Disney’s streaming spending weighs on profits

Walt Disney’s streaming business added a robust 14.6mn subscribers in the fourth quarter but the growth came at a high cost, as substantial losses weighed on the company’s profits.

The streaming service’s operating losses rose by $800mn to $1.5bn largely because of rocketing content spending and marketing expenses. As a result, operating income at Disney’s media and entertainment group plunged 91 per cent to $83mn in the quarter.

Disney on Tuesday reported earnings of 30 cents per share, well below the Wall Street consensus of 54 cents. Overall, revenues rose 9 per cent to $20bn. Net income was $162mn, up 1 per cent from a year earlier.

The shares fell almost 7 per cent in after-hours trading. Disney stock is down 36 per cent this year.

The healthy rise in Disney’s streaming subscriptions, which include Disney Plus, Hulu and ESPN Plus, brought its total number of subscribers to 235.7mn — more than the 227mn that industry pioneer Netflix expects to have by the end of this year.

Disney chief executive Bob Chapek defended the spending strategy, saying the rapid growth of Disney Plus was “a direct result of our strategic decision to invest heavily in creating incredible content and rolling out the service internationally”.

He added that streaming losses would begin to “narrow”, with Disney Plus expected to turn its first profit in 2024, barring a “meaningful shift” in the economy.

Disney will raise the price of its streaming services and introduce a new advertising-supported tier to Disney Plus next month — steps that Chapek said would lead to a “profitable streaming business”. Netflix, which has experienced a slowdown in subscriber growth, launched an ad-supported service last week.

Christine McCarthy, Disney chief financial officer, said “peak losses are now behind us” with relation to streaming, noting the price increases and advertising-supported service would begin to have a financial effect early next year. Content spending and other costs would slow in 2023, she added.

Disney’s theme parks continued to rebound from their coronavirus pandemic lows in the quarter. Operating income at the theme parks more than doubled to $1.5bn, and revenue rose 36 per cent to $7.4bn despite the impact of Hurricane Ian.

McCarthy said the company’s US theme parks division took a $65mn hit from the hurricane, which struck Florida in late September and temporarily closed Walt Disney World.

McCarthy added Disney’s US parks were making more money than before the pandemic, with per capita spending nearly 40 per cent higher than in 2019. The parks are also experiencing an influx on international visitors that is close to pre-pandemic levels.

But she said Disney’s park in Shanghai, China has been closed and the company has “no visibility on a reopening date”.