Highlights:
– The Walt Disney Company has successfully achieved a notable milestone with its direct-to-consumer segment posting its first operating profit in several quarters, driven by various factors like increased average revenue per user (ARPU) and growth across Disney+, Hulu, and ESPN+.
– Disney's strategic focus on bundling services, integrating live sports content, and offering an ad-supported tier for Disney+ showcases the company's effort to diversify offerings, enhance subscriber engagement, and adapt to evolving consumer preferences.
– Despite challenges in the streaming industry, Disney's ability to reverse subscriber declines, improve profitability, and emphasize sustained growth in direct-to-consumer services has been positively received by investors, marking an optimistic outlook for the company in the competitive streaming landscape.
Summary
The Walt Disney Company recently reported a surprising uptick in its streaming subscriber base and strong financial results, surpassing expectations on both revenue and profitability. Despite a modest decline of approximately 700,000 Disney+ subscribers worldwide—primarily due to a 2% drop in international markets—U.S. subscriptions grew by 1%, and overall streaming profitability improved significantly. This marks a notable milestone as Disney’s direct-to-consumer segment posted its first operating profit in several quarters, driven by higher average revenue per user (ARPU), expansion of its ad-supported tier, and growth across its other streaming platforms, Hulu and ESPN+.
Disney+ remains a major player in the subscription video-on-demand (SVOD) market with around 124.6 million global subscribers, supplemented by 52 million Hulu and 25.6 million ESPN+ subscribers. The company’s strategic focus on bundling these services and integrating live sports content—such as the planned ESPN tile within Disney+—reflects its efforts to diversify offerings and enhance subscriber engagement. Approximately 30% of Disney+ users have opted for the lower-cost ad-supported tier, underscoring shifting consumer preferences toward more affordable streaming options with advertising.
This rebound in subscriber growth and profitability comes amid ongoing challenges in the streaming industry, including intensified competition, regional content licensing issues, and fluctuating demand following the peak pandemic years. Disney’s ability to reverse subscriber declines and improve operating income highlights its adaptive strategy, balancing subscriber growth with revenue enhancement through price adjustments and ad-supported models. However, the company’s slight decline in U.S. market share—from 12% to 10%—and the lowest quarterly app downloads since launch signal continuing headwinds.
Market reaction to Disney’s results was generally positive, with investors optimistic about the company’s streaming outlook and profitability trajectory. CEO Bob Iger emphasized the importance of sustained growth in direct-to-consumer services alongside Disney’s broader entertainment portfolio. Disney’s evolving streaming strategy—characterized by strategic partnerships, content investments, and hybrid monetization—illustrates the complex dynamics shaping the future of the global streaming landscape.
Background
Disney’s strategic focus on streaming services has been a central element of its business model, leveraging a vast archive of more than 8,000 hours of content spanning over eight decades to attract subscribers. Disney+ quickly became a key player in the subscription video on demand (SVOD) market, reaching 50 million subscribers by April 2020, buoyed by popular original content such as the Star Wars spin-off *The Mandalorian*, which gained widespread acclaim and significantly boosted the platform’s early growth. As of recent years, Disney+ has expanded its global footprint, offering over 13,000 shows and movies across 150 countries in 39 languages, solidifying its position as one of the most popular streaming platforms with 158.6 million subscribers worldwide at its peak.
Despite initial rapid growth, the platform has experienced some fluctuations. In the United States, Disney+ held a 12% share of the SVOD market at one point, ranking fourth among streaming services, but this share slightly declined to 10% by Q1 2024. Additionally, quarterly app downloads in the U.S. have shown a downward trend, with Q3 2023 marking the lowest quarterly figure since the platform’s launch. Globally, subscriber numbers dipped modestly from 125.3 million to 124.6 million between late 2024 and early 2025, attributed primarily to a 2% decline in international subscribers, although U.S. subscriptions grew by 1% during the same period.
Disney has diversified its streaming offerings through bundled packages that combine Disney+, Hulu, and ESPN+, catering to different consumer preferences. Approximately 30% of Disney+ subscribers now choose the ad-supported tier, reflecting shifting user behaviors toward more affordable streaming options with occasional advertising. This bundle strategy enhances cross-platform engagement, as subscribers can access content across multiple apps and devices, with certain Hulu titles available directly on Disney+.
Beyond Disney+, the company’s other streaming assets, such as ESPN+ and Hulu, continue to show subscriber growth, with ESPN+ reaching 25.6 million subscribers and Hulu 52 million, partly driven by exclusive sports content and broader entertainment offerings. Disney’s CEO Bob Iger highlighted the importance of these segments in the company’s financial performance, noting profitability in streaming and ongoing efforts to integrate live sports content directly into Disney+ through features like the forthcoming ESPN tile in the U.S. market.
Quarterly Financial Results
Disney’s direct-to-consumer streaming segment marked a significant milestone by achieving its first-ever operating profit in the third quarter, reporting a $47 million operating income compared to a $512 million loss in the same period the previous year. This upward trend continued into the fourth quarter, with the segment posting an operating income of $253 million and a full-year profit of $143 million ended September. Despite a slight 1% decline in Disney+ subscribers, the streaming business maintained profitability, supported by higher average revenue per user (ARPU) and increased subscriber numbers across its platforms.
The company’s streaming profitability outlook remains positive, with CEO Bob Iger emphasizing that the strong performance—highlighted by a 30% increase in adjusted EPS year-over-year in the second quarter—demonstrates successful execution of strategic priorities. Disney’s introduction of new revenue streams, such as an ad-supported tier on Disney+, and periodic price increases have helped improve metrics like ARPU, which rose from $7.20 in Q4 2024 to $7.55 in Q1 2025. Additionally, the ad-supported model now accounts for approximately 36.8 million subscribers, reflecting changing consumer preferences for more affordable streaming options with advertising.
Entertainment streaming revenue, excluding ESPN+, increased by 13% to $5.64 billion in the recent quarter, with operating income shifting from a loss of $587 million a year prior to a gain of $47 million. When combined with ESPN+, the streaming division reported a modest loss of $18 million, significantly narrower than the $659 million loss recorded the previous year. This improvement is attributed to growth in Disney+ subscribers and higher ARPU, further underscoring the company’s progress toward sustainable streaming profitability.
Looking ahead, Disney plans to enhance its streaming offerings by adding an ESPN tile to Disney+ by the end of 2024, providing subscribers with access to live games and sports programming, which is expected to contribute additional revenue and subscriber engagement.
Subscriber Growth
Disney experienced a surprising uptick in streaming subscribers, reversing earlier declines and beating expectations on both top and bottom lines. The company reported approximately 124.6 million Disney+ subscribers worldwide, marking a decrease of about 700,000 compared to late last year. This decline was primarily driven by a 2% drop in international subscribers, despite a 1% increase in U.S. subscriptions. Nevertheless, Disney anticipates returning to subscriber growth in the fourth quarter, supported in part by a new partnership with cable company Charter Communications that integrated Disney+’s ad-supported tier into certain cable packages.
Subscriber growth across Disney’s streaming services showed mixed results but generally positive momentum. Hulu reached 52 million subscribers, gaining 900,000 over a recent three-month period, while ESPN+ grew by 700,000 to 25.6 million subscribers. Upcoming exclusive content, such as NFL games on ESPN+, is expected to further boost subscriber numbers. Disney’s streaming bundle, which combines Disney+, Hulu, and ESPN+ for $26.99 per month, remains an attractive offering, providing access to a wide variety of content ranging from Disney and Pixar originals to live sports and Hulu’s current hits and award-winning shows.
The growth trajectory has been uneven, with Disney noting that subscriber growth is not expected to be linear quarter-to-quarter. The company projects stronger growth in the second half of the fiscal year compared to the first, despite ongoing production challenges caused by the pandemic. This contrasts with competitors like Netflix, which has forecasted subscriber growth below its historical averages. Disney’s momentum is attributed to the surge in consumer demand for in-home entertainment during the peak pandemic years, although growth slowed as economies reopened.
Strategic Initiatives
The Walt Disney Company has emphasized four key strategic opportunities that are central to its future success: achieving sustained profitability in its streaming business, establishing ESPN as the leading digital sports platform, enhancing the output and economics of its film studios, and driving accelerated growth in its parks and experiences segment. These priorities reflect a comprehensive approach to leveraging Disney’s diverse portfolio of businesses, brands, and assets.
In fiscal Q1 2024, Disney reported outstanding box office performance, with its studios producing the top three movies of the year so far, underscoring the strength of its film studios and their contribution to overall profitability. Alongside this, the company made significant progress in improving the profitability of its direct-to-consumer (DTC) streaming services by focusing on new revenue streams such as the recently launched ad-supported tier and planned price increases, which aim to enhance average revenue per user (ARPU) and reduce losses.
A notable strategic move to advance ESPN’s digital presence was the integration of an ESPN tile on Disney+, enabling easier access to sports content and complementing the company’s efforts to build ESPN into a preeminent digital sports platform. This digital expansion coincided with the revised College Football Playoff (CFP) format for the 2024-2025 season, which included four first-round games, two of which aired on Disney networks, enhancing ESPN’s sports broadcasting portfolio.
Disney’s streaming portfolio—comprising Disney+, Hulu, and ESPN+—offers a broad range of content, from new releases and original series to live sports and premium articles, catering to diverse consumer preferences. Despite this extensive offering, some analysts suggest that merging Disney+ and Hulu into a single subscription could better capitalize on consumer demand for original content and simplify the user experience. Internationally, Disney plans to expand its ad-supported Disney+ plans to Canada, the U.K., and several European countries starting November 2023, alongside incremental price increases for ad-free tiers, reflecting a strategic balance between subscriber growth and revenue enhancement.
Market Reaction
Disney’s recent fiscal results prompted a generally positive response from the market, driven by the company’s ability to surpass revenue and earnings expectations despite challenges in subscriber growth for its streaming services. Analysts had anticipated a modest revenue increase of 4.34% year-over-year to $22.44 billion, reflecting tempered enthusiasm due to slowing Disney+ subscriber additions. However, Disney reported revenue of $22.33 billion, slightly below the consensus but close enough to maintain investor confidence.
The market welcomed Disney’s continued progress toward streaming profitability, particularly noting the profitability achieved in the entertainment streaming segment for the reported quarter. CEO Bob Iger highlighted adjusted earnings per share (EPS) growth of 30% compared to the prior year, attributing much of the strong performance to the Experiences segment and the streaming business, underscoring the strategic focus on these areas. Furthermore, the company’s streaming outlook remained optimistic with projections to reach overall streaming profitability by the end of fiscal 2024, bolstered by the introduction of new revenue streams such as the ad-supported Disney+ tier and planned price increases.
Investors also reacted positively to Disney’s evolving streaming subscriber model, which now includes approximately 36.8 million ad-supported Disney+ subscribers, signaling a shift in consumer preferences toward more affordable, ad-inclusive packages. This trend contributed to a rise in average revenue per user (ARPU) from $7.20 to $7.55 within a single quarter, indicating improved monetization despite some dilution from lower-priced tiers.
Additionally, the company’s strategy to bundle Disney+, Hulu, and ESPN+ was anticipated to further aid subscriber growth, which analysts expected to see reflected in upcoming quarters. ESPN’s robust performance, with an 8% increase in revenue to $4.81 billion and a 15% rise in operating income, was another factor supporting a favorable market outlook, especially as Disney explores new approaches to expand sports viewership after exiting previous joint ventures.
Implications for the Streaming Industry
Disney’s recent subscriber trends and strategic moves underscore several key implications for the broader streaming industry. Despite facing a 7.4% quarterly decline in Disney+ subscribers to 146.1 million, largely driven by a 24% loss in Disney+ Hotstar users after losing Indian Premier League cricket rights, the company still maintains a significant global subscriber base of approximately 158.6 million. This indicates that even dominant players are susceptible to regional content rights challenges, which can heavily impact subscriber retention and growth.
The modest 1% increase in U.S. subscriptions alongside a 2% fall internationally reflects the importance of geographic diversification and tailored content strategies to maintain and grow subscriber bases in different markets. Moreover, the expectation of subscriber growth returning in the latter half of the fiscal year, fueled by partnerships such as the recent deal with Charter Communications providing ad-supported Disney+ subscriptions through cable packages, suggests that hybrid monetization models combining subscription and ad-supported tiers are becoming crucial revenue drivers.
Disney’s forecasted increase in direct-to-consumer operating income by approximately $875 million in fiscal 2025 further highlights the evolving financial landscape of streaming services, where profitability is increasingly attainable despite fluctuations in subscriber counts. The ad-supported segment’s growth also reflects broader industry trends, with ad revenue for video streaming services in the U.S. projected to rise significantly, emphasizing the shifting balance between ad-free and ad-supported subscription models.
The company’s experience with subscriber fluctuations, including the lowest-ever U.S. app downloads in Q3 2023 and challenges related to pandemic-constrained content production, signals that content supply and quality remain critical competitive factors in subscriber acquisition and retention. Overall, Disney’s mixed results and strategic adaptations illustrate that the streaming industry is moving toward a more nuanced balance of content investment, market-specific strategies, and diversified revenue streams to sustain growth in an increasingly saturated market.
The content is provided by Jordan Fields, Front Signals
