Viewer points remote at Disney+ streaming video subscription service on big screen TV

Disney’s Streaming Subscriptions Deliver Stellar Results for Q1 FY20

Driven by the success of Disney+

Disney’s Streaming Subscriptions Deliver Stellar Results for Q1 FY20

Source: Disney

Walt Disney and Mickey Mouse would be proud of Disney’s first quarter results for fiscal year 2020. On Tuesday, Disney reported total revenue of $20.9 billion, a 36% increase year-over-year, driven by Disney’s new direct-to-consumer streaming service, Disney+. The company’s net income was $2.1 billion, a 23% decline year-over-year, or diluted earnings per share from continuing operations of $1.17, a 37% decrease year-over-year. Disney can attribute a $4.0 billion of the revenue increase to the launch of Disney+ which, as of February 3, boasted 28.6 million subscribers. Disney+ is also largely responsible for an increase in costs for the quarter, contributing to the decline in net income.

“We had a strong first quarter, highlighted by the launch of Disney+, which has exceeded even our

greatest expectations,” said Robert A. Iger, Disney chairman and CEO in a news release. “Thanks to our incredible collection of brands, outstanding content from our creative engines

and state-of-the-art technology, we believe our direct-to-consumer services, including Disney+, ESPN+

and Hulu, position us well for continued growth in today’s dynamic media environment.”

The Walt Disney Co.’s revenue for the quarter was broken down into the following segments:

Media Networks

$7.4 billion

Parks, Products and Experiences

$7.4 billion

Studio Entertainment

$3.8 billion

Direct-to-Consumer and International

$4.0 billion

Eliminations

($1.7 billion)

Disney’s streaming services fall into the Direct-to-Consumer market segment. In this segment, revenue grew from $0.9 billion to $4.0 billion. Operating loss for this quarter increased from $136 million to $693 million. Disney attributes the higher loss to the launch of Disney+ in November, consolidation at Hulu, and a higher loss from ESPN+. The ESPN+ was due to higher programming costs for Ultimate Fighting Championship rights and increased marketing investment. These costs were slightly offset by subscription growth and UFC pay-per-view fees.

As December 28, 2019, Disney reported the following subscriber numbers for its direct-to-consumer services:

Disney+                                  26.5 million

Hulu – SVOD only                  27.2 million

Hulu – Live TV + SVOD         3.2 million                          

ESPN+                                    6.6 million

While the streaming services did very well in the quarter, average monthly revenue per user decreased for Hulu SVOD and ESPN+ due to bundling of the three services in November.

–          ARPU for ESPN+ dropped from $4.67 to $4.44.

–          ARPU for Hulu SVOD only dropped from $14.49 to $13.15.

–          ARPU for Hulu Live + SVOD increased from $52.31 to $59.47.

While the goal is usually to increase ARPU, bundling of direct-to-consumer streaming services is a good long-term investment. What Disney is giving away in ARPU is small, and it will pay dividends in terms of retention. The more services or add-ons a customer subscribes to and uses, the harder it will be for them to leave. Also, each of these audiences is different. ESPN attracts sports fans, Disney+ skews toward younger audiences and families, and Hulu fills the gaps.

Disney’s Streaming Subscriptions Deliver Stellar Results for Q1 FY20

Source: Disney

Insider Take:

Disney has a winner on its hands with Disney+. People were pre-registering before the service was available, and it built buzz, creating audience demand, over the course of 2019. Their marketing and promotional strategy worked. They had 10 million sign-ups on day 1 and have nearly tripled total subscribers in just a few months. Disney has the advantage, of course, of brand recognition and a long history of high quality, family friendly entertainment. At a low price point, and the option to subscribe to a bundle of streaming services, is a no brainer. This line of business will continue to grow as they expand their original and exclusive content and as their licensing agreements with other services like Netflix expire. They’ll be able to reclaim certain content, like Marvel, to bring it back under the Disney umbrella.

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