Disney Stock Falls as Streaming Subscribers Fall for Second Consecutive Quarter

Disney (NYSE: DIS) stock is trading lower in US pre-market price action today despite posting better-than-expected revenues. Its streaming subscriber count however fell for the second straight quarter and missed analysts’ estimates.

Disney reported revenues of $21.82 billion in the fiscal second quarter that ended on April 1. The revenues rose 10% YoY and were ahead of the $21.78 billion that analysts were expecting.

Disney Media and Entertainment Distribution segment reported revenues of $14 billion – up 3% YoY. Revenues of Disney Parks, Experiences, and Products rose 17% over the period to $17.8 billion.

Disney reported better-than-expected revenues in the fiscal second quarter

Within the Media and Entertainment Distribution segment, the legacy Linear Network business reported revenues of $6.6 billion which were 7% lower than the corresponding quarter last year.

Content sales and Licensing revenues rose 18% to $2.2 billion while Direct-to-Consumer, which is the company’s streaming business witnessed a 12% rise in revenues.

Notably, Disney’s streaming revenues rose in the quarter even as its subscriber count fell to 163.17 million in the quarter – down from 161.8 million in the previous quarter. Analysts were expecting the metric to rise 1% to 163.17 million.

Streaming subscribers fall

ESPN+ streaming subscribers meanwhile rose 2% sequentially to 25.3 million while total Hulu subscribers were largely unchanged at 48 million.

The decline in subscriptions was largely led by its India business where Disney+ Hotstar subscribers fell 8% to 52.9 million. The subscriber count in US and Canada also fell 1% to 46.3 million while the international subscribers excluding Disney+ Hotstar rose 1%.

Meanwhile, ever since Bob Iger took over as Disney’s CEO, the company has pivoted its business strategy from chasing subscriber growth to chasing profitability. Disney also withdrew its fiscal year 2024 streaming subscriber forecast of 215-245 million which Iger’s predecessor Bob Chapek provided.

Streaming losses narrow

While Disney’s streaming subscribers fell in the quarter – the segment’s operating losses also narrowed to $659 million which was below the $841 million that analysts were expecting.

The streaming business posted an operating loss of $1.47 billion in the fiscal fourth quarter of 2022. Shortly after the earnings release, Disney’s board replaced Chapek with Iger.

Streaming losses have fallen significantly under Iger and are now less than half of what they were at the peak last year.

The fall in streaming losses was led by higher pricing and cost cuts. Late last year, Disney increased the price for its ad-free tier from $7.99 to $10.99 while launching an ad-supported tier at $7.99.

Netflix also launched an ad-supported tier

The streaming business has become quite competitive even as the overall industry is growing, especially in emerging markets. Meanwhile, the larger players are now staring at near saturation in key developed markets. Netflix admitted saturation and competitive pressures last year after last many quarters of denials.

For years, Netflix argued against ads on its platform. However, even it had to reconsider its opposition to ads and launched an ad-supported tier last year.

Disney would raise ad-free tier prices later this year

Disney said that later this year it would increase the prices of its ad-free tier while keeping the pricing for the ad-supported tier “relatively modest to maybe perhaps no increases.”

It would also add Hulu content to the Disney+ app this year while offering Hulu, ESPN+, and Hulu as standalone options.

Iger said that the move “is a logical progression of our DTC offerings that will provide greater opportunities for advertisers while giving bundle subscribers access to more robust and streamlined content, resulting in greater audience engagement and ultimately leading to a more unified streaming experience.”

Iger said that the company would “rationalize” content spending. He added, “we will continue optimizing our pricing model to reward loyalty and reduce churn to increase subscriber revenue for the premium ad-free tier and drive growth of subscribers who opt for the lower-cost ad-supported option.”

Iger said DeSantis is targeting Disney

Florida’s governor Ron DeSantis has targeted Disney ever since the company criticized a state bill popularly known as “Don’t Say Gay.”

During the earnings call, Iger said that while other businesses also operate as special districts in the stage, Disney is being singled out. He added, “And that’s really that this is about one thing and one thing only and that’s retaliating against us for taking a position about pending legislation.”

Disney has filed a lawsuit against DeSantis and has said that allegations of its lawsuit being aimed at protecting the tax breaks in the state are a “false narrative.”

Iger said, “And we all know there was no concerted effort to do anything to dismantle what was once called Reedy Creek special district until we spoke out on the legislation.”

Disney would continue to invest in Florida

Iger meanwhile said that Disney would continue to invest in Florida. He said, “And I think it’s also important for us to say our primary goal has always been to be able to continue to do exactly what we’ve been doing there, which is investing in Florida.”

He however added, “We never wanted, and we certainly never expected, to be in the position of having to defend our business interests in federal court, particularly having such a terrific relationship with the state as we’ve had for more than 50 years.”

Meanwhile, markets gave a thumbs down to Disney’s earnings release and the stock is trading sharply lower today.