Disney dethrones Netflix as biggest streamer
August 11, 2022
By Nik Roseveare
The Walt Disney Company has reported 221m streaming subs across its brands, just topping Netflix at 220.7m.
The group declared earnings for its third fiscal quarter ended July 2nd 2022 with revenues for the quarter and nine months up 26 per cent and 28 per cent, respectively.
“We had an excellent quarter, with our world-class creative and business teams powering outstanding performance at our domestic theme parks, big increases in live-sports viewership, and significant subscriber growth at our streaming services. With 14.4 million Disney+ subscribers added in the fiscal third quarter, we now have 221 million total subscriptions across our streaming offerings,” commented Bob Chapek, Chief Executive Officer, The Walt Disney Company. “We continue to transform entertainment as we near our second century, with compelling new storytelling across our many platforms and unique immersive physical experiences that exceed guest expectations, all of which are reflected in our strong operating results this quarter.”
Disney’s total of 221 million subscribers now puts it slightly ahead of Netflix’s reported 220.7 million subscriber-base. However – Disney‘s streaming offering is still losing money, reporting a loss of $1.1 billion for the quarter. Executives said they expect losses to peak later this year.
Shares of Disney rose 4 per cent in after-hours on the back of the results, trading to $116.85.
Domestic Channels
Domestic Channels revenues for the quarter increased 2 per cent to $5.7 billion (€5.5bn), and operating income increased 15 per cent to $2.1 billion, reflecting higher results at both Cable and Broadcasting.
The increase at Cable was due to growth in advertising revenue and to a lesser extent, a decrease in marketing costs and an increase in affiliate revenue. Advertising revenue growth was due to an increase in rates and higher impressions reflecting higher average viewership. Rates and impressions benefited from the timing of the NBA Finals, which aired in the current quarter compared to the fourth quarter of the prior year as a result of a delayed start of the 2021 NBA season due to Covid-19. Higher affiliate revenue was driven by an increase in contractual rates, partially offset by fewer subscribers. Programming and production costs were comparable to the prior-year quarter as higher costs for NBA programming and an increase in sports production costs were largely offset by lower MLB and soccer rights costs. Higher NBA rights costs reflected the timing of the Finals, which are programmed by ESPN and aired on ABC, and contractual rate increases, partially offset by fewer regular season games in the current quarter. Lower costs for MLB programming were due to airing 13 games in the current quarter compared to 44 games in the prior-year quarter. The decrease in soccer programming costs reflected the comparison to the airing of UEFA Euro 2020 in the prior-year quarter. UEFA Euro typically occurs every four years. UEFA Euro 2020 was originally scheduled to occur in fiscal 2020, but was held in fiscal 2021 due to Covid-19.
The increase at Broadcasting was due to higher results at ABC and, to a lesser extent, at the owned television stations. The increase at ABC reflected lower programming and production costs, growth in affiliate revenue, which reflected higher contractual rates, and a decrease in marketing costs, partially offset by lower advertising revenue. Lower programming and production costs were due to a lower cost mix of programming and, to a lesser extent, the timing of the NBA Finals, which are programmed by ESPN. The lower cost mix of programming reflected the timing of The Academy Awards and fewer hours of scripted and acquired reality programming, partially offset by the cost of airing new NHL programming. The Academy Awards aired in the second quarter of the current fiscal year compared to the third quarter of the prior fiscal year. We acquired rights to NHL programming starting with the 2021/2022 season. Lower advertising revenue was due to the timing of The Academy Awards, a decrease in viewership and to a lesser extent, fewer units delivered, partially offset by higher rates. Fewer units delivered resulted from the impact of more hours programmed by ESPN due to the timing of the NBA Finals. The increase at the owned television stations reflected higher affiliate and advertising revenue. The increase in affiliate revenue was due to higher contractual rates. Higher advertising revenue resulted from increased rates reflecting political advertising, partially offset by the impact of the timing of The Academy Awards.
International Channels
International Channels revenues for the quarter increased 7 per cent to $1.5 billion and operating income was comparable to the prior-year quarter at $0.2 billion reflecting lower operating income from channels that operated for the entire current and prior-year quarters (ongoing channels), offset by a benefit from channel closures.
Lower results from ongoing channels were primarily due to an increase in sports programming costs, partially offset by advertising revenue growth reflecting higher average viewership. The increases in sports programming costs and advertising revenue were due to the airing of 64 Indian Premier League (IPL) cricket matches in the current quarter compared to 29 matches in the prior-year quarter. IPL cricket matches typically occur in our second and third fiscal quarters. The increase in the number of matches in the current quarter was due to a shift in the timing of matches in the prior year from the third quarter to the fourth quarter as a result of Covid-19 and the IPL adding matches to the current season.
Direct-to-Consumer
Direct-to-Consumer revenues for the quarter increased 19 per cent to $5.1 billion and operating loss increased $0.8 billion to $1.1 billion. The increase in operating loss was due to a higher loss at Disney+, lower operating income at Hulu and, to a lesser extent, a higher loss at ESPN+.
Lower results at Disney+ reflected higher programming and production, technology and marketing costs, partially offset by increases in subscription revenue and, to a lesser extent, advertising revenue. The increase in programming and production costs was primarily due to more content provided on the service, including the impact of airing 64 IPL cricket matches in the current quarter compared to 29 matches in the prior-year quarter. Higher subscription revenue was due to subscriber growth and increases in retail pricing, partially offset by an unfavorable foreign exchange impact. The increase in subscribers as well as in technology and marketing costs reflected growth in existing markets and, to a lesser extent, expansion to new markets. Advertising revenue growth was due to the additional IPL matches in the current quarter.
The decrease at Hulu was due to higher programming and production and marketing costs, partially offset by subscription revenue growth. The increase in programming and production costs was primarily due to higher subscriber-based fees for programming the Live TV service reflecting an increase in the number of subscribers, rate increases and the carriage of more networks. Subscription revenue growth was due to increases in subscribers and in retail pricing.
Lower results at ESPN+ were due to higher sports programming costs, partially offset by an increase in subscription revenue due to subscriber growth.
The following tables present additional information about our Disney+, ESPN+ and Hulu direct-to-consumer (DTC) product offerings.
The average monthly revenue per paid subscriber for domestic Disney+ decreased from $6.62 to $6.27 due to a higher mix of subscribers to multi-product offerings, partially offset by an increase in retail pricing.
The average monthly revenue per paid subscriber for international Disney+ (excluding Disney+ Hotstar) increased from $5.52 to $6.31 due to increases in retail pricing, partially offset by an unfavorable foreign exchange impact and a higher mix of wholesale subscribers.
The average monthly revenue per paid subscriber for Disney+ Hotstar increased from $0.78 to $1.20 due to higher per-subscriber advertising revenue.
The average monthly revenue per paid subscriber for ESPN+ increased from $4.47 to $4.55 due to an increase in retail pricing and, to a lesser extent, a lower mix of annual subscribers and higher per-subscriber advertising revenue, partially offset by a higher mix of subscribers to multi-product offerings.
The average monthly revenue per paid subscriber for the Hulu SVoD Only service decreased from $13.15 to $12.92 due to lower per-subscriber advertising revenue and a higher mix of subscribers to multi-product and promotional offerings, partially offset by an increase in retail pricing.
The average monthly revenue per paid subscriber for the Hulu Live TV + SVoD service increased from $84.09 to $87.92 due to an increase in retail pricing and higher per-subscriber advertising revenue, partially offset by a higher mix of subscribers to multi-product offerings.
Content Sales/Licensing and Other
Content Sales/Licensing and Other revenues for the quarter increased 26 per cent to $2.1 billion and segment operating results decreased from income of $132 million to a loss of $27 million. The decrease in operating results was due to an unfavorable foreign exchange impact and lower TV/SVoD and home entertainment distribution results. These decreases were partially offset by an increase at our stage play business, as productions were generally shut down in the prior-year quarter due to Covid-19, and higher theatrical distribution results.
The decrease in TV/SVOD distribution results was due to a decrease in sales of theatrical film content primarily due to a shift from licensing content to third parties to distribution on our DTC services.
The decrease in home entertainment results was due to lower unit sales of catalog titles.
The increase in theatrical distribution results was due to the strong performance of Doctor Strange In the Multiverse of Madness in the current quarter compared to Cruella in the prior-year quarter. Current quarter releases also included Lightyear and The Bob’s Burgers Movie.
Commenting on the results, Paolo Pescatore of PP Foresight said: “This is a pivotal moment in the streaming wars as Disney now has more direct-to-consumer video subscribers than Netflix. It feels like a two horse race.”
“Disney has performed much better compared to its rivals this quarter. Firmly underlines my belief that Disney is at a different phase of growth to Netflix. There are still millions users to acquire as it continues to expand into new market and rolls out new blockbuster shows. The new ad tier will help lure cost conscious users to fuel future growth,” he added.
Francesca Gregory, Thematic Analyst at GlobalData, commented: “Disney has now amassed 221 million subscribers across its streaming services, overtaking Netflix and providing some reassurance to investors. However, the company is not immune to the industry’s endemic problem of sky-high content spending with limited profitability. While Disney’s platforms continue to entice subscribers, its streaming business recorded a $1.1 billion loss across the quarter. Getting subscribers through the door with a (relatively) cheap and cheerful service was always likely to be the easy part. Reconciling subscriber numbers with content spend will be the real challenge if Disney is to achieve its aim to make its streaming business profitable by 2024. Price hikes of 38 per cent across the Disney+ ad-free version should boost revenue when combined with the rollout of its ad-supported tier.”
“Although starting light, Disney will up the ad load of its new tier over time. The tier is aimed at cash-strapped consumers amid the deepening cost-of-living crisis. While this should prevent a mass exodus from Disney’s streaming platforms, slower subscriber growth rates are likely as the service is watered down. While the latest results have given the company breathing room, it remains to be seen if Disney can balance subscriber growth and profitability,” she concluded.