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Stuck In 'Messy Middle,' How Long Will Disney Disappointments Continue?

David Bloom

One of the challenges with being The Walt Disney Company is that you can add nearly 9 million streaming video subscribers in a quarter, have your theme parks revive as pandemic restrictions ease, and still see share prices plummet nearly 7 percent after hours because your results underperformed.

No one's crying for CEO Bob Chapek, et al, about the challenges the Hollywood giant faces, but the company is currently stuck in what the Wall Street Journal rightly called a "messy middle" here in what appears to be the latter days of the pandemic's lockdowns, closures and restrictions.

On the one hand, key parts of Disney's parks and resorts division, including its cruise lines and iconic original Disneyland in Southern California, are only just reopening. Film and TV production is finally returning to normal levels, Chapek said in an earnings call today, but pipelines for all of Disney's film, broadcast, cable and online operations will still take a while to completely refill.

And on the other end, what had been Disney's biggest source of good news for more than a year may, may, be done. Dramatic growth in DIsney+ and other subscription-video services definitely flattened for a quarter. It finished the quarter at 103.6 million subscribers worldwide, well short of a Street-average projection of 109.3 million.

It's just possible that lower signup level may continue, now that more people can do things besides stay home and watch TV. No surprise, then, that disappointed investors whacked share prices, sending them down after hours to $171.40, from an intraday high of $180.75.

The underperformance sparks a potentially uncomfortable question: how long will Disney stay in the messy middle? Or, given the equally underwhelming quarterly numbers from Netflix a couple of weeks ago, is there something bigger going on with subscription video that may affect the entire sector? Now that consumers can watch a humongous amount of video on several services, will Disney+ remain a go-to destination for consumers who don't have either little kids or an abiding fascination with the parent brand, Marvel, or Star Wars?

Of course, Disney isn't just sitting around, watching curves flatten.

Chapek said the company "has been pleased with growth in markets to date. We have a steady cadence of titles and a robust catalog" that helps in attracting and keeping subscribers.

Beyond that bit of puffery, as Chapek noted, Disney+ will launch in two more Asian territories, Thailand and Malaysia, in the next several weeks. Its new international general-interest service, Star, will launch in the fall in Latin America, somewhat delayed, but also leveraging a strong sports line up.

The single biggest contributor to the quarter's net subscriber adds was Star's progenitor, India-based Disney+ Hot Star, though its revenue was down considerably amid the continued Covid-19 crisis in that country and interruption in Indian Premier League cricket matches.

More generally, Chapek said, the company's strategy rests on four pillars: more original content; the Star brand's ability to drive general entertainment subscriptions internationally; more market expansions; and an emphasis in the United States on the three-headed bundle of Disney+, Hulu and ESPN+.

"One thing that continues to impress us is the opportunity to have the bundle in the United States grow even larger," Chapek said. "All the metrics are extremely favorable,"

And Disney made much of its latest big investments in high-profile sports programming, announcing an extension of its Major League Baseball deal through 2028 that includes 25 Sunday-night games per year, and a new deal with Spain's top soccer circuit, La Liga, led by perennial powers Barcelona and Real Madrid. Both deals, like other recent sports rights deals with the NFL and NHL, will allow more flexibility to show games on either ESPN or ESPN+, Chapek said.

Chapek and CFO Christine McCarthy also lingered over a nuanced approach to theatrical releases. Some will go straight to Disney+ or Hulu (Luca and Jungle Cruise), some will be available simultaneously in theaters and through its Premium VOD window to Disney+ subscribers (Cruella and Black Widow), and some will head to theaters for exclusive initial runs (Free Guy and Shang-Chi and the Legend of the Ten Rings).

Together, those will certainly give Disney a strong opportunity for continued growth, though perhaps not at the sky-high altitudes occupied by recent Wall Street expectations after Disney+'s first extraordinary year. In the short term, it's unclear how soon Disney will make its way out of the messy middle into something a little cleaner and lot more comfortable.

As for what people are looking forward to watching on Disney's streaming services, Tubular Labs data suggests that company's trailers and other video content on Facebook and YouTube had the second-most global unique viewers this March, with 641.6 million. The company's content also ranked second in March in global minutes watched across Facebook and YouTube, with 11.3 billion.
The most popular Disney-owned YouTube videos since the start of the year are:

Separately, Disney+ commercials rank 76th among the most-seen advertisers on streaming and legacy TV networks since the beginning of 2021, with 5.69 billion TV ad impressions. Hulu is 129th at 4.06 billion, according to statistics compiled by iSpot. The most-seen TV spots, ranked by ad impressions, from the two streaming services since Jan. 1 are: