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Disney streaming results present rare bright spot for company

Disney chief executive Bob Chapek (Patrick T. Fallon/Bloomberg via Getty Images)

The Walt Disney Co.’s streaming success during the last quarter, in part through ESPN+, help counter what was otherwise a historically poor quarter for the company.

The media and entertainment giant said it has surpassed more than 100m total subscribers across its suite of direct-to-consumer streaming services of Disney+, ESPN+, and Hulu. Disney+ in particular reached 57.5m subscribers at the end of the June, and then as of August 3 hit 60.5m. The mark is up by 10m in just four months, and is now at the low end of investor guidance that Disney gave for the service to reach to by 2024.

ESPN+, meanwhile, hit 8.5m subscribers, up from 7.9m at the end of the prior quarter, representing a slightly improved growth rate as many American sports properties in recent weeks have restarted competition. The latest subscriber number remains more than triple its total from a year ago.

Hulu, meanwhile, reached 35.5m subscribers during the most recent quarter.

Disney chief executive Bob Chapek said in an earnings call with analysts that hitting the 100m combined subscriber mark for its over-the-top streaming services represented “a significant milestone and a reaffirmation of our strategy for growth. In fact, the incredible success we’ve achieved to date has made us even more confident about the future of our direct-to-consumer business and our ability to be more aggressive in our approach.”

Among those planned initiatives is the release of an international entertainment-focused streaming platform under the Star brand in 2021 that will feature Disney-owned content and seek to replicate the Disney+ strategy.

Disney’s streaming totals, however, represented a rare bright spot for a company still seeing massive financial and operational impacts because of the ongoing Covid-19 pandemic. 

Overall, Disney reported a loss of $4.72bn for its fiscal third quarter ended June 27, down from a comparable profit of $1.43bn in the same period a year ago, and representing the company’s first quarterly loss since 2001.

Disney’s revenue fell 42 per cent to $11.8bn as the company’s theme park and cruise line businesses were not open for the entire quarter, and its movie releases and live theatre productions were also heavily impacted. Disney said the pandemic in particular created an adverse impact of $3.5bn on its parks, experiences, and products unit.

And since Walt Disney World in Florida re-opened last month in a modified format, results still have been disappointing.

“Tthe upside we are seeing from opening is less than we had originally expected given the recent surge in Covid-19 cases in Florida,” said Christine McCarthy, Disney senior executive vice president and chief financial officer.

Disney, like others in the movie business, is also having to readjust normal film release windows and traditional distribution strategies as a result of the pandemic. A much-anticipated remake of Mulan, which was due to be released in theaters this past spring and was postponed several times, will now debut next month as a premium-level download on Disney+ for $29.99 in addition to a theatrical release in certain markets.

Mulan is a one-off,” Chapek said. “That said, we find it very interesting to be able to take a new offering, our premiere-access offering to consumers at that $29.99 price, and learn from it and see what happens not only in terms of the uptake of the number of subscribers we get on the platform, but the actual number of transactions on the Disney+ platform.”

Operating income from Disney’s media networks, which include ESPN, improved 48 per cent to $3.2bn despite a 2 per cent drop in revenue to $6.6bn, in part due to the shifting of production and programming costs to subsequent quarters as the National Basketball Association and Major League Baseball were each delayed during Disney’s entire third quarter.

But as those costs are incurred later, Disney also expects a sizable bump in ad revenue as those leagues, and others, continue with their resumption efforts.

“Assuming the resumption of live sports continues as planned, we expect ESPN’s ad sales in [the fourth quarter] to benefit significantly, particularly from the NBA,” McCarthy said.

There still could be sizable risks ahead to the company from college football, whose status for the 2020 season is uncertain at best due to as schools not having the testing and quarantining resources the pros do to restart play. As each of the Power Five conferences have truncated their football schedules and smaller conferences have canceled fall sports entirely, ESPN is particularly exposed in the sport through its large suite of rights agreements and full ownership of certain bowl games and special events.

“In terms of college football and the likelihood of that being in place, I don’t really want to comment on the possibility of the season going on because I think that’s really up to the league commissioners,” Chapek said. “That being said, we feel that we’ve got certain covenants that we have to meet in terms of live hours with our partners, and we feel confident that with the way that we all of the sports going on right now, we feel confident that we’re going to be able to reach that.”