The Walt Disney Company is entering a new era as streaming services become a major focus of its business strategy. In the second quarter, Disney’s streaming units, including Disney+, Hulu, and ESPN+, nearly turned a profit, losing only $18 million compared to a loss of $659 million a year ago. In fact, when excluding ESPN+, Disney+ and Hulu actually made $47 million in the quarter, as opposed to losing $587 million in the same period last year.
This shift towards streaming reflects a larger trend among legacy media companies, who believe that streaming will eventually replace cable TV as the primary source of revenue. In response to this belief, companies like Disney, Paramount Global, Warner Bros. Discovery, and Comcast’s NBCUniversal have all launched their own subscription streaming services. While this transition has not fully taken place yet, the second quarter results indicate that the moment is approaching.
One reason for this shift is that traditional linear TV results for Disney were disappointing. In the past, Disney had withheld ESPN from streaming platforms in order to maintain its profitability within the cable bundle. However, with declining cable subscribers and rising programming costs, Disney has decided to make ESPN available outside of traditional cable. In the fall, Disney will launch a skinnier bundle of linear cable channels with Warner Bros. Discovery and Fox, and next year, it will launch its flagship ESPN streaming service that allows consumers to subscribe to ESPN without a cable subscription.
Looking at the second quarter results, it becomes clear why Disney has made this move. While ESPN’s revenue increased by 3% to $4.21 billion, operating income dropped by 9% to $799 million. The decline was attributed to a drop in cable subscribers and higher programming costs related to the College Football Playoff. On top of that, Disney’s other linear networks, such as ABC, Disney Channel, FX, National Geographic, and Disney Junior, experienced even more alarming declines. Linear network revenue across Disney’s portfolio, excluding ESPN, fell by 8% to $2.77 billion, and operating income slumped by a significant 22% to $752 million.
These disappointing results highlight the decline of traditional TV. It is evident that consumers are rapidly moving away from this format, which has prompted Disney to prepare for the future of streaming. The company reiterated that streaming will become profitable in the fourth quarter and will be a significant growth driver in the coming years. Disney’s earnings release stated that they expect further improvements in profitability in fiscal 2025.
The success of Disney’s streaming endeavors will depend on its execution in the years to come, as well as the leadership of CEO Bob Iger’s successor. Ultimately, it will be up to investors to embrace this new reality and recognize the potential of Disney’s streaming future.
