CALIFORNIA: Old Hollywood is finally doing what Netflix Inc has been doing for over a decade: making money from streaming.

With the exception of NBCUniversal, the biggest legacy media companies all reported a profit from their direct-to-consumer businesses last quarter, led by Walt Disney Co, which earned US$321mil from its online video arm in the final months of its fiscal year.

It was the second straight quarter of profitability for the unit that includes Disney+, Hulu and ESPN+.

The profit at Disney’s direct-to-consumer division even exceeded the earnings from its film division, which scored US$3bil in global ticket sales this summer from the blockbusters Inside Out 2 and Deadpool and Wolverine.

In the past 12 months, Disney’s revenue from streaming has surpassed the combined sales from theatrical films and conventional television (TV).

“Disney is all in on streaming, positioned for a digital future that mitigates traditional TV woes,” Bloomberg Intelligence analyst Geetha Ranganathan said last Thursday in a note.

“Though this was costly – US$2.5bil in fiscal 2023 losses – it has turned profitable, marking an inflection point.”

That’s just the start, according to the company, which now predicts US$1bil in operating earnings from streaming for the fiscal year just getting underway.

Price increases, higher advertising sales, a crackdown on password-sharing and continued cuts in film and television production will keep growing profit margins, the company said.

Streaming now offers Disney a “terrific future” Hugh Johnston, the company’s chief financial officer (CFO), said in an interview with Bloomberg TV.

That future includes the fiscal 2025 launch of a new sports streaming operation, which the company has informally called ESPN Flagship.

To improve the technology behind its streaming business and drive more engagement, Disney’s entertainment division recently hired Adam Smith, a YouTube executive, as chief technology officer.

Bob Iger, Disney’s chief executive officer said on a conference call with investors last Thursday that price increases on the commercial-free versions of Disney+ and Hulu helped steer subscribers to the company’s lower-priced but more profitable ad-supported offerings.

About 37% of total subscriptions to Disney’s streaming services in the United States are on the ad-supported tier, Iger said. It’s about 30% globally.

“Disney is all in on streaming, positioned for a digital future that mitigates traditional TV woes,” said Ranganathan.

Warner Bros Discovery Inc, parent of the Max streaming service, kicked off the good news on streaming last week.

CEO David Zaslav said on a call with investors that his direct-to-consumer division, which includes both Max and the HBO cable network, will continue to increase subscribers and profit in the current quarter, sending the shares soaring 12%.

Like Disney, Paramount Global also notched a second-straight quarter of streaming profit, with hits like Yellowstone powering the expansion of the Paramount+ service abroad.

Iger laid out a path to streaming profitability when he returned to the role of CEO in November 2022, promising the operation would break even by the end of fiscal 2024.

Since launching Disney+ in 2019, the business has lost more than US$11bil, and Disney said last Thursday its operating margin in streaming won’t reach 10% until fiscal 2026. That’s well below what Netflix earns now.

Not all of the legacy media companies are breaking even on their streaming ambitions.

Peacock, the online platform of Comcast Corp’s NBCUniversal unit, lost US$436mil in the third quarter.

And even at the companies that are seeing a return on their online investments, the gains aren’t necessarily sufficient to counter the decline in traditional TV.

Warner Bros and Paramount have recorded billions of dollars in losses to reflect the declining value of their cable TV networks, while Comcast is exploring the spinoff of channels like USA.

In its annual report filed last Thursday, Disney recorded US$1.29bil in impairment costs related to the declining value of its traditional entertainment networks as well, as a US$1.55bil charge for the Star India network.

Disney is happy to keep its company’s traditional TV business as it offers a “natural hedge” to the streaming unit, according to Johnston.

Last year, Iger suggested the broadcast and cable networks could be sold off as non-core assets, but he ultimately reversed course.

On the call with investors, Iger said linear TV provides the company and its advertisers a “differentiated audience” to streaming thanks to live programming.

“Basically, the combination of both is working for us,” he said. 

 - Bloomberg