Disney's Subscriber Dip Prompts Focus on Cutting Costs, Improving Streaming Content Quality

Walt Disney Co. emphasized streaming as one of its primary business strategies for the upcoming year in its fiscal Q1 earnings call on Feb. 8, hoping to make significant gains in profitability for their Direct-to-Consumer services, such Hulu and, most notably, Disney+.

After seeing subscriptions decrease from 164.2 million in Q4 to 161.8 million in Q1, Disney said it plans $5.5 billion in cost savings. Major layoffs were announced as part of the company’s long-term plan to improve their streaming business’ profitability, amounting to 7,000 jobs, or an estimated 3.6% of Disney's global workforce.

With CEO Bob Iger back at the helm after stepping down over two years ago, Disney is moving forward with an extensive restructuring into three core divisions: the Disney Entertainment unit for all things film, television and streaming, a sports-centric ESPN team, and a unit entirely dedicated to Disney Parks, Experiences and Products.

The company’s significant shift in direction is not without its purpose, for the company’s mass reorganization is expected to “result in a more cost-effective, coordinated approach to our operations," according to Iger during the company’s Q1 conference call.

“Moving forward, our creative teams will determine what content we're making, how it is distributed and monetized, and how it gets marketed. Managing costs, maximizing revenue, and driving growth from the content being produced will be their responsibility,” Iger said.

Despite an increase of 13% for DTC revenues for the quarter, signaling a strong Q1 for Disney, operating losses also increased overall from $500 million to $1.1 billion, coupled with its first-ever major dip in Disney+ subscribership in recent months.

The company aims to ensure the growth and profitability of its streaming business, according to the CEO, who noted that Disney+ is expected to “hit profitability” by the end of fiscal 2024.

Iger said Disney also aims to capitalize on marketing and distribution opportunities:

“We will fine-tune our advertising initiatives on all streaming platforms. We will improve our marketing, better balancing platform and program marketing while also leveraging our legacy distribution platforms for marketing and programming. This may include greater use of legacy distribution opportunities to increase revenue and more effectively amortize content investment.”

The company also aims to be more mindful with regard to the quality and costs of the content it produces in order to reduce costs, noting that the company is “fueled by storytelling and creativity” and “virtually every dollar we earn, every transaction, every interaction with our consumers emanates from something creative.”

“We're going to look at the volume of what we make. And with that in mind, we're going to be fairly aggressive at better curation when it comes to general entertainment. Because when you think about it, general entertainment is generally undifferentiated as opposed to our core franchises and our brands, which, because of their differentiation and their quality, have delivered higher returns for us over the years. So, we think we have an opportunity to, through more aggressive curation, to reduce some of our costs in the general entertainment side and, in general, in volume,” he added.

Iger added that the company aims to be better positioned to withstand future disruption as well as the rising competition and the challenges presented by the global economy and to that end:

“We must also return creativity to the center of the company, increase accountability, improve results, and ensure the quality of our content and experiences”

Coinciding with data from their quarterly report, Disney rounded out the quarter with a total of 161.8 million Disney+ global subscribers, suggesting a significant loss of 2.4 million subs when compared to the previous quarter’s 164.2 million.

Between Disney’s Media and Entertainment Distribution unit and its Parks, Experiences and Products team, total segment revenues for the quarter went up by 8%, with the company’s segment operating income running at a 7% loss compared to higher figures seen in fiscal 2022.

Disney ultimately came out on top of Wall Street estimates, enjoying higher-than-expected revenues and adjusted earnings per share of 99 cents for the quarter versus the 78 cents per share analysts were expecting. A recent rise in park visitations served as a major contributor toward this boost in earnings, making up for the quarter’s outstanding losses caused by lower figures in Disney’s streaming business.

To that end, Disney’s Parks, Experiences and Products division reflected major revenue wins for the quarter, going up 21% to $8.7 billion from the previous fiscal year’s $7.2 billion.