Disney, the global entertainment conglomerate, is pivoting its business away legacy offerings and focusing sharply on its direct-to-home businesses. In the third quarter of its financial year, the company, which owns 21st Century Fox, Marvel and ABC announced that it was following rapidly changing consumer preferences and shifting investments into units such as Disney+, Hulu and ESPN, even as it is shuttering some 20 traditional channels, mostly in APAC and EMEA.
In a post results analyst call, the company announced its subscriber numbers across these platforms had crossed 100 million worldwide. Of these Disney+ alone had crossed 60.5 million subscribers, the firm announced, far exceeding its own expectations.
Disney announced a further international expansion for Disney+ with forays into Nordics, Belgium, Luxembourg and Portugal in September, and in Latin America this November. Its other hybrid brand, Disney+ Hotstar will be launched on September 5 in Indonesia. By year-end, Disney+ will be available in nine of the top 10 economies in the world. As a sign of its intent and investment, Disney has announced it will take the Mulan action-adventure movie directly on Disney+ in September this year.
Disney+ has performed better than expected since its launch in November 2019 Keeping pace with this sharp direct-to-consumer shift, Disney plans to launch an international direct-to-consumer general entertainment offering under the Star brand in calendar year 2021. Rather than use its Hulu brand, which is strong stateside, Disney has opted to go with its Star brand, which has greater international appeal and content licenses.
Disney’s executives made a hard sell of the firm’s direct-to-consumer intentions. “Despite the ongoing challenges of the pandemic, we’ve continued to build on the incredible success of Disney+ as we grow our global direct-to-consumer businesses,” Bob Chapek, chief executive officer, The Walt Disney Company said. “The global reach of our full portfolio of direct-to-consumer services now exceeds an astounding 100 million paid subscriptions — a significant milestone and a reaffirmation of our DTC strategy, which we view as key to the future growth of our company.”
Building out the direct-home pivot will be a costly affair for Disney. The company has announced a $5 billion impairment as it transitions its focus, but also saw its losses widen by $140 million this quarter as it invested in content for these new Disney+ offerings, even if some costs were absorbed by improvements in ESPN and Star, the company’s senior executive vice president and chief financial officer, Christine McCarthy announced on a call with analysts.
“At Star, higher results reflect lower programming costs, partially offset by lower advertising revenue,” she noted. “Both of these drivers reflect the absence of cricket in the third quarter including a shift in rights costs for the Indian Premier League which we expect to be recognised in future quarters and the absence of costs for the quadrennial ICC World Cup which aired in the prior-year quarter.” The pullout of Chinese smartphone brand Vivo as the lead sponsor for the IPL and shift of the tournament to the UAE could also dampen this year’s numbers.
The shift to direct-to-consumer will only partially offset a rough quarter for Disney. Revenues for the quarter were down 42% to $11.7 billion compared to $20.2 billion last year, even as operating dived 72% to just over a billion dollars from nearly $4 billion in the same time frame.
With the pandemic taking hold and keeping consumers home and advertisers slamming their wallets shut, key businesses, both the parks and studios businesses were severely impacted, with revenue falling 55 and 85% for the quarter respectively. In such a dire environment, the direct to consumer and international segment grew its topline, even if profits were down.
Disney tried to put a lid on costs and spending to stem the red across its balance sheet. For example, in the cable networks business, while revenue fell by 10% for the quarter, profits rose by 50% as the company pared costs and saw some higher affiliate revenue from units such as ESPN.
The deep impact of the pandemic on Disney’s numbers were perhaps most evident in its parks and recreations business, most of which were shuttered, with some like its Hong Kong one opening up, only to be forced to close due to a third wave. The company noted that the adverse impact of COVID-19 on this segment’s operating income was $3.5 billion.