, growth in ESPN+ subscription revenue resulting from an increase in retail pricing and subscriber
growth, lower marketing costs, a modest increase in advertising revenue, a decrease in affiliate revenue due to fewer subscribers and the temporary suspension of carriage with an affiliate, partially offset by higher contractual rates.

Disney is currently on the hunt for strategic partners for ESPN that could help with content or distribution for a direct-to-consumer version of the sports network that could launch in 2025.

Disney Looks to ‘Turbocharge’ Experiences

Iger said the company was “turbocharging growth in our experiences business” by spending $60 billion on a theme parks expansion over the next decade.

Revenue in the Experiences segment, which includes Disney’s theme parks and consumer products division, grew 13% to $8.16 billion. Operating income grew 31% to $1.75 billion.

Domestic Parks & Experiences revenue grew 7% year over year to $5.38 billion and operating income grew 9% to $808 million, while international revenue grew 55% year over year to $1.65 billion and operating income rose over 100% to $441 million. Consumer products revenue fell 5% year over year to $1.1 billion and operating income fell 3% year over year to $510 million.

Operating income in the segment grew domestically due to increases in passenger cruise days and average ticket prices on the Disney Cruise Line and higher Disney Vacation Club sales. Meanwhile, higher international revenues resulted from an increase in operating results at Shanghai Disney Resort and increased operating income at Hong Kong Disneyland Resort.

Iger Addresses the Return of Nelson Peltz

The latest quarterly results come as activist investor Nelson Peltz has returned after calling off a proxy fight in February. Iger said on CNBC on Wednesday that he’s had a call with Peltz but doesn’t have “specifics about what else he is really after or what he will ask for.”

That fight ended after Disney announced a plan to cut $5.5 billion in costs. On Wednesday, that cost saving target was raised to $7.5 billion. During the fourth quarter, the company recorded $1.02 billion in restructuring and impairment charges, including $22 million related to severance, $137 million related to impairments of licensed content, $141 million related to an impairment of an equity investment and $721 million of impairments related to its general entertainment and international sports linear networks.

The Trian Fund Management founder, who currently controls around 33 million Disney shares (about 1.8% of the company’s total outstanding shares), is expected to ask for multiple board seats in an effort to increase accountability, an individual familiar with the matter told TheWrap. The effort is backed by former Marvel Entertainment chairman Ike Perlmutter, who was let go from Disney during layoffs in March and aided Peltz in his previous proxy fight.

If Peltz doesn’t get what he wants, he can nominate directors to be put up for a shareholder vote at Disney’s next annual meeting. The nomination window for new board members opens on Dec. 5 and runs until Jan. 4, according to Disney’s latest proxy statement.

Iger said “the management and the board is always willing to listen to what shareholders have to say. We’re in lockstep with the board in terms of our opportunities and our challenges and our strategic direction,” adding that “long term the picture for Disney shareholders is quite bright.”

Looking ahead, Disney projects content spend for 2024 will be $25 billion, compared to $27 billion in 2023. The company, which reported free cash flow of $3.4 billion during the quarter, expects it to grow significantly in fiscal 2024, approaching levels last seen pre-pandemic.

Disney+ core subscribers are expected to decline slightly in the first quarter of fiscal 2024 due to the expected temporary uptick in churn from its recent price increases in the U.S. as well as from the end of a summer promotion. However, they anticipate subscriber growth will rebound later in the fiscal year.

Disney shares have fallen 2.5% in the past year and 5% year to date.

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