Iger's 2024 Profitability Expectation for Streaming Deemed 'Challenging', According to Third Bridge's Lumley

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Slipping back towards the flat line here down slightly. Rieskull is underway right now. In the meantime, let's bring in a Third Bridge analyst, Jamie Lumley. Jamie, you want to get your thoughts on the results we got here because at first glance, it does seem like this beat was very much driven by the cost cutting we've seen at the company. And there's a lot of mixed results if you parse through some of these different segments. There certainly is a lot to unpack.


Challenges and Progress in Different Segments


And I think there are a couple of areas at first take a look at. One is, of course, there's a lot of interest around streaming and how necessarily is that road to profitability going at Disney is making a lot of progress trimming that loss moving in the right direction. But then also seeing a couple of challenging things in different markets, seeing a major erosion of that international base with Hotstar in India. And then also seeing flat to down across ESPN plus and Hulu and Disney plus in the US markets. So definitely a couple of challenges there.

Positive Signs in Parks and Linear Business


But then for looking at a couple of areas where there have been positives within parks, one of the big stories of the summer has been the ongoing question of what exactly is attendance looking like so far in terms of revenue. It seems that they're able to still see growth over the previous year period and get some encouragement from that.
And then of course, looking over at the linear business, which has been a major discussion and concerning around what sort of role this will play for the business going forward. Well, it is continuing to face pressure with that 7% decline across both domestic and international channels. It's not that double-digit losses that they were seeing at the beginning of the year. So some encouraging signs there as well.

Challenges in Parks' Operating Income


Yeah, I do want to dig into parks a little bit more though, because it does seem like some of the strength, the toppling growth we've seen, particularly on the domestic side in parks, that that does seem to be slowing. And more notably, operating income actually fell 13% year on year. This has been an area of strength and profitability for Disney and it's enabled them to pull that lever to help sustain the streaming business and some of the other efforts that are put at the company.
Does this change things? It's definitely a good question. And certainly looking at that business, the overall questions have been OK. Looking at the price increases that Disney put in place for its parks, what would the response be when it comes to foot traffic. And then also overall, how does that cost structure change with the ongoing impact of inflation and dealing with that on top of the numerous investments that Disney has been making into this portion of the business? Certainly, it's interesting to look at this segment in comparison with, say, Comcast Universal to understand what necessarily is happening with foot traffic, because there are, of course, some other macroeconomic trends here, such as changing leisure or habit behavior as we start to ease out of that pent-up post-COVID demand, which was seeing huge numbers of people attending parks in that initial period. As that starts to wane and people start to consider necessarily where they want their leisure dollars to be going, that's another thing to keep in mind here. As you pointed out, operating income from parks is under pressure. And whether or not they're going to be able to move out of this at Disney as they continue to look towards what necessarily is the flexibility around pricing and getting those parks up to full capacity is a big question.

Challenges and Timeline for Streaming Profitability


Yeah. When do you think streaming actually reaches profitability? And I ask that because it does seem like the losses are narrowing, but there's still a ways to go. And there's still questions about some of the other entities like Hulu, which there is a belief out there they're going to acquire the remaining stake from Comcast before the year is out. Absolutely. So there are a couple of key things to look at here. One is Hulu, which you definitely mentioned with that upcoming option to buy the remaining stake from Comcast, which considering the minimum of almost 30 billion for that valuation for Hulu is definitely going to be a big decision to make. But from what we've been hearing overall in this streaming segment is that that 2024 expectation, which Bob Iger has talked about for profitability, is increasingly looking to be challenging.

Factors Affecting Profitability


We have the ongoing dual strike in Hollywood, which is stopping production of any new content made in the U.S., which will make it hard to necessarily pull more users to Disney's various platforms. And then also just some of these overall harder trends about overall slowdown and subscriber growth domestically and some challenges overseas as well. So from what we've been hearing from experts, it's more likely that 2025 is when Disney could start to see profitability in streaming. But there are a number of things in flux here as the total effect of the strikes remains to be seen. And then also overall, how effective the cost-cutting measures will be when trying to also manage the line of being able to see subscribers not trail off dramatically in the coming months.


Jamie Lumley, the Third Bridge analyst, highlights the challenges Disney faces in achieving streaming profitability by 2024 and suggests that 2025 might be a more realistic timeline. Factors like ongoing strikes and subscriber growth will play a crucial role in shaping the future of Disney's streaming business.

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