The question of whether streaming can become a profitable business for major entertainment companies has been a prevailing theme of the past year.
This quarter’s corporate earnings, which concluded last week, showed that Disney is the one company poised to successfully make the pivot from declining linear TV to startup streaming.
Disney squeezed out another quarterly profit in its overall direct to consumer (DTC) streaming business of $321 million, and it had a profitable fiscal year 2024 of $134 million after a dismal $2.61 billion loss in 2023. It now has 236.2 million Disney+, Hulu and ESPN+ subscriptions, about 47.5 million less than industry leader Netflix.
More importantly, 42% of Disney’s total media revenue (excluding Experiences) came from streaming this quarter. That compares to Paramount Global and Warner Bros. Discovery — the companies struggling the most to make streaming work and close the gap with Netflix — whose DTC revenues accounted for 27% and 26% of their total revenues, respectively, according to Macquarie Equity Research.
“Disney will get there,” Tim Nollen, an analyst at Macquarie, told TheWrap, echoing what other Wall Street analysts said last week. “Their pivot to streaming will enable them to overcome the declines in linear.” But for “the likes of Paramount and Warner Bros. Discovery, it’s more questionable.”
Nollen added that Disney’s scale, brand recognition and breadth and depth of content have made it the most successful among traditional media peers in DTC — and it also got an earlier start.
Comcast, the parent company of NBCUniversal, also has a chance to close the gap, Nollen said, because of its large size and sprawling broadband business. But executives there talked about “playing some offense,” as Comcast president Mike Cavanagh told Wall Street analysts, through a spinoff of their struggling linear cable networks.
Comcast got a shot in the arm from the Olympics and “Despicable Me 4,” but still saw its overall net income fall 10% to $3.63 billion in the quarter.
The situation facing the industry is this: linear television subscriptions continue to fall by an average of about 8% a quarter — and there is little to nothing the studios can do to arrest the fall. The decline slowed slightly this quarter because of the impact of the Paris Olympics and national elections advertising. While the elections impact will continue to bleed over into the next quarter’s results, the Olympics won’t, analysts said.
What the major studios are confronting is not unlike what newspapers faced 10 years ago. They, too, were in a scramble to generate subscriptions for their nascent digital products to offset the decline in print advertising. Most failed. The New York Times tried at least twice to implement a successful digital model before it finally caught on and they were able to get on the right side of the intersecting lines. Today, the publication is mostly content to let the print paper die off from natural causes, in large part because no one would buy that business in 2024.
Entertainment executives, similarly, don’t have great options — either to sell off linear assets or to keep them on the books.
“There’s no good future for linear standalone as a component of these bigger companies,” Nollen said.
This quarter, the entertainment industry, excluding Netflix, saw a 10% bump in DTC subscribers, compared to 8% in the prior quarter. The major studios boosted their subscriptions through a formula of bundling, better technology and pricing strategies designed to push people onto advertising on demand plans (AVOD). About 2% of the 12% overall industry streaming revenue growth came from price increases, Macquarie said.
Iger’s (short) victory lap and linear defense
Iger returned to Disney two years ago to right the company after having retired following a 14-year stint as CEO. His mission has been to make streaming work and to slow down the movie pipeline to focus on quality — and more sequels.
Last week, Iger, who started his career at ABC, once again defended Disney’s linear business, noting that the company’s advertising chief told him that “linear is very strong right now.”
He said that live events were driving linear advertising and that it provided a “differentiated audience” from streaming. “And the way we integrate those businesses, not just from a programming perspective or a technology perspective, but from an advertising perspective, gives us some interesting leverage in the business and enables us to offer advertisers a much broader, even deeper offering in terms of avails,” he said.
Nevertheless, Disney did this quarter what its competitors did last quarter: write down the value of traditional television on their books. Disney booked a $584 million goodwill impairment charge for its entertainment assets. That followed a $721 million write down of linear entertainment and sports assets in fourth quarter 2023.
Those charges paled compared to Paramount’s cable networks write down of $5.98 billion and WBD’s $9.1 billion impairment charge.
But overall, it was a strong quarter for Disney. In addition to its milestones on streaming, the company eked out a 1% revenue bump in Experiences, offset by a 6% decline in operating income, mostly from an expected dip in performance at its international parks due to the Olympics taking place in Paris, which cannibalized attendance at Disneyland Paris.
Disney will get there. Their pivot to streaming will enable them to overcome the declines in linear.
— Tim Nollen, analyst at Macquarie Equity Research
Disney’s film studio had one of its strongest quarters ever thanks to the blockbuster box office success of “Inside Out 2” and “Deadpool & Wolverine.” And next year, the film slate looks strong, with major titles due to be released including “Captain America: Brave New World,” “Zootopia 2” and “Avatar: Fire and Ash.”
There are some warning signs, however. On the parks front, the company could be underestimating how much Universal’s new Epic Universe park could hurt Disney World’s Orlando business, analysts said. That park aims to make Universal a week-long destination instead of a three- or four-day trip, which usually resulted in guests visiting a Disney park during their Universal stay.
Disney’s shares popped 7% on Thursday after the company exceeded analysts’ estimates and gave an almost-unheard-of three years of earnings guidance. Iger said Disney expects high single-digit growth in adjusted EPS in fiscal 2025, which will accelerate to double-digit growth in 2026 and 2027.
The company’s streaming business is also likely to get an injection next year from ESPN’s new DTC service, internally codenamed Flagship, which is scheduled to launch on Disney+ and within the ESPN app in early fall 2025.
On Thursday, Iger was not shy about taking some credit.
“As I reflect on the two years since my return to the company, I’m incredibly proud of how much progress we’ve made,” he said. “We’ve emerged from a period of considerable challenges and disruption, and we’re well positioned for growth.”
Paramount poised for new leadership team
Paramount, meanwhile, squeezed out a $49 million streaming profit, its second straight quarter in the black for DTC. But the company’s overall results were mixed, with total revenue falling 6% year over year, weighed down by a 71% plummet in theatrical revenue and 6% drop in TV Media revenue.
The Shari Redstone-controlled company has a new leadership team coming in by about mid-year 2025, if the deal with Skydance Media gets over the finish line.
Skydance has touted its plans to find $2 billion in cost savings, to incorporate more technology into Paramount and leverage its relationship with Oracle co-founder and soon-to-be-Paramount-owner Larry Ellison.
But his son David Ellison’s company hasn’t exactly shown a great ability to make money. As TheWrap reported last week, a public SEC filing showed that Skydance has mostly lost money since 2021, despite the deal valuing the company at $4.75 billion.
WBD flashes its interest in consolidation
Warner Bros. Discovery had a strong quarter. Shares surged more than 10% after the company posted a streaming profit of $289 million, fueled by its largest-ever quarter of subscriber bump since the launch of Max, which topped 110 million globally. International expansion drove Max’s growth.
CEO David Zaslav seemed to be the major studio executive most interested in the potential for industry consolidation next year under President Trump. “We have an upcoming new administration, and it’s too early to tell, but it may offer a pace of change and an opportunity for consolidation that may be quite different, that would provide a real positive and accelerated impact on this industry that’s needed,” Zaslav told analysts, after reiterating his belief that further consolidation in the industry would help WBD.
Analysts have told TheWrap that WBD, which has been saddled by heavy debt and a stock price that has struggled to break $12 a share, could be an active acquirer, with Zaslav going after AMC Networks, Lionsgate or Starz.
For now, WBD continues to make progress on growing its streaming business. And its studios had some notable successes, including streaming hit “The Penguin” on Max.
Netflix shows no signs of losing its edge
Streaming king Netflix, meanwhile, continued to perform like a tech company.
Despite softness in Latin America — where the company lost 70,000 subscribers in the quarter — Netflix’s profits surged 41% year over year to $2.36 billion and revenue grew 15% to $9.83 billion as subscriber additions and its ad business continued to shine.
Netflix added 5 million subscribers in the quarter, up 14.4%, and now has nearly 283 million globally.
Disney’s Iger, for his part, apparently may be seeking to recommend a two-headed CEO structure similar to what Netflix has with Ted Sarandos and Greg Peters. Iger has vowed to step down when his contract concludes at the end of 2026, and Disney search committee head James Gorman has said he wants to decide on Iger’s successor early that year.
Together, co-CEOs Sarandos and Peters have overseen a company whose share price is up 78% over the past year.
