While headlines the world over have been busy blowing smoke up Disney in recent months, the company’s first quarter results filing tells a very different tale.
Unless you live in a cave, everyone will be well aware that Disney+ arriving on the SVoD scene was closely followed by global stay at home orders – triggering an unforeseen influx of subscribers to the new streaming service. Many industry outlets misconstrued this for a stroke of launch-timing genius, lapping up facts and figures laced with misleading ideas.
Disney this week reported 33.5 million paid Disney+ subscribers as of March 28, 2020. But hang on, just days later on April 8, Disney reported 50 million paid subscribers, meaning 16.5 million new subscribers in just 11 days – or 1.5 million a day. And then, during this week’s earnings call, Disney executives boasted about reaching 54.5 million paid subscribers, signaling a significant slowdown of 4.5 million subscribers over the next 27 days – averaging 167,000 new users daily over this period.
Remember, the company ended December 2019 with 26.5 million subscribers to Disney+, which would mean only gaining 7 million subscribers in total during Q1, despite lockdowns being implemented in mid-March in the US and much of Europe.
Something stinks about the way Disney counts its video streaming user base. Perhaps the company chooses not to include the pile of subscribers at the Indian Disney+ Hotstar venture in its official results filing, or the various operator bundle deals, but is more than happy to include these numbers when waxing lyrical about subscribers when it knows the world is listening. Nevertheless, we reached out to Disney for clarification on its counting mechanisms and will report any updates upon hearing back.
Another elephant in the the House of Mouse is streaming spend, which has long been a blackspot on Disney’s financial resume. Subscriber uptake for the new video streaming platform may have blown all forecasts out of the water, but at the cost of $812 million in operating loss for the first quarter, more than doubling from the $385 million operating loss incurred during Q1 2019.
Of course, scaling out the platform hard and fast to take maximum advantage of the crisis keeping billions of people at home was a mission that had to be carried out, even if associated costs were an afterthought. However, there is absolutely no way Disney can register a profit from a service costing $6.99 a month, which is why Faultline has reiterated the importance of Hulu and ESPN+ to the cause – particularly when sold as a bundle.
Higher spending on technology to support D2C services also drove capex up from $2.4 billion to $2.6 billion in the quarter.
In Disney’s other D2C video steaming operations, ESPN+ reached 7.9 million subscribers at the end of Q1 2020, rising from 2.2 million this time last year, while Hulu now has 32.1 million subscribers, adding 6.9 million. From Hulu’s total base, 28.8 million are SVoD only, up 4%, with an additional 3.3 million taking Live TV, up 65%.
While Disney+ stole the limelight, Hulu might be the real star of the show in Q1. Faced with a daunting absence of live sports, ESPN stepped up to the plate by transforming the NFL draft into a virtual event – bringing in a record audience of over 55 million viewers over the three-day event. Disney praised the draft as an impressive technological feet driven by more than 600 remote camera feeds from homes across the US.
ESPN also released a 10-part docuseries on Michael Jordan two months early – storming to become ESPN’s most viewed documentary.
New CEO Bob Chapek also provided an update on taking Hulu overseas. “Given everything that’s happening, you can make an argument either away. Frankly, long-term, we are still bullish about Hulu international. Right now though, given the cash situation and the sort of uncertainty around our overall business, we’ve got no plans immediately to make any investment in that business internationally,” said Chapek.
Concerns about the severity of impact on Disney’s Studio Entertainment segment during Q1 became apparent. Operating income was lower in the quarter as higher TV and SVoD distribution results at Disney’s legacy film studio were more than offset by higher film impairments, lower worldwide theatrical distribution results at the legacy film studio and a decline in the stage play business due to the impact of Covid-19.
Disney’s Q1 highlight reel also included revenues from Direct to Consumer and International operations reaching $4.1 billion, a staggering increase from $1.1 billion a year earlier.