Disney+ Loses 2.4 Million Subscribers but Beats Expectations as Ad Plan Joins Lineup

The streaming service reported 161.8 million subscribers in the first quarter, above analysts’ forecasts of 157 million

"Tales of the Jedi" (Disney+)

Disney+ helped its parent company beat Wall Street expectations in its first-quarter earnings report for 2023, where the streaming service saw a smaller net decrease in subscribers than predicted. The service saw its count dip to 161.8 million, as opposed to 164.2 million as of the end of December. Analysts had forecasted a drop to 157 million.

Overall, the company posted an 8% increase in revenue, but set a loss of 4% in subscription count, marking the streamer’s first loss since its launch in 2020.

“After a solid first quarter, we are embarking on a significant transformation, one that will maximize the potential of our world-class creative teams and our unparalleled brands and franchises,” CEO Bob Iger said in a statement. “We believe the work we are doing to reshape our company around creativity, while reducing expenses, will lead to sustained growth and profitability for our streaming business, better position us to weather future disruption and global economic challenges, and deliver value for our shareholders.”

While direct-to-consumer revenues for the first quarter increased 13% to $5.3 billion, operating losses also went up two-fold to $1.1 billion (up from $500 million). The company said this was due to a higher loss incurred at Disney+ and a decrease in results at Hulu, which was partially offset by improvement at ESPN+. At Disney+ and Hulu, the losses were attributed to higher programming and production costs (due to an increase in content provided), including tech investment, which was alleviated in part by higher subscription revenue and decrease in marketing costs. Hulu also suffered a decrease in ad revenue, a sign of the slowed economic environment and attributed to lower impressions, which were partially offset by increases in rates. At ESPN+, increased subscribers and retain pricing spurred revenue growth.

The average monthly revenue per paid subscriber for domestic Disney+ decreased from $6.10 to $5.95 driven by a higher mix of subscribers to multi-product offerings (like the bundle and Basic tier), partially offset by an increase in retail pricing. Decreases were also seen in average monthly revenue per paid subscriber for international Disney+ (excluding Disney+ Hotstar), from $5.83 to $5.62 due to an unfavorable foreign exchange impact.

ESPN+’s average monthly revenue per paid subscriber increased from $4.84 to $5.53 due to an increase in retail pricing, balanced by a higher mix of subscribers to multi-product offerings.

The average monthly revenue per paid subscriber for the Hulu SVOD Only service increased from $12.23 to $12.46 due to an increase in retail pricing, partially offset by a higher mix of subscribers to multi-product offerings and lower per-subscriber advertising revenue. For the Hulu Live TV + SVOD service, the increase was from $86.77 to $87.90 due to higher per-subscriber advertising revenue.

Following last year’s shocking ouster of Bob Chapek and ongoing proxy battle with activist investor Nelson Peltz, all eyes were on Disney’s returning CEO Bob Iger to deliver answers on the streamer’s strategy, including its stated plan to reach profitability by the end of 2024 and plans for Hulu and ESPN, whose streaming services are offered in a bundle with Disney+.

Last year’s fourth-quarter results saw Disney amass more than 235 million streaming subscribers across its services, including 164.2 million at Disney+, 47.2 million at Hulu and 24.3 million at ESPN+. However, the company posted a nearly $1.5 billion streaming loss for the quarter, which led to Chapek’s ouster and Iger’s reinstatement as leader. At the time, Chapek reiterated the company’s guidance that Disney+ would achieve profitability in fiscal 2024, adding that the platform’s losses would begin to narrow beginning in the first quarter of 2023.

Analysts had expected revenue growth to stall due to Disney+’s subscriber stagnation. Despite this, Disney’s cheaper bundled services (Disney+, ESPN+ and Hulu) were predicted to have been able to attract subscribers amid stiff competition from other streamers like Netflix and Apple TV+.

Another factor to consider was its December launch of Disney+ Basic, a lower-priced, ad-supported tier. Netflix’s earlier launch of its own Basic With Ads was reported as promising, with executives saying there was “very little switching” from more expensive plans. Disney did not appear to include many details on the performance of Basic in its earnings report.