Disney counts benefits of digital strength and advertising growth

Disney beat expectations in the final quarter of 2023, growing steadily over the quarter and the whole year, as the company searches for profitability; it says it is on track to achieve that next year, in a harder transition to digital. 

The Walt Disney Company’s results take in the breadth of its vast operations, but lays out its priorities: profitable streaming, a focus on sports, and continuing to improve the studio and parks business. 

Why Disney matters

Aside from its size, Disney’s streaming services have provided a high-level view of how the media business is changing while also exploring what a new business unit must do as it transitions from a low-interest-rate environment to the present moment of high costs and uncertainty. 

Advertising, as it turns out, is never too far from the answer – Disney remains well placed to capture the swing of spending moving from linear networks to digital platforms. 

Streaming gets an advertising kick

Disney+ saw its core revenue per user rise, explained interim CFO Kevin Lansberry on a call with investors, “driven by pricing increases and higher advertising revenue”.

Disney+ subscribers grew by 7 million to top 150m, improving on a year marred by subscriber losses in the early months. 

But the company is very well placed, executives believe, and the ad-funded video-on-demand (AVOD) sector is extremely attractive. “Those platforms are an advertiser's dream,” CEO Bob Iger noted. 

“And we know that the more data, the more detail, the more context, the more targeting we can provide, the better off we'll be.” To this end, Iger added, the company was planning a merged bundle app featuring both Disney+ and Hulu in the US – a sign of a merged strategy across streaming platforms.

Sports are vital

Sports were a source of optimism, meanwhile, as even ESPN linear advertising revenue grew 1%. On the call, ESPN’s digital transformation was an exciting proposition alongside a streamlined Disney+ and a wholly-owned Hulu, creating a formidable package. 

"As we continue to develop our streaming business, the continued strength of ESPN relative to the backdrop of notable linear industry declines demonstrates the value of sports and the power of the ESPN brand," said Iger.

Linear advertising complexity

Linear networks continued their decline with a 9% drop in advertising revenue. Hollywood strikes, moreover, caused production and programming costs to also dip.

Approaching profitability

"We continue to expect to reach profitability at our combined streaming businesses in Q4 of fiscal 2024,” Lansberry added. Streaming losses remain, but have come down drastically from the $1.47bn this time last year to $387m in Q4 '23.

The company’s profitability was boosted by the cut of 8,000 jobs, reduced content spend, and the plan to cut a further $2bn from the company’s cost base. Disney’s cash pile is important during a period in which it is attempting an $8.6bn buyout of Comcast’s minority stake in Hulu.

The story of Disney’s struggles in India continues with a 7% dip in subscriptions at a time when local giants are rumored to be considering a move for the mouse house’s interests in the vast country. Revenue per user has grown, thanks to higher ad revenues even as subscribers depart.

Iger noted that the firm was “considering our options”, adding that while Disney would like to “stay in that market” it is looking for ways to strengthen its hand and would do so “expansively”. 

Sourced from Disney, Seeking Alpha, WARC, Financial Times, Variety