The Disney+ website on a laptop in Brooklyn, New York, United States, Monday, July 18, 2022.
Gabby Jones | Bloomberg | Getty Images
disney The world’s most famous investor could be proven wrong.
Last year, the “Oracle of Omaha” Warren Buffett said CNBC’s Becky Quick He has no confidence in the streaming video business.
‘Streaming… it’s not a very good business,’ Buffett explain April 12, 2023. “Shareholders really haven’t done that well over time.”
Buffett didn’t lie. Traditional media companies, e.g. Comcast NBCUniversal, disney, Paramount Worldwide and Warner Bros. Discovery All performed poorly S&P 500 Index This is largely due to billions of dollars lost since January 1, 2022, when launching subscription streaming services.
But Disney’s Quarterly earnings results released Thursday, Shows that streaming is about to become a better business.
Disney CFO Hugh Johnston said the combination of cutting content spending and steadily adding Disney+, Hulu and ESPN+ subscribers not only made streaming a profitable business, but actually made streaming a A better business than traditional TV.
Johnston said in an interview that for Disney’s fiscal 2025, streaming will generate enough operating income to offset a parallel decline in linear TV operating income.
Disney expects entertainment direct-to-consumer operating revenue to increase by approximately $875 million next year compared with fiscal 2024. This will bring the unit’s operating income to more than $1 billion next fiscal year.
“I think we’re well-positioned if (consumers) decide to stay linear longer and we’re well-positioned if they decide to move to streaming,” Johnston said on Disney’s earnings call.
These results were confirmed by Disney’s earnings. Disney’s combined streaming business became more profitable in the company’s fiscal fourth quarter, with operating income reaching $321 million. This year, Disney’s entertainment streaming platforms (Disney+ and Hulu) generated operating revenue of $143 million. Last year, entertainment platforms lost $2.5 billion.
Streaming media fights back
The pessimism about traditional media isn’t just about streaming’s recent losses.
Investors are also largely convinced that subscription streaming video cannot replace the billions of dollars in profits from linear television (cable and broadcast) that these companies have relied on for decades.
There are many reasons why traditional pay TV is doing so well, but two stand out: Media companies get paid every month whether people actually watch or not, and churn in traditional pay TV has traditionally been extremely low — at least in This was before the invention of streaming. . In the past ten years, tens of millions of Americans have canceled their cable TV subscriptions.
In the new era of streaming, it’s much easier to cancel a specific service at any given time. Rather than canceling TV entertainment entirely, consumers can easily choose from a handful of streaming services in any given month.
So media companies no longer get paid seriously every month. Now, only consumers who want a specific program will pay, and they can pay whenever they want.
Still, Disney’s forecast suggests that these headwinds don’t necessarily mean streaming won’t succeed as a long-term alternative to cable TV. Future bundling or integration may help reduce churn. As companies shift their best content to streaming, canceling services becomes less attractive.
The end result could be that the media industry emerges stronger than investors feared after a rough few years. Disney shares rose more than 6% in midday trading.
Disclosure: Comcast-owned NBCUniversal is the parent company of CNBC.
