Written by Lisa Richwine
LOS ANGELES (Reuters) – A surprise profit for Walt Disney Co.'s streaming entertainment unit was overshadowed by a decline in its traditional TV business and weak box office sales, sending shares down 6% before the bell on Tuesday. .
Like other media companies, Disney is trying to adapt to the consumer shift from cable TV to streaming entertainment, and had promised Wall Street that its streaming business would be profitable by September.
The division has been in the red since Disney+ debuted in 2019 in the company's big push to compete with Netflix.
The direct-to-consumer entertainment division, which includes Disney+ and Hulu streaming services, had an operating profit of $47 million in the January-March period, compared with a loss of $587 million a year earlier.
However, the streaming business, combined with ESPN+, lost $18 million. The division had a loss of $659 million the previous year.
Revenue from the traditional television business was $2.77 billion, down 8% from a year earlier, and operating income was down 22%.
“Our strong performance over the past quarter shows that we have turned a corner and entered a new era,” said CEO Bob Iger, who last month defeated a board challenge from an activist investor. ” he said.
“The steps we are taking today will help solidify Disney's position as the preeminent creator of global content,” Iger said.
Iger, who returned from retirement to rebuild Disney in November 2022, has introduced cost cuts expected to reach at least $7.5 billion by the end of September.
He also unveiled a $60 billion investment over 10 years in theme parks, announced plans for a standalone ESPN streaming app, and more.
Chief Financial Officer Hugh Johnston said in an interview that faster-than-expected returns from streaming entertainment were driven by aggressive cost management. A year ago, the streaming division lost $587 million.
Disney+ added more than 6 million customers during the quarter, and average revenue per user increased by 44 cents outside India. Disney offers low-cost plans that are counted separately in India.
Johnston said the streaming entertainment division is likely to report a loss this quarter because of the costs associated with streaming cricket, but will likely turn a profit next year.
The combined streaming division generated a profit in the fourth quarter and should represent “a meaningful future growth engine for the company with further improved profitability heading into fiscal year 2025,” Disney said in a statement.
The Mouse House's second-quarter diluted earnings per share (excluding certain items) came to $1.21, beating analysts' expectations of $1.10, according to LSEG data. Quarterly sales increased to $22.1 billion, in line with expectations.
The company's Experiences division, which includes Disney theme parks around the world, reported operating income of $2.3 billion, an increase of 12% from the same period last year.
Operating income at Disney's entertainment division, home to traditional television, streaming and movies, rose 72% year over year to $781 million.
Operating profit for the sports division, which includes ESPN, fell 2% to $778 million, which the company blamed on the timing of the College Football Playoff games.
Disney now expects adjusted earnings per share to increase 25% for the current fiscal year, compared with previous expectations for a 20% increase. The company attributed this change to strong theme park performance and improvements in its streaming business.
(Reporting by Lisa Richwine in Los Angeles; Additional reporting by Aditya Soni in Bengaluru, Dawn Chmielewski in Los Angeles and Sheila Dunn in Austin; Editing by Peter Henderson, Anil D'Silva and Arun Koyur)
