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Disney has finally turned a profit on streaming—just as its parks business slumps

By
Michelle Chapman
Michelle Chapman
and
The Associated Press
The Associated Press
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By
Michelle Chapman
Michelle Chapman
and
The Associated Press
The Associated Press
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August 7, 2024, 10:41 AM ET
Disney's fairy tale castle in a theme park
Inflation is hitting Disney's theme park business, the company said.Vernon Yuen/NurPhoto
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Disney returned to a profitable third quarter as its combined streaming business started making money for the first time, along with a very strong showing in theaters for the movie “Inside Out 2.”

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Operating income for the entertainment segment, which includes its movie studio and parts of its television wing, nearly tripled to $1.2 billion. Disney’s run at the box office continues with “Deadpool & Wolverine,” giving the company the top two films of the year.

The Walt Disney Co. said Wednesday that its direct-to-consumer business, which includes Disney+ and Hulu, reported a quarterly operating loss of $19 million, which was much smaller than its loss of $505 million a year earlier. Revenue climbed 15% to $5.81 billion.

The results were announced a day after Disney said that it will be boosting prices for Disney+, Hulu and ESPN+, starting on Oct. 17. Disney+ and Hulu will each cost $9.99 a month with ads, a $2 increase for each plan. The ad-free version of Disney+ will run $15.99 monthly, a $2 uptick, while Hulu will be $1 more, at $18.99 monthly for the ad-free version. ESPN+, which is only available with ads, will have a monthly cost of $11.99, a $1 increase.

Disney earned $2.62 billion, or $1.43 per share for the period ended June 29. A year earlier it lost $460 million, or 25 cents per share.

Stripping out one-time gains, earnings were $1.39 per share, easily topping the $1.20 analysts polled by Zacks Investment Research expected.

Revenue for the Burbank, California, company rose 4% to $23.16 billion, beating Wall Street’s estimate of $22.91 billion.

Theme parks aren’t so hot

Disney’s stock was pressured in early trading with some weakness showing in domestic parks, part of its Experiences division that includes six global theme parks, its cruise line, merchandise and videogame licensing. The company cautioned that the moderation in demand it saw at U.S. parks could linger for the next few quarters.

It anticipates fourth-quarter Experiences operating income falling by mid single digits compared with the prior-year period due to the domestic parks moderation as well as cyclical softening in China and less people at Disneyland Paris due to the impact the Olympics had on normal consumer travel.

Johnston said during the company’s conference call that the parks have been impacted by lower-income consumers feeling more financial stress, while higher-end consumers are doing a bit more international travel now. Domestic parks and Experiences operating income fell 6%, thought international parks and experiences operating income edged up 2%.

Revenue for domestic parks climbed 3% in the third quarter. International parks revenue rose 5%.

Disney said that the decline in operating revenue for domestic parks and experiences was because of increased costs driven by inflation, technology spending and new guest offerings.

The company made $254 million in operating income from content sales and licensing helped by the strong performance of “Inside Out 2” in theaters, which is now the highest-grossing animated film of all time, with more than $1.5 billion generated globally.

Disney said Wednesday that the original “Inside Out,” which came out in 2015, helped drive more than 1.3 million Disney+ sign-ups and generated over 100 million views worldwide since the first Inside Out 2 teaser trailer dropped.

The combined streaming businesses, which includes Disney+, Hulu and ESPN+, achieved profitability for the first time thanks to a strong three months for ESPN+ and a better-than-expected quarterly performance from the direct-to-consumer unit.

CEO Bob Iger and Senior Executive Vice President and Chief Financial Officer Hugh Johnston said in prepared remarks that ESPN had its most watched third quarter in primetime in a decade among adults age 18-49. This was due to strong viewership in several areas, including the NBA finals, WNBA draft and NHL playoffs and Stanley Cup finals.

Disney said in May that it expected its overall streaming business to soften in the third quarter due to its platform in India, Disney+Hotstar. The company also said at the time that it anticipated its combined streaming businesses to be profitable in the fourth quarter, so the money-making quarter was a surprise.

Disney now anticipates full-year adjusted earnings per share growth of 30%.

In April shareholders rebuffed efforts by activist investor Nelson Peltz to claim seats on the company board, standing firmly behind Iger as he tries to energize the company after a rough stretch.

In June Disney asked a federal appellate court to dismiss its lawsuit against Florida Gov. Ron DeSantis after his appointees approved a deal with the company on how Walt Disney World will be developed over the next two decades, ending the last piece of conflict between the two sides.

As part of the 15-year deal, Disney agreed to invest $17 billion into Disney World over the next two decades and the district committed to making infrastructure improvement on the theme park resort’s property.

Shares fell more than 2% in early trading.

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