After a bumpy fall that saw streaming-subscriber additions and park attendance flatten while share prices plummeted, Disney’s latest earnings suggest the company is very much back in growth mode. The only problem: Disney still has a herd of headaches shambling around, unresolved and perhaps not easily resolvable any time soon.
First, the good news: bell cow streaming service Disney Plus added 11.8 million subscribers in its latest quarter, far above analyst expectations and six times the mediocre numbers of the previous quarter.
Across all four of Disney’s streaming services – Disney Plus, ESPN Plus, Hulu and Hotstar – the company said it now has nearly 130 million subscribers, still far behind the 220 million or so at Netflix, but up 37 percent in just a year. Pretty good, especially given all the analyst estimates it missed so badly earlier in 2021.
Also read: Disney Reports Jump to 196.4 Million Streaming Subscribers
The money side was good too, far exceeding analyst consensus estimates with $21.8 billion in revenue, and $1.06 in adjusted earnings per share.
The numbers were bolstered by the runaway animated hit Encanto, which just picked up three Oscar nominations and nine Annie nominations after a streaming-only debut, and new Marvel series Hawkeye. Importantly, it didn’t just depend on underperforming theatrical releases such as The Eternals to draw consumers in.
As CEO Bob Chapek said in the earnings call, “We do not subscribe to the belief that theatrical is the only way to build a Disney franchise.” How the company lives that strategy in coming months will be crucial to its ability to maximize
The business also isn’t built on just the U.S./Canada market.
India, these days better known as the Happy Hunting Ground for new subscribers for all the big streaming services, has been crucial for Disney’s overall streaming success. For the first time, Disney broke out what the Subcontinent meant for its overall streaming numbers, with Disney Hot Star attracting 45.9 million subscribers, up 57%.
All told, Hotstar’s subs in India and some nearby Asian territories represent about one in five of all Disney streaming subscribers. For investors, the really good news is that Hotstar’s ARPU also was up, by 5%, to a modest $1.03. That won’t buy a lot of Cobb salads at The Grill, but it does add up over this many subs.
For perspective, that means that Disney Plus Hotstar has more subs than Hulu (45.3 million), which has been streaming since 2007. That sounds great, until you realize that Hotstar’s prime position is driven in substantial part by its exclusive rights to India Premier League (IPL) cricket games, which soon will be up for a very expensive renewal.
While IPL is insanely popular with the vast Indian audience, it doesn’t travel well. Yes, there are serious cricket fans in the United Kingdom, Australia, New Zealand, the Caribbean and South Africa, but that’s kind of it.
Will Disney pony up yet more mammoth chunks of cash to keep IPL rights? It won’t do it without serious competition. The newly combined Sony Zee service is just one of several possible contenders to bid for that valuable franchise. Without IPL rights, who sticks around on Hotstar?
Meanwhile, other big questions continue to hover over Disney as Chapek reorients Hollywood’s biggest studio for the future:
> What happens with Hulu? Comcast has signaled that it will begin pulling its shows from Hulu, to spruce up Peacock now that it has decided to invest heavily in its own streaming service.
> Hulu remains locked in North America, while Hotstar continues to expand internationally. What happens with Hulu expansion, if any, and does it get integrated more into the D+/E+/Hulu bundle that Disney has pushed so hard in recent months? Where does skinny bundle Hulu Plus Live TV fit in?
> When will Disney buy out Comcast’s 30% stake in Hulu? The companies signed a deal that require some sort of decision by 2024, for a price that analysts suggest may run as high as $15 billion. When does that happen, and what does that expenditure mean for other content spending?
> And though no one’s paying much attention to ESPN Plus these days, does Disney keep spending billions of dollars on sports rights (including that IPL deal that’ll probably run north of $1 billion for whoever gets it)? How does it make ESPN Plus relevant and compelling?
Those are just the start of questions that linger over Disney’s streaming future, even amid a great quarter (and don’t get me started on what Disney does with ESPN and ABC).
That said, there are plenty of reasons for optimism heading into the new quarter. Among them, Steven Spielberg’s West Side Story remake, fresh off its own seven Oscar nominations, is headed to Disney Plus in early March, just in time for awards voting, and Pixar’s Turning Red should keep families around, despite existential grumbling among Pixar fans. That should grab some group of subscribers, or keep others around during awards season.
The company also just tried out its first test of live streaming an event in the United States. That doesn’t mean Disney Plus is headed to Twitch territory, but it does suggest future opportunities. The actual live-streamed event was the announcement of nominations for this year’s Oscars, which will be on Disney’s ABC network next month.
It’s not hard to see where live streaming – with sports, news, awards shows and other events – could be a new set of opportunities for Disney Plus, especially given the synergy opportunities with corporate cousins ABC and ESPN.
And more generally, it’s clear investors are feeling a lot better about Disney’s prospects than they did just a couple of weeks ago. Given how Chapek has played a very complicated hand since taking over weeks before the pandemic lockdown hit, that’s to his credit.
But he still must make big decisions about Hulu, ESPN Plus and much else. If you’re an investor, this is going to be, if not a white-knuckle ride, one that’s going to need a lot of attention for years to come.
