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The Disney+ platform displayed on a laptop in Brooklyn, New York, signifying the ongoing transformation in the media landscape.
Recently, the narrative surrounding streaming services has begun to shift, particularly as Disney releases its latest quarterly earnings report.
Warren Buffett, renowned as “The Oracle of Omaha,” previously expressed skepticism regarding the streaming business. In an interview with CNBC, he stated his lack of confidence in the sector. “Streaming … it’s not really a very good business,” he remarked on April 12, 2023, noting that shareholders have struggled to see substantial returns.
This statement reflects a broader trend in the media industry, where major companies such as Disney, Comcast’s NBCUniversal, Paramount Global, and Warner Bros. Discovery have lagged behind the S&P 500 index since early 2022, primarily due to significant financial losses incurred while investing heavily in subscription streaming platforms.
However, Disney’s latest earnings results hint at a positive turnaround in their streaming operations. A strategic reduction in content expenditure, combined with an increase in subscribers across Disney+, Hulu, and ESPN+, suggests that Disney is on the cusp of transforming streaming into a profitable venture. According to Disney’s Chief Financial Officer, Hugh Johnston, this shift may even indicate that streaming is becoming more lucrative than traditional television.
For Disney’s fiscal year 2025, the company anticipates that its streaming segment will generate sufficient operating income to counterbalance the expected decline in revenue from linear television. Johnston elaborated that direct-to-consumer entertainment operating income is projected to rise by approximately $875 million compared to fiscal year 2024, surpassing the $1 billion mark.
Johnston emphasized, “I think we’re well-positioned if consumers decide to stay in linear for longer, and I think we’re well-positioned if they decide to move over to the streaming side,” during the company’s earnings call.
These projections are reinforced by Disney’s performance in the fiscal fourth quarter, where its streaming operations combined generated an operating income of $321 million. Over the past year, Disney’s entertainment streaming services, including Disney+ and Hulu, collectively amassed $143 million in operating income, a significant turnaround from a staggering loss of $2.5 billion in the previous year.
Streaming’s Resurgence
The skepticism surrounding traditional media extends beyond short-term streaming losses. Many investors remain doubtful that subscription video platforms can replace the robust profits that have long been associated with linear TV, cable, and broadcast services.
The enduring success of traditional pay-TV can be attributed to several factors. Notably, media companies historically received consistent monthly payments, regardless of viewer engagement, and maintained low churn rates—at least until the advent of streaming, which has seen tens of millions of Americans opting to cancel their cable subscriptions over the past decade.
In the evolving landscape of streaming, consumers can now easily switch services, choosing from a variety of options each month rather than committing to a singular provider. As a result, the reliable monthly income for media companies is increasingly at risk, as payment is contingent upon consumer demand for specific content.
Despite these challenges, Disney’s optimistic outlook suggests that streaming can still thrive as a viable alternative to cable. Potential future bundling strategies or industry consolidation could help alleviate churn, making cancellations less attractive. As media companies increasingly transition their premier content to streaming, the incentive to unsubscribe may diminish.
This positive trend in Disney’s performance echoes the recent strong results from Warner Bros. Discovery. Their direct-to-consumer division reported profits of $289 million, driven by not only a rise in global subscribers but also enhanced advertising revenue and increased average revenue per user. Warner Bros. Discovery’s streaming platform, Max, saw a surge of 7.2 million new global customers in the third quarter, bringing its total subscriber base to approximately 110.5 million.
Overall, the media industry may emerge from a challenging period with newfound resilience and strength. Following the release of their earnings report, Disney’s stock experienced a 6.2% increase, reflecting renewed investor confidence.
Disclosure: Comcast’s NBCUniversal is the parent company of CNBC.
Source
www.cnbc.com