Disney experienced the worst day in 1.5 years
Look here: Disney (DIS) recently experienced a triumph in a heated boardroom conflict a month ago, managing to garner some benefits from Disney+ and Hulu with roughly $47 million in profits. On the other hand, ESPN+, another streaming platform run by Disney, witnessed a weakening subscriber base and continued to generate financial losses, leading to a combined streaming deficit of $18 million.
While this loss seems substantial, it's a considerable improvement compared to the $659 million shortfall that the same division reported during the same period last year.
With forward-thinking investors on the lookout for future growth, it was the anticipated softness in streaming profits for the subsequent quarter that caused a fuss.
"In my opinion, they managed to report some commendable results," stated Paul Verna, a principal analyst at eMarketer. "However, investors seem to be concerned about the projected dip in entertainment streaming income next quarter."
Despite this setback, Disney maintains its optimism and still anticipates the joint streaming entity to turn profitable by the end of its fiscal year, which is in September.
Although reaching profitability is one challenge, maintaining it could be a whole other ball game.
Disney is currently going through a rather bizarre phase that no one could have foreseen a decade ago. Imagine telling the company's CEO Bob Iger in 2014 that his organization--a Hollywood leviathan established on creating movies and preserving intellectual properties--would eventually be squaring off against tech gurus like Apple and Amazon, aiming to compete with the relatively modest DVD distribution service, Netflix.
However, that is approximately what's going on.
Streaming is a different and relatively newer business dynamic compared to the traditional cable television distribution model that behemoths like Disney and other media powerhouses such as Paramount, Viacom, and Warner Bros. Discovery (the parent company of CNN) have relied on for years to boost profit margins.
But the cord-cutting trend means that the cable profit train is presumably about to come to a halt, pushing titans like Disney to adapt to a new method of producing compelling TV and movies while retaining streaming viewers.
"It's a highly challenging venture," Verna said. "The profit margins are slimmer... it's almost like these companies that have constructed whole empires on the cable model. It's hard for them to relinquish hold of that and understand that the future will look fundamentally different for them."
For Disney in particular, streaming is just one of several headaches. It's had a streak of underperforming movies ("The Marvels," "Indiana Jones and the Dial of Destiny," "Haunted Mansion"), with CEO Bob Iger trying to execute an ambitious corporate turning-around strategy (resulting in mass layoffs and a costly merger of its India operations). At the same time, Iger is simultaneously fending off activist investors in a shareholder crisis while potentially lining up a successor to take charge when his contract expires in two years. All this, amidst the continuing streaming business turmoil.
Tuesday's market response illustrates that investors have "more queries than replies for earnings for the upcoming couple of quarters," according to Brian Mulberry, a portfolio manager at Zacks Investment Management, in a written note. "While it's a consolation, I am certain, to have the boardroom fight behind them, it's now redirecting attention to outcomes."
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In the context of Disney's financial performance, investors might be worried about potential decreases in streaming profits, given their emphasis on future growth. Despite the current challenges, Disney continues to believe that its streaming entity will turn profitable by the end of its fiscal year.
Recognizing the shift in business dynamics, Paul Verna, a principal analyst at eMarketer, stresses the complexity of transitioning from traditional cable television profits to streaming success, as Disney is now doing.
Source: edition.cnn.com
