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Disney+ is beating subscriber expectations, but this growth comes at a cost

Disney+ is beating subscriber expectations, but this growth comes at a cost

New York
CNN Business

Disney’s fourth quarter earnings were a mix of good and bad news for the company.

The good: the company added 12.1 million new Disney+ subscribers, for a total of 164.2 million global subscribers, beating Wall Street expectations.

The bad: Disney missed estimates for other aspects of the business, including revenue. More importantly, the streaming business has been costly. It lost $1.5 billion in the quarter, compared with a loss of $630 million in last year’s fourth quarter.

Revenue for the quarter was $20.1 billion, up 9% from last year. However, analysts were expecting more than $21 billion. The result was 162 million dollars, which was up 1% compared to last year.

The results sent Disney shares down about 10% in after-hours trading.

“The rapid growth of Disney+ in just three years since its launch is a direct result of our strategic decision to invest heavily in creating incredible content and rolling out the service internationally,” Disney CEO Bob Chapek said in a letter to investors on Tuesday . “We expect our [direct to consumer] the operating deficit must be reduced going forward.”

Chapek added that the streaming unit will still “achieve profitability in fiscal year 2024.” However, he added an important caveat to this promise, saying “assuming we don’t see a meaningful shift in the economic climate.”

“By adjusting our costs and realizing the benefits of price increases and our Disney+ ad-supported tier coming December 8, we believe we will be on track to achieve a profitable streaming business that will drive continued growth and generate shareholder value well into the future,” he said.

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Disney’s earnings come at a turning point in how investors measure success in the streaming world.

For many years, Wall Street’s focus was on how much and how fast a streaming service could grow. That has changed this year as services like Netflix faced more scrutiny when it comes to profitability.

Disney seems to be under the same microscope.

Growth in the streaming unit was solid this quarter, with a total of more than 235 million subscribers across Disney+, Hulu and ESPN+. Still, the stock fell on Tuesday night because of the magnitude of those losses.

Ultimately, the costs associated with Disney’s streaming efforts were behind the company’s decision to raise prices earlier this year. It’s also introducing a new ad-supported subscription tier to make up for those losses.

The Disney+ premium tier, which comes without commercials, increased by $3 to $10.99 per month, the company announced in August. It is the biggest price increase for the platform since its debut in November 2019.

The new ad plan will debut in the US on December 8 at a price of $7.99 a month. That price point is what consumers paid for Disney+ without the ads.

Elsewhere in Disney’s media empire, the company’s parks, experiences and products division reported revenue of $7.4 billion — up 36% from last year.

That’s impressive considering that coronavirus restrictions have hit Shanghai Disneyland and Disney World in Florida briefly closed due to Hurricane Ian in September.

When it comes to its movies, Disney has a lot to look forward to at the box office. Marvel’s “Black Panther: Wakanda Forever” and “Avatar: The Way of Water,” potentially two of the year’s biggest blockbusters, hit theaters in the next two months.

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