The Walt Disney Co. revealed big strides in trimming losses in its streaming business in its earnings report Wednesday, touting another tool that will help CEO Bob Iger's ongoing efforts to turn around the media giant's fortunes — by cracking down on password sharing.
In the face of a growing number of activist investors, Disney DIS,
It reported better-than-expected results in its fiscal first quarter, including smaller-than-expected losses in its streaming business. Also known as its direct-to-consumer unit, the streaming unit's losses were $138 million, down from losses of $984 million last year, while analysts were looking for losses of $419 million, according to FactSet.
Disney Chief Financial Officer Hugh Johnston also surprised analysts with expectations about margins in that business, while reiterating plans to reach streaming profitability in the fiscal fourth quarter. “[We] We've never been more confident about our path to creating a strong, sustainable streaming business with growing long-term subscribers and ultimately double-digit operating margins, a business we fully expect to be a key driver of earnings growth for the company. He said.
Taking a page from Netflix Inc., NFLX,
Disney+ and Hulu have already alerted subscribers that they will soon be cracking down on password sharing, and Johnston said that starting this summer, Disney+ accounts suspected of “inappropriate sharing” will receive options to let borrowers start their own subscriptions. Later this year, account holders who want to add individuals outside their household will be able to do so for an additional fee. Johnston said it's still “early days” and Disney doesn't expect to see benefits until the second half of calendar 2024.
“We want to reach the largest possible audience with our premium content, and we look forward to rolling out this new functionality to improve the overall customer experience and grow our subscriber base,” he said.
When one analyst said he was surprised by the double-digit margin forecast and asked for more details on how Disney would achieve that goal, Iger responded, “It's news to some extent, but in a sense it shouldn't be news.” Because we always wanted to build a good business in this regard. Disney will get there by increasing the number of subscribers and “through some level of pricing,” he said.
Another way Disney plans to boost subscribers is through a major joint effort it announced Tuesday with its ESPN unit, Fox Corp.
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To provide sports broadcasting service with shared assets. After one analyst said it looked like an expensive service, Iger merely said: “The way you have to look at it is that the sports service will be substantially less expensive for consumers than the bulk package they would have to buy to get those same channels on Cable and satellite.
Iger and Co. Lots of progress this quarter, but unlikely to be enough to satisfy the various groups of activists rallying around the Magic Kingdom. “This has happened all over again,” a spokesman for Trian Partners, where activist Nelson Peltz is a founding partner, said in an email statement. We watched this movie last year and did not like the ending.”
Read also: Activist investor Nelson Peltz makes his case to join Disney's board of directors.
But while that statement may seem rhetorical, Iger's team has finally made some significant progress in turning the company around. Disney shares jumped nearly 7% in after-hours trading, as investors seemed to agree, at least for now.
