Disney is going on a diet — but Hulu is still on the menu.
Disney CEO Bob Iger and chief financial officer Christine McCarthy delivered a clear message on Wednesday to Wall Street and Hollywood during Disney’s quarterly earnings call. Disney will cut the overall volume of content produced for its streaming platforms — primarily Disney+ and Hulu — as it deals with a much tighter macroeconomic environment, not to mention the uncertain impact of the writers strike that began May 2.
After spending just under $30 billion on content in Disney’s 2022 fiscal year (which ends in September), Iger has targeted $3 billion in savings for 2023. Of that $30 billion, about 30% is devoted to sports rights for ESPN and ABC Sports.
“We are in the process of reviewing the content on our (direct-to-consumer) services to align with the strategic changes in our approach to content curation,” McCarthy said. “Going forward, we intend to produce lower volumes of content in alignment with this strategic shift.”
Disney will trim the volume of new content that it produces for 2024 and 2025. It will also weed through the vast library of content on on the Disney+ and Hulu platforms, removing some of the little-watched titles that are too costly to maintain as available titles due to residuals, royalties, music licensing fees and other costs. Warner Bros. Discovery went through a similar house-cleaning last summer, which marked the first time one of Hollywood’s majors faced the harsh fact of inventory management in the streaming age.
“This is part of the maturation process as we grow into a business that we had never been in,” Iger said.
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On Wednesday, Iger also unveiled plans to offer a new option for bundling Disney and Hulu into a single app. He billed it as an effort to attract new subscribers and increase engagement for both platforms, particularly Hulu. But keen-eyed Disney observers could not ignore the subtext. Disney taking steps to further integrate Disney+ and Hulu seems like a big hint that Disney aims to buyout Comcast’s remaining one-third stake in Hulu early next year.
“It’s critical we rationalize the volume of content we’re creating and what we’re spending to produce our content,” Iger told investors. “Our legacy platforms enable us to expand our audiences and often augment our potential streaming success while at the same time allowing us to amortize our content costs across multiple windows.”
Disney will take a write-down of $1.5 billion to $1.8 billion later this year to acknowledge the loss of value in content that had been developed amid the rush to load up Disney+ and Hulu with buzzy shows that would draw new subscribers.
Iger also indicated that Disney will tap the brakes on local-language content in certain areas where the return simply can’t match the investment.
“We also need to strike the right balance between our local and global programming, as well as our platform and program marketing,” he said. “We must continue calibrating our investments in specific markets, looking at the total addressable market and ARPU prospects and evaluating the profitability potential… We’re doing the essential work now to position our streaming business for sustained growth and success in the future.”
During Disney’s last earnings call in February, Iger told analysts that all manner of scenarios were under consideration to help steer the company back to delivering strong profits from the media side of the Mouse House. (Once again, the parks, experiences and products division was the star of Disney’s earnings report.) Those comments, plus his observations about the uphill climb for “general entertainment” in a crowded TV landscape, made many wonder whether Disney was preparing to part ways with Hulu.
But the tighter bundling plan and talk of applying more “curation” to the content vault were strong signals that Hulu will remain part of the pixie dust at the Magic Kingdom. Disney amassed a roughly two-thirds stake in Hulu after its 2019 acquisition of 21st Century Fox.
Comcast and Disney struck a deal in May 2019 that set a timetable for Comcast selling its remaining interest in Hulu to Disney (or vice versa) as early as January 2024, at a price tag that values Hulu in its entirety at a minimum of $27.5 billion. At this point, the real question around the fate of Hulu is how hard will Disney and Comcast brawl over the valuation of that one-third stake.
“It’s clear that a combination of the content that is on Disney+ with general entertainment is a very strong combination from a subscriber perspective — from a subscriber acquisition and subscriber retention perspective, and also from an advertiser perspective,” Iger said. “So where we are headed is for one experience that would have general entertainment and Disney+ content together. How that ultimately unfolds is in the hands of Comcast and in the hands of a conversation or a negotiation that we have with them. I don’t want to be in any way predictive in terms of when or how that ends up.”