Disney+ adds 12.1M subscribers, says peak DTC losses are now in the rearview

The Walt Disney Company reported strong subscriber growth in its fiscal fourth quarter, adding 12.1 million Disney+ subscribers, contributing to total direct-to-consumer (DTC) subscriber gains of 14.6 million in the period. While the company marked subscriber growth, DTC operating losses mounted to nearly $1.5 billion – something executives expect to narrow in the coming quarters.

The quarterly subscriber additions include around 9.3 million Disney+ core users, reflecting an increase from the 6 million it added last quarter. While the vast majority came from international markets, Disney+ brought in nearly 2 million domestic U.S. and Canada subscribers in the period. It added around 7.4 million international Disney+ subscribers (excluding Disney+ Hotstar in India) for a core base of nearly 103 million - a 38% increase from its core Disney+ subscriber count the same time last year.

Disney ended its fiscal 2022 with a total of more than 235 million subscribers, including Disney+ as well as ESPN+ and Hulu.

In the U.S. and Canada, Disney+ subscriber tally stood at 46.4 million as of October 1, while international subs, excluding Disney+ Hotstar, stood at 56.5 million. Including Hotstar, the total Disney+ base is 164.2 million.

Disney also added around 2.5 million subscribers at ESPN+ and Hulu (including Hulu with Live TV) in the period.

At the end of the most recent quarter, ESPN+ subscribers totaled 24.3 million, marking an increase of around 1.5 million in the period.  Hulu stands at 47.2 million subscribers, including 42.8 million SVOD only (adding around 600,000 in the quarter) and 4.4 million Live TV + SVOD (up by around 400,000 from fiscal Q3).

“The rapid growth of Disney+ in just three years since launch is a direct result of our strategic decision to invest heavily in creating incredible content and rolling out the service internationally, and we expect our DTC operating losses to narrow going forward and that Disney+ will still achieve profitability in fiscal 2024, assuming we do not see a meaningful shift in the economic climate,” said Disney CEO Bob Chapek in a statement. “By realigning our costs and realizing the benefits of price increases and our Disney+ ad-supported tier coming December 8, we believe we will be on the path to achieve a profitable streaming business that will drive continued growth and generate shareholder value long into the future.”

Disney expects ESPN+ and Hulu to continue to add subscribers, with only slight increases in core Disney+ users next quarter. McCarthy noted subscriber growth won’t be linear each quarter, as it’s driven by factors such as content releases.

Disney in the period saw streaming subscriber gains but also saw increased direct-to-to-consumer operating losses as it invested heavily in Disney+.

Quarterly direct-to-consumer revenues climbed 8% to $4.9 billion, while DTC losses soared by more than $800 million. Disney recorded a $1.47 billion direct-to-consumer operating loss in the period. Disney said the increased loss was due to a higher loss from investment in Disney+ and decrease at Hulu, partially offset by better results at ESPN+.  The company pointed to higher programming and production costs, increases in marketing and technology costs at Disney+, partially offset by higher subscription revenue thanks to subscriber growth. Content sales and licensing revenues were down 15% year over year to $1.73 billion, while linear networks revenue dropped 5% to $6.33 billion.

Speaking on the company’s earnings call Tuesday, Disney CFO Christine McCarthy said the company expects it has now reached peak Disney+ losses and expects DTC operating results to improve by at least $200 million in the fiscal year 2023 first quarter, with larger improvements expected in Q2.  Disney expects to benefit from price increases alongside the launch of its ad-supported tier in December. With Disney+ launching a tier with ads on December 8 priced at $7.99 per month, the cost of its ad-free tier is increasing to $10.99 per month.

McCarthy noted that while price increases in the U.S. will modestly benefit average revenue per user (ARPU) and subscription revenue, they won’t go into effect until later in the quarter so won’t show as much impact until Q2. She also said Disney doesn’t expect the Disney+ ad-supported tier to provide more meaningful financial impact until later in the fiscal year.

In terms of improved operating losses, the company also plans to realign costs associated with marketing and optimize content slate and distribution approach.

Total company revenues in the quarter grew 9% compared to the year ago period to $20.15 billion, driven by Disney Parks, Experience and Products. For the full year revenue was up 23% to $82.72 billion. Segment operating income and net income were each up 1% to $1.59 billion and $162 million, respectively.  

While total revenues were up, Disney saw its media and entertainment distribution revenues drop 3% year over year to $12.72 billion. The company attributed the decline to lower operating results at direct-to-consumer and content sales and licensing, partially offset by growth in linear networks.

Operating income in the media and entertainment distribution segment in the quarter was down 91% compared to the prior year quarter to $83 million, and down 42% for the full fiscal year to $4.21 billion.