Credit: Inside the MagicThe Walt Disney Company is boasting on an earnings call that after half a decade of losses, it has finally made a profit with its array of streaming services. However, a closer look at the numbers reveals the truth that its flagship platform, Disney+, is still losing money and had to be bailed out by other parts of the company to make it look profitable.
Disney+, Hulu, and ESPN+ Streaming
Disney has released its third-quarter earnings report, which breaks down the combined revenue, expenditures, profits, and losses (and mysterious legal charges) that the Mouse experienced in the last few months of its fiscal year. The purpose of this call is two-fold: one, to explain to the shareholders what is going on with the company financially and, two, to make those shareholders feel everything is great and they don’t need to sell off Disney stock.
To this aim, Disney used the Q3 earnings report to announce that it had finally achieved profitability with streaming, after five years and an estimated $11 billion of operating losses since Disney+ launched in 2019.
The report stated (via Business Wire), “Entertainment Direct-to-Consumer’s better-than-expected Q3 performance, combined with our profitable results at ESPN+, resulted in positive profitability at our combined streaming businesses for the first time and one quarter ahead of our previous guidance of achieving profitability in Q4.”
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This sounds good on paper. After all, Disney CEO Bob Iger has been straightforward since his return to leadership that he felt it was a mistake that the company had entered streaming in a “very, very aggressive way, we tried to tell too many stories. Basically, we invested too much, way ahead of possible returns. It’s what led to streaming ending up as a $4 billion loss.”
Forbes estimates that Disney has sunk $11 billion into its namesake streaming service, which Iger has called “not sustainable and not acceptable, and the goal was first, let’s reduce those losses.” While this Q3 announcement may seem like a turn, it is important to note that the company is pushing the idea of “combined” platforms to make it appear that Disney+ is going well.
The Covert ESPN+ Bailout
In actuality, Disney+ and Hulu lost a combined $19 million in this last quarter, meaning that the company has slowed the bleeding but is still nowhere near profitability. Instead, the Mouse is presenting “combined” revenue from Disney+, Hulu, and EPSN+ to create the impression that its streaming services are coming out ahead.
Instead, ESPN+’s revenue is acting as a de facto bailout for the other services. Notably, ESPN+ is the most expensive standalone service of the three and, arguably, manages to maintain its subscriber base because of the confusion and lack of consumer ability to stream sports in any other way.
While everyone from Warner Bros. Discovery (Max), Amazon (Prime Video), and Apple (Apple TV+) has been trying to streamline sports into accessibility, it still remains a morass.
Related: Disney+ Warns Users of Imminent Shutdown, Return To Live TV
Due to the just-announced price increase of all Disney streaming services, EPSN+ will now cost consumers $11.99 a month, with no option for an ad-free experience. In contrast, ad-supported Disney+ and Hulu will cost $9.99 a month individually; if a subscriber wants ad-free, it skyrockets to $15.99 and $18.99, respectively. The price hike also notably affected Disney+ bundle prices meaning that it affects consumers across the board.
In the earnings report, Bob Iger says:
“Our performance in Q3 demonstrates the progress we’ve made against our four strategic priorities across our creative studios, streaming, sports, and Experiences businesses. This was a strong quarter for Disney, driven by excellent results in our Entertainment segment both at the box office and in DTC, as we achieved profitability across our combined streaming businesses for the first time and a quarter ahead of our previous guidance. Despite softer third-quarter performance in our Experiences segment, adjusted EPS for the company was up 35%, and with our complementary and balanced portfolio of businesses, we are confident in our ability to continue driving earnings growth through our collection of unique and powerful assets.”
It appears that Iger is doubling down and pushing the idea that Disney+ streaming is still not losing money for the company and, by extension, the shareholders. It takes the dedication of ESPN customers to bail out The Mandalorian and Percy Jackson, but who knows? Maybe the fourth quarter will be different from the last five years.
Do you think Disney is misleading shareholders about the profitability of streaming?