Disney's streaming biz turns the corner

Disney's overall streaming business has finally landed in the black... and it achieved that financial milestone about a quarter earlier than the company anticipated.

Disney's combined direct-to-consumer (DTC) streaming business, including Disney+, Hulu and ESPN+, posted a fiscal third-quarter profit of $47 million versus a loss of $512 million in the year-ago period. Disney had expected its DTC business to turn the corner in its fiscal Q4 of 2024.

With sports taken out of the mix, Disney's entertainment DTC business (Disney+ and Hulu) posted a fiscal Q3 loss of $19 million, a vast improvement from a year-ago loss of $505 million.

DTC revenues rose 15% to $6.37 billion. Meanwhile, Disney's linear networks unit within its entertainment business continued to take on water as revenues there dropped 7% to $2.66 billion.

Disney attributed improvements in its streaming business to increases in pricing, sub growth at Disney+ and Hulu, and stronger advertising revenues at both Disney+ and Hulu.

More price hikes coming

Disney stands to see more financial improvements at its streaming business in quarters to come. On Tuesday, Disney revealed that monthly and annual subscriptions for Disney+, Hulu and ESPN+ will rise starting October 17. For example, the ad-supported Disney+ service will rise by $2 to $9.99 per month and the ad-free tier of Disney+ will also rise by $2 to $15.99 per month.

Related:Disney hikes some streaming prices, eyes crackdown on password-sharing

Pricing on Hulu's subscription VoD tiers are also set to climb – the ad-supported tier is rising by $2 to $9.99 per month, and the ad-free plan is rising by $1 to $18.99 per month. Pricing on the Hulu + Live TV tiers are also going up.

This wave of price hikes arrives roughly a year after Disney raised pricing for the standalone premium (ad-free) tiers of Disney+, Hulu and ESPN+.

Disney also stands to profit from its plan to crack down on password sharing. Those policies will be launched "in earnest" this September following an initial rollout in select countries in June, Disney CEO Bob Iger said on this morning's earnings call.

Disney ended the period with 118.3 million Disney+ "core" subscribers (up 1% year-over-year), a group that excludes customers of the Disney+ Hotstar service offered in India, Malaysia and Thailand.

Hulu ended the quarter with 51.1 million subs (up 2% versus the year-ago quarter), comprised of 46.7 million SVoD subs and 4.4 million Live TV+ SVoD customers.

Disney might have to pay $5B more for Comcast's Hulu stake

Though the financial strength of Disney's overall streaming business is improving, Disney might need to shell out a few billion more to acquire NBCU's 33% stake in Hulu.

Related:Disney CEO says streaming can be a 'growth business'

In December 2023, Disney paid $8.61 billion to Comcast to cover one-third of a $27.5 billion guaranteed floor value for Hulu established in a 2019 agreement between Disney and Comcast/NBCU.

However, the final price could rise following an appraisal process for Hulu. If Hulu's equity fair value is determined to be higher than the guaranteed floor value, Disney is required to pay Comcast/NBCU its share of the difference between the equity fair value and the guaranteed floor value.

Disney and Comcast are currently in a confidential arbitration to resolve a dispute regarding the contractual appraisal process, with an expectation that a decision will be made in 2025.

However, Disney noted in a 10-Q filing today that if NBCU's appraisal was determined to be valid and the third appraiser's equity fair-value determination was "consistent with NBCU's appraiser's valuation," Disney would be on the hook to pay NBCU up to an additional $5 billion to cover the difference between the equity fair value and the guaranteed floor value.

But it's still too early to know exactly how it will shake out.

"The outcome of the arbitration is uncertain and we cannot reasonably estimate the impact of the arbitration on the appraisal process, and thus any impact on the determination of Hulu's equity fair value and any additional amount we may be required to pay to acquire NBCU's interest in Hulu," Disney said in the filing.