Disney reports its first streaming profit

Disney reported quarterly earnings Wednesday, and while it said “moderating” consumer spending is taking a bite out of its theme park revenues, the company’s streaming business posted its first profit. 

Disney said its flagship Disney+, combined with ESPN+ and Hulu, brought in a combined $47 million. 

It’s a modest haul, considering the billions invested in those services, but any profit is a milestone in an industry where they’ve been elusive for nearly all players.

Early in the streaming wars, say 2017 through the start of the pandemic, services figured they’d chase subscriber growth first and worry about profits later. 

And aside from Netflix, which had an early foothold, that strategy put most of the industry in a pretty deep hole, according to Brandon Katz with Parrot Analytics.

“It requires massive amounts of capital to make and acquire steady streams of new content to keep subscribers signing up and to keep subscribers engaged,” Katz said.  

Engagement and loyalty can be tricky when people can easily cycle in and out of monthly subscriptions. 

The spending spree kept up until around 2022, when the pandemic binge-watching bubble burst, said Michael Smith, professor of information technology and public policy at Carnegie Mellon University. 

“The markets basically said, ‘We’re running out of patience. We’d like to see you turn a profit,'” Smith said.

Enter higher subscription costs, slimmer content libraries and bundling, which is part of how Disney’s streaming arm finally landed in the black. 

“Hey, we’re not just raising prices, we’re giving you more,” said J. Christopher Hamilton, an entertainment attorney and a professor at Syracuse University, referring to things like “The Bear,” Major League Baseball and “Bluey” being on the same monthly bill. “You don’t have to have 50 different logins, you don’t have to subscribe to 20 different services. I think that’s really what is going to break through the noise.” 

And tamp down subscriber churn. 

Ross Benes with Emarketer said there’s some creative accounting behind Disney’s reported streaming profit. For one, most of it’s coming from ESPN+. Still, it’s a symbolic win for the industry. 

“There is space for more people to succeed than Netflix,” Benes said. “That’s what it would signal. Now, there’s not space for all these companies to succeed.” 

Out of today’s crowded field of eight or so major streamers, Benes predicted maybe four will survive the race to profitability.