By Robbie Whelan
Disney's streaming and studio businesses gained momentum in the September quarter, as the company reported a bullish outlook for the coming years.
After years of investing heavily in streaming, the company's direct-to-consumer business swung to a profit of $321 million in the September quarter from a loss of $387 million a year earlier. The stark improvement for the business, home to Disney+, Hulu and ESPN+, marked its second consecutive quarterly profit.
Meanwhile, Disney's cable TV unit continued to lose steam. Income from its traditional TV networks, which include both ABC and cable channels such as FX, the Disney Channel and Freeform, tumbled 38% to $498 million. Revenue fell 6% to $2.5 billion.
Disney and many of its rivals are betting that streaming is the future as the traditional cable TV model withers. The company's performance in the September quarter highlights the delicate balancing act Disney faces as two of its most profitable legacy businesses show signs of strain and two other units notch wins.
Companywide, revenue rose to $22.6 billion, up 6% from a year earlier and roughly in line with analyst expectations, while net income climbed 74% to $460 million.
Disney forecast adjusted earnings per share growth in fiscal 2025 in the high single-digit percentage range, and double-digit adjusted EPS growth in the two subsequent years.
Disney shares rose 10% in morning trading.
Theme parks
In Disney's Experiences unit, which includes theme parks and cruises, income declined for the second consecutive quarter. The business has become the company's main profit engine, in some recent years accounting for more than two-thirds of total operating income.
Experiences reported an operating income of $1.66 billion in the September quarter, down 6% from a year earlier, and roughly in line with Wall Street's expectations. For the full fiscal year, the division represented 59% of Disney's operating income, down from 70% the previous year.
Disney said the lower profit was due to rising costs, including those associated with the launch of two new cruise ships, and lower attendance at overseas theme parks, especially Disneyland Paris, which lost tourists to the Paris Olympic Games. Despite the decline in income, per capita spending at the domestic theme parks and on cruises rose last quarter, while foot traffic at the U.S. parks held relatively steady, the company said.
In Thursday's call with investors, CFO Hugh Johnston said the company's outlook for domestic consumers is strengthening. Disney expects operating income in the Experiences division to grow by 6% to 8% in fiscal 2025, with most of that growth coming during the second half of the year. The company is planning massive theme park upgrades, including for its Magic Kingdom, Animal Kingdom and Hollywood Studios parks.
Cable woes
Disney said higher marketing costs for a large crop of TV season premieres after last year's writer and actor strikes, lower ad revenue and changes to one of its carriage agreements were among the reasons for the decline in cable profit.
Disney and Charter Communications, which has 13 million cable TV customers, forged a new carriage agreement late last year in which the cable company pays higher fees for Disney-owned networks such as ESPN in return for the right to offer Disney+ and ESPN+ to its subscribers. As part of the deal, which was viewed as a pivotal moment in the industry's transition from traditional TV to streaming, Charter dropped several Disney-owned networks, including Freeform, Disney XD and FXX.
Comcast said last week that it is exploring spinning off its cable networks as it also contends with pressure in that part of its business. Johnston said during Thursday's earnings call that the company explored divesting assets, but "there wasn't a value-creation opportunity for Disney."
CEO Bob Iger batted down a question from an analyst about making changes to the company's lineup, too. "We don't really need more assets right now, either from a distribution or a content perspective, to thrive in a disrupted media world," he said.
Streaming gains
Disney added 4.4 million new core Disney+ subscribers, far more than the 900,000 new customers that Wall Street analysts polled by FactSet predicted, bringing the total number to more than 120 million. So-called core Disney+ subscribers are those in the U.S., Canada and other countries, excluding India, where Disney offers the lower-priced Hotstar service. Including both core Disney+ and Hulu subscribers, Disney's two biggest streaming services have 174 million total customers.
The combined streaming business benefited from price increases, advertising revenue growth, lower marketing costs and strong subscriber growth. The Disney+, ESPN+ and Hulu parent has raised streaming prices repeatedly over the past few years, but has avoided a significant wave of cancellations and has continued to add new customers. The company said more than half of new U.S. Disney+ subscribers are opting for the ad-supported tier of service. Overall, 37% of U.S. subscribers use the ad-supported option, and 30% globally do.
Iger said that while raising prices for streaming is an important part of Disney's strategy, "the pricing was designed to move people" toward ad-supported products.
The company warned of a "modest decline" in core Disney+ subscribers next quarter.
Disney said that next month it will add an ESPN tile to its Disney+ streaming service and plans to launch a fully direct-to-consumer streaming version of ESPN, known as ESPN Flagship, next fall. Iger said the service will include live sports, studio shows, integrated sports betting and other features that could use artificial intelligence to help the network meet consumer preferences.
"Imagine an A.I.-driven SportsCenter," he said, referring to ESPN's popular sports commentary show. "When you apply technology to the presentation of sports, almost anything is possible."
Blockbusters
Disney's studio business benefited from two box office hits -- "Inside Out 2" and "Deadpool & Wolverine. " With $1.7 billion in global ticket sales, "Inside Out 2" this summer became the highest-grossing animated movie of all time, while "Deadpool & Wolverine," which grossed $1.3 billion at the global box office, set the record for an R-rated movie.
Disney's studio business reported a $316 million profit compared with a loss of $149 million a year earlier.
In a statement, Bob Iger, Disney's chief executive, called this past fiscal year "pivotal and successful" for the company, and highlighted "one of the best quarters in the history of our film studio," as well as accolades in the entertainment and experiences businesses.
Disney is scheduled to release two new films, "Moana 2" and "Mufasa: The Lion King," in theaters later this year.
The company said Thursday that it planned to buy back $3 billion in stock and increase its dividend over the coming fiscal year.
Write to Robbie Whelan at robbie.whelan@wsj.com
(END) Dow Jones Newswires
November 14, 2024 10:06 ET (15:06 GMT)
Copyright (c) 2024 Dow Jones & Company, Inc.
