Disney’s streaming business turns a profit for the first time

Disney returned to a profitable third quarter as its combined streaming business started making money for the first time, along with a very strong showing in theatres for the movie Inside Out 2.

Operating income for the entertainment segment, which includes its movie studio and parts of its television wing, nearly tripled to US$1.2 billion. Disney’s run at the box office continues with Deadpool & Wolverine, giving the company the top two films of the year.

The Walt Disney Company said Wednesday that its direct-to-consumer business, which includes Disney+ and Hulu, reported a quarterly operating loss of US$19 million, which was much smaller than its loss of US$505 million a year earlier. Revenue climbed 15 per cent to US$5.81 billion.

The results were announced a day after Disney said that it will be boosting prices for Disney+, Hulu and ESPN+, starting on October 17. Disney+ and Hulu will each cost US$9.99 a month with ads, a US$2 increase for each plan. The ad-free version of Disney+ will run US$15.99 monthly, a US$2 uptick, while Hulu will be US$1 more, at US$18.99 monthly for the ad-free version. ESPN+, which is only available with ads, will have a monthly cost of US$11.99, a US$1 increase.

Disney earned US$2.62 billion, or US$1.43, per share for the period ended June 29. A year earlier, it lost US$460 million, or 25 cents per share.

Stripping out one-time gains, earnings were US$1.39 per share, easily topping the US$1.20 analysts polled by Zacks Investment Research expected.

Revenue for the Burbank, California, company rose 4 per cent to US$23.16 billion, beating Wall Street’s estimate of US$22.91 billion.

Disney’s stock was pressured in early trading with some weakness showing in domestic parks, part of its Experiences division that includes six global theme parks, its cruise line, merchandise and videogame licensing. The company cautioned that the moderation in demand it saw at parks in the United States could linger for the next few quarters.

It anticipates fourth-quarter Experiences operating income falling by mid single digits compared with the prior-year period due to the domestic parks moderation as well as cyclical softening in China and less people at Disneyland Paris due to the impact the Olympics had on normal consumer travel.

Johnston said during the company’s conference call that the parks have been impacted by lower-income consumers feeling more financial stress, while higher-end consumers are doing a bit more international travel now. Domestic parks and Experiences operating income fell six per cent, thought international parks and experiences operating income edged up two per cent.

Revenue for domestic parks climbed three per cent in the third quarter. International parks revenue rose five per cent.

Disney said that the decline in operating revenue for domestic parks and experiences was because of increased costs driven by inflation, technology spending, and new guest offerings.

The company made US$254 million in operating income from content sales and licensing helped by the strong performance of Inside Out 2 in theatres, which is now the highest-grossing animated film of all time, with more than US$1.5 billion generated globally.

Disney said Wednesday that the original Inside Out, which came out in 2015, helped drive more than 1.3 million Disney+ sign-ups and generated over 100 million views worldwide since the first Inside Out 2 teaser trailer dropped.

The combined streaming businesses, which includes Disney+, Hulu and ESPN+, achieved profitability for the first time thanks to a strong three months for ESPN+ and a better-than-expected quarterly performance from the direct-to-consumer unit.

CEO Bob Iger and Senior Executive Vice-President and Chief Financial Officer Hugh Johnston said in prepared remarks that ESPN had its most watched third quarter in primetime in a decade among adults age 18-49. This was due to strong viewership in several areas, including the NBA finals, WNBA draft and NHL playoffs, and Stanley Cup finals.

Disney said in May that it expected its overall streaming business to soften in the third quarter due to its platform in India, Disney+Hotstar. The company also said at the time that it anticipated its combined streaming businesses to be profitable in the fourth quarter, so the money-making quarter was a surprise.

Disney now anticipates full-year adjusted earnings per share growth of 30 per cent.

In April, shareholders rebuffed efforts by activist investor Nelson Peltz to claim seats on the company board, standing firmly behind Iger as he tries to energise the company after a rough stretch.

In June, Disney asked a federal appellate court to dismiss its lawsuit against Florida Governor Ron DeSantis after his appointees approved a deal with the company on how Walt Disney World will be developed over the next two decades, ending the last piece of conflict between the two sides.

As part of the 15-year deal, Disney agreed to invest US$17 billion into Disney World over the next two decades and the district committed to making infrastructure improvement on the theme park resort’s property.

AP