Disney’s Streaming Services Reach 100 Million Paid Subscribers As Its Ads Business, Live Experiences Struggle

Disney Q3 earnings
Disney’s Q3 revenue plummeted 42% to $11.8 billion, as the coronavirus pandemic wreaked havoc across its lines of business.

Promising increases in its paid streaming subscriptions were far outweighed by the closure (and gradual reopening) of its parks (85% decrease) and movie theaters (65% decrease).

Disney lost $3 billion in revenue directly due to the pandemic.

Disney’s advertising business also took hits across its broadcast and cable networks.

Meanwhile, Disney as a marketer followed suit, trimming its own advertising expenses, since it didn’t have any theatrical releases to promote, and lowering marketing costs at some of its cable networks (like FX) where it delayed producing content.

Streaming soars

As people stuck at home seek ways to entertain themselves, Disney reached 100 million paid subscribers across Disney+, ESPN+ and Hulu. Overall, Disney’s direct-to-consumer segment grew 2% to $4 billion.

Hulu subscribers increased 27% year over year 35.5 million. People opting for Hulu’s live TV and SVOD offering increased 55% to 3.4 million. And SVOD subscribers grew to 32.1 million. Disney+ amassed 57.5 million subscribers globally, with an average revenue per user of $4.62. Because movie theaters continue to be closed, Disney+ will premier “Mulan” for $29.99.

Disney CEO Bob Chapek also echoed WarnerMedia’s observations around the dynamics of acquiring and retaining streaming subscribers.

“New content tends to bring in new subscribers, but the catalog increases engagement and helps us retain subscribers,” Chapek.

Advertising business cuts

Disney’s media business was in strong shape compared to its parks business. Disney’s broadcast revenue increased 12% to $2.5 billion in the quarter, and its cable network revenue declined just 10% to $4 billion

ESPN lost live sports like the NBA season, which dampened ad revenue. But because it deferred paying sports rights, and because it receives fees to carry its channels, the cable networks operating income increased by 50%.

Disney’s broadcast and cable business declines are in the same ballpark as Comcast’s and WarnerMedia’s recent earnings – though it doesn’t break out advertising revenues.

Disney’s broadcast revenue increase of 12% outperformed NBCUniversal’s decline of 1.6%. On the cable side, Disney’s 10% decline put it ahead compared to its peers’ declines: WarnerMedia’s sports-heavy Turner declined 12% year over year and NBCUniversal reported a decline in cable revenue of 14.7%.

With huge portions of its parks and theatrical revenue evaporating, Disney is holding on to $23 billion in cash to help weather the pandemic – too much cash for at least one analyst, who chastised CFO Christine McCarthy for Disney’s conservatism. But given the uncertainty of the pandemic, Disney would rather have too much cash than the alternative.

“What kills a company is a lack of liquidity,” McCarthy responded.

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