Walt Disney Company CEO Bob Iger attends the nominees luncheon for the 95th Academy Awards in Beverly Hills, California, United States, February 13, 2023.
Mario Anzuoni | Reuters
For Disneythe future is now.
It took five years, but Disney almost turned a profit in its streaming units for the first time in the second quarter, losing just $18 million between Disney+, Hulu and ESPN+. That’s an improvement from a loss of $659 million a year ago.
By removing ESPN+, Disney+ and Hulu actually made money in the quarter: $47 million. Last year in the second quarter, Disney+ and Hulu lost $587 million.
The thesis from all major traditional media companies is that streaming will eventually replace cable TV as the primary revenue-producing engine. This is why Disney, Paramount Worldwide, Discovery of Warner Bros. And ComcastNBCUniversal’s have all created their own subscription streaming services.
It hasn’t happened yet, but this quarter finally suggests that moment is upon us. It’s not just that Disney almost made money from streaming, but also that the company’s traditional linear TV results have been horrible.
For years, Disney has been reluctant to make ESPN available outside of the cable package because of the lucrative nature of the sports network inside the walled garden of traditional television. Those days are also almost gone. Disney launches smaller set of linear cable channels with Warner Bros. Discovery and Fox in the fall, making ESPN available outside of traditional cable for the first time. Next year, Disney will launch its flagship ESPN streaming service, which will allow consumers to subscribe to ESPN without any cable.
Looking at Disney’s second quarter results, it’s clear why the company ultimately ended ESPN. While ESPN’s revenue rose 3% to $4.21 billion, operating income fell 9% to $799 million. Declining advertising revenue, declining cable subscribers and higher programming costs driven by the College Football Playoff led to the decline, Disney said.
Even more alarming was the decline of the company’s other linear networks, such as ABC, Disney Channel, FX, National Geographic and Disney Junior. Linear network revenue across Disney’s portfolio, excluding ESPN, fell 8% to $2.77 billion. Operating profit fell 22% to $752 million.
Disney shares fell 5% in premarket trading.
The new reality
Simply put, traditional television is dying. This decline is the fastest that consumers have experienced.
Disney has been preparing for this moment for years. Streaming will become profitable in the fourth quarter, Disney reiterated, and “will be an important future growth engine for the company, with further improvements in profitability in fiscal 2025,” the company said in its press release. results.
The big question for the company is whether its investors will accept this new reality. That will depend on Disney’s execution of streaming in the coming years, and likely CEO Bob Iger’s successor, who has yet to be named.
Disclosure: Comcast’s NBCUniversal is the parent company of CNBC.
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