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Sunday, May 26, 2024

Disney’s Bumpy Streaming Shift: ESPN+ Subscribers Drop Again

  • ESPN+ shows a third retreat in subscribers in the last four quarters and posts a $65 million operating loss.
  • Iger says he is ‘confident’ of completing a long-term NBA rights renewal.
Ron Chenoy-USA TODAY Sports

Disney CEO Bob Iger said Tuesday with the release of the company’s latest earnings report that the company’s conversion to a streaming-based media business wasn’t going to be a “linear” path. He definitely wasn’t kidding.

The company’s results for its fiscal second quarter of 2024 showed just how mixed—and sometimes messy—of a situation that large-scale transition still is. Disney said that it posted a first-time quarterly profit for its direct-to-consumer operations, with the exception of ESPN, moving the company closer to its prior projection of full DTC profitability by the end of the fiscal year. But subscriptions for ESPN+ retreated for the second straight quarter and third time in four quarters, and now stand at 24.8 million—the level it was at early last year. ESPN+ also posted a $65 million operating loss for the quarter, more than overtaking the $47 million gain for the rest of Disney’s DTC businesses.

Disney sought to tag the ESPN+ subscriber decline to normal seasonality, particularly with the latest quarter following the conclusion of the 2023 college and pro football seasons. But before last summer, ESPN+ showed more than five years of uninterrupted subscriber growth. 

Amid that choppiness, Disney shares fell 10% in early Tuesday trading, rolling back a chunk of a broader gain of more than 28% so far this year. That retreat happened despite a 1% growth in revenues and a 30% jump in diluted earnings per share that beat analyst projections, as well as a recent win in a shareholder proxy battle. 

There was some other upside in the streaming results, however, as Disney said its average revenue per user for ESPN+ rose 3% from the first quarter to $6.30. 

In other developments from the Disney earnings release and call with financial analysts:

  • Iger said he was “confident” of completing a long-term rights renewal with the NBA, essentially confirming recent reports that ESPN was advancing significantly on a new deal. He also lauded the league’s long-term trajectory, saying “this is a sports product with growth ahead of it, with great demographics. We feel really good about the potential package that we will end up with, basically enabling ESPN to continue to shine in the television sports business.”
  • The CEO also touted the continued value of ESPN in a rapidly changing media landscape, and in particular lauded the power of the live programming it offers. “There’s nothing like ESPN in the sports world and their hand is solid for the next decade,” Iger said. 
  • ESPN will be featured by the end of the year on a tile within Disney+, with it providing access to select live games and studio programming to U.S. subscribers. That presence with Disney+ also represents something of a precursor to the availability of a full DTC version of ESPN that will debut in the fall of 2025. “It’s a start of essentially conditioning the audience on Disney+ and Hulu that sports are going to be there,” Iger said. Once that full DTC version of ESPN arrives, ESPN+ will be embedded within the flagship product for those subscribers but also will still be offered separately. 

Password Crackdown

Disney plans a crackdown on streaming subscription password sharing, not unlike the similar process recently pursued by chief rival Netflix. Iger praised Netflix’s efforts in this area and called that company a “gold standard” in streaming. 

“We feel quite bullish about [the password effort],” Iger said. “Obviously, we’re heartened by the results that Netflix has delivered in their password sharing initiative, and believe that it will be one of the contributors to [financial] growth.”

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