Key Takeaways
- Disney shares fell Tuesday after CEO Bob Iger said the company “invested too much” in its streaming business and is making changes to tackle profitability challenges.
- Some of those measures include driving engagement through new technology features, streaming bundles, an upcoming password-sharing crackdown, and reducing marketing spending.
- Iger said that Disney’s streaming segment has a ways to go before becoming a significant profit source for the company.
- The company has struggled to find its footing with its streaming business as it attempts to compete with Netflix.
Disney (DIS) shares fell over 2% in intraday trading Wednesday after CEO Bob Iger said the company “invested too much” in streaming and is making changes to tackle profitability challenges in its streaming business as it struggles to compete with Netflix (NFLX).
“As we got into the streaming business in a very, very aggressive way, we tried to tell too many stories,” Iger said, explaining “basically, we invested too much way ahead of possible returns.”
The CEO said that “spending more than was truly monetizable” was a “mistake” that led to the company’s several quarters of losses in its streaming segment, and that it is making changes to support its path to profitability.
Tackling Profitability Challenges
Iger said that Disney’s streaming segment has a ways to go before becoming a significant profit source for the company, and that it has started tackling profitability challenges by driving engagement through technology, new streaming bundles, an upcoming password-sharing crackdown, and reducing marketing spending to cut costs.
Looking forward, the CEO said the company needs to “invest in technology to serve the user because it’s very clear that in order to turn streaming into a profitable business, we have to have a user-first mentality.”
He also said that Disney would work to address its high marketing spend, improve its recommendation algorithm, and consider the impacts of third-party app distribution costs.
Finding a ‘Nice Rhythm’ in User Engagement
Iger said that the company has found “a nice rhythm with Disney+ in terms of in terms of engagement.” He highlighted that this engagement was supported by the bundling of Disney+ and Hulu. Disney is set to integrate ESPN into Disney+, and recently announced a bundling partnership with Warner Bros. Discovery (WBD) to add Max into the mix.
Disney returned a surprise profit in its direct-to-consumer entertainment segment, which consists of Disney+ and Hulu, in the second quarter. Iger called this “an important milestone” on the segment’s path to profitability. The company suggested it is anticipating a softer third quarter, but is on track to return a profit in its combined streaming businesses, including ESPN, by the end of the year.
Disney shares were down 2.5% to $102.68 around 3:30 p.m. ET Wednesday. The stock has gained more than 13% year to date.