By Jon Swartz and Jeremy C. Owens
Walt Disney Co. added more streaming subscriptions than expected and topped Netflix Inc.’s total in the second quarter, and plans to launch an ad-supported tier while increasing prices on its current offerings before the end of the year.
Disney /zigman2/quotes/203410047/composite DIS +0.17% on Wednesday reported the addition of 14.4 million Disney+ subscriptions in its fiscal second quarter for a total of 152.2 million Disney+ subscribers, and 221 million total streaming subscribers to services that also include ESPN+ and Hulu. Those totals were easily higher than analysts expected — the average forecast called for the addition of 10 million Disney+ subscribers to 147.7 million, and 217.8 million total streaming customers, according to FactSet — and the total of 221 million moved Disney past Netflix /zigman2/quotes/202353025/composite NFLX +5.54% , which reported 210.67 million subscribers last month.
There was a note of caution, however, during a conference call with analysts late Wednesday. Disney Chief Financial Officer Christine McCarthy scaled back the company’s forecast for Disney+, predicting it expects to sign between 135 million and 165 million subscribers to its core Disney+ service, and up to 80 million to Disney+ Hotstar, its lower-cost Asian streaming service, for a range of 215 million to 245 million subscribers by September 2024. A few months ago, Disney Chief Executive Bob Chapek estimated Disney’s oft-stated target of 230 million to 260 million total Disney+ subscribers, set in December 2020, was “very achievable.”
“We had an excellent quarter, with our world-class creative and business teams powering outstanding performance at our domestic theme parks, big increases in live-sports viewership, and significant subscriber growth at our streaming services,” Chapek said in a statement announcing the results.
Shares of Disney moved about 7% higher in after-hours trading as investors cheered strong, across-the-board results for Disney’s streaming, TV networks, and theme parks businesses.
Underscoring confidence in its enduringly popular service, Disney plans to launch an ad-supported Disney+ tier in the U.S. on Dec. 8, which will cost $7.99 a month, the same price Disney currently charges for the app with no ads; the non-ad version will increase to $10.99 a month, or $109.99 a year. Hulu’s ad-supported tier will cost $7.99 a month as of Oct. 10, with a premium subscription moving to $14.99 a month. Previously announced changes to ESPN+ pricing will go into effect on Aug. 23.
Disney will also continue to offer several bundles of its different streaming services. A bundle of Disney+ and Hulu with ads will cost $9.99 a month, for example, while adding ESPN+ with ads to that package moves it to $12.99 a month. A premium version of the bundle, which includes Disney+ and Hulu without ads and ESPN+ with ads, will cost $19.99 a month.
“With our new ad-supported Disney+ offering and an expanded lineup of plans across our entire streaming portfolio, we will be providing greater consumer choice at a variety of price points to cater to the diverse needs of our viewers and appeal to an even broader audience,” Disney executive Kareem Daniel said in a news release detailing the pricing changes.
Disney posted fiscal third-quarter net income of $1.41 billion, or 77 cents a share, on sales of $21.5 billion, up from $17.02 billion a year ago. After adjusting for restructuring costs, amortization and other effects, the company reported earnings of $1.09 a share, compared with adjusted earnings of 80 cents a share a year ago. Analysts surveyed by FactSet had expected adjusted earnings of 97 cents a share on revenue of $20.99 billion.
Disney’s performance in streaming comes at a time when inflation-weary consumers are scaling back on subscriptions and jumping from service to service, after an explosion in new Netflix streaming rivals from the likes of Apple Inc. /zigman2/quotes/202934861/composite AAPL +1.41% , Warner Bros. Discovery Inc. /zigman2/quotes/200511275/composite WBD +3.16% , Comcast Corp. /zigman2/quotes/209472081/composite CMCSA +1.00% and Amazon.com Inc. /zigman2/quotes/210331248/composite AMZN +4.44% . Netflix reported a net loss of 970,000 paid subscribers in the second quarter , while analysts on average were forecasting a reduction of 2 million net additions. Warner Bros. Discovery reported a surprising second-quarter loss of $3.42 billion .
“We are in the golden age of media, and Disney knows consumers will continue to subscribe for something they find indispensable,” Zuora Inc. /zigman2/quotes/203058166/composite ZUO +1.67% CEO Tien Tzuo said, commenting on the results.
Disney’s largest business segment, media and entertainment distribution, compiled sales of $14.11 billion in the quarter, up from $12.68 billion a year ago; analysts on average predicted $14.2 billion. Direct-to-consumer sales, which includes streaming services as well as some international products, hauled in $5.06 billion, compared with analysts’ forecast of $5.17 billion on average.
Disney’s television networks generated sales of $7.19 billion, while analysts’ average estimates called for $7.05 billion. Content sales and licensing, a category that includes Disney’s film business, registered revenue of $2.11 billion vs. analysts’ expectations of $2.14 billion.
The company’s signature theme parks and product sales business increased to $7.39 billion in revenue from $4.34 billion a year ago. The average analyst estimate was $6.75 billion.
Disney’s stock has tumbled 27% so far this year but rebounded strongly of late. The S&P 500 Index /zigman2/quotes/210599714/realtime SPX +1.30% is down 12% and the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +1.00% , which counts Disney as a component, is off 8%.