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Disney’s streaming push weighs on quarterly income

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Via Financial Times

Disney has lured 26.5m subscribers to its new streaming service, eclipsing Wall Street expectations and putting the company in a position of strength amid an industry-wide battle for share in online entertainment.

The world’s largest media group revealed the figures while reporting that its net income dropped by 23 per cent from a year ago, even as revenues jumped by 36 per cent, reflecting the heavy expenses that come along with its push into streaming.

Disney+, a streaming service offering programming from Marvel, Pixar and Star Wars for $7 a month, has “exceeded even our greatest expectations,” Bob Iger, chief executive, said.

Disney shares were up 0.9 per cent in after-hours trade.

Disney+ launched in the US on November 12, midway through the quarter. Expectations were high after Disney reported that only a day after its November launch, more than 10m people had signed up to its service. Analysts had been looking for Disney on Tuesday to report about 20m subscribers to Disney+.

Hulu, the streaming service Disney acquired full control of last year, reported 30.4m subscribers, up by a third from a year ago. ESPN+, the streaming service tied to the cable channel, had 6.6m subscribers, a sixfold increase from a year ago.

Disney is in the midst of an expensive gamble on video streaming, investing billions of dollars in content and technology to build a new service that it hopes will make it a serious player in the market dominated by Netflix.

Investors have cheered Disney’s streaming strategy, underpinning shares over the past year.

However getting into streaming is expensive, weighing on Disney’s profits. For the final quarter of last year, Disney’s direct-to-consumer business posted an operating loss of $693m on $4bn in revenues. Disney’s total costs in the quarter jumped to $18bn, up 51 per cent from a year ago.

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Overall the company posted adjusted earnings of a share in the three months ended December of $1.53 a share, down from $1.84 a year ago, but surpassing Wall Street forecasts for $1.84 a share.

Disney is operating in a crowded field, facing competition from Apple, AT&T and Comcast as well as the streaming incumbents Netflix and Amazon. Disney+ offers a catalogue anchored by its popular franchises: Marvel, Star Wars, Pixar and Disney. The company has also been working to make fresh shows that will tantalise fans, including The Mandalorian, a Star Wars spin-off series.

Disney+ service is priced relatively cheaply: at $7 a month, it is less than half the price of a standard Netflix subscription. Across its streaming services, Disney now has 63.5m subscribers, compared to Netflix’s 167m.

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