Friday 13 November 2020 8:58 am

Disney doubles down on streaming as it keeps a lid on losses

Disney has said its nascent streaming service is key to the future success of its business after the media giant swung to its first annual loss in four decades.

The House of Mouse today said it had racked up almost 74m paid subscribers for its Disney Plus platform, which launched in the UK on the eve of the first lockdown in March.

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Chief executive Bob Chapek said streaming had been the “real bright spot” and was “key to the future of our company”. He added that the user numbers were well ahead of expectations in the first year.

The launch of Disney Plus has proved a vital saving grace for the US conglomerate, which has suffered a sharp downturn in its parks, cruises and film studios divisions due to the pandemic.

The outbreak of Covid-19 pushed the company to a pre-tax loss of $1.7bn (£1.3bn), its first reported annual loss since 1980.

But revenue came in at $65.4bn for the full year, a decline of just six per cent and ahead of market expectations.

In the fourth quarter revenue dropped 23 per cent to $14.7bn, while its pre-tax loss of $580m was less steep than feared.

As a result, Disney shares pushed up as much as six per cent in after-hours trading, before slipping back to a three per cent gain after the firm told analysts it was scrapping its interim dividend in January.

“Surging Disney Plus subscribers and shrinking losses have turned this into a much better-than-feared report for Disney,” said Haris Anwar, senior analyst at Investing.com. 

“Investor optimism is manifested in seeing the company’s focus on its streaming business paying off and signs it could soon become a profitable venture. If this success continues and the global health crisis is contained through a successful vaccine, there is good reason to believe that Disney will emerge stronger from this crisis.”

Disney last month announced a restructuring of its content production and distribution businesses to refocus on its streaming efforts.

Nicholas Hyett, equity analyst at Hargreaves Lansdown, said the move was a “clear bet on a digital first, streaming centric, future”.

But he warned it was a “big gamble for a company which isn’t in the best of financial health at the moment”.

“Net debt is high despite a pretty resilient performance at the cash level, and direct to consumer is still heavily loss making. While a vaccine might accelerate a return to normal in the key parks business, it’s still likely to take months and possibly years before business is back to where it once was.”

Read more: Disney’s earnings take a hit as pandemic wreaks havoc on theme parks business

Parklife

While streaming success provides some optimism for Disney, it has been hardest hit in its parks department, which operates the Disneyland resorts.

The company’s parks in the US and Asia have been able to reopen with reduced capacity, but Disneyland Paris was forced to close again last month due to fresh lockdown measures.

Disney estimated that the pandemic had led to a $2.4bn hit to its theme parks division in the fourth quarter.

The company’s studio entertainment division has also been hit by delays and cancellations to filming and cinema releases.

Revenue from this unit dropped 52 per cent to $1.6bn in the fourth quarter after Disney was left with no major theatrical releases. This compared to the release of The Lion King and Toy Story 4 in the final quarter of last year.

Disney did not give any information about the performance of its live-action remake of Mulan, which was released exclusively on Disney Plus after the cancellation of its theatrical release.

The company has come under scrutiny for filming Mulan in the Xinjiang province in China, where authorities are accused of committing human rights abuses against Uighur Muslims.

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