With Traditional TV in Free Fall, Disney Looks to Cut Costs

Robert A. Iger gave Disney’s corporate critics the equivalent of a punch in the mouth on Wednesday.

In his first earnings report since he came out of retirement to retake the reins of a troubled Disney, Mr. Iger disclosed quarterly profit and revenue that exceeded Wall Street’s expectations. Losses abated in Disney’s streaming division by $400 million compared with the previous quarter; investors had been braced for half as much. Despite a weakening economy, Disney’s theme parks in the United States delivered a fat $2.1 billion in operating profit, an increase of 36 percent from a year earlier.

Mr. Iger was also expected to use an earnings-related conference call with analysts, investors and the news media to unveil a new operating structure for the company — one designed to galvanize Disney’s film and television studios while drastically cutting costs. And Disney is expected to lay off thousands of employees.

In a statement, Mr. Iger said the restructuring would “lead to sustained growth and profitability for our streaming businesses, better position us to weather future disruption and global economic challenges, and deliver value for our shareholders.” In late November, the Disney board fired Bob Chapek as chief executive and reinstated Mr. Iger, who ran the company from late 2005 to early 2020.

Among other things, Disney is trying to fend off Nelson Peltz, the corporate raider turned activist investor. Mr. Peltz, who is fighting a proxy battle for a board seat for himself or his son, wants the world’s largest entertainment company to revamp its streaming business, refocus on profit growth, cut costs, reinstate its dividend (suspended during the early part of the coronavirus pandemic, when much of Disney was closed) and do a much better job at succession planning. Mr. Peltz’s Trian Partners has amassed roughly $1 billion in Disney stock.

Underscoring the importance of streaming to Disney’s future, operating profit from traditional television (the ABC broadcast network and 15 cable channels, led by ESPN) totaled $1.3 billion in the quarter, a 16 percent decrease from a year earlier. Revenue fell 5 percent, to $7.3 billion. Disney attributed the declines to lower advertising revenue, reflecting a drop-off in viewership, especially overseas.

Disney’s cable portfolio has held up better than those owned by some rival companies, but people have been cutting the cable cord at an alarming pace — total hookups in the United States declined by a record 6.2 percent from October to December.

As a result, after a period in which they pushed companies like Disney to chase streaming subscribers at any cost, investors have shifted to a new mind-set: Show us the profits. Disney has repeatedly said that its flagship Disney+ service will be profitable by October 2024, but Wall Street has been skeptical. Losses in Disney’s streaming division totaled $1.1 billion in the quarter.

Disney had 234.7 million subscriptions across Disney+, Hulu and ESPN+ in the quarter that ended in late December, down from 235.7 million in early October. (To compare, Netflix has roughly 231 million subscribers worldwide after adding 7.7 million in the fourth quarter, well beyond its forecast of about 4.5 million.)

Disney+ lost about 2.4 million subscribers worldwide, for a new total of 161.8 million. All the decline came from a low-priced version of Disney+ in India. (Last year, Disney lost a bid to renew the expensive rights to Indian Premier League cricket matches.) Hulu, which does not operate overseas, recorded a 2 percent increase in subscribers. The sports-oriented ESPN+ also added to its count by 2 percent.

Disney’s streaming division generated $5.3 billion in revenue, a 13 percent increase from a year earlier. On Dec. 8, Disney began charging $11 for a monthly subscription to the ad-free version of Disney+, up from $8, a 38 percent increase. The company also introduced a new, ad-supported option that remained $8.

In terms of revenue per paid subscriber, a metric closely watched by investors, Disney+ saw decreases in North America (to $5.95 from $6.10) and in most markets overseas (to $5.62 from $5.83). The declines reflected a larger number of subscribers from Disney’s discounted “bundle” offering of Disney+, ESPN+ and Hulu.

Operating profit at Disney Parks, Experiences and Products totaled $3 billion, a 25 percent increase from a year earlier. Revenue in the parks and consumer products division climbed 21 percent, to $8.7 billion. The jump in profitability reflected growth in guest spending at Walt Disney World, in particular for line-shortening passes; better results at Disney Cruise Line; and higher returns from parks in France and Japan.

In total, Disney generated $23.5 billion in revenue in the quarter, an 8 percent increase from a year earlier. Analysts had expected slightly less. Excluding items affecting comparisons, per-share profit for the most recent quarter was 99 cents, a 7 percent decrease from a year earlier. Analysts had been expecting 79 cents.