Disney may not be the happiest streamer in the world any longer.
During the May 2023 earnings call on Wednesday, CEO Bob Iger said, “We realized that we made a lot of content that is not necessarily driving sub growth, and we’re getting much more surgical about what it is we make. So as we look to reduce content spend, we’re looking to reduce it in a way that should not have any impact at all on subs.”
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Iger said when Disney+ launched three and a half years ago, the goal was still growing global subscribers and flooding the “digital shelves.” As with the rest of the industry, that has changed to focus on revenue, and it’s led to cost-cutting and finding content that will actually grow subscribers. That includes big tentpole projects, specifically ones that first played in theaters.
One of the challenges Iger noticed was with marketing, and he said that under the old model, they were spreading themselves way too thin and not “allocating enough money to even market them when they came on the service,” and that includes some of the studio’s upcoming biggest theatrical releases like “The Little Mermaid,” “Guardians of the Galaxy Vol. 3” and “Elemental.”
“When you make a lot of content, everything needs to be marketed. You’re spending a lot of money on marketing that are not going to have an impact on the bottom line except negatively due to the marketing costs,” he said. “We believe we actually have an opportunity to lean into those more, put the right marketing dollars against it, allocate more, or basically away from, programming that was not driving any subs at all. This is part of the maturation process as we grow into a business that we had never been in. We’re learning a lot more about it, specifically we’re learning a lot more about how our content behaves on the service and what it is consumers want.”
CFO Christine McCarthy cited Iger’s vision for “cost-cutting initiatives” including removing content from Disney+ as the streaming platform looks to add Hulu content to Disney+ as part of a “one-app experience.”
“As Bob mentioned, we are making excellent progress on our cost-cutting initiatives and are on track to meet or exceed the efficiency targets we outlined last quarter,” McCarthy said. “During Q2, we took a restructuring charge of approximately $150 million primarily related to severance. While we are continuing to refine our estimates. We currently expect to record additional separate charges of approximately $180 million over the remainder of this fiscal year. With the bulk of that additional charge expected in the third quarter. We are in the process of reviewing the content on our DTC services to align with the strategic changes in our approach to content curation that you’ve heard Bob discussed.”
McCarthy continued, “As a result, we will be removing certain content from our streaming platforms and currently expect to take an impairment charge of approximately $1.5 to $1.8 billion the charge which will not be recorded in our segment results will primarily be recognized in the third quarter as we complete our review and remove the content. Going forward, we intend to produce lower volumes of content in alignment with this strategic shift.”
Disney is in the process of laying off 7,000 staffers and is on track to meet or exceed cost savings of $5.5 billion. Disney+ lost 4 million subscribers in the quarter that ended March 31.
Disney’s direct-to-consumer business lost $659 million in fiscal Q2, with the company crediting Disney+ and ESPN+ for the improvement over last year’s $1 billion loss. Disney+ and ESPN+ recently raised subscription prices. Disney+ is expected to reach profitability in 2024.
“We’re pleased with our accomplishments this quarter, including the improved financial performance of our streaming business, which reflect the strategic changes we’ve been making throughout the company to realign Disney for sustained growth and success,” CEO Iger said. “From movies to television, to sports, news, and our theme parks, we continue to deliver for consumers, while establishing a more efficient, coordinated, and streamlined approach to our operations.”
Similarly, Warner Bros. Discovery removed content and canceled upcoming productions reportedly for tax write-off purposes under the leadership of CEO David Zaslav. More than 81 titles were removed from HBO’s streamer Max in late 2022.
Reporting by Brian Welk and Tony Maglio.
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