1. An OK second quarter. @Disney’s second calendar quarter (their third fiscal quarter) mixed progress with stubborn challenges. Revenue was up 4% quarter-on-quarter, not great, but OK, given the overall economic environment and the fact that Disney is in the midst of some serious restructuring.
2. Parks stronger than M&E. Disney has two major lines of business: Media And Entertainment, standing for roughly two thirds of the company’s sales, and Disney Parks, Experiences And Products, standing for the remaining third. Remember the 4% growth from above? If you thought traditional TV and streaming provided most of that steam, you’d be wrong. That segment actually went down by 1%, and generally hasn’t been looking great for the past four quarters. No, it’s the Parks that made things look good, with a plus of 13%. Parks, which went through a horrible time during Covid in 2020 due to lockdowns, went back to normal during 2022 and now, with Media in trouble, may actually gain more revenue share going forward.
The Media And Entertainment segment is suffering because its Linear Networks subsegment (Disney parlance for “TV”) is continuing to go down (by 7%) as consumers continue to vote with their feet. Conversely, the Direct-To-Consumer subsegment (Disney code for “streaming video”), even though up by 9%, is not growing fast enough anymore to make up for TV’s revenue losses.
Iger stands before a gargantuan task: Making sure TV remains as profitable as possible during its decline, while growing streaming video as quickly as possible, and, more importantly, making it profitable.
3. Managing TV’s decline. Regarding TV, here is what Iger said in an interview on CNBC in July: “Linear networks [such as ABC and ESPN] may not be core” to Disney anymore. Disney’s attempts to strike deals for distributing ESPN more widely, or finding content partners, or even entering a joint venture with somebody else, have been widely publicized.
4. Streaming is the main challenge. But the streaming business is a more complicated beast than TV. On the one hand, Iger must increase revenue by growing subscriber numbers and increasing subscription fees. But with Disney’s recent price increases for @DisneyPlus subs, consumers are beginning to balk. Worldwide Disney+ core subscriber numbers grew by just 1%, and both ESPN+’s and Hulu’s numbers were flat. There is little space for revenue growth.
On the other hand: Iger must cut streaming costs. But there are limits to that as well: It is expensive to run a streaming video service. The company said it cut streaming losses from $1.1B to $512M, or by $588M – but $467M of those were thanks to more revenue, so costs were only cut by $121M.
5. Restructuring progress – stock up. Even though results were a bit of a mixed bag, the market rewarded the progress the company has made: Disney’s price was up 2% in after-hours trading.
@RobertIger
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