(Bloomberg) — Old Hollywood is finally doing what Netflix Inc. has been doing for more than ten years: making money with streaming.
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With the exception of NBCUniversal, the largest traditional media companies all reported profits from their direct-to-consumer businesses last quarter, led by Walt Disney Co., which earned $321 million from its online video business in the final months of the fiscal year. . It was the second consecutive quarter of profitability for the division that includes Disney+, Hulu and ESPN+.
Profits from Disney’s direct-to-consumer division even surpassed revenues from its film division, which scored $3 billion in global ticket sales this summer from the blockbusters Inside Out 2 and Deadpool & Wolverine. Over the past twelve months, Disney’s streaming revenue has surpassed the combined sales of theatrical films and conventional TV.
“Disney is all-in on streaming, positioned for a digital future that alleviates traditional TV woes,” Bloomberg Intelligence analyst Geetha Ranganathan said in a note Thursday. “While this was costly – $2.5 billion in losses in fiscal 2023 – it has become profitable, marking a turning point.”
That’s just the beginning, according to the company, which now forecasts $1 billion in operating profit from streaming for the fiscal year just starting.
Price increases, higher ad sales, a crackdown on password sharing and continued cuts in film and television production will continue to boost profit margins, the company said.
Streaming now offers Disney a “great future,” Hugh Johnston, the company’s chief financial officer, said in an interview with Bloomberg TV.
That future includes the 2025 launch of a new sports streaming operation, which the company has informally called ESPN Flagship. To improve the technology behind its streaming business and drive greater engagement, Disney’s entertainment division recently hired Adam Smith, a YouTube executive, as chief technology officer.
Disney CEO Bob Iger said on a conference call with investors on Thursday that price increases for the ad-free versions of Disney+ and Hulu have helped drive subscribers to the company’s cheaper but more profitable ad-supported offerings.
About 37% of total subscriptions to Disney’s streaming services in the U.S. are at the ad-supported tier, Iger said. Globally that is about 30%.
What Bloomberg Intelligence says:
“Disney is all about streaming, positioned for a digital future that alleviates traditional TV woes.”
Warner Bros. Discovery Inc., parent company of the streaming service Max, kicked off the good news about streaming last week. CEO David Zaslav said on a call with investors that its direct-to-consumer division, which includes both Max and the HBO cable network, will continue to grow subscribers and profits in the current quarter, sending its shares up 12% .
Like Disney, Paramount Global posted streaming profits for the second quarter in a row, with hits like Yellowstone driving the expansion of its Paramount+ service abroad.
Iger set a path to boost profitability when he returned to the CEO role in November 2022, promising the operation would break even by the end of fiscal 2024.
Since Disney+ launched in 2019, the company has lost more than $11 billion, and Disney said Thursday that its streaming operating margin won’t reach 10% until fiscal 2026. That is well below what Netflix currently earns.
Not all traditional media companies are breaking even on their streaming ambitions. Peacock, the online platform of Comcast Corp.’s NBCUniversal unit, lost $436 million in the third quarter.
And even for those companies that see returns on their online investments, the profits aren’t necessarily enough to offset the decline of traditional TV. Warner Bros. and Paramount have posted billions of dollars in losses due to the declining value of their cable TV networks, while Comcast is exploring the spin-off of channels like USA. In its annual report filed Thursday, Disney also recorded $1.29 billion in impairment charges related to the declining value of its traditional entertainment networks, as a $1.55 billion charge for the Star India network.
Disney is happy to retain the company’s traditional TV business because it provides “natural coverage” for the streaming unit, according to CFO Johnston. Last year, Iger suggested the broadcast and cable networks could be sold as non-core assets, but ultimately reversed course.
During a call with investors, Iger said linear TV offers the company and its advertisers a “differentiated audience” for streaming thanks to live programming.
“Basically the combination of both works for us,” he said.
(Updates with impairments for Disney in 16th paragraph.)
