Disney will jack up the price of its streaming services and vowed to clamp down on password sharing, the company said Wednesday as it posted a mixed quarterly earnings report.
The increases will raise the monthly cost of ad-free Disney+ by $3, or roughly 27%, to almost $14. The cost of ad-free Hulu will likewise rise $3 to almost $18 — a 20% hike that will make it more expensive than the most popular ad-free tier at Netflix.
Disney CEO Bob Iger acknowledged that the price hikes are intended to steer consumers toward cheaper ad-supported versions of these services, whose subscription prices are not changing.
The advertising market for streaming is “picking up,” he said, noting that it’s healthier than traditional TV ads.
“We’re obviously trying with our pricing strategy to migrate more subs to the advertising supported tier.”
Iger, who signed an extension to remain at the helm of the Mouse House through 2026, said he would address the issue of password sharing next year, echoing Netflix.
He also acknowledged the need to improve the quality of Disney’s films, to position the company’s flagship sports brand, ESPN, for streaming directly to consumers, and to resolve the writers’ and actors’ strikes in Hollywood that have halted much film and television production.
Disney’s stock rose nearly 3% in after-hours trading, as Iger touted $1 billion in operating-income improvement at the company’s streaming business over the last three quarters, which is aiming for profitability in 2024.
His turnaround plan for the media and entertainment giant has begun to pay some dividends.
The company beat Wall Street’s profit expectations for its fiscal third quarter and said it was on track to cut costs by more than the $5.5 billion it promised investors in February.
“I returned to Disney in November, and I’ve agreed to stay on longer, because there was more to accomplish before our transformation is complete,” Iger said, describing a “challenging environment in the near term.”
However, Disney also posted quarterly revenue below expectations and fell slightly behind analyst projections for U.S. subscribers of Disney+.
Disney’s revenue for the quarter ended July 1 rose 4% to $22.33 billion from a year earlier, just short of Wall Street estimates, according to Refinitiv. It delivered per-share earnings of $1.03, when excluding certain items, beating Wall Street projections of 95 cents a share.
The company took $2.65 billion in impairment and restructuring charges in the quarter, reflecting the cost of removing some content from its streaming services, terminating licensing agreements and $210 million in severance payments to laid-off workers.
Disney’s Parks, Experiences and Products group reported a 13% increase in revenue in the quarter, to $8.3 billion, and an 11% bump in operating income to $2.4 billion.
The results were buoyed by the rebound of the Shanghai Disney Resort, which was open for the full quarter compared with the same time a year ago, when COVID-19 forced the park to be closed for all but three days.
However, the unit had lower operating income at its domestic parks, due to decreases at Walt Disney World Resort in Orlando.
The company has been embroiled in a bitter legal battle with Florida Gov. Ron DeSantis after opposing the state’s “Don’t Say Gay” law, which led to Disney losing its special tax status for the district overseeing the theme parks.
Disney’s traditional television business continued its decline. Higher sports programming production costs and lower affiliate revenue dragged down the performance of its cable channels. TV revenue fell 7% to $6.7 billion, while operating income fell 23% to $1.9 billion.
Disney said it cut losses at its streaming video services to $512 million in its fiscal third quarter from about $1.1 billion a year ago.
It added 800,000 Disney+ subscribers, 100,000 subscribers shy of analyst estimates, and shed 12.5 million subscribers to the Disney Hotstar service in India, or nearly a quarter of its subscribers, as it gave up rights to Indian Premiere League cricket matches.
“Disney will have to cut prices from current levels in an effort to stimulate demand and defend its market share in an increasingly competitive industry,” said Jesse Cohen, senior analyst at Investing.com.
Disney’s direct-to-consumer business reported a 9% increase in revenue to $5.5 billion, as the average revenue per subscriber rose at Disney+ and Hulu.
Content sales and licensing, the unit that includes film and television sales, reported a deeper operating loss of $243 million in the quarter, compared with a loss of $27 million a year ago, as some movies disappointed, including the live-action remake of “The Little Mermaid.”
On Tuesday, Disney-owned ESPN announced that it struck a lucrative deal to rebrand an existing sports-betting app owned by Penn Entertainment as ESPN Bet. Penn Entertainment is paying $1.5 billion plus other considerations for exclusive rights to the ESPN name and will continue to own and operate the betting app.
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