Disney Gets Closer To Streaming Profitability With Q2 Results: Full Breakdown
During their Q2 earnings call on Tuesday, Bob Iger provided some updates on the financials of The Walt Disney Company. Though the overall message was packaged as an optimistic one, Wall Street wasn’t as enthusiastic, and the stock plummeted after the call ended.
Starting with streaming, Iger announced they are inching closer to reaching the Holy Grail of this business model: profitability. This is currently the parameter Wall Street cares the most about, after shifting its gears in recent years from subscriber growth. The model is no longer the future — it is the present, and Wall Street wants to make money off it, rather than bet on its future growth. This is also part of the reason why Netflix will not be disclosing subscriber numbers anymore.
Disney reported that, for the first time in a quarter, the operating income of Disney Plus and Hulu combined turned a profit. When adding the ESPN Plus numbers into it, the losses narrowed to $18M when compared to Q2 2023’s $659M loss. Iger reiterated their goal to reach streaming profitability by Q4 of this year (July-September, as Disney’s fiscal year starts in October).
Hulu, which Disney will gain full ownership over in 2024, was folded into Disney Plus as a tile on the main page. Iger announced that ESPN Plus will follow suit later this year. It will feature select games and studio programming to watch on the service, as Disney prepares to launch its own dedicated streaming service.
While subscriber growth has plateaued, Disney Plus is still adding revenue thanks to more moderate spending and the introduction of the ad tier. As for the former, the model of four-to-six Marvel shows a year, plus two-to-three Star Wars series, is no more. Iger said that they are cutting back on the churn from Marvel Studios, moving to two shows and three movies every year, tops. The Star Wars slowdown was not specified, but looking at the production calendar, it is expected. Only one live-action show, Andor, is anticipated to arrive in 2025.
These days, the ad-supported tier on Disney’s streaming services (and the same happens with Netflix) brings more revenue-per-user to the company, which is why they will likely be trying different ways to push people into it in the coming years. Another way of bringing gold into the arcs, too, is through licensing titles to other platforms, namely Netflix. Iger said that they are looking “selectively” at other possibilities. It’s probably not going to be any Marvel or Star Wars shows, or even the Kardashians, though.
This directly contradicts one of Iger’s most famous quotes in recent years, when he explained the reason for creating Disney Plus: “And I woke up one day and thought, we’re basically selling nuclear weapons technology to a Third World country, and now they’re using it against us.” Having Moana available on their own streaming platform has been hugely profitable for them, but perhaps filling up the main page with shows like Willow or some of the lower-rated FX shows has not been as financially feasible, which is why they are now looking to sell them elsewhere.
Despite all of that, the stock of the company tanked on Tuesday following the earnings call. The primary reason seems to be that analysts are not as bullish on the park division, following reports from the company that attendance is slowing down and the margins are narrowing. It makes sense, of course, as we’re just coming out of a huge bump these past couple of years because of families overcompensating for lack of travel during COVID. The parks continue to be Disney’s most lucrative business, and the company continues to invest heavily on that division. Josh D’Amaro, parks chief, is considered one of the candidates for Iger’s job.
And that speaks to the other question that Iger will have to answer over the next year or so. What happens with succession? There are four potential candidates, according to insiders: D’Amaro, TV chief Dana Walden, Alan Bergman, head of the entertainment division, and ESPN head, Jimmy Pitaro. Whoever ends up being the chosen one will have to be groomed by Iger to assume the responsibilities of the divisions they are currently not experts on, a process that will take at least 1-2 years and that will have to be complete by the time Iger retires in 2026.
Miguel Fernández is a Spanish student that has movies as his second passion in life. His favorite movie of all time is The Lord of the Rings, but he is also a huge Star Wars fan. However, fantasy movies are not his only cup of tea, as authors like Scorsese, Fincher, Kubrick or Hitchcock have been an obsession for him since he started to understand the language of filmmaking. He is that guy who will watch a black and white movie, just because it is in black and white.
