Disney+ establishes cost structure task force, adopts targeted hiring freeze: memo
Disney ( DIS ) is reining in spending after the company reported weak fourth-quarter results, sending the stock to a new 52-week low as investors factored in the media giant’s mounting streaming losses.
In an internal memo obtained by Yahoo Finance, Disney CEO Bob Chapek told division executives on Friday that the company has established “a cost structure task” to help Disney+ meet its profitability goals.
“As we enter fiscal year 2023, I want to communicate directly with you about the cost management efforts Christine McCarthy and I referenced on this week’s earnings call,” the note said. “These efforts will help us both achieve the important goal of achieving profitability for Disney+ in fiscal year 2024 and make us a more efficient and agile company overall. This work is happening against a backdrop of economic uncertainty that all companies and our industry struggling with.”
The task force, which includes Chapek, along with Disney CFO Christine McCarthy and general counsel Horacio Gutierrez, “will make the critical decisions necessary to achieve our goals.”
In an effort to cut costs, the executive revealed that the media giant has “undertaken a thorough review of the company’s content and marketing costs” and will “limit headcount through a targeted hiring freeze.” Redundancies are also on the table.
“We expect some staff reductions as part of this review,” Chapek noted in the memo, adding that the task force has already conducted a thorough review of the company’s content and marketing costs.
“I am fully aware that this will be a difficult process for many of you and your teams,” the note said. “We have to make tough and uncomfortable decisions. But that’s exactly what leadership requires, and I thank you in advance for stepping up at this important time.”
Disney+, Hulu and ESPN+ lost a combined $1.5 billion in the fourth quarter after losing $1.1 billion in the third quarter. Average revenue per user for Disney+ also disappointed, falling to $3.91 (vs. estimates of $4.29) amid a negative currency impact and a larger subscriber mix.
Management said it expects streaming losses to shrink by about $200 million in the first fiscal quarter of 2023 before profitability in fiscal 2024. The company will roll out its $7.99 ad-supported tier in December, a month after the long-awaited debut of Netflix. ad option.
Despite mounting losses, Disney+ saw net subscriber additions rise to 12 million in the fourth quarter, beating expectations of just over 9 million. The pace came after the company reported an increase in subscribers in the third quarter (14.4 million) following new market launches and robust content.
The media giant warned that it expects growth in its core Disney+ subscribers as well as the number of subscribers to Indian service Hotstar to be lower in the first quarter of next year. Content spending is expected to be in the order of $30 billion for all of 2023.
“Our company has faced many challenges during our 100-year history, and I have no doubt that we will achieve our goals and create a more agile company that is better suited to tomorrow’s environment,” Chapek’s note concluded.
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