In reporting its Q4 numbers, Disney has revealed that, a year after its launch, the Disney+ streaming platform has attracted 73.7 million subscribers.
The service has performed beyond expectations – Disney’s aim at launch was to reach 60 million to 90 million subscriptions by 2024. The success of Disney+ can largely be attributed to the pandemic keeping people at home. It has been a much needed cash cow for Disney in a year when its theme parks have been haemorrhaging cash.
“Even with the disruption caused by Covid-19, we’ve been able to effectively manage our businesses while also taking bold, deliberate steps to position our company for greater long-term growth,” said Bob Chapek, Chief Executive Officer, The Walt Disney Company. “The real bright spot has been our direct-to-consumer business, which is key to the future of our company, and on this anniversary of the launch of Disney+ we’re pleased to report that, as of the end of the fourth quarter, the service had more than 73 million paid subscribers – far surpassing our expectations in just its first year.”
Disney’s Direct-to-Consumer & International revenues for Q3 increased 41 per cent to $4.9 billion and segment operating loss decreased from $751 million to $580 million. The decrease in operating loss was primarily due to improved results at Hulu and ESPN+, partially offset by higher costs at Disney+, driven by the ongoing rollout and a decrease at its international channels.
The improvement at Hulu was due to subscriber growth and increased advertising revenues driven by higher impressions, partially offset by an increase in programming and production costs due to higher subscriber-based fees for programming the live television service. Higher results at ESPN+ were driven by subscriber growth and higher income from Ultimate Fighting Championship pay-per-view events.
The decrease at international channels was due to lower affiliate and advertising revenues, partially offset by a decrease in costs driven by lower general and administrative expenses and bad debt recoveries, said Disney.
Media Networks revenues for the quarter increased 11 per cent to $7.2 billion, and segment operating income increased 5 per cent to $1.9 billion. Cable Networks revenues for the quarter increased 11 per cent to $4.7 billion and operating income decreased 7 per cent to $1.2 billion. The decrease in operating income was due to lower results at ESPN, partially offset by increases at FX Networks and the Domestic Disney Channels.
Broadcasting revenues for the quarter increased 10 per cent to $2.5 billion and operating income increased 47 per cent to $553 million. The increase in operating income was due to affiliate revenue growth and lower network programming and production costs and decreased marketing expenses, partially offset by a timing impact from new accounting guidance.
The increase in affiliate revenue was due to higher rates and the benefit of an additional week in the current quarter. The decrease in network programming and production costs was due to production shutdowns, cancellations and deferrals of programming, the shift of college football games to later quarters and a delay in airing new season premieres which all reflected the impact of Covid-19. These programming and production cost decreases were partially offset by higher programme cost write-downs and the impact of an additional week in the current quarter.
Advertising revenues were comparable to the prior-year quarter as lower average network viewership was offset by the benefit of an additional week in the current quarter, higher network rates and an increase in political advertising at the owned television stations.
“Disney+ has had a dream start within a short period of time,” commented Paolo Pescatore, TMT analyst at PP Foresight, who suggested that the jury was still out on whether streaming can make up the shortfall in revenue/profit losses from other businesses such as parks and studios in the future.
“This was always going to be a tough quarter with the loss of Summer due to the pandemic which has been a near-perfect storm for its business. While the streaming revolution is in full swing, this is a long-term story and is currently not sufficient to fill a huge hole,” he added.
“Similar to Netflix, all eyes are firmly tuned on video streaming direct to consumer subs. Streaming is one of the few areas growing. Therefore, Disney should invest heavily for the long term,” he advises.
“Growth will continue as Disney+ is not widely available globally as Netflix. Launches into new markets, partnerships with key local telcos will help fuel subscribers. Disney needs a steady stream of big blockbuster shows to drive subscribers and maintain usage. It is fast following in the footsteps of Netflix,” he observes.
“The parks and studio units are really feeling the pinch now leading to significant cost cutting measures. An intriguing future awaits. When things return to normal and people start to flock back into parks, unless new blockbuster hits emerge from its studios then Disney+ might struggle,” he warns.
According to Pescatore, more pressure is being put on Disney+ to outperform to make up this shortfall on the bottom line.