LOS ANGELES — Disney+ is still growing fast as the streaming service takes the Walt Disney Co. into the future of entertainment. But the effort to stay dominant in the age of Netflix is costing the Burbank giant in a big way.
Disney's direct-to-consumer division, which also includes Hulu and ESPN+, on Tuesday reported an operating loss of nearly $1.5 billion, more than doubling its loss of $630 million during the same quarter a year ago.
Armed with shows and movies from the Star Wars and Marvel franchises, Disney+ added 12.1 million subscribers during the company's fourth fiscal quarter, bringing its total to 164.2 million, including cheap subscriptions from India. Including Hulu and ESPN+, Disney's streaming operation has surpassed 235 million subscribers.
However, the losses have led the company to look at its spending and pricing in order to achieve its profitability goals. Disney in August said that it would raise its monthly fee for Disney+ by $3 to $11 a month starting next month in December, while also introducing a version with commercials at the current rate of $8 a month.
Disney Chief Executive Bob Chapek said in a statement Tuesday that the company still expects Disney+ to become profitable in fiscal 2024, with losses peaking in the most recent quarter. During the full fiscal year, direct-to-consumer business lost Disney $4 billion.
"By realigning our costs and realizing the benefits of price increases and our Disney+ ad-supported tier coming Dec. 8, we believe we will be on the path to achieve a profitable streaming business that will drive continued growth and generate shareholder value long into the future," Chapek said.
Overall, Disney posted quarterly profits that were virtually flat with the same period a year ago, with net income of $162 million. Earnings and sales fell short of analysts' expectations, despite a major continued rebound from Disney's massive parks business. Excluding certain items, earnings came in at 30 cents a share, missing Wall Street projections of 56 cents, according to FactSet. Revenue rose 9% to $20.2 billion, whereas analysts had predicted $21.3 billion.
The challenges in streaming illustrate a key dilemma for media and entertainment companies trying to battle Netflix for subscription dollars. Creating the premium content that drives sign-ups costs billions of dollars a year. That, plus marketing expenses, means companies are losing money at a rapid clip while also cannibalizing their traditional TV and movie businesses.
Warner Bros. Discovery Chief Executive David Zaslav has made clear his opinion that beefing up an online subscription business at all costs is foolhardy, even as the company looks to combine HBO Max with Discovery+.
"The strategy to collapse all windows, starve linear [television] and theatrical [box office] and spend money with abandon, while making a fraction in return, all in the service of growing sub numbers, has ultimately proven, in our view, to be deeply flawed," Zaslav said last week.
With that view and a $50-billion debt load, Warner Bros. Discovery has cut costs and canceled a raft of shows, including "Westworld." Even Netflix, which has no box office or TV channels to sacrifice, has taken steps to pump the brakes on spending while shifting its model by introducing a cheaper, advertising-based tier.
Of the traditional entertainment companies diving into streaming, none has moved more aggressively than Disney, which introduced Disney+ in November 2019 at a price of $6.99 in the U.S. It grew quickly thanks to hits like "The Mandalorian" and "WandaVision," but much of its subscriber count has come from India, where its Disney+ Hotstar offering costs little for viewers and brings scant revenue to Disney. The company lowered its subscriber projections after losing the streaming rights to Indian Premier League cricket matches.
Recent Disney+ shows include the "Star Wars" prequel "Andor" and Marvel's "She-Hulk: Attorney at Law."
But Disney also relies on theatrical box office, parks and its linear TV networks, including ABC and ESPN.
Its parks, experiences and consumer products business jumped 36% to $7.43 billion in sales during the fourth quarter, in a sign that a weakening economy has not softened demand for family outings to Disneyland and Walt Disney World since pandemic restrictions were lifted. Operating income from the segment more than doubled to $1.5 billion.
TV network revenue shrank 5%, to $6.3 billion, while operating income grew 6%, to $1.7 billion. Content sales, which includes theatrical box office for movies, dropped 15%, to $1.74 billion, with an operating loss of $178 million, due partly to lower results from licensing shows and movies to other streaming services and TV networks. Disney released the box office hit "Thor: Love and Thunder" during the quarter. Up next for Disney's film studio is "Black Panther: Wakanda Forever," which hits theaters Friday.
Full-year revenue surged 23%, to $82.7 billion, as Disney recovered from the COVID-19 pandemic shutdowns, the company said. Net income was $3.19 billion, up 58% from the year before. The parks segment was particularly strong, increasing revenue 73%, to $28.7 billion, with operating income of $7.91 billion, up $471 million a year earlier.
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