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Disney Gains After Boosting Disney+, Hulu Subscription Prices

By Shane NeagleStock MarketsAug 10, 2023 14:52
ng.investing.com/analysis/disney-gains-after-boosting-disney-hulu-subscription-prices-179173
Disney Gains After Boosting Disney+, Hulu Subscription Prices
By Shane Neagle   |  Aug 10, 2023 14:52
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Walt Disney Company (NYSE: NYSE:DIS) shares jumped early Thursday after the entertainment giant announced a round of major price increases to its streaming services.

Ad-free versions of Disney+ and Hulu will both see a 20%+ hike in subscription costs as Disney looks to offset a falling number of subscribers. The company’s results for the third fiscal quarter were relatively soft.

However, the announced price hike has erased post-earnings losses in Disney stock.

How Did Disney Perform in FQ3

The company reported an adjusted EPS of $1.03, topping the average analyst estimate of $0.99. Revenue rose just 3.8% to $22.33 billion, just below the consensus of $22.51 billion.

“Our results this quarter are reflective of what we’ve accomplished through the unprecedented transformation we’re undertaking at Disney to restructure the company, improve efficiencies, and restore creativity to the center of our business,” said Robert A. Iger, Chief Executive Officer of the Walt Disney Company.

The top-line revenue miss is a result of the underperformance in Disney’s streaming business, which falls under the “Media and entertainment distribution” business segment. Sales in this unit dropped 0.8% year-over-year to $14 billion, while analysts were looking for $14.36 billion.

Operating income for the media segment fell 18% YoY to $1.13 billion, while direct-to-consumer (DTC) operating losses were $512 million as Disney’s streaming unit continues to operate in the red.

Disney+ had 146.1 million subscribers worldwide, 7.4% fewer than the 157.8 million it had in the previous quarter. Analysts were looking for a smaller decline to 154.8 million. Disney attributed the weakness to India, where the business lost the media rights to stream a popular cricket league.

The weakness in the streaming business was partially offset by the 13% jump in revenue for the “Parks, experiences, and products” segment, where sales totaled $8.33 billion. This yielded an operating income of $2.43 billion, up 11% YoY.

Segment-wise, Disney reported 48.3 million Hulu subscribers and 25.2 million for ESPN+, both coming in slightly below the average analyst estimate. Overall, Disney+ ended the quarter with 105.7 million subscribers.

Disney also said it recorded a $2.44b charge in the third quarter related to the removal of content from DTC services and termination of certain third-party license agreements.

“In the eight months since my return, these important changes are creating a more cost-effective, coordinated, and streamlined approach to our operations that have put us on track to exceed our initial goal of $5.5 billion in savings as well as improved our direct-to-consumer operating income by roughly $1 billion in just three quarters,” Iger added.

Speaking on the earnings call, Iger highlighted the “aggressive” cost cuts he orchestrated upon his return to the company. He added that Disney is on track to exceed its initial goal of $5.5 billion in savings.

Price Hikes Needed to Offset Decline in Subs

The media business said it would increase the prices for Disney+ and Hulu subscription packages without commercials. The streaming products with ads will have their prices unchanged, while the Disney+ ad-tier option will also become available in select markets in Europe and in Canada beginning November 01.

Ad-free Disney+ will cost $13.99 per month, representing a 27% increase, starting from October 12, while ad-free Hulu will now be priced at $17.99 per month, a 20% price increase. Both Hulu and Disney+, with ads, will continue to be available for $7.99 per month.

The price of the Hulu + Live TV with ads package will increase to $76.99 from $69.99 per month. The ad-free Hulu + Live TV will jump to $89.99 per month from $82.99 per month.

“We took a pretty significant price increase at Disney+ sometime late in 2022, and we really didn’t see significant churn or loss of subs because of that, which was actually heartening,” Iger said on the call.

Disney added 3.3 million subscribers for the ad-tier options, with Iger noting that roughly 40% of new Disney+ subscribers tend to choose the ad-tier package. Moreover, the company announced a new offering – getting both Disney+ and Hulu without commercials is now available for just $19.99, representing a $12 per month savings.

Disney also said it aims to follow Netflix (NASDAQ:NFLX) in performing a crackdown on password-sharing, which should also help the DTC business to become profitable.

“We already have the technical capability to monitor much of this. And I'm not going to give you a specific number, except to say that it's significant,” Iger said.

The chief executive also touched upon the massive partnership between its ESPN business and Penn Entertainment. The casino operator announced a long-term exclusive partnership with ESPN.

Penn will have the 10-year right to use the ESPN Bet name in the U.S. and has agreed to pay $1.5 billion in cash for this partnership.

The gambling company also said it sold all of its Barstool Sports subsidiaries to David Portnoy in exchange for non-compete and other agreements, as well as 50% rights of any future sale. The move comes just shortly after Penn spent $388 million to acquire Barstool.

Iger confirmed the rumors that ESPN was in discussion with several gambling companies to sell ESPN rights, despite criticism that Disney is a family-friendly company.

“It's something that we've wanted to accomplish, obviously, because we believe there's an opportunity here to significantly grow engagement with ESPN consumers, particularly young consumers,” Iger said.

“And PENN -- why PENN? PENN stepped up in a very aggressive way and made an offer to us that was better than any of the competitive offers by far. And we like the fact that PENN is going to use this as a growth engine for their business.”

Moreover, Disney said in its earnings report that it “recorded a charge of $101 million related to a legal ruling, largely offset by a $90 million gain on its investment in DraftKings (NASDAQ:DKNG).”

***

Shane Neagle is the EIC of The Tokenist. Check out The Tokenist’s free newsletter, Five Minute Finance, for weekly analysis of the biggest trends in finance and technology.

Disney Gains After Boosting Disney+, Hulu Subscription Prices
 

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Disney Gains After Boosting Disney+, Hulu Subscription Prices

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