Disney Faces Challenges as Streaming Division Takes Losses and Traditional TV Business Declines
Disney’s CEO, Robert A. Iger, is under pressure to revamp the company’s streaming division and address the struggles of its traditional television business. The urgency for change became evident after Disney reported a $512 million loss in its streaming operation in the most recent quarter, bringing the total losses since the introduction of Disney+ in 2019 to over $11 billion. Additionally, Disney+ lost 11.7 million subscribers worldwide in the three months ending July 1, resulting in a new total of 146.1 million subscribers.
The decline in subscribers came primarily from the low-priced version of Disney+ in India. Last year, Disney failed to renew the expensive rights to Indian Premier League cricket matches. However, excluding India, Disney+ gained 800,000 subscribers, primarily from overseas markets. To make the streaming division profitable, Iger has shifted the focus away from subscriber growth and towards monetizing existing subscribers. This strategy includes raising the monthly price for access to an ad-free version of Disney+ from $8 to $11 in December, with another increase to $14 planned for October.
Disney also announced that Hulu, which is also controlled by the company, will begin charging $18 for ad-free access, up from $15. To incentivize customers, Disney will introduce a new streaming package offering ad-free access to both Disney+ and Hulu for $20 a month starting in September. The company hopes to migrate more subscribers to the ad-supported tier, with Iger voicing a commitment to cracking down on password sharing, following in the footsteps of Netflix.
However, the challenges extend beyond streaming. Disney continues to rely on traditional channels like ESPN and ABC for approximately a third of its operating profits. These outlets are experiencing difficulties due to cord cutting, rising sports programming costs, and a decrease in advertiser support. The traditional channels reported $1.9 billion in quarterly operating income, down 23 percent from the previous year. Lower ad sales and payments from ESPN subscribers, along with higher sports programming costs, contributed to the decline.
To address these challenges, Disney is considering selling a stake in ESPN, with Iger mentioning the possibility of strategic partnerships to assist with distribution or content. Talks have been held with leagues such as the NFL, NBA, and MLB about taking a minority stake in ESPN. Recent hires of former senior Disney executives, Kevin Mayer and Thomas O. Staggs, have fueled speculation about the company’s future direction. However, Iger dismissed rumors of a potential acquisition, stating that he would not speculate on such matters given the global regulatory environment.
Amidst these challenges, Disney has also faced strikes from unionized screenwriters and actors. Both groups are seeking higher pay from streaming services and protections regarding the use of artificial intelligence by studios. Iger addressed the strikes during a conference call, expressing hope for a swift resolution and emphasizing his respect and appreciation for actors and writers.
Despite the difficulties, Disney reported some positive signs in their quarterly results. The $512 million streaming loss was 32 percent lower than analysts’ predictions, reflecting the company’s efforts to reduce losses. Disney’s theme park division saw an 11 percent increase in profitability, with strong performance from overseas parks such as Shanghai Disney Resort. However, attendance at Walt Disney World in Florida declined, which analysts attribute to factors such as ticket price increases and shifts in tourist demand towards destinations that remained closed for longer periods during the pandemic.
Overall, Iger remains optimistic about Disney’s future, stating that the company is on track to exceed its goal of cutting $5.5 billion in costs. As he navigates the challenges facing the company, Iger is focused on reshaping Disney’s streaming division, exploring partnerships for traditional channels, and addressing labor disputes within the industry.