Disney CEO Bob Iger on Wednesday reaffirmed the company’s longstanding guidance to investors that its streaming business will become profitable by the end of fiscal 2024.
Speaking on the company’s quarterly earnings call, Iger called streaming “my No. 1 priority” and said he has “drilled down into every facet of our streaming business” since returning as CEO last November.
Multiple times on the call, analysts pressed Iger on how he will manage the balance between declining linear TV networks and streaming offerings whose economic models are still coming into focus. Last September, when he was still an independent media figure and not yet back in the corner office in Burbank, Iger had gained attention with a stark vision for TV outlined at the Code Conference. “Linear TV and satellite is marching towards a great precipice and it will be pushed off,” he said, adding, “I can’t tell you when, but it goes away.”
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The exec picked up on that theme today, telling analysts he has been “watching this very carefully for a long time. What I’m talking about is the impact of technology is basically causing a huge authority shift from the producer and distributor to the consumer.” Streaming, unlike the pay bundles that prevailed for decades, allows customers to sign up and pay a nominal amount for as little as one single title and then cancel their subscription. “That’s tremendous change,” Iger said.
As the company last year confronted a tough economic climate and took stock of its heavy spending on content as well as the loss of cricket rights in India, it lowered its targets for subscribers to flagship Disney+. The updated number is between 215 million and 245 million, from 230 million-260 million. It reiterated its plan to turn a profit by the end of fiscal ’24, but many Wall Streeters began to openly question whether the company could hit that mark. In the quarter ending last October, operating losses in the streaming unit hit $1.5 billion, an amount that stunned many analysts.
As he reasserted the profit plan, Iger said Disney, “like many of our peers,” will stop providing subscriber forecasts given the greater emphasis being put on profitability and other metrics. (Netflix made a similar move starting with its earnings report last month.)
Losses on streaming narrowed to $1.1 billion in the quarter ending December 31, helping the company’s overall financial performance exceed Wall Street analysts’ forecasts. Total subscribers to Disney+, though, declined for the first time since the service launched in 2019. In part due to the loss of cricket in India, previously a linchpin of the Disney+Hotstar offering, subscriber levels dropped by 2.4 million compared with the prior quarter, settling at 161.8 million. Not counting Hotstar bundled customers, core Disney+ gained 1% sequentially to 104.3 million.
As it pursues its streaming goals, Iger said, “We will focus even more on our core brands and franchises, which have consistently delivered higher returns.” Other priorities will be addressing pricing, local content and promotions.” The company, he said, was “probably too aggressive” in marketing its streaming services, the CEO said, though gaining subscribers will remain a priority in the future, so long as they are “quality subs,” which he defined as more loyal ones who may be more amenable to price hikes. The initial decision by Disney to floor the accelerator customer acquisition costs was made amid an “arms race” involving media companies as well as tech players like Amazon and Apple and was undertaken at a time when subscribers — not profitability — mattered most to Wall Street.
Disney has been “eyes wide open” as linear TV subscriber levels have eroded, Iger asserted. “We’re in a very interesting transition period, one that is inevitably heading toward streaming.” That said, the company will “rebalance” its efforts, as traditional outlets like linear TV and movie theaters “still can provide us with a significant amount of monetization capability,” as well as providing marketing clout and amortization of content spending. Abbott Elementary, for example, attracts an audience averaging around 60 years old when it airs on ABC, compared with Hulu viewers, who are in their 30s.
Hulu and ESPN+, two of the three pillars in Disney’s streaming bundle, are two key variables in the company’s overall financial outlook in the direct-to-consumer realm. As far as the streaming future of ESPN, whose presence in linear TV is formidable but shrinking, Iger said the company has taken note of ESPN+ “growing nicely” to nearly 25 million subscribers nearly four years after its launch. “We going to continue to look at that as a potential pivot for ESPN away from the linear business, but we’re not going to do that precipitously, we’re not going to do that until it makes economic sense,” he said.
Hulu, meanwhile, is facing a crossroads a year from now, when a deadline approaches for the future of the service. Set up as a joint venture and operated solely by Disney since 2019, Hulu still has a one-third stake owned by Comcast, whose NBCUniversal was an initial partner in it.
CFO Christine McCarthy echoed Iger’s profitability outlook, but noted that the goal is based on a number of assumptions, including broader global economic conditions. She also noted that the addition of the ad-supported tier of Disney+ last December won’t have a tangible impact on results until the end of the current fiscal year.
Peter White contributed to this report.
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