THB #154: Disney Day

So Wall Street is giving Disney a pass.

Disney has already eaten a lot of stock market excrement since The Big Netflix Bang™ on April 19, dropping from $131.9 to this afternoon’s pre-release $105.2 close. There really was no clear reason for this 20% drop, aside from investor panic.

I’m not a fan of most charts from most companies, so I redress them a little… but this is all still directly from the Disney charts from this quarter and last.

Focus of this chart is on the content side of the business, not Disney Parks, Experiences and Products. The middle column of figures is this quarter, just announced today (May 1).

So you can see… Linear Networks (good ol’ TV and cable) revenues are down this Quarter, but up from last year. But operating income is way up. Not quite as good as Q2 last year, but a significantly better net over the last quarter (Q1 2022).

Streaming (aka Direct-to-Consumer) is showing its highest revenue ever… but it’s biggest loss in a quarter ever too. Disney says, “Lower results at Disney+ reflected higher programming and production, marketing and technology costs, partially offset by an increase in subscription revenue.”

In the call, they blamed the disconnect on buying out rights to the tune of $1 billion. They should have been focused on clearing Hulu, so they can build it out more aggressively.

Content Sales/Licensing and Other was, as easy expected, was well off of last quarter and even Q2 2021. It would have been up compared to both had they released Turning Red theatrically enthusiastically. But they didn’t. The only release of the quarter was Death on the Nile.

So what about subscribers?

The biggest growth, for the second quarter in a row, was in Disney+ Hotstar, which the company just started separating out from other international sales for Disney+ because it was bringing down the ARPU. Of the 7.9 million total added subscribers for Disney+, 4.2 million were Hotstar. And the already anemic quarterly ARPU for all Hotstar subs dropped from $1.03 to $.76.

Here is what Disney is offering their service for in India…

Disney+ Hotstar (no sub) Free - ad-supported
Disney+ Hotstar Premium $19.36 a year - no ads
Disney+ Hotstar Super $11.61 a year - ad-supported
Disney+ Hotstar Mobile $6.45 a year - ad-supported
Disney+ Hotstar Mobile $2.57 6 months - ad-supported
Disney+ Hotstar Mobile. $.63 per month - ad-supported

As best I can tell, the pricing hasn’t changed since last August, when there was a 100 rupee increase ($1.29 a year) on the highest mobile plan.

Quarterly, we are looking at the highest price at $4.84 and the lowest price at $1.29 for 3 months. So somewhere in there, aside from the new subs, there were old subs lowering their plans for the math on the $.27 a month drop in ARPU to happen.

Disney writes, “The average monthly revenue per paid subscriber for Disney+ Hotstar increased from $0.49 to $0.76 due to launches in new territories with higher average prices and higher per-subscriber advertising revenue, partially offset by a higher mix of wholesale subscribers.”

That ARPU increase is year over year, when there was, in fact, a 26% drop in ARPU for Disney+ Hotstar in the last quarter.

All is fair in love and streaming. But when more than half of your quarterly adds come from a market with a seriously declining ARPU that was already pathetic by the standard of most of your subscribers, you should expect to be called on it. (Haven’t heard anyone else do so yet… nor much mention last quarter. So…)

As for the broader view of the world and subscriptions…

As you can see, 1.5 million domestic Disney + subs. 1 million ESPN+ subs. And .2 million new Hulu SVOD subs. And Hulu Live TV lost 200,000.

Because of how Disney reports, we don’t know how it all played out. My instinct is that Disney+ added .5 million stand-alones and The Bundle added 1 million… which would mean that Hulu SVOD actually lost a million stand-alones that went to The Bundle. But who knows (aside from Disney)?

Obviously, people projecting what would happen with subs didn’t exclude Hotstar, so it isn’t fair to call this a miss. But… aside from 25 cent a month Hotstar, the biggest growth was Disney+ stand-alone internationally, with 2.1 million more subs. And that is just a 5% bump in every non-domestic market they are in.

For me, the story remains, Netflix included, that the rest of the world - which is the only real area of increased profits for all of the streaming companies - is f-ing brutal. A hard slog. Tough. Years to conquer. Not quick like the United States of overpriced entertainment. Serious business.

As for “legacy television” and movie theaters… there is still money there. Streaming will eventually overwhelm legacy television. But not anytime in the next 3 years - 5 years. And as Disney looks to Doctor Strange to add $700 million or more to their top line revenues next quarter, they still seem to be blind to the fact that they are killing the theaters that allow Doc to generate those revenues. This is simple math. Fix it, Bob!

Disney Parks, Experiences and Products. are healthy again and getting healthier. This won’t be changing anytime soon, unless there is another major worldwide pandemic wave.

Disney Media and Entertainment Distribution is two-thirds of the company’s revenues. That isn’t likely to change either… unless Bob & Co blow it.

Because of how Disney counts The Bundle (domestic only), that segment can only be about 20 million subs a year at $14 a month. That’s $3.36 billion a year.

I’ve been trying to deconstruct the revenues from each unique offering that Disney is offering on streaming, but it’s just too complex to be at all sure of an estimation. There are clues, like ESPN+ solo being $7, but the ARPU being $4.73. So obviously, the lower value accruing to ESPN+ as part of the bundle ($4 or less against the $13 bundle) means that it is majority bundle. (If it was an even split the ARPU would be more like $5.17.) But I don’t even know how much Disney accrues to ESPN+, so it becomes a fool’s errand.

Anyway… Disney had a decent quarter. There is nothing new to get excited about, positive or negative.

The sub growth is not impressive. No better, really, than Netflix, which is, of course, working on a much bigger canvas at this moment. Netflix hasn’t chosen possible solutions to India as aggressively as Disney, and it has created a somewhat skewed perspective of the worldwide business. But this is where the international market is right now. And Disney does not deserve to be punished for this. That would just be stupid.

But the stock market is not a friendly place for entertainment companies. Hasn’t been. I keep reminding people of the history, but they don’t want to hear it. Big hit movies do not move stock prices a lot.

Remember when Disney stock exploded after the massive Avengers movies, 2 summers in a row? No. Because it didn’t happen. After Infinity War, the stock went from $101 to $114. Meh. After Endgame, 3 months went from $134 to $142. Meh 2.

During those same 3 month periods, Netflix went from $323 to $343 and from $385 to $318. Better and worse.

Disney’s low in the last 5 years was March 20, 2020. Hello COVID. Their stock high was March 12, 2021. Disneyland announced it would reopen on March 9, 2021. Hmmmm…

I wish that media and market analysts would get more serious about these numbers instead of just running misleading headlines like, “Disney+ adds more subscribers than expected, weeks after Netflix’s count fell.” Sub-hed, “New releases like Pixar’s Turning Red helped the service surpass analyst estimates for new subscribers globally.”

And that’s the New York frickin’ Times.

Yes, they beat on subs… by grabbing more subs from India for under $1 a month.

Turning Red clearly had no major effect this quarter. If you think it did, you should be very underwhelmed by these numbers. I can tell you that today on Hotstar, in the top 10 lines of the service’s homepage, Turning Red is nowhere to be seen. This includes lines a “Best of Kids” line with 8 visible titles, the only thing from Disney U.S. being Frozen 2.

Did every family joining of the 3.6 total worldwide Disney+ adds (aside from Hotstar) join this quarter specifically for Turning Red? Enormously unlikely. The majority? Iffy. 1.5 million? Maybe.

That would be $9.5 million for that month generated by that title for D+. Or $114m if every one of those subs stayed with D+ for the entire next year.

How much more would Turning Red have returned in worldwide rentals (the part that goes back to the distributor) alone? And how much more valuable a title would it have become for D+ because of the theatrical?

But don’t you worry your head about the details.

Again… I am pro-Disney… love the company… look forward to a long, successful continued run. But this quarter is another reminded that a great company like this can tread water beautifully. But the misguided leadership choices will catch up with them eventually.

Wall Street is all about expectations and the games companies play to fulfill them.

But the Great Ship of Disney should be above that. Streaming is not going to be a solid, positive revenue segment for years to come. Keep moving forward. But keep the legacy media business strong for as long as is fitting. And get your IP - not just the mega-titles - back in to movie theaters. Don’t cut off your nose to spite your face. It’s not that small a world after all.

Until tomorrow…