Disney+ website on a laptop computer on Monday, July 18, 2022 in Brooklyn, New York City, USA.
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disney It may be proving the world’s most famous investor wrong.
Last year, the “Oracle of Omaha” Warren Buffett told CNBC’s Becky Quick that he didn’t believe in the streaming video business.
“Streaming is actually not a very good business,” Buffett said on April 12, 2023. “Shareholders haven’t done very well for a long time.”
Buffett wasn’t lying. Legacy media companies, etc. comcast’s NBCUniversal, Disney, paramount global and warner bros discovery Everything is underperforming S&P500 This is largely due to the billions of dollars lost during the launch of subscription streaming services since January 1, 2022.
But Disney’s quarterly results released Thursday show that streaming is about to become a better business.
According to Hugh Johnston, Disney’s chief financial officer, the combination of reduced content spending and steady growth in subscriber numbers for Disney+, Hulu and ESPN+ has not only turned streaming into a profitable business, but actually says streaming has turned into an even better business than traditional television.
Johnston said in an interview that streaming will generate enough operating profit for Disney in fiscal 2025 to offset a simultaneous decline in linear TV’s operating profit.
Disney expects direct-to-consumer entertainment operating income next year to be about $875 million higher than in fiscal 2024. This will push the division’s operating profit to more than $1 billion next year.
“If (consumers) decide to stay with linear for a long time, I think we’re in a good position. And if they decide to move to the streaming side, we’re in a good position,” Johnston said on Disney’s earnings call. I think I’m in a good position.”
These results are backed up by Disney’s earnings. Disney’s integrated streaming business improved profitability in the fourth quarter, posting an operating income of $321 million. That year, Disney’s entertainment streaming platforms (Disney+ and Hulu) had operating income of $143 million. Last year, the entertainment platform lost $2.5 billion.
Streaming Strikes Back
The bearish stance on traditional media goes beyond short-term losses in streaming.
Investors have also largely accepted the premise that subscription streaming video cannot replace the billions of dollars in profits from terrestrial TV, cable and broadcast that both companies have made a living from for decades. There is.
The traditional pay TV business has been amazing for many reasons, but two stand out. Media companies get paid every month whether people actually watch or not, and traditional pay TV has traditionally had very low churn rates (at least until the invention of streaming). . Over the past decade, tens of millions of Americans have canceled their cable TV subscriptions.
In the new streaming era, it’s easy to cancel certain services at any time. Instead of canceling TV entertainment entirely, consumers can easily choose from several streaming services in any given month.
As a result, media companies can no longer be religiously paid monthly. Now, only consumers who want specific programming pay for it for as long as they want it.
Still, Disney’s predictions suggest that these headwinds don’t necessarily mean streaming won’t be a successful long-term alternative to cable. Future bundles or integrations may help reduce churn. As companies move their best content to streaming, canceling service becomes less appealing.
Disney’s performance follows last week’s strong streaming performance. warner bros discovery. The company’s direct-to-consumer segment generated a profit of $289 million due to global subscriber growth, increased advertising revenue and global average revenue per user. Warner Bros. Discovery’s flagship streaming service Max added 7.2 million customers worldwide in the third quarter, bringing its total subscriber base to 110.5 million.
The end result may be a stronger media industry than investors feared, emerging from a tough few years. Disney stock rose 6.2% on Thursday.
Disclosure: Comcast’s NBCUniversal is the parent company of CNBC.
