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Disney Reports 4Q Loss Despite Streaming Gains

The Child in Disney Plus's 'The Mandalorian'
(Image credit: Disney)

The Walt Disney Co. reported a loss in its fiscal fourth quarter as the COVID-19 pandemic pounded its theme park business.

The company, which has pivoted its media business towards streaming, reported a narrower loss for its direct-to-consumer business, and growth in its streaming brands.

At the end of the quarter, Disney Plus, which launched a year ago, had 73.7 million subscribers. That was up 16 million from the end of the third quarter.

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ESPN Plus had 10.3 million subscribers, up from 3.5 million a year ago and Hulu had 36.6 million subscribers, up 28% from a year ago. Hulu had 32.5 million SVOD subscribers, up 27% and 4.1 million Live TV plus SVOD subscribers, up 41%. 

Disney’s third quarter loss was $710 million, or 39 cents a share, compared to net income of $1.054 billion, or 58 cents a share a year earlier.

Revenue fell 23% to $14.7 billion.

The company said it will not be paying a dividend in January. 

“Even with the disruption caused by COVID-19, we’ve been able to effectively manage our businesses while also taking bold, deliberate steps to position our company for greater long-term growth,” said CEO Bob Chapek. “The real bright spot has been our direct-to-consumer business, which is key to the future of our company, and on this anniversary of the launch of Disney Plus we’re pleased to report that, as of the end of the fourth quarter, the service had more than 73 million paid subscribers – far surpassing our expectations in just its first year.”

Operating income for Disney’s Media Networks business was up 5% to $1.864 billion as revenue rose 11% to $7.213 billion.

Cable network operating income was down 7% to $1.163 billion despite an 11% increase in revenue to $4.721 billion. The company said the decrease in operating income was due to lower results at ESPN, partially offset by increases at FX Networks and the domestic Disney Channels.

ESPN was hurt by higher programming and production costs that moved into the fourth quarter because of later NBA and MLB programming. Affiliate  and advertising revenue was up. Advertising and affiliate revenue were helped by having an extra week in the quarter. 

ESPN ad revenue was up 26% in the fourth quarter, including the additional week. The company said that so far this year, ESPN's linear advertising was pacing lower, but it expected it to finish the quarter up. 

ESPN affiliate revenue was up 12%, because of higher rates and the extra week. Subscribers were down by 4%

FX’s operating income was helped by lower programming and production costs. Disney Channels gains came from sales of library titles to Disney Plus.

Broadcast operating income rose 47% to $553 million as revenues rose 10% to $2.492 billion. 

Disney’s Direct-to-Consumer & International segment had an operating loss of $580 million, down from $751 million a year ago. Revenues were up 41% to $4.853 billion.

The company said the smaller loss came from improved results at Hulu and ESPN Plus, offsetting higher costs at Disney Plus. ESPN Plus had higher income from UFC pay-per-view events.

 Looking ahead to the fourth quarter, Disney CFO Christine McCarty said.ESPN’s first-quarter results will be impacted by higher rights and production costs, due to the shift of four NBA finals games and three additional college football playoff games into the quarter. That will be offset by the expected delay to the start of the next NBA Season.

“We expect the Q1 operating results of our DTC businesses to decline by approximately $100 million relative to the prior year quarter. driven by continued investment in Disney plus, partially offset by improved results at both ESPN plus and Hulu,” she said.