Bob Iger, CEO of The Walt Disney Company, attends the Nominees Luncheon for the 95th Oscars in Beverly Hills, California, U.S., February 13, 2023.
Mario Anzuoni | Reuters
For Disneythe future is now.
Five years in the making, Disney nearly turned a profit on its streaming units for the first time in the second quarter, losing just $18 million between Disney+, Hulu and ESPN+. That's an improvement from a loss of $659 million a year ago.
By taking out ESPN+, Disney+ and Hulu actually made money this quarter: $47 million. Last year in the second quarter, Disney+ and Hulu lost $587 million.
The thesis of all the major traditional media companies is that streaming will eventually take over from cable TV as the primary engine for making money. That's why Disney Big global, Warner Bros. Discovery And Comcast's NBCUniversal all built their own subscription streaming services.
That hasn't happened yet, but this quarter finally suggests that moment is coming. It's not just that Disney almost made money from streaming — it's also that the company's traditional linear TV results have been terrible.
Disney hesitated for years to make ESPN available outside of cable because the sports network was so lucrative within the walled garden of traditional TV. Those days are almost over too. Disney launches a thinner bundle of linear cable channels with Warner Bros. Discovery and Fox in the fall, making ESPN available outside of traditional cable for the first time. Next year, Disney will launch its flagship ESPN streaming service, which will allow consumers to subscribe to ESPN completely without cable.
Looking at Disney's second quarter results, it becomes clear why the company has finally pulled the cord on ESPN. While ESPN's revenue rose 3% to $4.21 billion, operating income fell 9% to $799 million. A drop in cable subscribers and higher programming costs due to the College Football Playoff led to the decline, Disney said. ESPN advertising increased to offset the decline in cable subscribers.
The decline of the company's other linear networks, such as ABC, Disney Channel, FX, National Geographic and Disney Junior, has been even more alarming. Linear network revenues across the Disney portfolio, excluding ESPN, fell 8% to $2.77 billion. Operating income fell by as much as 22% to $752 million.
Disney shares fell 5% in premarket trading.
The new reality
Simply put, traditional TV is dying. It's declining at the fastest pace consumers have ever seen.
Disney has been preparing for this moment for years. Streaming will become profitable in the fourth quarter, Disney reiterated, and will be “a meaningful future growth driver for the company, with further improvements in profitability in fiscal 2025,” the company said in its earnings release.
The big question for the company is whether its investors will embrace this new reality. That will depend on Disney's streaming execution in the coming years, and likely on Chief Executive Officer Bob Iger's yet-to-be-named successor.
Disclosure: Comcast's NBCUniversal is the parent company of DailyExpertNews.
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