What do theme parks and streaming have in common? Together, they helped Disney beat expectations this quarter.
Revenue for the first quarter of Disney’s 2022 fiscal year was just shy of $22 billion, up 34% from $16.2 billion this time last year, the company told investors on Wednesday.
As a result, Disney’s stock surged around 8% before the market opened on Thursday. After-hours trading is a direct reflection of how a company’s quarterly report lands with investors. (We all saw what happened to Meta last week.)
A whole new world
So, where’s all the money coming from? The quick answer: Parks plus, well, Disney+. Streaming was a strong driver of revenue for Disney between October and December last year.
Disney attracted 17.4 million paying subscribers with Disney+, its 2-year-old streaming service, accounting for two-thirds of the new sign-ups. Disney now has a total subscription base of 196.4 million people.
Sports helped contribute to that growth. Sporting events accounted for 95 of the 100 most watched live broadcasts in 2021, said Disney CEO Bob Chapek. Disney owns an 80% stake in ESPN.
ESPN is also a major hot spot for advertising. ESPN advertising revenue last quarter was up 14% from the prior year, said Disney CFO Christine McCarthy.
Friendly fire … and other anticipated losses
Disney’s living the streaming dream.
But do Disney’s disparate streaming services compete with each other? The answer is actually yes.
McCarthy said the $127 million year-over-year loss Disney experienced in its DTC operations was partially driven by improved results at Hulu. (For reference, Disney now owns two-thirds of Hulu, sharing its ownership with Comcast.)
But that’s just a little light cannibalization. Linear is bleeding.
Disney lost around $500 million on its linear footprint this past quarter, including across both broadcast and cable networks. McCarthy claimed the loss is partially offset by revenue from advertising and Disney’s international channels.
And you’ve also gotta spend to make, especially in streaming. Spending on content production is a massive budgetary line item that isn’t going away anytime soon.
“We expect programming and production expenses to increase by approximately $800 million to $1 billion in our DTC networks, and by $500 million on linear [throughout] Q2,” McCarthy said.
She also noted that the spike in production expenses has already cost Disney $600 million of its operating income this quarter compared to last year.
How will Disney overcome increasing costs? The same way other platforms with subscription services are handling it – by pumping out as much content as humanly possible.
It can be a vicious cycle – the more it costs to produce content, the more content you have to produce in order to offset the loss.
In addition to opening the floodgates on original content like Marvel movies, Disney also aired four additional NFL games at the start of the quarter, McCarthy said.
Back to the basics
Although streaming is the hotness, Disney is known for its eponymous theme parks and physical locations – and that’s still where a decent chunk of the company’s profits are coming from.
“Our domestic parks achieved an all-time revenue and operating income record [this quarter] despite the omicron surge,” Chapek said.
To put that into context, Disney is now making more money from its theme parks than it was even before the pandemic in the US.
“Spending at our domestic parks was up more than 40% versus the first fiscal quarter of 2019,” McCarthy said.
Even so, Disney expects the impact of COVID to continue into Q2 this year, especially internationally. After all, the Hong Kong Disneyland Resort is still closed due to the new variant.
