Stock Groups

Disney path to subscriber success is outside U.S.; way to profit less clear -Breaking


© Reuters. FILE PHOTO – A smartphone with the “Disney” logo displayed on it is shown in front of “Streaming Service” words. This illustration was taken March 24, 2020. REUTERS/Dado Ruvic

By Dawn Chmielewski

(Reuters) – Walt Disney (NYSE:) Co.’s quarterly results reveal a pathway for signing up a third billion subscribers: International expansion. For the United States, however, rapid expansion of its customers isn’t likely to result in bumper profits.

Wall Street was not pleased with Disney’s streaming earnings for its Disney+ service. Analysts and investors are still skeptical about the business’s cost.

Following Wednesday’s announcement of its second quarter results, shares fell by 3% and dropped to $102 each. The decline was a result of a growing suspicion about streaming businesses following the recent missteps made by Netflix (NASDAQ:).

It’s true that Disney has more subscribers than Netflix. Richard Greenfield of LightShed Partners, a technology analyst and media company, said they had to lose a lot of money. Wall Street’s focus is on profit margins more and more.

Disney+ had 138 million subscribers at the end of March, an increase of 7.9 millions over the prior quarter. According to one Disney source the service will launch this summer in 42 countries, bringing its international reach up to 106. To attract new subscribers, it will create approximately 500 shows in different languages throughout the globe.

Disney+ Chief Executive Bob Chapek stated that Disney+ has the potential to achieve its target of between 230 million and 260 million subscribers in September 2024.

More than half the quarterly subscribers gains were derived from Disney+ Hotstar India. Here, customers pay an average of $76 per month. On average, US customers pay $6.32

The streaming company, which includes ESPN+, Hulu and Hulu, suffered operating losses of $877 million during the quarter. This is triple the loss from the previous year. It was due to higher production and programming costs. The company is investing more in original content, sports rights and programming. This will result in spending on programming expected to go up by $900 million.

Chapek said during an investor meeting that great content was going to drive subs and scale up our profitability. We don’t view them as being necessarily in opposition. “We see them as consistent with the overall approach we have laid out.”

Paolo Pescatore is an analyst at PP Foresight. He predicted that Disney+ will grow in new markets as well as offering appealing content to stream such as “Encanto,” the Oscar-winning animated feature. However, this may not prove to be a commercial success.

Pescatore explained that too much attention is being paid to net adds. Given the nature and scale of streaming, there will likely be a lot of churn that will affect all providers. This, in turn, will affect revenues and bottom lines.