Disney's 'significant transformation' zeroes in on streaming profitability

In his first earnings call since returning to the helm of The Walt Disney Company, CEO Robert Iger outlined a "significant transformation" that will strive to grow Disney's streaming business with a major focus on profitability.

At a high level, Disney is being divided into three core business segments: Disney Entertainment; ESPN and Disney Parks; and Experiences and Products.

Robert Iger has been making big changes since returning as Disney's chairman and CEO.  
(Source: Imaginechina Limited/Alamy Stock Photo)
Robert Iger has been making big changes since returning as Disney's chairman and CEO.
(Source: Imaginechina Limited/Alamy Stock Photo)

The new structure "is aimed at returning greater authority to our creative leaders and making them accountable for how their content performs financially," Iger said Wednesday on the company's fiscal Q1 2023 call.

The transformation, he added, "rationalizes our enviable streaming business and puts it on a path to sustained growth and profitability while also reducing expenses to improve margins and returns and better positioning us to weather future disruption, increased competition, and global economic challenges."

Iger said Disney will take a closer look at the volume of content and lean into the company's core franchises and brands, such as Marvel, Pixar and Star Wars, and less so general entertainment programming.

In addition to the reorganization of the business segments, Disney is targeting about $5.5 billion in cost savings across the company. That includes non-content costs of about $2.5 billion, a move that involves cutting around 7,000 jobs – about 3.2% of Disney's global workforce.

Profitability trumps sub growth

Iger also said Disney will no longer provide long-term subscriber guidance, though growth remains a goal. Subs aside, the current forecast is to see the Disney+ streaming service hit profitability by the end of fiscal 2024.

Iger believes Disney got caught up in a "global arms race for subscribers." In turn, sub growth became "the primary measurement of success not only here in the company, but among those in the investment community. And in our zeal to go after subscribers, I think we might have gotten a bit too aggressive in terms of our promotion and we are going to take a look at that."

Streaming subscriber growth was elusive for Disney+ in fiscal Q1 on the global level. The service lost a net 2.4 million subs, the first time it shed customers since launching in November 2019. The overall loss is due to a loss of 3.8 million subs at Disney+ Hotstar, a service focused on India, Malaysia and Thailand that carries a lower average revenue per user (ARPU) than Disney+ does in other markets.

However, Disney+ added about 200,000 subs in the US and Canada, for a total of 46.6 million. Hulu's Live-TV + streaming video on demand (SVoD) service added 100,000 subs, for a total of 4.5, while its SVoD-only offering added 700,000, for a total of 43.5 million. ESPN+ tacked on another 600,000 subs, extending its total to 24.9 million.

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— Jeff Baumgartner, Senior Editor, Light Reading

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