[1/3] A man looks at his phone as he passes by a screen advertising Walt Disney’s streaming service Disney+ in New York City, U.S., November 12, 2019. REUTERS/Brendan McDermid
LOS ANGELES, May 10 (Reuters) – Walt Disney Co (DIS.N) reduced streaming losses by $400 million from the prior quarter but also shed subscribers, the company reported on Wednesday as quarterly earnings landed in line with Wall Street expectations.
Shares of Disney fell 4.4% in after-hours trading.
A price increase and reduced marketing expenses helped improve the performance of Disney’s streaming unit from January through March. The division ended the quarter with an operating loss of $659 million, compared with $1.1 billion in the prior quarter.
At the same time, total subscribers to the flagship Disney+ service dropped by 4 million to 157.8 million.
Most of the defections came from the Disney+ Hotstar offering in India after it lost streaming rights to Indian Premier League cricket matches. Disney also shed 300,000 customers in the United States and Canada, where it raised prices last December.
Analysts had expected Disney would add more than 1 million customers in the quarter, Insider Intelligence analyst Paul Verna said.
Wall Street has been pressuring media companies to make profits from the billions of dollars they have poured into streaming in recent years to compete with Netflix Inc (NFLX.O).
Still, investors appear “fixated on subscriber net additions,” said PP Foresight analyst Paolo Pescatore. “Striking a fine balance between customer acquisition versus financial performance is no easy feat.”
Inge Heydorn, a fund manager at GP Bullhound, said a question for investors is: “are the trade offs from lower marketing costs leading to lower subscribers?”
Overall, Disney’s diluted earnings per share came in at 93 cents, meeting the consensus forecast of analysts polled by Refinitiv. Revenue hit $21.82 billion, slightly above analyst projections of $21.79 billion.
The company’s theme parks kept humming with visitors, with growth at its Shanghai Disney Resort, Disneyland Paris and Hong Kong Disneyland Resort helping lift operating income at the unit by 23% from a year earlier to $2.2 billion.
The entertainment giant plans to expand its streaming offerings by year’s end with a new app that combines the family-friendly Disney+ and the Hulu general entertainment service, Chief Executive Bob Iger said.
The new app will streamline the viewing experience for subscribers and open more opportunities for advertisers, Iger said. An ad-supported option also will be added to Disney+ in Europe by year’s end.
“We’ve only just begun to scratch the surface of what we can do with advertising on Disney+,” Iger said on a conference call with analysts.
Iger, who came out of retirement in November to tackle the company’s challenges, announced a revamp in February that included a promise of eliminating $5.5 billion in costs, partly through 7,000 job cuts.
On Wednesday, Iger said the company would exceed the $5.5 billion figure.
As Disney tries to build streaming, its traditional television business faces hurdles. Operating income at linear networks dropped 35% from a year earlier to $1.8 billion, partly from higher sports programming and production costs related to the College Football Playoffs and the NFL at ESPN, and lower advertising revenue at ABC and at its owned television stations.
Iger addressed the ongoing legal battle with Florida Governor Ron DeSantis, asking if local politicians want Disney to expand its presence in the state.
“The question is, does the state want us to invest more, employ more people and pay more taxes, or not?” Iger said during the company’s investor call.
Reporting by Lisa Richwine and Dawn Chmielewski in Los Angeles
Additional reporting by Chavi Mehta in Bengaluru
Editing by Matthew Lewis
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