Disney Beats on Top & Bottom Line, Surpasses Netflix in Streaming Subscribers; Are the Streaming Wars Over?

Disney Overtakes Netflix

After markets closed on Wednesday, the Walt Disney Company released blockbuster results for Q3 of Fiscal 2022 (period ended July 2), with its streaming services rightfully attracting most of the attention. ^[1]

Disney+, ESPN+ and Hulu added a combined 15.5 million paid subscribers during the reported period that blew past expectations, bringing the total for all three services to 221.1 million users, surpassing rival Netflix.

The troubled leader (up until now) of the industry had reported 220.6 million users as of the end of June, having relinquished nearly one million members in the second quarter - less than the two million projection.

The star and the largest part of the firm's direct-to-consumer business, is Disney+, which alone delivered 14.4 net additions in the quarter, now having 152.1 total users.

Ad-Supported Tier

The entertainment giant also surpassed Netflix (NFLX) on another front: the ad-supported subscription option in the US. Following through with its previously announced intentions, the firm said yesterday that Disney+ (and the other streaming venues) will have a subscription tier that will include advertisements, starting in December. ^[2]

The new ad-supported plan will be called Basic and will be priced in at $7.99 per month, which is how much the current sole no-ads service costs now. Price of Disney+ without advertisements (Premium) will be ramped up to $10.99 per month.

As per Reuter's recent reporting, the Walt Disney Company has already secured a record $9 billion in advertisement commitments for fiscal 2022-23, with 40% for Disney+, ESPN+ and Hulu direct-to-consumer channels. ^[3]

We have long maintained that ad-supported subscription plans may be the future of the streaming industry, an option that Netflix has resisted for so many years. Its latest poor results and user losses however, have forced her to change tack, expecting to launch such an option early in 2023.

Disney Strong Content

The legacy entertainment powerhouse has decades worth of popular content that caters to gown-ups and children alike. It also holds the keys two some of Hollywood's biggest franchises, which find their way into its streaming services or hosted there directly.

These are non-others that the Marvel Cinematic Universe (MCU) and Star Wars, whereas Disney also owns Pixar Animation Studios - the producer of highly popular animated movies such as the Toy Story series.

Its content is not only sought after by fans, but it is also critically acclaimed, scoring 147 Emmy Nominations147 Emmy Nominations for the September ceremony, which were announced in July. Disney+ on its own, clinched 34 nominations, mostly for Marvel and Star Wars related shows, such as the Moon Knight. ^[4]

Back in March, Disney as whole had won six Oscars, including Best Animated Feature Film Best Documentary, for Encanto & Summer of Soul respectively – both available on its streaming platform. ^[5]

The End of Streaming Wars?

With Disney overtaking leader Netflix in number of paid users, moving first towards ad-supported subscription plans and with robust content, are the streaming wars over?

It may actually be early for a "The King is Dead, Long Live the King" moment, since Disney surpassed its rival only by a little and after combining all three of its direct-to-consumer brands. Disney+ on its own, still has fewer users, despite its meteoric rise since its launch in late-2019 – just in time to capitalize on the pandemic lockdowns.

Furthermore, these are not they only names in the arena, as AppleTV+ has already made a splash becoming the first streamer to win an Oscar, while other legacy entertainment behemoths, such as HBO (of Warner Bros) are making strides in the industry.

It also remains to be seen how potential viewers will react to the upcoming new subscription structure and the bump in the price of the ad-free tier, while the higher cost of leaving in the US and around the world poses a challenge for the entire industry.

Not All is Rosy

Disney+ has been growing rapidly and expanding into new territories recently, but it may not be able to resist increasing competition and potential saturation, which have already bitten Netflix (NFLX) in a head-turning way.

The firm lowered its Disney+ longer-term growth guidance, now expecting to Disney+ to have 215-265 million subscribers by the end of fiscal 2024, still seeing profitability in that timeframe. ^[6]

Despite the impressive net additions in the reported quarter, the Disney+ reported a significant drop in Average Monthly Revenue Per Paid Subscriber, while the Operating Loss of the Direct to Consumer business widened to more than $1 billion.

These are some worrying signs for Disney's streaming offering and we still feel like we need a more clear strategy, especially in regards to the combination with the legacy operations.

Strong Top & Bottom Line

Other than the streaming metrics, the California-based firm had a blockbuster quarter, with impressive top and bottom line numbers. Revenues grew 26% year-over-year to %21.5 billion in Q3 FY2022, while both its Operating and net Incomes increased by around 50% compared to the year-ago quarter.

The Disney Parks, Experiences and Products segment continued its post-pandemic recovery, with its sixth consecutive profitable quarter, as it registered Operating Income in excess of $2 billion.

CEO Bob Chapek talked of an "excellent quarter" and "outstanding performance" of the domestic theme parks.

Disney Stock

Markets reacted positively to the financial results, as Disney's stock was up around 8% in pre-market at the time of writing.

DIS.us had erased approximately 40% of its value during the first half-of the year, dropping to the lowest levels since the break of the Covid-19 pandemic (90.11), in mid-July. Since then however it has posted a noteworthy recovery and closed Wednesday above 110.00.