Subscription Challenges Await Iger as Former CEO Returns to Disney’s Helm

While investors cheered Robert Iger’s return as Disney’s CEO, challenges at the company’s streaming media division will be front and center thanks to new competition from Apple and Amazon and macroeconomic headwinds that have tightened subscription spending.

It’s a reality that could see the Monday morning euphoria to the news proving to be short-lived, as a number of challenges await the once and future CEO of Disney’s, who stock was down 45% this year prior to the change of chiefs.

In the release that announced Iger’s return, and the departure of CEO Bob Chapek who replaced Iger only last year, the board stated that it “has concluded that as Disney embarks on an increasingly complex period of industry transformation Bob Iger is uniquely situated to lead the company through this pivotal period.”

‘Industry Transformation’ for Subscriptions and Streaming Media

The key words, we note, are “increasingly complex” and “industry transformation.”  While it’s true that the theme park and cruise operations have enjoyed a surge amid the great reopening — revenues from that segment were up 36% year on year — the pivot toward status as a digital media powerhouse has encountered speed bumps.

The most recent earnings announcement from earlier this month spotlights the money-draining impact of its streaming division, which lost $1.5 billion in the third quarter, up from $630 million in losses in last year’s 3Q. Drilling down into the numbers, the direct-to-consumer (D2C) revenues for the quarter increased 8% to $4.9 billion, lagging the 20% increase in Disney+ paid subscribers by 20% in the United States and Canada and a 57% gain internationally over the last year, to a respective 46.4 million and 56.5 million.

Average monthly revenues per subscriber, the company disclosed, were down by 10% for Disney+ here in North America, and barely budged for ESPN, up a scant 2%. The cable sports channel has a new set of competitive challenges for subscriber loyalty (and eyeballs) in the form of Amazon, which now has Thursday Night Football, and Apple, which is bringing the Major League Soccer service to market early next year.

There’s a big “if” looming as to how, or when, the D2C business starts to see some stanching of the red ink:  In tandem with earnings, Chapek said the division’s losses would narrow and D2C would be profitable next year … with the caveat that “we do not see a meaningful shift in the economic climate.”

There are, of course, indications that there has been a meaningful shift in what we might term the “economic climate” for subscriptions. Research from PYMNTS and sticky.io shows that there’s some resilience in streaming entertainment — as subscriptions in that segment have grown by 6.5% since July, bucking the downtrend seen in all other segments. But we note that the resilience comes as a growing number of providers jockey for wallet share (see Apple and Amazon, as noted above). The spending “pie” is finite and might be carved up and allocated to more providers, which could cap growth for Disney and others. And in an ominous sign, 34% of consumers told us they would consider canceling subscriptions due to a desire to reduce expenses.

The streaming media challenges will likely be top of the list as Bob Iger settles back into the CEO role — a “to-do” list that has increasing urgency.