The great streaming slowdown of 2022 hasn't hit Mickey Mouse yet.
Walt Disney Co. on Wednesday reported better than expect subscriber growth from its marquee streaming service Disney+ as it charged forward with its direct-to-consumer transformation, while increasing revenue from its crucial theme parks business.
The Burbank entertainment giant said Disney+ added nearly 8 million subscribers during the second quarter, exceeding analyst estimates. Wall Street had expected Disney+ to gain about 5.2 million paying members, according to FactSet. The service now has 137.7 million subscribers.
Disney's latest report comes amid growing worries among investors and Hollywood executives that the streaming business may not be as big or lucrative as once thought.
Disney Chief Executive Bob Chapek has made it his mission to grow Disney+, along with the company's other streamers Hulu and ESPN+, to astronomical heights in order to keep the company relevant to modern viewers who are abandoning the cable bundle.
Entertainment companies, including Disney, have spent billions of dollars to launch and expand streaming services that would compete with Netflix as the Los Gatos giant upended the business. Early in the pandemic, subscriber counts soared and share prices followed as housebound consumers signed up for at-home entertainment options.
But the pandemic effect eventually waned. Netflix recently reported that it lost subscribers for the first time in a decade. The company's membership count declined by 200,000, prompting executives to blame competition, rampant password sharing and the company's pause in Russia. Netflix promised to rein in spending. Multiple jobs have been cut in marketing. Netflix's shares are down more than 70% so far this year.
Disney's shares have also taken a hit amid broad stock market declines, despite the remarkable resurgence of the company's parks and the return of theatrical movies at the box office. The stock has slid more than 30% since January.
The company promised Wall Street that Disney+ will reach 230 million to 260 million subscribers by 2024. Some analysts have questioned whether that goal is realistic.
So far, though, growth has continued for Disney+. Additionally, ESPN+ added 1 million subscribers to bring its total to a 22.3 million. Hulu, though, grew by just 300,000 subscribers to hit 45.6 million.
The quarterly financial results were mixed. Sales and profits missed analyst projections, though revenue increased significantly from a year ago.
Revenue was $19.2 billion during the quarter, up 23% from the same period a year ago. Disney cited a $1-billion reduction of revenues because of money owned to a customer to terminate licensing agreements for films and TV content to use for its streaming services. Disney did not name the customer.
Analysts polled by FactSet on average had expected sales of $20 billion. Disney reported adjusted earnings per share of $1.08, missing estimates of $1.19 a share.
The return of Disney's massive theme parks operation boosted results, driving $6.65 billion in revenue from its parks, experiences and products division, which also includes toy licensing and cruise ships. Revenue more than doubled the $3.17 billion the segment generated a year prior.
The division hit $1.76 billion in operating income, compared to a loss of $406 million a year prior. The gains were driven by surges in attendance at its domestic parks — Disneyland in Anaheim and Walt Disney World near Orlando.
Disney's linear networks business, including ABC and ESPN, increased revenue 5% to $7.12 billion, while operating income shrank 1% to $2.82 billion.
Content sales and licensing, which includes Disney's theatrical film and home video sales, saw revenue decline 3% to $1.87 billion as operating income declined 95% to $16 million.
Streaming continued to lose money for Disney, though direct-to-consumer revenue rose 23% to $4.9 billion. The division, which includes Disney+, Hulu and ESPN+, lost $887 million, compared to a loss of $290 million a year ago.
Disney+ grew at an astonishing pace soon after its November 2019 launch, fueled by hits like "The Mandalorian" and "WandaVision," as well as its eminently rewatchable library of animated classics and films from Marvel, Star Wars and Pixar.
In recent months, Disney+ has expanded its content offering with shows outside the parameters of its blockbuster brands, recently introducing ABC's "black-ish" and "Dancing With the Stars" to the service.
At the same time, Disney has spent the last two months at the center of a political firestorm because of its response to Florida's Parental Rights in Education law, which bans classroom instruction of sexual orientation and gender identity in kindergarten through third grade. Opponents call it "Don't Say Gay" legislation. Gov. Ron DeSantis, a possible 2024 presidential candidate, blasted Disney as a "woke" corporation after Disney voiced opposition to the bill.
DeSantis pushed state lawmakers to dissolve Disney's special tax district near Orlando, which gives the company extraordinary powers of self-government in a 25,000-acre area covering Walt Disney World. In another move to punish Disney, a group of Republican federal lawmakers has vowed to oppose any effort to extend the company's copyright protection for Mickey Mouse — already extended twice since the original expiration date in 1984.
