The Walt Disney Co., under pressure from investors, reported higher fiscal first-quarter earnings as losses from its direct-to-consumer business fell substantially.
CEO Bob Iger opened the company's earnings call by saying the long-awaited direct-to-consumer version of ESPN would be arriving in fall 2025. He added that former Alabama head football coach Nick Saban will be joining the networks as a commentator. The new streaming joint venture announced by ESPN, Fox and Warner Bros. Discovery launches this fall.
He also said Disney Plus would be the exclusive home of Taylor Swift's concert film, starting March 15. Disney Plus will show the entire concert, including the song Cardigan, Iger said. It will also have four acoustic songs not in the theatrical or digital version of the film
Disney has also taken a $1.5 billion stake in Epic Games, with Disney storytelling integrated into Epic’s Fortnite video game.
Disney Plus “core” subscribers fell 1.3 million from the end of September, a drop expected after prices were increased in the quarter. The company said it expects to add between 5.5 and 6 million subscribers in the second quarter.
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Hulu subscribers rose 1.2 million.
Disney’s direct-to-consumer business had a loss of $138 million in the quarter, down 86% from a year ago. DTC revenues rose 15% to $5.5 billion.
The DTC business had a $420 million operating loss in the fourth quarter.
Including ESPN Plus, Disney’s streaming businesses lost $387 million.
Disney now says it expects its streaming business to reach profitability in the fourth quarter of fiscal 2024 and ultimately to have double-digit operating margins, according to CFO Hugh Johnston.
The company said that it cut more than $500 million in selling, general and administrative and other operations expenses in the quarter. Disney is on track to exceed the $7.5 billion in cost cuts promised by Iger a year ago, it said.
Disney and Iger are facing proxy challenges from Nelson Peltz’s Trian Fund and Blackwells Capital, which are seeking seats on Disney’s board.
Trian has nominated Peltz and former Disney executive Isaac Perlmutter to be directors. (Disney contends Perlmutter, who was fired, has a vendetta against Iger.)
Trian argues that Disney should work to achieve Netflix-like margins for its streaming services, restore its creative leadership and box-office performance and commit to a reasonable payback period and return before launching a direct-to-consumer version of ESPN.
Blackwells is seeking three seats and said Disney should explore splitting into three companies. “Disney may simply be too complex for any one successor to Mr Iger to manage holistically,” Blackwells said.
In the first quarter, Disney had net income of $1.91 billion, or 1.04 a share, up from $1.28 billion, or 70 cents a share, a year ago.
The company said it expects full-year earnings per share to be up 20%.
Revenues were flat at $23.5 billion.
Earnings exceeded Wall Street expectations, but revenue was below forecasts.
To make shareholders happy, Disney said its board declared a cash dividend of 45 cents a share, a 50% increase. Disney will also be buying back share for the first time since 2018, Iger announced. The company plans to buy $3 billion worth of shares in fiscal 2024.
Disney also said that ESPN’s domestic business grew both revenue and operating income compared to a year ago, which might allay concerns that ESPN’s business is being hurt by cord-cutting and rising sports-rights costs.
In the fourth quarter, Disney added 7 million “core” Disney Plus subscribers.
At the end of the fiscal first quarter, Disney Plus had 111.3 million “core” subscribers, down from 112.6 million in the third quarter.
Disney Plus Hotstar subscribers rose to 38.3 million subscribers from 37.6 million subscribers in the fourth quarter.
Domestic Disney Plus subscribers fell to 46.1 million from 46.5 million at the end of Q3.
SVOD platform Hulu had 49.7 million subscribers, up from 48.5 million subscribers in the fourth quarter. Hulu’s SVOD-only subscribers rose to 45.1 million from 43.9 million. Hulu Plus Live TV had 4.6 million subscribers, unchanged from last quarter.
At Disney’s linear networks, operating income fell 7%to $1.2 billion. Revenues dropped 12% to $2.8 billion.
Operating income for domestic networks was down 5% to $838 million, with revenue of $2.2 billion, down 14%.
The company said advertising revenue were down because of fewer impressions at ABC and less political advertising at its local stations.
Affiliate revenue was down 5% because of a 10% decrease in subscribers, offset by a 5% increase in rates. Some of that subscriber loss was the result of Disney’s new carriage deal with Charter, which is no longer carrying some networks.
Costs were down because there was less scripted programming on the networks because of the writers and actors strike. That programming was replace by lower cost non-scripted programming and sports programming, whose costs are accounted for in the company’s sports segment.
The sports segment had an operating loss of $103 million, compared to a $164 million loss a year ago. Star in India was responsible for $315 million in losses.
ESPN had operating income of $199 million, compared to a loss of $38 million a year ago. Revenues were up 1% to $4.4 billion.
Domestically, ESPN had operating income of $255 million, compared to a $41 million loss a year ago. Domestic revenue was up 1% to $4.1 billion.
In the quarter ESPN’s advertising revenue were down 2% because of lower rates and fewer impressions, reflecting the timing of College Football Playoff games. For the second quarter ESPN cash ad sale are pacing up by double digita in a strong sports marketplace, Johnston said.
Affiliate revenue was flat.
ESPN Plus subscribers fell 3% to 25.2 million. Average monthly revenue per subscriber rose 14% to $6.09.
Experiences (including theme parks) operating income rose 8% to $3.1 billion as revenue rose 7% to $9.1 billion.
“Just one year ago, we outlined an ambitious plan to return The Walt Disney Company to a period of sustained growth and shareholder value creation,” Iger said in a statement.
“Our strong performance this past quarter demonstrates we have turned the corner and entered a new era for our company, focused on fortifying ESPN for the future, building streaming into a profitable growth business, reinvigorating our film studios and turbocharging growth in our parks and experiences,” Iger said.
“As we build for the future, the steps we are taking today lend themselves to solidifying Disney’s place as the preeminent creator of global content,” he said. ”Looking at the renewed strength of all of our businesses this quarter–from sports to entertainment to experiences–we believe the stage is now set for significant growth and success, including ample opportunity to increase shareholder returns as our earnings and free cash flow continue to grow.”
