Disney CEO Bob Iger says company has moved from ‘fixing’ to ‘building’

Disney CEO Bob Iger said Wednesday the company has moved “beyond this period of fixing” and into “building our businesses again” as it reported a 63% jump in profit, higher than expected cost savings and a hike in streaming subscribers in its fiscal fourth quarter.

The performance exceeded expectations across several measures amid a turbulent period for the 100-year-old media company as it attempts to fuel its streaming investments without eroding its linear business.

Revenue Disney generates from its direct-to-consumer division has been keeping its entertainment unit afloat for some time. In the September quarter, streaming revenue grew 12% to $5 billion, offsetting a 9% reduction in linear revenue to $2.6 billion and a 3% fall in content sales and licensing revenue to $1.9 billion compared to the same period in 2022.

Disney+ added 6.9 million subscribers in its “core” service in the fourth quarter — though it lost 2.8 million from India’s Hotstar. Hulu subscribers remained flat at 48.5 million.

Operating losses from the direct-to-consumer division also shrank from $1.4 billion a year ago to $420 million in the most recent quarter. 

Disney said it expects its streaming businesses to reach profitability in fiscal Q4 2024. This is one of the four key “building opportunities” Iger outlined in prepared remarks.

As part of this, Disney said last week it would buy the 33% stake in streaming service Hulu it does not own from Comcast. The deal is expected to cost $8.6 billion. 

Insider Intelligence principal analyst Paul Verna said Disney will likely need to sell its linear TV assets and potentially its India operations to raise enough money to finance the deal. 

Disney Star, its Indian media conglomerate, posted a 21% drop in revenue to $92 million and a 29% fall in operating income to $12 million in the quarter. Reliance Industries is reportedly nearing a deal to buy a controlling stake in the business, which is valued at around $10 billion.

Iger told investors on Wednesday the company is “considering our options” in India.

“We'd like to stay in that market, but we are also looking to see whether we can strengthen our hand, obviously improve the bottom line,” he said. 

Disney is also preparing to sell off a minority stake in ESPN to help fund a standalone streaming service as revenue and profits generated from the cable sports network continue to stagnate. ESPN generated $3.8 billion in revenue in the most recent quarter, up 1% from last year, and $953 million in profit, though losses internationally worsened.

Some of ESPN’s programming is available on the existing ESPN+ streaming service, but the majority of its content is available exclusively to customers of Disney’s linear cable TV bundle. Disney has to figure out how to offer this programming “a la carte” in a way that doesn’t significantly cannibalize its cable revenue.

Iger said on Wednesday the plan is to have a “soft landing,” where ESPN will continue to be offered to bundle subscribers and as a standalone subscription for some time.

“It is our hope that it will serve basically the consumer in two ways, in the traditional way and a new way,” he said.

Disney has held exploratory talks with sports leagues the NFL, NBA and MLB to take an equity stake in ESPN.

Disney’s streaming goals, however, have been challenged this year by Hollywood strikes which have ground much TV and film production to a halt.

“The strikes have no doubt disrupted Disney’s content pipeline and will eventually catch up to its users in the form of a content drought. This could lead to a cohort of users temporarily canceling their subscriptions, especially among Gen Z, who is most prone to switching behaviors,” said Forrester research director Mike Proulx.

Meanwhile, advertising revenue decreased in the quarter, which Disney said primarily affected the ABC Network and owned TV stations due to lower average viewership and lower political ad spend.

“As we look at the advertising marketplace right now, while it's not as strong as we would like it to be, it's certainly not as bad as some people think it is,” Iger told investors. 

He added the company is “bullish” about its position in the ad marketplace due to the interest it is seeing in its addressable ad solutions and Hulu’s “extremely robust advertising engine.”

Disney has alleviated swirling pressures on its bottom line by more aggressively cutting costs than it previously expected. Iger said Disney is on track to achieve roughly $7.5 billion in cost reductions, up from the $5.5 billion it had forecast in February.

Overall, Disney reported a 5% lift in revenue to $21.2 billion in the quarter and a 7% lift in annual revenue to $88.9 billion.

Disney stock lifted 2.9% in after-hours trading.