Disney hikes streaming prices, focuses on costs as Iger moves to reassure investors
2023-08-09 - Scroll down for original article
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A sign is shown at one of the entrances to Disney Studios in Burbank, California, U.S., July 25, 2023. REUTERS/Mike Blake/File Photo Aug 9 (Reuters) - Walt Disney (DIS.N) said on Wednesday it would raise prices of its streaming service Disney+ in October, the second price hike this year, and CEO Bob Iger emphasized the company's efforts to keep a lid on costs as he tried to reassure investors. The company beat Wall Street's profit expectations for its fiscal third quarter and said it was on track to cut costs by more than the $5.5 billion it promised investors in February. Shares were last up 3% in extended trading, reversing losses after the entertainment conglomerate posted quarterly revenue below expectations and fell slightly behind analyst projections for U.S. subscribers of Disney+. Iger, who returned for a second stint running Disney, said in a statement that Disney was undergoing an "unprecedented transformation" to help it become more efficient. "I can't emphasize enough the time that we spent, and the effort that we spent, on managing costs," Iger told analysts on a conference call, referring to the company's streaming business. "We have done a tremendous job in a very, very short time." Iger, who faces formidable challenges on nearly all fronts of the entertainment empire, acknowledged that Disney still has work to do to make the streaming business profitable. Disney will raise by 27% the price of the ad-free tier of the Disney+ service to $13.99 and hike by 20% the no-ad version of Hulu. Looking for ways to attract and retain subscribers in a competitive streaming market, Disney also announced it would launch ad-supported streaming in Europe and Canada and provide U.S. subscribers with a new, ad-free package in coming months. Iger said he would address the issue of password sharing next year, echoing Netflix (NFLX.O), which has cracked down on password sharing in the United States and beyond, alerting users that their accounts cannot be shared for free outside of their households. He said Disney will reduce the number of titles it releases and also the cost per title. REVENUE JUST MISSES Disney said it cut losses at its streaming video services to $512 million in its fiscal third quarter, narrower than its loss of about $1.1 billion a year ago. It added 800,000 Disney+ subscribers, 100,000 subscribers shy of analyst estimates, and shed 12.5 million subscribers to the Disney Hotstar service in India, or nearly a quarter of its subscribers, as it gave up rights to Indian Premiere League cricket matches. "Disney will have to cut prices from current levels in an effort to stimulate demand and defend its market share in an increasingly competitive industry," said Jesse Cohen, senior analyst at Investing.com. "The streaming space is certainly feeling the pinch of persistently high inflation which has forced consumers to make changes to their spending habits as disposable income shrinks." Paolo Pescatore, analyst at PP Foresight, echoed that Disney will have to focus on attracting new streaming subscribers and managing costs as it transitions from its traditional core business to streaming. Disney's revenue for the quarter ended July 1 rose 4% to$22.33 billion from a year earlier, just short of the Wall Street estimates, according to Refinitiv. It delivered per-share earnings of $1.03, when excluding certain items, beating Wall Street projections of 95 cents a share. The company took $2.65 billion in impairment and restructuring charges in the quarter, reflecting the cost of removing some content from its streaming services, terminating licensing agreements and $210 million in severance payments to laid-off workers. Disney's traditional television business continued its decline. Higher sports programming production costs and lower affiliate revenue dragged down the performance of its cable channels. TV revenue fell 7% to $6.7 billion, while operating income fell 23% to $1.9 billion. Disney's direct-to-consumer business reported a 9% increase in revenue to $5.5 billion, as the average revenue per subscriber rose at Disney+ and Hulu. Content sales and licensing, the unit that includes film and television sales, reported a deeper operating loss of $243 million in the quarter, compared with a loss of $27 million a year ago. The quarter included the release of "Guardians of the Galaxy Vol. 3," which performed less well at the box office than the prior year's "Doctor Strange in the Multiverse of Madness." Also released during the most recent quarter was the live-action remake of "The Little Mermaid," which disappointed. Disney's Parks, Experiences and Products group reported a 13% increase in revenue in the quarter, to $8.3 billion, and an 11% bump in operating income to $2.4 billion. The results were buoyed by the rebound of the Shanghai Disney Resort, which was open for the full quarter compared with the same time a year ago, when COVID-19 forced the park to be closed for all but three days. The unit had lower operating income at its domestic parks, due to decreases at Walt Disney World Resort in Orlando, Florida. Reporting by Dawn Chmielewski in Los Angeles Additional reporting by Chavi Mehta and Aditya Soni in Bengaluru Editing by Peter Henderson, Sayantani Ghosh and Matthew Lewis Our Standards: The Thomson Reuters Trust Principles.