Disney has unveiled its plan to boost profitability by increasing streaming prices and cracking down on password sharing. The entertainment giant reported a significant drop in net income for its fiscal 2023 third quarter, prompting the company to take action in order to turn its overall direct-to-consumer business profitable by 2024.
While Disney has seen a decline in income, it still reported a net income of $2.696 billion in the first nine months of fiscal 2023. However, this is lower than its earnings of $3.299 billion during the same period last year. In an effort to reverse the trend, Disney is focusing on its studios, theme parks, and its streaming service, Disney+.
The company has faced challenges in its streaming business, losing $512 million on its direct-to-consumer services, including Disney+, ESPN+, and a portion of Hulu, during the third quarter. However, this is a marked improvement from the $1.061 billion loss reported for the same sector last year. To achieve profitability, Disney plans to raise prices and crack down on password sharing, taking inspiration from Netflix, which recently cut subscription sharing to improve its own financial standing.
In addition to these measures, Disney aims to integrate its ESPN properties further into its direct-to-consumer strategy. According to CEO Bob Iger, bringing ESPN flagship channels directly to consumers is not a matter of if, but when. The recent announcement of a $2 billion deal with Penn Entertainment Inc. to rebrand its sports betting services using the ESPN brand is evidence of Disney’s commitment to leveraging ESPN to drive profitability.
While the company has made progress in its streaming efforts, it is not without challenges. Ongoing writers and actors strikes have impacted Disney’s productions and the pipeline for programming and theatrical releases. Extended work stoppages could further hinder Disney’s ability to produce, distribute, or license content, resulting in reduced revenue and a negative effect on profitability.
Despite these challenges, investors responded positively to Disney’s third quarter earnings report, with the stock price increasing. Analysts from Wells Fargo, Deutsche Bank, Truist Financial, and Morgan Stanley are optimistic about Disney’s prospects moving forward, their positive outlook reflected in their buy ratings for the company’s stock. However, industry experts at KeyBanc Capital Markets have a more tempered outlook, citing concerns about Disney’s price hikes potentially hindering subscription growth.
As Disney continues to navigate the evolving landscape of streaming and adjust its pricing strategy, its success will heavily rely on its ability to monetize content, attract and retain subscribers, and increase its direct-to-consumer profit margin. With costs reductions and strategic shifts in focus, Disney aims to achieve profitability by the end of 2024, positioning itself for long-term growth and success in the increasingly competitive streaming market.
