Disney Scales Up Bundle Partnerships as It Works Towards Streaming Profits

Disney has announced a bundle partnership with Warner Bros’ Discovery under which Disney+, Hulu, and Max would be available under one platform to subscribers in the US beginning this summer.

In Disney’s release, Joe Earley, president of direct-to-consumer at Disney Entertainment, said, “This incredible new partnership puts subscribers first, giving them access to blockbuster films, originals, and three massive libraries featuring the very best brands and entertainment in streaming today.”

JB Perrette, CEO and President, of Global Streaming and Games, Warner Bros. Discovery echoed similar views and said, “Offering this unprecedented entertainment value for fans across all the complimentary genres these three services offer, presents a powerful new roadmap for the future of the industry.”

Are Bundle Relationships the Future of Streaming?

To be sure, Disney has been experimenting with bundles for quite some time now and offers Disney+, Hulu, and ESPN as a bundle. Last year, it announced a bundle partnership with Charter under which Disney+ Basic ad-supported offering is available to customers buying the Spectrum TV Select package.

While bundle partnerships were common in traditional bale TV, the trend is now visible in streaming also amid the continued pivot from linear TV towards a digital streaming experience.

Disney on Its Streaming Business and Bundle Partnerships

During the fiscal Q2 2024 earnings call last week, commenting on the bundling deal with Charter, Disney’s CFO Hugh Johnston said, “We obviously have gotten added subscribers. And in addition to that, cannibalization has not been very high. And overall, the engagement has been good.”

Johnston however said he wouldn’t “think of it as a template for the future, but it’s been successful deal for us and for Charter.”

CEO Bob Iger pointed to the licensing deal with Netflix and said, “we’re looking selectively at other possibilities. I don’t want to declare that it’s a direction will go more aggressively or not, but we certainly are taking a look at it and being expansive in our thinking about it.”

Iger said that while previously Disney contemplated keeping its content exclusive to its platform, it changed the strategy. According to Iger, bundle partnerships “increases not only the value of the content from a financial perspective, but just in terms of traction. So we’re looking at it with an open mind.”

He however stressed, “But I don’t think you should expect that we’ll do a significant amount of it.”

Disney’s Streaming Business Posted a Profit in Fiscal Q2

Disney’s streaming losses which peaked at nearly $1.5 billion in the fiscal fourth quarter of 2022 have been a sore point for investors. Ever since he returned as the CEO shortly after the fiscal Q4 2022 earnings, Bob Iger has been working on streaming profitability.

The company’s direct-to-customer business which houses the streaming business (excluding ESPN) posted an operating profit of $47 million in fiscal Q4 as compared to an operating loss of $587 million in the corresponding quarter last year. After accounting for ESPN+, the streaming business posted an operating loss of $18 million in the quarter. The company expects losses to widen in the current quarter but predicted profitability in the final quarter of the year. Disney expects its streaming profits to strengthen further in 2025.

Eventually, Disney expects the streaming business to generate double-digit operating margins over the long term but did not comment on the timelines. Bundle deals could help the company expand its reach while keeping costs low. While there are fears of cannibalization, so far, the bundle relationship has been a net positive according to Disney.

DIS Stock Plunged After Earnings

Disney stock fell almost 10% after its earnings last week and had its worst day in 18 months. While the company’s profits were better than expected it missed topline estimates for the fourth consecutive quarter. Also, it provided a soft guidance for the current quarter which spooked investors and more than offset the optimism over streaming profitability.

Barclays Advised Buying the Dip in Disney

Barclays analyst Kannan Venkateshwar advised buying the dip in Disney stock even as he cut his target price from $135 to $130. “Stepping back, what is more impressive in our opinion is that this business is now likely to be consistently profitable, especially adjusted for the India business, just 4 years after launch of streaming, something that other streaming services, including market leaders like Netflix, took a lot longer to achieve,” said Venkateshwar.

He added, “Management may not be able to fully articulate this path or its cadence until the deal with Comcast on Hulu is consummated, but this path is likely to be better than present consensus estimate.”

Notably, Disney has been trying to mimic Netflix’s strategy and launched an ad-supported tier following Netflix’s footsteps. It is now also looking to crack down on password sharing, something Netflix has done brilliantly over the last year.

Meanwhile, despite the losses last week, Disney stock is up over 16% for the year and is outperforming the markets by a good margin. It however has been a long-term underperformer and hasn’t created much wealth for investors over the last decade.