Walt Disney Co. is doubling down on streaming after reporting a quarterly loss of nearly $5 billion Tuesday amid a pandemic that has all but paralyzed its theme parks, live productions and cruise line.
Disney DIS, +0.80% reported a fiscal third-quarter loss of $4.72 billion, or $2.61 a share, compared with net income of 79 cents a share in the year-ago quarter. The loss was largely due to a $4.95 billion charge Disney took as a result of the pandemic and changing media habits globally. The company said the impairment charge “reflected the impacts of COVID-19 and of the ongoing shift of film and television distribution from licensing of linear channels to a direct-to-consumer business model on the International Channel businesses.”
After adjusting for that charge and other factors, Disney reported net income of 8 cents a share, compared with $1.34 a share a year ago. Revenue plunged 42% to $11.78 billion from a record $20.25 billion a year ago. Analysts surveyed by FactSet had expected an adjusted loss of 64 cents a share on sales of $12.4 billion.
Disney managed to change the conversation from that depressing financial performance to its plans for the future by announcing on a conference call Tuesday afternoon that its long-delayed “Mulan” live-action feature will launch on Disney+ as a pay-per-view option. Disney will charge $29.99 in the U.S. to view the big-budget feature on the subscription-streaming product starting Sept. 4, with prices similar in other countries in which the movie will be offered; it will release in theaters in countries where the facilities are open.
“We see this as an opportunity to bring this incredible film to a broad audience currently unable to go to movie theaters, while also further enhancing the value and attractiveness of a Disney+ subscription,” Chief Executive Bob Chapek said in the conference call.
The move could help Disney drive revenue in a fallow period, and is another nail in the coffin of “window” periods, which have only allowed new films to be shown in theaters for their first 75 days. Last week, AMC Entertainment Holdings Inc. AMC, -0.24% and Comcast Corp.’s CMCSA, +0.77% Universal Filmed Entertainment Group announced a deal that severely shortened that window to less than three weeks, and now Disney will completely surpass theaters in most of the world with one of the most anticipated releases of the year.
Chapek also said that Disney now expects to launch a new international streaming service under its Star brand in 2021, seeking to capitalize on its content holdings with a new bundle.
“Mirroring the strategy we successfully pursued with Disney+, the offering will be rooted in content we own from the prolific and critically acclaimed production engines and libraries of ABC Studios, Fox television, FX, Freeform, 20th Century studios and Searchlight,” Chapek said. “In many markets, the offering will be fully integrated into our established Disney+ platform from both a marketing and a technology perspective and it will be distributed under the Star brand which has been successfully utilized by the company for other general entertainment platform launches, particularly with Disney+ Hotstar in India.”
Disney shares initially dropped 2% in after-hours trading, but jumped to a gain of about 5% after the twin streaming announcements. Disney’s shares are down 19% this year, while the broader S&P 500 index SPX, +0.36% is up 2% in 2020.
Disney+ launched in mid-November and boasted 57.5 million subscribers at the end of the quarter, but Chapek said Tuesday that the subscriber total has since surpassed 60 million. The direct-to-consumer and international division, which includes Disney+, was the only Disney segment to grow from last year, reporting revenue of $3.97 billion after recording sales of $3.86 billion a year ago. Analysts had expected $4.65 billion, according to FactSet.
The success of Disney+ — aided in great part by original content, led by the wildly popular “Hamilton” movie released in July — comes amid fierce competition with Netflix Inc. NFLX, +2.21% , Apple Inc. AAPL, +0.66% , Amazon.com Inc. AMZN, +0.86% , and new streaming entrants from AT&T Inc. T, +1.31% and Comcast Corp. CMCSA, +0.77% .
Disney’s other businesses have struggled to say the least. Sales in the theme-parks business plummeted to $983 million from $6.58 billion a year ago; analysts had been expecting $1.05 billion on average. The movie business declined to $1.74 billion from $3.84 billion a year ago, while analysts expected $1.67 billion. Disney’s TV business reported revenue of $6.56 billion, down from $6.71 billion a year ago but higher than the average analyst estimate of $6.28 billion.
An accounting maneuver in the TV business that boosted operating income beyond expectations helped Disney beat expectations for profit. Disney said that it moved costs related to its ownership of rights to sports programming to future quarters because U.S. professional sports were not played in the quarter. That boosted operating income in the media-networks segment to more than $3 billion, 48% higher than last year and nearly double analysts’ average expectation.
Disney’s ESPN and ABC missed out on the NBA Finals during the quarter, but began airing fresh NBA action last week. Major League Baseball’s restart on July 23 set TV ratings records on ESPN, though the sport has been clouded by a COVID-19 outbreak among the Miami Marlins and St. Louis Cardinals, leading to a string of postponed games.
Disney also recognized a gain of nearly $400 million from its investment in DraftKings Inc. DKNG, +0.33% , which went public in late April. Disney had invested in the daily-fantasy and sports-gambling website when it was a startup, and said that its investment had appreciated by $382 million, which landed on Disney’s bottom line.