Disney readies for streaming war with forecast-beating fourth quarter
Disney’s profits sank during the final quarter before its new streaming service debuts, as the world’s largest media company makes a costly transition towards online entertainment.
The company posted adjusted earnings of $1.07 a share in the three months ended September, down 28 per cent from a year ago, but eclipsing analyst forecasts for 96 cents a share.
For the full fiscal year, net income was $10.4bn, down 17 per cent from the prior year.
The results came just before the Tuesday launch of Disney+, a streaming service offering programming from its popular franchises such as Marvel, Pixar and Star Wars for $7 a month.
Bob Iger has bet Disney’s future on streaming, investing billions in beefing up its content and technology for the service, while snatching Disney programmes away from Netflix. Investors have praised Disney’s plan, boosting its shares by a fifth this year.
But the streaming push is expensive. Disney’s total costs in the quarter climbed to $16.8bn, up 50 per cent from a year ago. Disney’s direct-to-consumer business unit posted a quarterly operating loss of $740m on $3.4bn in revenues.
Disney’s results were boosted by strength at the cinema, where The Lion King remake made more than $1.6bn at the box office. Disney’s film studio saw revenues soar to $3.3bn in the quarter, up 52 per cent from a year ago.
Media networks, which includes TV channels like ESPN and ABC, also had a strong showing: sales rose 22 per cent from a year ago to $6.5bn.
Disney shares climbed 3.4 per cent in after-hours trade.
The streaming landscape has grown more competitive, as Apple, AT&T’s WarnerMedia, and Comcast are also all debuting new services to compete with the incumbents Netflix and Amazon.
The frenzy has resulted in fierce bidding wars over TV shows and soaring prices for content, as each company shells out billions to on content to make their subscriptions appealing to viewers. Bob Iger has said The Mandalorian, an upcoming live-action Star Wars series, cost about $100m to produce.
Disney and others are offering up deals to try to scoop up subscribers quickly Disney+ will be free for customer’s of Verizon’s unlimited phone plan, while Apple is offering its TV service for free to anyone who buys an Apple device.
Morgan Stanley expects Disney+ to reach 15m subscribers by next year, and more than 75m by 2024.
Overall, Disney reported net income of $785m on sales of $19.1bn for the three months period that ended in September. Net income in the quarter was down 66 per cent from a year ago.