Hulu operating loss off the charts, big concerns for Disney+

With two weeks to go until Disney’s next set of financial filings fly out the door, the company has inexplicably decided to release results for never-before-seen activities. The surprise disappointment was Hulu, which doesn’t bode well one bit in anticipation of the launch of the Disney+ streaming service later this year.

But then, just days later and seemingly against all logic, Hulu dropped its subscription price by $2 to just $5.99 a month. It sounds suicidal, yet last week we implored every man and his dog to initiate an aggressive marketing campaign following Netflix’s price hike, if the SVoD leader is to come under any legitimate competitive pressure.

Breaking out figures for the first time has provided an unexpected insight into Disney’s newly formed Direct-to-Consumer Business unit, revealing that Hulu incurred a $469 million operating loss for 2018 – ballooning by 388.5% year on year. This is despite revenue growth of 22% to $1.5 billion for the whole D2C sector, of which Hulu accounts for the lion’s share. But with Disney soon to own 60% of the streaming outfit through its purchase of assets from 21st Century Fox, Disney would inherit an even higher operating loss and the studio’s board will be greatly concerned about a repeat situation at Disney+.

That said, Disney is expected to consolidate Hulu in some form or another and has promised to deliver more information on the future of Hulu and Disney+ at the Disney Investor Day on April 11 – when it will also show a debut demo of Disney+ and a first-look at its slate of original content.

So, what to expect? Well, just a fortnight ago, Hulu posted impressive 2018 figures with a 48% increase in subscribers, its best year ever, to reach the 25 million subscriber milestone. The advertising arm was also a resounding success, growing its user base by 50% year on year to boost revenue for the year by 45% – so the arrival of the service’s damning operating income this week was met with disbelief. The onus could therefore be on scrapping Hulu’s subscription tier in favor of an advertising-only model, so as not to step on the toes of Disney+.

However, Bob Iger begs to differ with our conclusion of Hulu’s shaky financials not boding well for Disney+, claiming everyone should look at the success of ESPN+ as a more fitting comparison, as the sports streaming service surpassed one million subscribers in its first five months. He says this despite Hulu and Disney+ both being entertainment-focused and ESPN+ centering around sports. Iger also hailed BAMTech for aiding ESPN+’s performance, with the streaming technology vendor allowing Disney to quickly enter the direct to consumer space following its acquisition of a majority controlling stake in 2017.

As for the exclusive content rolling out on Disney+, the portfolio includes the first-ever live-action Star Wars series, The Mandalorian; an original series based on Disney Channel’s High School Musical; an animated series based on Pixar’s Monsters, Inc. franchise; a new season of the Star Wars animated series, Clone Wars; a live-action version of the animated classic Lady and the Tramp; and a number of original docu-series. A live-action Marvel series starring Tom Hiddleston, a second Star Wars series starring Diego Luna, and other high-profile projects are also in development.

“The ability to connect directly with millions of Disney, Pixar, Marvel, and Star Wars fans creates tremendous opportunities for growth. In addition to leveraging our existing IP in new ways, we’re making significant investments in original content exclusively for Disney+, creating an impressive pipeline of high-quality movies and series we believe will make the streaming service even more compelling for consumers,” added Iger.