Disney Rebounds with Strong Start to Fiscal Year 2022

Disney Rebounds with Strong Start to Fiscal Year 2022

After 2 years of uncertainty, Disney posts a strong Q1 FY22, driven by their direct-to-consumer streaming platforms.

After unpredictable operations during the pandemic, Disney started fiscal year 2022 strong with a solid earnings report for the first quarter. For the period ended January 1, 2022, Disney reported total revenue of $21.8 billion, a 34% increase year-over-year. Disney had net income of $1.2 billion, or $0.63 diluted earnings per share, compared to $29 million, or $0.02 diluted earnings per share, for the prior year period. Some of the company’s first quarter success was driven by the company’s subscription growth of their direct-to-consumer streaming platforms.

CEO remarks

Bob Chapek, CEO of Disney, shared his remarks in a February 9 news release.

“We’ve had a very strong start to the fiscal year, with a significant rise in earnings per share, record revenue and operating income at our domestic parks and resorts, the launch of a new franchise with Encanto, and a significant increase in total subscriptions across our streaming portfolio to 196.4 million, including 11.8 million Disney+ subscribers added in the first quarter,” said Chapek.

“This marks the final year of The Walt Disney Company’s first century, and performance like this coupled with our unmatched collection of assets and platforms, creative capabilities, and unique place in the culture give me great confidence we will continue to define entertainment for the next 100 years,” Chapek added.

Revenue by segment

Disney revenue is broken down into two divisions – Disney Media and Entertainment Distribution and Disney Parks, Experiences and Products. Disney Media and Entertainment Distribution revenue makes up 66.9% of total revenue. Disney Parks, Experiences and Products makes up the remainder of 37.1%.

Disney Media and Entertainment Distribution revenue for the first quarter of fiscal year 2022 included:

Revenue CategoryRevenue Total
Linear Networks$7.7 billion
Direct-to-consumer (including Disney+, ESPN+ and Hulu)$4.7 billion
Content Sales/Licensing and Other$2.4 billion
Elimination of Intrasegment revenue($244 million)
Total Media and Entertainment Distribution Revenue$14.6 billion

In the direct-to-consumer category, Disney reported a 34% increase in revenue to $4.7 billion and an operating loss of $0.6 billion, a 27% increase. Disney attributes the operational loss to higher losses at Disney+ and ESPN+, which were offset by increases at Hulu.

The Disney+ losses are attributed to higher programming and production costs, and marketing and technology costs, which were offset by increased subscription revenue due to new subscribers and price increases. The ESPN+ losses were due to higher sports programming costs, offset by subscription revenue growth and higher revenue from UFC pay-per-view events. ESPN+ saw an increase in subscription revenue like Disney+ due to new subscribers and price increases. Hulu’s subscription growth, driven by new subscribers and pricing for Hulu Live TV + SVOD, was partially offset by higher programming and production costs.

Total revenue for Disney Parks, Experiences and Products was $7.2 billion, double last year’s revenue of $3.6 billion for the same period.

Subscribers by platform

Disney reported the following paid subscribers as of January 1, 2022:

Direct-to-consumer streaming platformSubscribers as of 1/01/22Year-over-year change
Disney+  
   Domestic (U.S. and Canada)42.9M18%
   International (excluding Disney+ Hotstar)41.1M40%
Disney+ Hotstar45.9M57%
Total Disney+129.8M37%
ESPN+21.3M76%
Hulu  
   SVOD only40.9M16%
   Live TV + SVOD4.3M85
 Total Hulu45.3M15%

In addition to the increase in number of subscribers, the average monthly revenue per paid subscriber has increased year-over-year too. For example, during the quarter, Disney+ domestic subscribers paid an average of $6.68 per month, compared to $5.80 per month for the same period last year, representing a 15% increase. ESPN+ subscribers paid an average of $5.16 per month, compared to $4.48 for the same period last year, also a 15% increase.

Image: Bigstock Photos

COVID considerations

In the news release, Disney addressed some of the impacts COVID-19 has had on the company, including capacity restrictions at theme parks, travel restrictions, and limitations on production and theatrical releases. Many of these impacts included financial ones, but Disney is starting to see some lifting of restrictions and limitations.

Comcast to pull NBC content from Hulu

Though direct-to-consumer streaming platform subscribers are growing along with subscription revenue, Hulu’s content slate is likely going to change soon, which could have a potential impact on subscribers. The Wall Street Journal reports that Comcast is working on a plan that could pull NBCUniversal content from Hulu to use on its own direct-to-consumer streaming platform Peacock. This means popular shows like The Voice and Saturday Night Live would be available exclusively on Peacock.

2022 content spending

In December, Disney disclosed in its 10-K filing with the Securities and Exchange Commission that the company would spend $33 billion on content during fiscal year 2022.

“The increase is driven by higher spend to support our DTC expansion and generally assumes no significant disruptions to production due to COVID-19,” said Disney in their 10-K filing.

In fiscal year 2022, Disney plans to produce 50 titles for theatrical and streaming distribution under the Disney umbrella. They currently produce films through Walt Disney Pictures, Twentieth Century Studios, Marvel, Lucasfilm, Pixar and Searchlight Pictures. The 50 films do not include the amount of content they’re planning to produce under their General Entertainment Content category. Under this category, Disney is planning to release 60 unscripted series, 30 comedy series, 25 drama series, 15 docuseries and limited series, 10 animated series, five made-for-TV movies, and possibly more.

Insider Take

Disney is getting dangerously close to Netflix’s total global streaming paid memberships of 221.8 million. Though Disney+ and ESPN+ cater to more specific audiences, Hulu and Netflix address a broader viewer base. Hulu has a significant advantage over Netflix too – it offers a Live TV component. While Hulu’s Live TV service doesn’t compare in terms of subscriber numbers, Hulu gives Disney an edge. Disney and Netflix are currently the direct-to-consumer streaming platforms with the highest number of subscribers. They will continue to grow but at a slower pace, while newer services like HBO Max and Peacock will grow as they reach new audiences and find their own niches in the streaming space. 2022 will be an interesting year!

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