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

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https://variety.com/2023/biz/news/disney-q1-2023-earnings-bob-iger-disney-
plus-loses-subscribers-1235517007/

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 2019 — 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.”

On the earnings call, Iger announced that Disney is eliminating 7,000
jobs, with layoffs affecting 3.2% of its global workforce, part of a
strategy to reduce costs by $5.5 billion. He also announced a
reorganization of the company into three core business segments: Disney
Entertainment, headed by co-chairs Dana Walden and Alan Bergman; ESPN, led
by Jimmy Pitaro; Disney Parks, Experiences and Products, led by Josh
D’Amaro.

Iger also said Disney plans to reinstate payment of a dividend to
shareholders by the end of calendar year 2023, after the company had
suspended the dividend in the spring of 2020 amid the outbreak of the
COVID pandemic. “Our cost-cutting initiatives will make this possible,” he
said. “And while initially, it will be a modest dividend, we hope to build
upon it over time.”

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 core 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… that tells us
something.”

The company, in trying to grow Disney+ rapidly, placed too much emphasis
on acquiring customers rather than profitability, Iger suggested. “We
were, as a company, in a global arms race for subscribers,” he said on the
call. “And in our zeal to go after subscribers, I think we might have
gotten a bit too aggressive in terms of our promotion, and we are going to
take a look at that.”

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.