Since Bob Iger’s return to Disney last fall, things have started turning around for the House of Mouse, though the news isn’t all rosy. For the third quarter of fiscal year 2023, The Walt Disney Company reported total revenue of $22.3 billion, a 4% increase year-over-year. The company also reported a total net loss from continuing operations of $(460) million, or $(0.25) diluted earnings per share. This includes a loss of $512 million from the company’s direct-to-consumer streaming subscription services.

Despite the mixed results, Iger remains optimistic that the company will reach the ambitious goals he set for the company when he returned eight months ago.

“Our results this quarter are reflective of what we’ve accomplished through the unprecedented transformation we’re undertaking at Disney to restructure the company, improve efficiencies, and restore creativity to the center of our business,” said Iger said in an August 9, 2023 news release.

Iger also noted that the company continues to focus on being more cost effective, better coordinated and streamlined operationally. He believes they are on track to exceed their preliminary goal of $5.5 billion in savings and will improve their “direct-to-consumer operating income” by about $1 billion in three quarters.

“While there is still more to do, I’m incredibly confident in Disney’s long-term trajectory because of the work we’ve done, the team we now have in place, and because of Disney’s core foundation of creative excellence and popular brands and franchises,” Iger added.

Direct-to-consumer segment

In Disney’s direct-to-consumer streaming segment, which includes Disney+, Hulu and ESPN+, total third quarter revenue was $5.5 billion, a 9% increase year-over-year. Operating loss for the segment decreased to $0.5 billion, compared to $1.1 billion for the same period last year. Disney attributes the lower operating loss to a lower loss at Disney+, higher operating income at Hulu, and a lower loss at ESPN+.

The revenue for Disney+ improved because of higher subscription revenue and lower marketing costs which were offset by higher programming and production costs and lower ad revenue, according to the news release. Specifically, the higher subscription revenue was attributed to growth with Disney+ Core subscribers and price increases.

Hulu also saw higher subscription revenue during the quarter along with lower marketing costs, which were partially offset by higher programming and production costs and lower ad revenue. Hulu’s subscription growth came from higher retail prices and new subscriber growth, including the Hulu + Live TV subscription service. ESPN also saw subscription revenue growth due to price increases and subscriber growth.

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Paid direct-to-consumer subscribers

Paid direct-to-consumer subscribers as of July 1, 2023 were as follows:

Average revenue per user (ARPU)

Average monthly revenue per paid subscriber for the quarter increased slightly in several categories, while remaining flat or dropping slightly in others.

Other financial highlights

Disney shared additional financial highlights, including the following:

• Corporate and unallocated shared expenses decreased $30 million from $325 million to $295 million. This was as a result of lower compensation and human resource-related expenses, offset partially by an abandoned project and higher rent costs.
• The company recorded $2.44 billion in charges from removing content from their direct-to-consumer services and termination of some third-party license agreements.
• They also recorded a $210 million charge for severance payments and a $101 million charge for a legal ruling, which was largely offset by a $90 million gain on Disney’s investment in DraftKings, Inc. which was sold in the current quarter.

Direct-to-consumer price increases

Disney announced new price increases, starting this fall:

• Ad-free Disney+ will be $13.99 a month, a 27% increase, starting October 12.
• Disney+ with ads will be $7.99 a month.
• Ad-free Hulu will increase to $17.99 a month, a 20% price increase.
• Hulu with ads will remain the same at $7.99 a month.

“We took a pretty significant price increase at Disney+ sometime late in calendar ‘22, and we really didn’t see significant churn or loss of subs because of that, which was actually heartening,” Iger said during Disney’s earnings call.

Iger also said on the call that advertising is picking up for streaming services, so they are trying to move more subscribers to the ad-supported tier. He also noted they are learning as they go and the model evolves.

“A substantial amount of new subscribers to Disney+ are signing up for the ad-supported tier, which suggests that the pricing is working for us in that regard,” Iger said.

Disney is also creating a new “premium duo” subscription bundle that will offer subscribers access to Disney+ and ad-free Hulu for $19.99 a month, a $12.00 savings, starting September 6.

Insider Take

Bringing Bob Iger back from retirement has been a critical step in the company’s evolution as it recovers from the pandemic and competes in the evolving direct-to-consumer marketplace. Disney is banking on its strong content library to keep subscribers and attract new ones, even while it is increasing prices. The company thinks it can compete for content – and price – with Netflix and Max (formerly HBO Max) without seeing significant churn. It is interesting to watch these services evolve and shift to meet the needs of the marketplace.

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