Disney+ adds 12 million subscribers, beating expectations

Disney emphasized Tuesday that profitability for its flagship streaming service was on the horizon. But the company’s quarterly results did little to instill confidence, with better-than-expected Disney+ subscriber growth, particularly in North America, offset by widening financial losses for Disney’s direct-to-consumer division as a whole.

Bob Chapek, Disney’s CEO, added a qualifier to his latest assertion that Disney+ would turn a profit by September: “assuming we do not see a meaningful shift in the economic climate.”

Disney+ added an impressive 12.1 million subscribers worldwide in the quarter that ended Oct. 1, including 1.9 million in the United States and Canada, lifting its total subscriber count to 164.2 million. Analysts polled by FactSet had expected the service to add 8.8 million customers worldwide. Michael Nathanson, a leading media analyst, had expected Disney+ to increase its domestic base by as little as 500,000.

“Hocus Pocus 2” was a monster hit for Disney+ in the quarter. “She-Hulk: Attorney at Law” also performed well, according to Nielsen viewership data.

Disney now has more than 235 million subscribers across its streaming portfolio, which includes Disney+, ESPN+ and Hulu. To compare, Netflix said last month that it had 223 million subscribers after it reversed a decline by adding 2.4 million in the quarter.

Disney’s direct-to-consumer unit racked up $1.5 billion in losses in the quarter, up from $630 million in the same period a year ago. Disney said that higher Disney+ production, marketing and technology costs contributed to the “peak” losses in the most recent quarter.

“We expect our DTC losses to narrow going forward,” Chapek said, noting that costs were being “realigned” and the price of a monthly subscription for the current ad-free version of Disney+ was going up. Starting on Dec. 8, such subscriptions will cost $11, up from $8, a 38% increase. A new, ad-supported option will remain $8. Insider Intelligence, a research firm, has estimated that Disney+ could generate $1 billion in ad sales in 2023.

Production and marketing costs also dented Hulu, which expanded its global subscriber base by 1 million, to 47.2 million. In contrast, ESPN+ financial results improved, in part because of higher advertising sales; ESPN+ added 1.9 million subscribers, for a new total of 24.3 million.

In terms of average revenue per paid subscriber, a metric closely watched by investors, Disney+ declined in North America (to $6.10 from $6.81) and increased in most markets overseas (to $5.83 from $5.62). The decline in North America was because of a larger number of subscribers from Disney’s discounted “bundle” offering that includes Disney+, ESPN+ and Hulu.

In total, Disney generated $20.15 billion in revenue in the quarter, a 9% increase from a year earlier. Analysts had expected $21.3 billion.

Profit totaled $162 million, or 9 cents a share, roughly flat from a year earlier. Excluding items affecting comparability, per-share profit for the most recent quarter was 30 cents. Analysts had expected closer to 50 cents.

Disney has primarily relied on revenue from its theme parks to fund the construction of Disney+ and to pay down debt incurred during the height of the pandemic, when almost all Disney businesses were shut down. So far, that bet is paying off: Disney’s domestic theme park resorts were jammed in the quarter, and spending on food and merchandise soared.

Revenue at Disney Parks, Experiences and Products totaled $7.43 billion, a 36% increase from a year earlier, despite continuing coronavirus restrictions at Shanghai Disneyland and the closure of Walt Disney World in Florida for a time because of Hurricane Ian. Operating profit more than doubled, to $1.5 billion, in part because Disney cruise ships were sailing again.

But analysts and investors are worried about a deteriorating U.S. economy.

“A looming recession could dampen near-term demand” for theme park vacations, Macquarie analysts Tim Nollen and Max Schmitt told clients Oct. 31. “We are hopeful that a mild recession, if unemployment does not spike and consumers continue to absorb inflationary pressures, might not be nearly as bad this time as in 2009.”

Disney has expressed its confidence by continuing to increase prices for tickets and line-shortening privileges. Price increases were introduced last month, making a single-day ticket at Disneyland in California cost as much as $179 over the Christmas period, up from $164 in 2019. Access to the Genie+ line-shortening system will add at least $25 per person, up from $20.

This article originally appeared in The New York Times.