Disney Q2: Bob Iger to fix streaming by gutting content

Bob Iger has come up with an expensive new plan to revive Disney’s losing streaming business – content.

The launch of Disney+ three and a half years ago sought to insulate the media giant from declining profits in its traditional cable business as more consumers cut the cord.

To give it the best chances of success against entrenched incumbents like Netflixhe wanted to “flood” the new service with as much content as possible to attract subscribers.

“We know we’re making a lot of content that’s not necessarily driving sub development, and we’re being more operational about what we’re making,” he told investors during the call. on the company’s second quarter earnings on Wednesday.

This led to an increase in the cost of the content to almost $30 billion in the last financial year.

While about a third of that has to do with games, like distribution rights, Iger wants low cost of $3 billion over the next few years as part of a restructuring plan first revealed in February.

Right now Disney beginning to better understand what kind of programming drives subscriber growth, Mouse House will take a more aggressive approach to narrowing down or “curating” what movies and TV series Direct-To offers -Consumer (DTC) division— although this will result in additional headwinds of close to $2 billion.

“It’s critical that we rationalize the amount of content we create and what we spend on creating our content,” Iger said.

Parts at Disney is expected to open nearly 6% lower after the fiscal Q2 Figures revealed flagship Disney+ service lost 4 million subscribers in the past three months amid expectations it could add more than 1 million by introducing a new, lower-priced offer which is partially funded by ads.

Heavy writing for content removal

Chief financial officer Christine McCarthy said the company is launching a review of what is being offered on various DTC platforms such as Disney+ and Hulu in line with the new content culling strategy.

Exactly what this means is unclear.

In theory, this could include everything from allowing bad licensing deals with third-party movies and series to expire, to even removing some of Disney’s own proprietary content created by Pixar in it, wonders or Lucasfilm studios.

There are infrastructure costs associated with storing anything in the cloud.

This move doesn’t come cheap, though.

“We will remove some content from our streaming platforms and now expect to receive an impairment charge of approximately $1.5-$1.8 billion.”

The write-up will primarily be booked in the third quarter when Disney finishes removing any films, specials and TV series from its streaming apps’ libraries that it no longer wants to host on its platforms. .

The company will treat it effectively as an item that does not flow through its segment results.

This has the nice side-effect that it saves itself the ugly headlines of uncontrollable red DTC ink again.

In talks with Comcast of his Hulu stake

Reported Q2 operating losses in its streaming business fell to $659 million, the lowest level in five quarters.

It was flattered in part by spending on some projects being pushed back a few months.

As a result, DTC’s losses are expected to widen by nearly $100 million in the current fiscal third quarter.

“Going forward we intend to create a lower volume of content consistent with this strategic shift,” McCarthy assured investors.

Iger is optimistic though that “huge growth” in digital ad spending next week called Before The presentation of advertisers will help him bring Disney+ back faster, especially now that he is actively and deliberately pushing many premium subscribers to downgrade their service.

A higher number of low-paying ad-tier subscribers will counterintuitively push up the average revenue per user thanks to all the money he hopes to earn as companies compete to buy available ad time on his streaming services.

He also revealed that he is in exploratory talks with Hulu minority owner Comcast to buy a third of its stake in the platform.

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