Disney+ Drops 2.4 Million Subscribers in First Loss, Bob Iger Heralds ‘Significant Transformation’ Underway

Disney+ lost a net 2.4 million subscribers in the last three months of 2022 — marking the streaming service’s first decline since launching in late 2020 — while the Mouse House’s quarterly earnings topped Wall Street estimates, thanks to a surge in revenue at Disney’s theme parks.

The results are Bob Iger’s first back in the CEO role, after Disney’s board summarily ousted Bob Chapek in November, with Iger seeking to reassure investors that the company has a plan to get back on track.

Overall, Disney posted revenue of $23.51 billion (up 8%) and adjusted earnings per share of 99 cents for the quarter ended Dec. 31, 2022 (Disney’s Q1 of fiscal year 2023). That beat analyst consensus estimates of $23.37 billion and 78 cents, respectively, per Refinitiv.

Iger, in announcing the results Wednesday, said: “After a solid first quarter, we are embarking on a significant transformation, one that will maximize the potential of our world-class creative teams and our unparalleled brands and franchises. We believe the work we are doing to reshape our company around creativity, while reducing expenses, will lead to sustained growth and profitability for our streaming business, better position us to weather future disruption and global economic challenges and deliver value for our shareholders.”

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On the earnings beat, Disney shares were up over 3% in after-hours trading.

The drop in Disney+ subscribers — which was bigger than analysts expected — was entirely driven by a 3.8 million sequential decline Disney+ Hotstar, the version of the service offered in India and parts of Southeast Asia, to stand at 161.8 million at the end of 2022. Last year, Disney lost streaming rights to Indian Premier League (IPL) cricket matches, which prompted it to lower growth targets for Disney+ Hotstar in India.

In the U.S./Canada, Disney+ gained about 200,000 subs (to reach 46.6 million). Hulu gained 800,000 in the quarter to stand at 48.0 million, and ESPN+ increased by 600,000 to 24.9 million.

Disney’s Direct-to-Consumer revenue for the quarter rose 13%, to $5.3 billion, while its operating loss increased 78% to $1.05 billion. The higher year-over-year operating loss — which was better than analysts’ forecast loss of $1.22 billion for the DTC segment (and compared with a loss of $1.5 billion the previous quarter) — was due to higher content and technology costs at Disney+ (with higher average costs per hour of programming, which included an increased mix of originals) as well as higher content costs and lower ad revenue at Hulu. Financial performance of ESPN+ improved thanks to higher retail pricing. The company continues to expect Disney+ to hit profitability in fiscal year 2024.

On the earnings call, CFO Christine McCarthy said Disney was “pleased” with the initial reaction to the ad-supported Disney+ tier, which debuted Dec. 8 in the U.S. But, she said, Disney+ with ads will not produce a “meaningful financial impact” until later in the company’s 2023 fiscal year.

Iger noted that even though the price of Disney+ without ads increased — in December, that went up from $7.99 to $10.99 per month in the U.S. — “we only suffered a de minimis loss of subs… and that tells us something.”

At Disney’s linear TV networks, revenue dropped 5% to $7.3 billion, and operating income decreased 16% to $1.3 billion. On the film front, Disney said it generated better results from theatrical distribution led by Marvel’s “Black Panther: Wakanda Forever” compared with losses on titles released in the prior-year quarter.

Revenue for Disney’s domestic TV channels business, which include ABC and ESPN, decreased 1% to $6.1 billion and operating income increased 5% to $928 million. The lift in operating income was attributable to lower costs for sports programming on cable while broadcasting results were comparable to the prior-year quarter, as growth at the owned local stations from higher ad revenue was “largely offset by lower results at ABC,” Disney said. International channels revenue for the quarter dropped 21% to $1.2 billion and operating income fell 64% to $131 million, in part reflecting the lack of IPL matches in the quarter.

The brightest spot for Disney in the quarter was its Parks, Experiences and Products group, which saw revenue climb 21% to $8.7 billion and operating income rise 25% to $3.1 billion, reflecting increased guest spending at domestic parks and experiences (and to a lesser extent at Disney’s international parks and resorts).

Meanwhile, Disney recorded a charge of $69 million in the quarter related to exiting its businesses in Russia following the country’s war on Ukraine.