The streaming downturn in 2022 hasn’t hit Mickey Mouse yet.
Walt Disney Co. reported better-than-expected subscriber growth on its major streaming service Disney+ on Wednesday, driving revenues from its major theme park business while driving a direct consumer shift.
Burbank entertainment mogul says Disney+ has added nearly 8 million people. The number of subscribers in the second quarter exceeded analyst estimates. According to FactSet, Wall Street expects Disney+ to have around 5.2 million paying members. The service currently has 137.7 million subscribers.
Disney’s latest report comes amid growing concerns among investors and Hollywood executives that its streaming business may not be as big or as profitable as it once thought.
Disney CEO Bob Chapek has made it his mission to grow Disney+ to astronomical levels, along with the company’s other streamers Hulu and ESPN+, to remain relevant to modern viewers who are giving up on cable bundles.
Entertainment companies, including Disney, have invested billions in launching and growing a streaming service that will compete with Netflix as the Los Gatos giant flips business. Subscribers surged in the early days of the pandemic, and stock prices followed as homebound consumers signed up for home entertainment options.
However, the pandemic effect eventually waned. Netflix reported losing subscribers for the first time in 10 years. The company’s membership has dropped to 200,000, and management has blamed competition, rampant password sharing and the company’s suspension in Russia. Netflix has promised to curb spending. Several jobs have been lost in marketing. Netflix stock has fallen more than 70% so far this year.
Disney’s stock took a hit amid widespread stock market declines, despite a surprising resurgence of company parks and the return of theater films from the box office. The stock has fallen more than 30% since January.
The company has promised Wall Street that Disney+ will reach 230 to 260 million subscribers by 2024. Some analysts have questioned whether that goal is realistic.
But so far, Disney+ has continued to grow. ESPN+ also added 1 million subscribers, bringing the total number of subscribers to 22.3 million. However, Hulu has grown by 300,000 subscribers to 45.6 million.
The quarterly financial results were mixed. Sales and profit fell short of analysts’ expectations, but sales were up significantly from a year ago.
First-quarter revenue was $19.2 billion, up 23% year-over-year. Disney cited a $1 billion drop in revenue due to money held by customers to terminate license agreements for movie and TV content for use on its streaming service. Disney did not reveal the customer’s name.
Analysts surveyed by FactSet expected sales of $20 billion on average. Disney reported adjusted earnings per share of $1.08, beating its estimate of $1.19.
The reopening of Disney’s large-scale theme park operations improved results by generating $6.65 billion in revenues from the Parks, Experiences and Products segment, which also includes toy licenses and cruise ships. Sales more than doubled the $3.17 billion generated in the previous year.
The segment posted an operating profit of $1.76 billion compared to a loss of $406 million a year earlier. This increase is attributable to a surge in visitors to domestic parks such as Disneyland in Anaheim and Walt Disney World near Orlando.
Disney’s linear network business, which includes ABC and ESPN, grew 5% in revenue to $7.12 billion and operating profit fell 1% to $2.82 billion.
Content sales and licenses, including sales of Disney’s theatrical films and home video, decreased 95% in operating profit to $16 million, and revenue fell 3% to $1.87 billion.
Streaming continued to run losses for Disney, but direct consumer sales rose 23% to $4.9 billion. The segment, which includes Disney+, Hulu and ESPN+, suffered a loss of $887 million compared to a loss of $290 million a year ago.
Disney+ has grown at an incredible pace right after its launch in November 2019. It’s powered by hits like “The Mandalorian” and “WandaVision” and a prominently replayable library of animated classics and movies from Marvel, Star Wars and Pixar.
In recent months, Disney+ has expanded its content offering to shows outside the parameters of the blockbuster brand, and most recently brought ABC’s “black-ish” and “Dancing with the Stars” to the service.
At the same time, Disney has been at the center of a political storm over the past two months in response to parental rights to Florida’s education law that bans classroom instruction on sexual orientation and gender identity in kindergarten through third grade. Opponents call it a “don’t call me gay” bill. Governor Ron DeSantis, who could run for president in 2024, denounced Disney as a “wake up” company after it voted against the bill.
DeSantis pressured state legislators to dissolve Disney’s special tax district near Orlando, which gives the company special powers of self-government in the 25,000-acre area that includes Walt Disney World. In another move to punish Disney, a group of Republican congressmen have vowed to oppose any effort to extend the company’s copyright protections for Mickey Mouse.