Walt Disney shares fell the most in six months after the company posted a drop in subscribers of its namesake streaming service and forecast a bigger loss in that business this quarter.
The broadcast loss will increase by $100 million this period due to changes in marketing costs, chief financial officer Christine McCarthy said on a conference call with analysts on Wednesday.
The stock fell 8.6 percent to $92.44 in New York on Thursday morning.
The direct segment to consumer of Disney, which includes the flagship streaming service Disney+, suffered a loss of $659 million in the fiscal second quarter that just ended, the company said. That was significantly lower than the $850.3 million analysts projected and less than half what it was just two quarters ago.
But a broader loss this period, which McCarthy characterized as a “small problem,” rolls back some of the progress Disney has made in achieving profitability in its streaming businesses. At the same time, the company is experiencing a sharp decline in its traditional television business, which includes ABC and ESPN.
To improve the financial performance of its streaming business, the company introduced a new ad-supported tier for Disney+ in December and increased the price of the ad-free version by 38 percent to $11 per month.
“2023 is a year of transition and Q3 transmission losses are expected to rise to around $800 million,” Geetha Ranganathan, Senior Industry Analyst
While it boosted revenue, the move appeared to cost the company customers: Paid subscriptions to Disney+ fell to 157.8 million. Analysts expected 163.1 million. It is the second quarter in a row that Disney+ has lost subscribers.
Chief Executive Officer Bob Iger said on the call with analysts that the Burbank, California-based company plans to raise the price of the ad-free Disney+ service again this year. Disney will also remove movies and TV shows from its services to reduce costs, resulting in a charge of up to $1.8 billion.
What are Disney’s plans to recover?
Iger plans to combine the content of Hulu and Disney+ in a single app later this year. The move suggests the company will ultimately buy Comcast Corp.’s one-third stake in Hulu. The two companies have an agreement for Disney to buy that stake starting next year in a deal that values Hulu at a minimum of $27.5 billion. Hulu subscriptions were flat in the second quarter.
Comcast and Disney have had “cordial” discussions, Iger said.
Wall Street’s view of the TV broadcast industry has changed over the last year, and investors are now focused more on profitability than subscriber growth. Disney’s red ink of streaming soared under former chief executive Bob Chapek, who was fired in November after the company reported a quarterly loss of nearly $1.5 billion.
Disney’s total revenue increased 13% to $21.8 billion in the period ended April 1, buoyed by strong performance from the company’s theme parks. Adjusted earnings of 93 cents per share were down from the same period last year.
The company’s resorts and consumer products unit increased revenue 23 percent to $2.17 billion, in part due to a return in profitability from the company’s international theme parks.
Profit at Disney’s traditional television business, including cable networks ESPN and ABC’s streaming business, fell 35 percent to $1.83 billion, as a result of higher sports programming costs and lower advertising.
Last week, Warner Bros. Discovery and Paramount Global reported significant drops in TV advertising revenue.
Under Iger, Disney has overhauled its structure by creating three reporting units: Entertainment, Parks and ESPN, which includes the sports network and the ESPN+ streaming service.
As part of a plan to improve Disney’s financial situation, Iger is cutting $5.5 billion in annual costs and cutting 7,000 jobs from the entertainment giant’s workforce. The recent cost cut led to the departure of broadcast chief Michael Paull and most of the product and technology teams that oversaw the successful launch of Disney+ in 2019.