Buffett’s Doubts Meet Disney’s Resilience
Last year, renowned investor Warren Buffett expressed skepticism about streaming as a profitable venture. He remarked in April 2023 that “streaming…it’s not really a very good business,” highlighting how shareholders have historically faced lackluster returns. The performance of legacy media giants like NBCUniversal, Disney, Paramount Global, and Warner Bros. Discovery has indeed lagged behind the S&P 500 since early 2022, partly due to the financial toll of launching streaming platforms. However, Disney Q4 results released on Thursday offer a different perspective, suggesting that streaming may indeed have the potential to outperform traditional TV.
Disney’s Chief Financial Officer, Hugh Johnston, highlighted that a shift in strategy—pulling back on content spending and increasing subscriptions on platforms like Disney+, Hulu, and ESPN+—has turned streaming into a profitable endeavor. Johnston projected that by fiscal 2025, Disney’s streaming income would not only be substantial but could effectively compensate for the operating income decline from traditional TV.
Financial Gains and Subscriber Growth Fuel Optimism
Disney Q4 results revealed the company’s entertainment streaming platforms saw significant improvement in profitability in its fiscal fourth quarter. The streaming services, which include Disney+ and Hulu, posted an operating income of $321 million. This turnaround is stark compared to the previous year when Disney’s streaming platforms recorded a $2.5 billion loss. For the full fiscal year, Disney’s streaming platforms generated $143 million in operating income, a remarkable shift toward profitability.
This trend reflects Disney’s anticipation of continued financial gains, with a projected increase in entertainment direct-to-consumer income by approximately $875 million in fiscal 2025, pushing operating income for streaming to over $1 billion. Johnston’s comments during the earnings call suggested Disney is prepared for both scenarios: consumers either sticking with linear TV for longer or fully embracing streaming as their main source of entertainment.
Changing Industry Dynamics and Future Prospects
The transition from cable to streaming has introduced new challenges for media companies, including higher churn rates. Unlike the pay-TV model, where companies received monthly fees regardless of viewership, streaming allows users to cancel services at will. However, Disney’s forecast suggests that this challenge won’t prevent streaming from becoming a viable replacement for cable in the long run. Strategies like bundling services and shifting top content to streaming platforms could help retain customers.
Disney’s positive results echo the recent performance of Warner Bros. Discovery, which reported a $289 million profit from its streaming division, Max, due to an increase in global subscribers and higher advertising revenue. Warner Bros. Discovery’s Max gained 7.2 million new subscribers in the third quarter, bringing its total to 110.5 million, a sign that consumer interest in streaming remains robust. Disney’s success and that of its peers suggest that the media industry, despite a challenging transition period, could emerge more resilient than anticipated. Disney’s shares rose by 6.2% on Thursday, reflecting renewed investor confidence.
