Disney+ adds 8 million subscribers, avoiding Netflix streaming slump

The great streaming slowdown of 2022 hasn't hit Mickey Mouse yet.

Walt Disney Co. on Wednesday reported better-than-expected subscriber growth from its marquee streaming service Disney+ as it charged forward with its direct-to-consumer transformation while increasing revenue from its crucial theme parks business.

The Burbank entertainment giant said Disney+ added nearly 8 millionsubscribers during the second quarter, exceeding analyst estimates. Wall Street had expected Disney+ to gain about 5.2 million paying members, according to FactSet. The service now has 137.7 million subscribers.

Disney's latest report was sure to attract attention amid growing worries among investors and Hollywood executives that the streaming business may not be as big or lucrative as once thought.

Disney Chief Executive Bob Chapek has made it his mission to grow Disney+, along with the company's other streamers Hulu and ESPN+, to astronomical heights in order to keep the company relevant to modern viewers who are abandoning the cable bundle.

Entertainment companies, including Disney, have spent billions of dollars to launch and expand streaming services that would compete with Netflix as the Los Gatos, Calif., giant upended the business. Early in the pandemic, subscriber counts soared and share prices followed as housebound consumers signed up for at-home entertainment options.

But then Netflix last month reported that it had lost subscribers for the first time in more than a decade. The company's membership count declined by 200,000, prompting executives to blame competition, rampant password sharing and the company's pause in Russia. Netflix promised to rein in spending. Jobs were cut in marketing. Netflix's shares are down more than 70% so far this year.

Disney's shares have also taken a hit amid broad stock market declines, despite the remarkable resurgence of the company's parks and theatrical releases such as its latest Marvel hit, "Doctor Strange in the Multiverse of Madness." The stock has slid more than 30% since January. It fell an additional 3% after the markets closed Wednesday.

The company has promised Wall Street that Disney+ will reach 230 million to 260 million subscribers by 2024, which is when it also expects the service to become profitable. Some analysts have questioned whether that goal is realistic.

So far, though, growth has continued for Disney+, thanks to programming such as the critically acclaimed Pixar film "Turning Red" and the newest Marvel Studios series, "Moon Knight," starring Oscar Isaac.

Disney+ grew at an astonishing pace soon after its November 2019 launch, fueled by hits such as "The Mandalorian" and "WandaVision," as well as its eminently rewatchable library of animated classics and films from Marvel, Pixar and the "Star Wars" franchise.

In recent months, Disney+ has expanded its content offering with shows outside the parameters of its blockbuster brands, recently introducing ABC's "black-ish" to the service. The company's competition show "Dancing With the Stars," which aired on ABC, will premiere on Disney+ this fall.

Beyond adding more content, Disney plans to continue its expansion by launching a cheaper advertising-supported tier of Disney+ by year's end. The standard cost for Disney+ is $8 a month with no ads.

Streaming continued to lose money for Disney, though direct-to-consumer revenue rose 23% to $4.9 billion.The division — which includes Disney+, Hulu and ESPN+ — lost $887 million, compared with a loss of $290 million a year earlier. Disney attributed the bigger loss to greater spending on programming, content production, marketing and technology.

"It's obviously a balancing act," Chapek said in a call with analysts. "But we believe that great content is going to drive our subs. And those subs then, in scale, will drive our profitability."

Additionally, ESPN+ added 1 million subscribers, bringing its total to 22.3 million. Hulu, though, grew by just 300,000 subscribers, to 45.6 million.

The quarterly financial results were mixed. Sales and profits missed analyst projections, though revenue increased significantly from a year earlier.

Revenue was $19.2 billion during the quarter, up 23% from the same period last year. Disney cited a $1-billion revenue reduction because of money due to a customer to terminate licensing agreements for films and TV content to use for its streaming services. Disney did not name the customer.

Analysts polled by FactSet on average had expected sales of $20 billion. Disney reported adjusted earnings per share of $1.08, missing estimates of $1.19 a share. The company blamed the earnings miss on an increased effective tax rate for foreign earnings.

The return of Disney's massive theme parks operation boosted results, driving $6.65 billion in revenue from its parks, experiences and products division, which also includes toy licensing and cruise ships. Revenue was more than double the $3.17 billion the segment generated a year earlier. The division hit $1.76 billion in operating income, compared with a loss of $406 million a year earlier.

Both Disneyland in Anaheim and Walt Disney World near Orlando, Fla., were open during the quarter. Disneyland had been closed until April 2021 because of pandemic restrictions. However, Disney said it expects to take a $350-million hit to operating income this quarter because of the closures of parks in Hong Kong and Shanghai. Hong Kong Disneyland was closed until April and Shanghai Disney is still shuttered.

Disney's linear networks business, including ABC and ESPN, increased revenue 5% to $7.12 billion, while operating income shrank 1% to $2.82 billion. Content sales and licensing, which includes Disney's theatrical film and home video sales, saw revenue decline 3% to $1.87 billion and operating income decrease 95% to $16 million.

At the same time, Disney has spent the last two months at the center of a political firestorm because of its response to Florida's Parental Rights in Education law, which bans classroom instruction about sexual orientation and gender identity in kindergarten through third grade. Opponents call it "Don't Say Gay" legislation. Gov. Ron DeSantis, a possible 2024 presidential candidate, blasted Disney as a "woke" corporation after Disney voiced opposition to the bill.

DeSantis pushed state lawmakers to dissolve Disney's special tax district near Orlando, which gives the company extraordinary powers of self-government in a 25,000-acre area covering Walt Disney World. In another move to punish Disney, a group of Republican federal lawmakers has vowed to oppose any effort to extend the company’s copyright protection for Mickey Mouse — already extended twice since the original expiration date in 1984.

This story originally appeared in Los Angeles Times.