With its advertising business in a healthy state, The Walt Disney Co. is going into the upfront with a positive frame of mind. More growth will be driven by an upcoming crackdown on passcode sharing for its streaming businesses. And a selection of ESPN programming will be added to the Disney+ streaming lineup by the end of this year, prepping audiences for the more full-blown package of ESPN, Hulu and Disney+ offerings in fall 2025.
Those were among the highlights discussed by Bob Iger, Disney’s CEO, and Hugh Johnston, senior EVP and CFO, during Disney’s fiscal second quarter earnings call with analysts this morning. The real growth drivers at Disney right now are the direct-to-consumer (DTC) and experiences units. The duo helped the company’s overall revenue squeak up 1%, to about $22.1 billion. Total segment operating income came in at more than $3.8 billion, a 17% improvement.
In fact, the entertainment DTC business was profitable in the second quarter, though it is expected to soften in the next quarter due to results for Disney+ Hotstar in India. The company now predicts that its entire DTC business will be profitable in the fourth quarter.
In the quarter recently ended, Disney+ core subscribers were up more than 6 million subs, and its average revenue per user (ARPU) increased sequentially by 44 cents.
Meanwhile, Disney’s linear networks experienced an 8% decline in revenue to about $2.8 billion for the quarter, compared with the same quarter last year. But linear is helping to drive the growth of DTC. Iger said: “FX’s Shogun has proven to be a global hit with success on both linear and streaming. It’s tracking as FX’s most watched show ever on our streaming platforms, and it’s driving the second largest number of signups to our streaming services.
“In Q2, series that aired on linear networks accounted for 17 of the top 20 most viewed series on our streaming platforms, with almost 3 billion hours of consumption,” he added.
In the sports area, Iger expressed confidence that the company would score a new NBA deal, despite the competition for those rights. “We feel really good about the potential package that we will end up with in terms of it basically enabling ESPN to continue to shine in the television sports business,” he said.
Iger noted that ESPN total day viewership in April was the highest for the month since 2012. Among ESPN’s many highlights: “The NCAA women’s Final Four in Cleveland was the most viewed on record, and the championship between Iowa and South Carolina was ESPN’s most viewed college basketball game ever, men’s or women’s,” he said.
Heading into the upfronts, Disney officials said that almost all advertising categories are showing “healthy” demand. “The challenge obviously in the advertising market right now is there’s a lot more supply and largely as a result of one of our competitors entering the ad tier. But that said, I think generally speaking we feel like we’re in a better place than we were a year ago, and we have healthy momentum across nearly all the categories with the exception of auto and electronics,” said Johnston, apparently alluding to Amazon Prime, which added commercials in late January.
In the future, Disney will be stealing a page from Netflix by cracking down on DTC password sharing, beginning next month in select markets. “That will roll out in earnest across the globe in September,” Iger said. “We feel quite bullish about it. Obviously we’re heartened by the results that Netflix has delivered in their password-sharing initiative, and we believe that it will be one of the contributors to growth, as Hugh noted, going forward,” Iger said.
The CEO said that the distribution deal the company struck with Charter, which gave the operator the right to offer Disney’s DTC offerings, is still in the early-days phase, but so far, so good. As a result, Disney has added subscribers. Plus, cannibalization hasn’t been that high and engagement is good. But Iger wouldn’t go so far as to say that the Charter deal will become a template moving forward for distribution deals.
“Each of these deals, in many ways, has to be architected to the specific needs of the partner as well as our needs,” Iger said. “But it’s been a successful for us and for Charter, so we feel good about it.”
*Lots going on with Disney. Their expansion plans seem to be a healthy response to the ongoing inflation cycle.