Last quarter, Walt Disney’s (DIS -2.08%) streaming operations finally saw a decline in operating losses. The cost of creating or licensing movies and TV series for its different platforms, or “content costs,” increased once again during the quarter that ended in December. In fact, despite Disney’s efforts to reduce expenditure, these costs actually increased faster than the company’s streaming income.
However, it’s a choice that could end up hurting Walt Disney’s long-term streaming aspirations.
Costs for Disney’s streaming programming are still quite expensive.
A picture is worth a thousand words, as the proverb says.
Look at the comparisons of the content and production expenditures for each of Disney’s streaming services. In terms of reducing its net or relative content expenses, Walt Disney isn’t really making much headway as a share of streaming income. In reality, since early last year, the gap between its content expenses and streaming income has been closing.
Instead, a significant decrease in commercial, administrative, and general expenditures is to blame for the $500 million sequential increase in Disney’s streaming bottom line for the first quarter of fiscal 2023. The total was $1.16 billion last quarter after a $545 million cut in spending, the lowest amount Disney had paid for these expenses since the middle of 2021.
The extra disclosures made by the organization don’t specify how this money is really used (or not used). But it’s hardly a leap to say that the savings came from decreased selling costs, namely from less advertising and marketing.
And whether you like it or not, every spending choice has a consequence. Sometimes the outcome is better, and other times it is worse.
But there wasn’t much of this growth.
Not a standalone, financially sustainable enterprise
To its credit, the corporation is recommitting to profitability and plans more expense reductions. To reach a savings goal of $5.5 billion, it will start by letting go of 7,000 workers.
These include ESPN, Disney Parks, Experiences, and Products, as well as Disney Entertainment. In terms of their revenue and expenses, these divisions will run separately from one another. More importantly, it appears that the restructuring would combine streaming with the company’s studios and television division.
All of this does not change the reality that its streaming projects have not yet been financially viable on their own. They may not even be commercially viable in their current form and at their current prices.
Streaming is “in many respects, our future,” as CEO Bob Iger stated on the most recent earnings call, thus it important to investors for that reason alone.