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Disney’s direct-to-consumer business is now profitable – so what comes next?

Cover image for Disney’s direct-to-consumer business is now profitable – so what comes next?

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by Tim Mulligan

Today, Disney announced its fiscal second quarter 2024 financial results (calendar Q1 2024). All eyes were on the Entertainment Segment, where its direct-to-consumer (D2C) division matched MIDiA’s call that it would finally post its first ever operating profit four and a half years after the launch of Disney+. While modest, the $47 million (equating to 0.83% of revenues) was a positive turn. In the  previous quarter, Disney reported a $138 million loss in this division, down 86% from previous year’s corresponding quarter. CEO Bob Iger’s second stint in charge is predicated on resurrecting his D2C initiative, which formed the strategic foundation for Disney’s $71.3 billion acquisition of 21st Century Fox, finalised  in Q1 2019. Consequently, this milestone is particularly significant for Iger. However, Wall Street disagreed, instead choosing to focus on the subscriber and group revenue misses for the quarter and the guidance around combined streaming business profitability in the following quarter.

Disney course corrects while Paramount contemplates the end game

Disney’s streaming marathon and subpar Q1 results reflects the wider malaise starting to afflict the streaming video landscape. Revenues and subscriber numbers are feeling the belated downward push of a prolonged cost of living crisis combined with price increases and relentless competitive pressure. All of this has been aggravated by the phenomenon of the savvy switcher; strategic subscribing and unsubscribing based on content availability has doubled in the last 24 months according to MIDiA’s consumer survey data. Ultimately, all of this leads to the return of churn, which has hit streaming platforms to such an extent that Netflix will no longer report subscriber numbers.

The Disney/Fox merger was based upon the calculus that doubling down on content was essential for being able to compete with debt-fuelled Netflix’s commission drive. This is what led to Paramount’s precursor, Viacom, merging with CBS in 2021. It has also proven to be a demonstrably false premise if control of profitable distribution is not also factored in. The rebranded Paramount, for example, has had to contend with savage pricing competition, a declining pay TV business, and a post-peak box office revenue model. For Paramount’s dynastic CEO Shari Redstone,  the future of the media empire forged by her controversial father, Sumner Redstone, now has a $26 billion dollar price tag. For a business that has seen 50% of its stock price eroded in the previous 12 months, this would appear to be a reasonable offer. A 280% mark up on its current market capitalisation is as much a reflection on the IP bank  - acquired over 50 years of asset building by Sumner Redstone - as it is on the business fundamentals, which are now unfit for purpose in the current streaming environment.

As entertainment continues to consolidate, IP banks held by Paramount and Disney will find new opportunities to thrive outside of traditional TV and film monetisation. What remains unknown is who will stay in control of those assets in the new cross-entertainment era.

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