Disney is making progress on a key goal, and is ready to pull another lever

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Walt Disney Co. revealed big strides at narrowing losses in its streaming business in its earnings report Wednesday, and touted another lever that will help in Chief Executive Bob Iger’s ongoing efforts to turn the media giant’s fortunes around — cracking down on password sharing.

In the face of a growing number of activist investors, Disney
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reported better-than-expected results in its fiscal first quarter, including narrower-than-expected losses in its streaming business. Also known as its direct-to-consumer unit, streaming losses came in at $138 million, down from losses of $984 million a year ago, while analysts were looking for losses of $419 million, according to FactSet.

Disney’s Chief Financial Officer Hugh Johnston also surprised analysts with a forecast about margins in that business, while reiterating plans to reach streaming profitability in the fiscal fourth quarter. “[We] have never been more confident about our path to creating a strong and sustainable streaming business with growing subscribers over the long-term and ultimately double-digit operating margins, a business which we fully expect to be a key earnings growth driver for the company,” he said.

Taking a page from Netflix Inc.,
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Disney+ and Hulu have already alerted subscribers that they will soon be cracking down on password sharing, and Johnston said that beginning this summer, Disney+ accounts suspected of “improper sharing” will receive options to let their borrowers start their own subscriptions. Later this year, account holders who want to add individuals from outside their household will be able to, for an additional fee. Johnston said it was still “early days” and Disney doesn’t expect to see benefits until the second half of calendar 2024.

“We want to reach as large an audience as possible with our outstanding content, and we’re looking forward to rolling out this new functionality to improve the overall customer experience and grow our subscriber base,” he said.

When one analyst said he was surprised about the double-digit margin forecast and asked about more details on how Disney would achieve that goal, Iger chimed in, saying: “In a sense it’s news, but in a sense it shouldn’t be news, because we’ve always wanted to build a good business in that regard.” He said Disney would get there by growing subscribers and “through some level of pricing.”

Another way Disney plans to grow subscribers is through a big joint effort that it announced on Tuesday with its ESPN unit, Fox Corp.
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and Warner Brothers Discovery
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to offer a sports streaming service with shared assets. After one analyst said it sounded like an expensive service, Iger would only say, “the way you have to look at it is, the sports service is going to be substantially less expensive to consumers than the big bundle that they’d have to buy to get those same channels on cable and satellite.”

Iger and Co. made a lot of progress this quarter, but it’s unlikely to be enough to satisfy the different groups of activists swarming around the Magic Kingdom. A spokesman for Trian Partners, where activist Nelson Peltz is a founding partner, said in an emailed statement: “It’s déjà vu all over again. We saw this movie last year and we didn’t like the ending.”

Read also: Activist investor Nelson Peltz makes his case for joining Disney board.

But as pithy as that statement may sound, Team Iger has finally made some big progress in the company’s turnaround. Disney’s shares jumped nearly 7% in after-hours trading, as investors seemed to agree, at least for now.



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