Disney touted its first-ever quarter of streaming profitability across its three streaming services, recording a profit of $47 million in its third quarter of 2024, compared to a loss of $512 million in the prior-year period. Total direct-to-consumer revenue also grew 15% to $6.38 billion.
Here are the top-line results:
Net income: $3.1 billion, compared to a loss of $100 million in the prior-year period.
Earnings Per Share: Diluted earnings per share of $1.42, compared to a loss of 25 cents in the prior year quarter. Excluding certain items, EPS grew 35% to $1.39, better than $1.20 per share expected by analysts surveyed by Zacks Investment Research. Disney adjusted its full year EPS growth target to 30%.
Revenue: $23.2 billion, up 4% year over year, compared to $22.86 billion expected by analysts.
Operating income: Up 19% to $4.2 billion, from $3.6 billion a year ago.
Disney+ Subscribers: Added 200,000 Disney+ subscribers for a total of 153.8 million
Disney’s third-quarter DTC performance surpassed its own expectations for streaming. In its second quarter, Disney reached a milestone when it turned a profit in the entertainment portion of its streaming business (Disney+ and Hulu), but recorded a loss when including ESPN+ and warned of third-quarter softness. Company executives have repeatedly forecast that Disney would turn a profit in the fourth quarter, with further improvements in fiscal 2025.
“We remain on track for the profitability of our combined businesses to improve in Q4, with both Entertainment DTC and ESPN+ expected to be profitable in the quarter,” the company said in its earnings release. “We continue to feel optimistic about our trajectory, with multiple building blocks for improving margins over the coming years.”
The struggle to turn a profit with streaming services has been a persistent theme among the traditional studio companies, which are all chasing industry leader Netflix. Streaming segment losses have compounded the challenge of declining linear TV assets and a softer overall theatrical business since the COVID-19 pandemic.
In order to reach that streaming profitability goal and double-digit DTC margins, Disney has been cutting costs, including through content write-offs and layoffs, as well as raising prices, bundling and launching an ad-supported streaming tier for Disney+.
“We were losing a billion dollars a quarter not all that long ago, and now we’re making money,” Disney CFO Hugh Johnston told analysts during the company’s third quarter earnings call. “Our expectation is we’re going to continue on that journey to making more money…and then ultimately well surpass the double digit margins that we’ve talked about.”
In October, Disney plans to raise prices for several of its subscription plans, coinciding with the launch of Disney+’s upcoming continuous playlist feature.
“What we’re basically seeing is growth in consumption and the popularity of our offerings, which gives us the pricing leverage that we believe we have,” CEO Bob Iger said. “Every time we’ve taken a price increase, we’ve had only modest churn from that, nothing that we would consider significant.”
Disney began notifying users about its impending password-sharing crackdown in June, which will roll out more broadly in September. It also plans to launch an ESPN tile in Disney+ by the end of the year.
“We’ve had no backlash at all to the notifications that have gone out and to the work that we’ve already been doing,” Iger added. “We know that we need stronger recommendation engines and we’re working on that technology and we need to make our marketing more efficient.”
Helping burnish Disney’s overall results was the success of “Inside Out 2,” now the biggest animated box-office earner in history with $1.56 billion worldwide and counting. That helped offset a 3% loss in Disney’s Experiences business, which includes parks, resorts and cruise ships, and makes up more than a third of Disney’s overall sales.
During the third quarter, Disney recorded an impairment charge of $2.44 billion related to content removals and termination of third-party licensing agreements and $210 million for severance.
Disney shares fell over 4% during Wednesday’s trading session following the earnings announcement.
Disney+, Hulu and entertainment linear networks
Disney+ added 800,000 domestic subscribers during the quarter for a total of 54.8 million and lost 100,000 international subscribers for a total of 63.5 million, excluding Disney+ Hotstar, which lost 500,000 for a total of 35.5 million. For the fourth quarter, the company is forecasting modest Disney+ core subscriber growth.
Disney+ domestic average revenue per user (ARPU) fell 3% to $7.74 due to the impact of subscriber mix shifts, while international ARPU excluding Hotstar grew 2% to $6.78 due to price increases. That was partially offset by an unfavorable foreign exchange impact. Hotstar ARPU grew 50% to $1.05, driven by higher ad revenue.
Hulu reported a total of 51.1 million subscribers, up 2% from 50.2 million in the previous quarter. That figure included 46.7 million SVOD-only subscribers, an increase of 900,000, and 4.4 million Hulu + Live TV subscribers, a decrease of 100,000. Hulu SVOD-only ARPU grew 8% to 12.87, while Hulu + Live TV ARPU grew 1% to $96.11, both driven by higher ad revenue.
Revenue in Disney’s Entertainment segment grew 4% year over year to $10.58 billion and operating income climbed 194.3% to $1.2 billion, due to improved results in its DTC and content sales, licensing and other divisions.
Entertainment linear networks saw revenue decline 7% to $2.7 billion, while operating income fell 6% to $966 million. Domestic revenue fell 7% to $2.1 billion, while operating income fell 1% to $682 million. International revenue dipped 7% year over year, but its operating profit was flat at $157 million.
Sluggish advertising drove down domestic operating income. That was partially offset by higher ad rates, lower affiliate revenue due to fewer subscribers, including the impact of the non-renewal of carriage of certain networks.
Entertainment DTC revenue grew 15% to $5.8 billion and Disney narrowed the segment’s operating loss by 96% year over year to $19 million. The improved losses were driven by subscription revenue growth attributable to higher rates due to price increases and Disney+ core subscriber growth and to a lesser extent, Hulu. That was partially offset by an unfavorable foreign exchange impact.
The improvement also stemmed from an increase in ad revenue from higher impressions at Disney+ and Hulu, due in part to the airing of the ICC World Cup on Disney+ Hotstar during the quarter and higher marketing costs.
Content Sales, Licensing and Other
The content sales, licensing and other segment saw revenue fall 4% year over year to $2.1 billion, but it swung to an operating profit of $254 million from a loss of $112 million in the prior-year quarter.
The record-setting performance of “Inside Out 2” drove higher overall theatrical distribution. Also contributing was “Kingdom of the Planet of the Apes,” which was released in the quarter, and increased TV/VOD distribution attributable to higher sales of episodic content. The quarter’s film slate crushed last year’s comparable period, which featured “Guardians of the Galaxy: Vol. 3,” “The Little Mermaid,” “Elemental” and “Indiana Jones and the Dial of Destiny.”
Disney anticipates content and licensing profitability in the fourth quarter to be similar to the third quarter, as well as profitability for full year 2024.
ESPN, ESPN+ and Star India
Sports has been a focus of the major entertainment companies in managing linear TV losses.
Segment revenue grew 5% to $4.6 billion while operating income fell 6% to $802 million. Disney’s linear sports networks reported a profit of $736 million, a 14% drop from $861 million a year ago, while ESPN+ reported a profit of $66 million, compared to a loss of $7 million a year ago.
ESPN+ added 100,000 subscribers during the quarter for a total of 24.9 million subscribers, though the total marked a 1% decrease from the 25.2 million subscribers in the year-ago period. ESPN+ ARPU grew 14% year over year to $6.23 driven by price increases and higher ad revenue.
ESPN grew its revenue 5% to $4.28 billion, including a 5% increase in domestic revenue to $3.9 billion and 6% increase in international revenue to $371 million. The network’s domestic operating profit ticked up 1% to $1.09 billion and swung to $5 million internationally, compared to a loss of $27 million in the prior-year period.
Driving ESPN’s domestic results were higher ad revenue from rate increases and sponsorship revenue, subscription revenue growth due to higher rates, as well as higher programming and production costs attributable to higher NBA rights costs reflecting contractual increases and costs to air the Stanley Cup Finals during the quarter. International growth resulted from an affiliate revenue increase from higher effective rates and higher programming and production costs from new soccer rights.
Disney recently reached an agreement for a new $2.6 billion per year NBA package, which will include 80 regular-season games per season, including more than 20 games on ABC and up to 60 games on ESPN. The 11-year agreement takes effect beginning in the 2025-26 season.
“Overall, the deal reflects the value of live programming,” Iger told analysts. “It also reflects the growing value of basketball and the growing value of women’s sports.”
Iger also noted that the NBA deal secure Disney’s “ability to bring ESPN in the digital direction” as the company prepares to launch a flagship ESPN direct-to-consumer service at the end of 2025.
The company continues to discuss content and distribution opportunities with strategic partners for the new flagship, Iger added.
Star India revenue grew 1% year over year to $279 million, while its operating loss widened 45% to $314 million due to higher programming and production costs and higher ad revenue growth associated with the ICC World Cup and a decrease in affiliate revenue due to lower effective rates.
In February, Disney inked an $8.5 billion agreement with Mukesh Ambani’s Reliance Industries for a joint venture that will combine Viacom18 and Star India. The deal, which is expected to close in late 2024 or early 2025, will give Reliance and its affiliates a 63% ownership stake in the joint venture, while Disney will have a 37% stake.
Disney Experiences
Disney’s Experiences segment saw its revenues grow 2% to $8.39 billion, but segment operating income fell 3% to $2.2 billion. Domestic parks and experiences revenue grew 3% to $5.82 billion, while international grew 5% to $1.6 billion.
Domestic operating income fell 6% to $1.35 billion, due to higher costs driven by inflation, increased technology spending and new guest offerings. That was partially offset by the comparison to depreciation in the prior year quarter related to the closure of the Star Wars: Galactic Starcruiser and other cost saving initiatives. It also was impacted by guest spending growth due to increases in per capita guest spending at its cruise line and theme parks and higher per-room spending at its resorts. International operating income grew 2% to $435 million.
Consumer products revenue fell 5% year over year to $964 million, while operating income grew 2% to $440 million.
Looking ahead, Disney expects lower demand in its domestic businesses during the third quarter to impact the next few quarters. While the company is monitoring attendance and guest spending and trying to manage costs, Disney predicts Q4 segment operating income to decline by mid-single digits versus the prior year, partly from cyclical softening in China and lower attendance at Disneyland Paris due to a reduction in consumer travel during the Olympics.
Though it sees strong demand for Disney Cruise Line, the company said its fourth quarter’s results will include pre-launch expenses for the Disney Adventure and Treasure ships.
