Disney (DIS) may have reached the limits of streaming. The Walt Disney (NYSE: DIS) is investing heavily in streaming programming.
For example, Disney+ streaming investment could grow by 82.79% between 2022 and 2027, fDi Intelligence projects. Disney could spend $7.7 billion on original content for Disney+ by 2027.
Disney is creating new Marvel and Star Wars programming and buying content. For instance, Disney bought the streaming rights to Doctor Who from the BBC. Hence, Disney+ will be the only place fans outside the United Kingdom and Ireland can see new episodes of Doctor Who.
Moreover, Disney is expanding Doctor Who’s budget to $10 million an episode, CBR.com claims. Although, show runner Russell T. Davies denies that claim. Conversely, Davis admits Disney is raising Doctor Who’s budget but no gives no figures.
Disney has spent big money to bring back Davis, the man responsible for Doctor Who’s hugely successful revival in 2005. They are also bringing back popular Doctor David Tenet for two episodes to bring older fans back.
Is Disney+ Losing subscribers?
The Doctor Who deal is an attempt to have something besides Star Wars and Marvel on Disney+. Disney+ needs fresh content because its subscriber numbers are falling.
Disney+’s global subscriber numbers fell from 164.2 million in the fourth quarter of 2022 to 161.8 million in the first quarter of 2023, Statista estimates. Hence, Disney+’s dramatic subscriber growth is ending. The global subscriber numbers grew from 152.1 million in the third quarter of 2022 and 118.1 million in the fourth quarter of 2021.
Yet, Disney’s subscription number fell by 2.4 million during the first quarter of 2023. The subscription collapse comes at a terrible time because returning CEO Bob Iger is struggling to cut costs.
Layoff Bloodbath could come to Disney
Iger plans to eliminate 7,000 Disney (DIS) or 3% of the company’s workforce, Deadline claims. The layoffs are part of Iger’s effort to trim $5.5 billion from Disney’s budget.
Deadline predicts a third round of Disney layoffs insiders call a “bloodbath” and “the big one.” All three Disney segments; Entertainment, ESPN, and Parks, Experiences, and Products could experience layoffs, Deadline predicts.
Iger could announce those layoffs on 30 March or 31 March or after Disney’s 3 April 2023 shareholder meeting. Iger is even trying to save costs for the shareholder meeting. This year’s meeting will be virtual (in other words, Zoom).
Other cost-cutting efforts at Disney include a hiring freeze and restructuring. For example, Iger restructured the company the company into three segments and dissolved Disney Media & Entertainment Distribution. Iger is trying to decentralize management, eliminate bureaucracy, and give creators more control over content.
I predict more restructuring at Disney and a potential sale or spinoff of ESPN. Unlike Disney+, ESPN+ is growing. ESPN’s subscriber grew from 24.3 million the fourth quarter of 2022 to 2.9 million in the first quarter of 2023, Statista estimates.
Another possibility is that Iger could split Disney into three companies: Entertainment, ESPN, and Parks, Experience, and Products.
Why is Disney+ losing subscribers?
I think Disney+ is losing subscribers because of intense competition from rivals such as Netflix (NFLX), Amazon (AMZN) and Paramount (PARA) and free ad-supported streaming television (FAST) streamers.
For example, Paramount+ added 9.9 million subscribers in the fourth quarter of 2023, Forbes estimates. Hence, Paramount+ had 56 million subscribers. It appears Paramount (PARA) is stealing Disney’s subscribers.
Paramount’s FAST Pluto TV is also experiencing dramatic growth. Pluto’s monthly active user number grew from 64 million in the fourth quarter of 2021 to 72 million in the fourth quarter of 2022, Statista estimates.
Pluto and other FASTs are a major threat to Disney+ because they offer enormous amounts of programming for free. Instead of charging subscriptions, FASTs insert adds into shows. Viewers love FASTs because they can choose what programs to watch. Major advertisers are buying FAST airtime. I have seen ads for Ford, Nissan, Progressive, and Proctor & Gamble’s Tide on Pluto and Amazon’s FAST, Freevee.
Moreover, Paramount+ offers a wider variety of programming than Disney+. Paramount’s offerings include movies such as Top Gun: Maverick, Star Trek shows, Yellowstone spin-offs, reality shows, CBS cop shows, and NFL football.
It appears Paramount (PARA) is winning the streaming wars, which creates problems for Disney.
How Much Money is Disney (DIS) making?
Skeptics will wonder why Iger is making cuts because Disney (DIS) still makes money and experiences growing revenues.
For example, Disney reported a $7.126 billion quarterly gross profit and a $1.924 billion quarterly operating income on 31 December 2022. Conversely, the quarterly gross profit fell from $7.252 billion on 31 December 2021 and the quarterly operating income fell from $2.196 billion 31 December 2021.
In contrast, Disney’s quarterly revenues rose from $21.819 billion on 31 December 2021 to $23.512 billion on 31 December 2022. Stockrow estimates Disney’s revenues grew by 7.76% in the quarter ending on 31 December 2022. However, the revenue growth rate fell from 34.28% on 31 December 2021.
Disney is Burning Cash
I think Iger is cutting jobs and reorganizing because Disney (DIS) burns cash. For example, reported a “quarterly operating cash flow” of -$974 million on 31 December 2022.
In comparison, Disney reported a quarterly operating cash flow of -$209 million on 31 December 2021. The quarterly operating cash flow fell from $2.524 billion on 30 September 2022.
Moreover, Disney’s cash flow is falling. The quarterly ending cash flow fell from $14.488 billion on 31 December 2021 to $8.516 billion on 31 December 2022.
On the positive side, I think Disney is not borrowing heavily. Notably, Disney reported a -$1.043 billion quarterly operating cash flow on 31 December 2022.
Disney has less Debt and Cash
A big reason for Iger’s drastic changes is less cash. Disney’s cash and short-term investments fell from $14.444 billion on 31 December 2021 to $8.47 billion on 31 December 2022.
Positively, Disney’s total debt fell from $54.132 billion on 31 December 2021 to $48.377 billion on 31 December 2022. Thus I think Disney avoided borrowing by spending its cash.
I wonder what Disney will do when it spends all the cash. Cynics will predict Disney will borrow. Thus, Iger’s first mandate is clear, Disney must generate more cash fast.
One prediction here. I think Disney will launch a FAST and put ads on Disney+ within the year. Notably, Paramount+ already runs ads in prestige programs such as Star Trek: Picard. Thus, Disney subscribers can expect to see ads in The Mandalorian within the year as Iger seeks more cash.
Disney Loses Value
The Walt Disney Company (NYSE: DIS) is losing value. For example, Disney’s total assets fell from $203.211 billion on 31 December 2021 to $202.124 billion on 31 December 2022.
Similarly, Disney’s share price fell from $138.72 on 28 March 2022 to $94.82 on 28 March 2023. I think this share price is fair because of Disney’s value loss.
Unlike Paramount (PARA), Disney is not paying a dividend. However, Iger promises he will restore the dividend by the end of the year, Deadline reports.
I advise investors to avoid Disney until Iger finishes his reorganization. In the final analysis, I conclude Disney is no longer a value investment because it pays no dividend and generates less cash.
Disney shows making money from streaming video is tough. Smart investors need to be leery of the streaming video sector because even powerful companies, such as Disney, have trouble making money from streaming.