Disney’s Streaming Business Achieves Profitability for the First Time, but Slowing U.S. Park Performance Increases Concerns

Disney reported a profitable third quarter, driven by a successful performance in its streaming business and the box office hit “Inside Out 2.”

The company’s entertainment segment, encompassing its movie studio and parts of its TV division, saw operating income surge nearly threefold to $1.2 billion. Disney’s box office successes continue with upcoming releases like “Deadpool & Wolverine,” contributing to its strong performance.

Disney’s direct-to-consumer segment, which includes Disney+ and Hulu, reported a quarterly operating loss of $19 million, a significant improvement from the $505 million loss a year earlier. Revenue for this segment increased 15% to $5.81 billion.

Starting October 17, Disney will raise prices for its streaming services: Disney+ and Hulu will each increase by $2 to $9.99 per month with ads; the ad-free version of Disney+ will rise to $15.99, and Hulu’s ad-free plan will cost $18.99. ESPN+ will increase to $11.99 per month.

For the quarter ending June 29, Disney earned $2.62 billion, or $1.43 per share, compared to a loss of $460 million, or $0.25 per share, a year earlier. Excluding one-time gains, earnings were $1.39 per share, surpassing analysts’ expectations of $1.20.

Revenue for Disney increased 4% to $23.16 billion, exceeding Wall Street’s forecast of $22.91 billion. However, Disney’s stock faced pressure due to signs of weakness in its domestic parks segment. The company expects a decline in fourth-quarter operating income for its Experiences division, which includes theme parks and cruises, due to softer demand at U.S. parks, cyclical slowdowns in China, and reduced attendance at Disneyland Paris affected by the Olympics.

Domestic park revenue rose 3% in the third quarter, while international parks revenue increased 5%. The decline in operating revenue for domestic parks was attributed to inflation, increased technology spending, and new guest offerings.

Disney generated $254 million in operating income from content sales and licensing, boosted by “Inside Out 2,” which has become the highest-grossing animated film of all time with over $1.5 billion globally. The original “Inside Out” also contributed to more than 1.3 million Disney+ sign-ups and over 100 million views of the sequel’s teaser trailer.

Disney’s combined streaming business, including Disney+, Hulu, and ESPN+, achieved profitability for the first time this quarter, aided by strong performance from ESPN+ and better-than-expected results from the direct-to-consumer unit. CEO Bob Iger highlighted ESPN’s most-watched third quarter in a decade among adults 18-49, driven by major sports events.

Despite anticipating a softening in its streaming business, Disney’s profitability in this segment came earlier than expected. The company now forecasts a 30% growth in adjusted earnings per share for the year.

Disney also recently resolved its lawsuit against Florida Governor Ron DeSantis, finalizing a 15-year deal to invest $17 billion into Disney World, which includes infrastructure improvements by the district.

Shares of Disney fell more than 2% in early trading.