Hulu + Live TV Expenses To Boost Disney Streaming Content Spending By Up To $1B In Current Quarter; NFL And Oscars Timing Create $500M Linear Hit

Disney CFO Christine McCarthy warned that carriage costs for pay-TV bundle Hulu + Live TV would drive an $800 million to $1 billion increase in streaming costs during the current quarter.

The internet-delivered TV package now had 4.3 million subscribers, the company revealed in its fiscal first-quarter results, and has increased the number of networks it offers customers. Disney+, meanwhile, is pursuing a years-long plan to boost offerings in pursuit of subscriber growth, while ESPN+ shoulders significant rights costs.

Along with the streaming increases, linear expenses “may impact our second quarter results,” McCarthy said.

Linear networks will see a roughly $500 million increase in programming and production costs, McCarthy predicted, blaming “factors including Covid-related timing shifts.” Disney’s networks also aired four additional NFL games at the start of the current quarter (a result of the league expanding its season), plus this year’s Academy Awards will be in March. The 2020 Oscars had slid back to April, a different fiscal quarter, due to the pandemic.

Content Sales/Licensing and Other will also face difficult comparisons, McCarthy said. She estimated there will be a $200 million hit to operating income compared with fiscal 2021, due to the company holding back on titles for its own streaming outlets.

Asked during a conference call with analysts about the company’s outlook for breaking even on Disney+, McCarthy said there is no change to the view for break-even by fiscal 2024. She did say the company expects to have made “significant progress” by 2023.

CEO Bob Chapek said the company has achieved its goal of having at least one new title a week on Disney+, but a push is on to get to an even higher level. “It’s all about content, content, content and we are bullish about our future content going forward, not just in terms of quantity, but in terms of quality,” he said.

Achieving a “steady state” of top-shelf content coming online will give the company pricing power in the future. It has phased in significant increases to all three of its core streaming services over the past year.

As to Hulu’s on-demand business, while it reached 40.9 million subscribers, up 16% from the year-earlier period, average revenue per user dipped a bit. Asked about the state of the service, McCarthy pointed to advertising, which reached $1 billion in the quarter, and said ARPU declines reflected promotional pricing.