Disney struggles with streaming. Will theme parks help with profit?

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“That's the tightrope that [Disney is] walking [on]. All these companies are walking right now,” says Matt Belloni, founding partner at Puck News. “They want to get to profitability, so they're building up the audience, but building up the audience costs a lot of money, which hurts profitability.” Photo by Wachiwit/Shutterstock.

“Black Panther: Wakanda Forever” is rolling into theaters this weekend with a tribute to actor Chadwick Boseman. Though the movie is expected to do well, having already sold $45 million in advanced tickets, and despite Disney+ having grown 12 million subscribers, Disney reported loss and weak profit outlook in its Q4 earnings meeting, below what Wall Street expected. As such, the company’s stock plunged 13% after the announcement this week. Kim Masters and Matt Belloni analyze what these numbers mean for Disney and other streaming-service companies. 

This conversation has been edited for concision and clarity. 

The streaming business is really difficult, expensive

Kim Masters: We have every reason to expect [“Black Panther: Wakanda Forever”] to be absolutely huge. Disney has that tentpole thing [with] a huge percentage of [earnings] coming out [from] these movies and sending them over the fence. Disney is doing pretty well out there in the world, but not well enough.

It really highlights how difficult this [streaming] business is right now.

Matt Belloni: I know if you are Bob Chapek, the CEO of Disney, you [have to] be throwing up your hands saying, “What do I [have] to do here?” They've been doing what Wall Street wanted them to do, which is to grow the streaming service globally, Disney+, especially is growing. Hulu also, but much smaller, and ESPN+ as well. 

Yet it's costing a lot of money to build these streaming subscribers. They said that they lost about $1.5 billion pursuing their streaming aspirations, and Wall Street looks at those losses and says, “You know what? We want profitability.”  

So the stock has been down 10% since these announcements, and it's just crazy right now the about-face that has happened in the public markets with respect to Hollywood companies, and streaming in particular.

Masters: First it was, “Go. Go. Go!” Now they realize that streaming is really expensive, and it's hard to wring the money out of it, to bring those profits. Chapek tried to say, “This is it. This was the big number that we're putting into the streamer, and after that it won't be like this.” 

Does original programming keep people hooked to the service?

Masters: Is pumping out original programming that keeps people hooked to the streaming service, is that a thing that diminishes over time? Because I don't think it does.

Belloni: They say it's going to diminish, and they have this goal of being profitable in streaming by the end of 2024, which is not that far away. So if they want to get there, they're going to have to reduce those costs, and keep those subscriber levels up. They also have this ad tier of Disney+ that is launching on December 8, which they have high hopes for adding revenue there. 

A tightrope for all streaming-service companies 

Belloni: But that's the tightrope that [Disney is] walking [on]. All these companies are walking right now. They want to get to profitability, so they're building up the audience, but building up the audience costs a lot of money, which hurts profitability. So this is the bargain that they have made with their investors, and right now, the investors do not have very high hopes on the success rate for this.

Masters: And that's not just Disney, of course. Warner Bros. Discovery is going through it, and only more so they have huge debt. They have the legacy stuff that they counted on for money for a long time. The old windows from theatrical, as well as broadcast television – all the stuff they made money on, [is] decreasing and declining. 

Maybe they can get back into the theatrical game, that is certainly their hope, in a big way and make it work. But they are squeezed too, and if you're a legacy company, you're squeezed. Even Netflix, which isn't a legacy company, but only has this one business, is also squeezed.

But Disney has a vast portfolio

Belloni: The thing that Disney has that the others don't is they have this parks business, which has been absolutely going through the roof since the pandemic ended. Right now they are in a little bit of a challenge because the China park is closed because of their zero COVID policy. 

But if you look at the other parks, the revenue coming out of them is just gigantic for a lot of reasons. Demand for travel post pandemic, they've raised a lot of prices and are squeezing customers in many different ways, and we'll see how long that's sustainable. 

But the nice thing about being a Walt Disney Company investor is you know that even though this streaming business is really challenging, you've got those parks to kind of subsidize it.

Masters: Parks, cruises, merchandise. They have the intellectual property that would be the envy of any company in Hollywood.



Joshua Farnham