Disney plans DTC content cuts & combined Disney+ & Hulu app as streaming losses slow

The Mandalorian

Disney is to launch a combined Disney+ and Hulu app by the end of the year, and plans to pull content from its DTC services, with the company having reduced its streaming losses, but not its subscriber declines, in Q2 2023.

CEO Bob Iger announced the plans to place Disney+ and Hulu content on to one streaming app during the company’s second quarter earnings call, calling it a “logical progression of our DTC offering”. Disney+, Hulu and ESPN+ will also continue to be available as standalone services.

Iger added that the Mouse House will be “rationalising” the quantity and investment of its streaming content, and that DTC service pricing will be increasing.

CFO Christine McCarthy, meanwhile, revealed that Disney will be pulling content from its streaming services in a review to “align with the strategic changes in our approach to content curation.” McCarthy said that Disney is expecting to swallow a content impairment charge of between $1.5bn and $1.8bn in relation to such content cuts.

“Going forward, we intend to produce lower volumes of content in alignment with this strategic shift,” she told investors.

Bob Iger

Bullish on general entertainment

Iger also revealed during the call that Disney had shared “cordial” and “constructive” conversations with Comcast about acquiring its one-third stake in Hulu.

Asked in March about the possibility of taking full control of the Under The Banner Of Heaven streamer, Iger said that “we want to understand where it could go” before any decisons were made. Returning to the question here, he told investors: “I mentioned at the first earnings call that I did after I came back that everything was on the table. And, in fact, everything was on the table. But I’ve now had another three months to really study this carefully and figure out what is the best path for us to grow this business.

“I can’t really say where [that will] end up, only to say that there seems to be real value in having general entertainment combined with Disney+. And if, ultimately, Hulu is that solution, we’re bullish about that.”

Comcast has a 33% stake in Hulu, while Disney took the remainder following its acquisition of 20^th Century Fox. Under a deal struck in 2019, Comcast can force Disney to buy its stake in the streamer in early 2024, or Disney can force Comcast to sell the stake.

The put-call agreement will require an independent valuation, but guarantees a minimum of $27.5bn, which means that if Disney were to buy Comcast’s stake to take full ownership, then it would set them back at least $9bn.

Meeting expectations

The announcements came following the company’s Q2 2023 results, which saw Disney reduce its streaming losses in the last quarter by around $200m, though subscriber numbers are still in decline.

Flagship The Mandalorian streamer Disney+ closed the quarter on 1 April with a 2% drop to 157.8 million global subscribers, down by 4 million from 161.8 million in Q1. The biggest declines came from an 8% decrease in subscribers at Indian OTT service Disney+ Hotstar. Wall Street had predicted a small increase of less than 1% to 163.17 million subs. Among the losses were around 600,000 US subscribers.

Disney DTC losses were less than anticipated, however, with Disney reporting a loss of $659m during Q2, faring better than the projected $841m. Revenue for this segment was up 12% to $5.51bn, with Disney pointing to lower operating costs due to improved results for Disney+ and ESPN+.

Average revenue per user for Disney+ rose from $5.95 to $7.14, due to the recent pricing increase and the launch of the streamer’s ad-supported tier.

Disney’s linear networks meanwhile saw a 7% drop in revenue to $6.6bn, with operating income dropping by 33% to $1.6bn.

Overall, the Mouse House posted revenue and profit in line with Wall Street expectations, with total revenue standing at $21.82bn against the projected $21.78bn.