Disney's video streaming service Disney+ Hotstar lost 3.8 million paid subscribers for the first quarter ended December 31, 2022, marking the biggest-ever quarterly subscriber decline since the media and entertainment conglomerate started disclosing the service's paid member base in April 2020.
Disney+ Hotstar's member base was at 57.5 million for the quarter, a 6 percent decline from 61.3 million in the previous quarter.
This is only the second time that the streaming service has ever reported a quarterly decline in its member base with the previous one being Q4 2021 when the service lost 1.6 million subscribers. Disney follows an October to September fiscal year.
Disney's chief financial officer Christine McCarthy had previously warned about this decline in November 2022, citing the absence of the Indian Premier League (IPL) tournament.
In August 2022, Walt Disney had stated that it was lowering the subscriber target for Disney+ Hotstar after losing the streaming rights for the IPL tournament for the 2023-2027 period to Viacom18 earlier this year. They expect Disney+ Hotstar to reach upto to 80 million by the end of fiscal 2024.
Subsequently, the company was able to retain the television and digital rights of all ICC events till the end of 2027 for a reported $3 billion in August 2022 and sublicensed the television rights to Zee Entertainment Enterprises.
Disney+ Hotstar's paid member decline also dragged down the total paid subscriber base of Disney+ by 2.4 million subscribers, marking the first-ever subscriber decline at Disney's flagship streaming service since its launch in November 2019.
Disney+ Hotstar accounted for about 35.5 percent of the total paid subscriber base of Disney+ which was at 161.8 million for the quarter, down from 164.2 million subscribers in the previous quarter. Note that Disney+ Hotstar is currently available in India and certain Southeast Asia markets such as Indonesia, Malaysia and Thailand, although a majority of the subscribers are from India.
Rise in ARPU
The average revenue Disney+ Hotstar makes from each paid subscriber however rose to $0.74 for the quarter, registering a 28 percent increase from $0.58 in the previous quarter. The company attributed this increase to the higher advertising revenue generated per subscriber.
That said, this is significantly lower than what Disney+ earns in other markets. For instance, an average Disney+ customer in the United States pays $5.95 per month while an average International customer (excluding Disney+Hotstar) pays $5.62 per month.
Disney+ said it earned an overall average of $3.93 per month from each customer this quarter, however if Disney+ Hotstar is excluded, the ARPU rises to $5.77 per month.
Layoffs and cost cuts
These results came amid a major reorganisation at the media and entertainment giant under the recently reinstated CEO Bob Iger. As part of this, Disney plans to cut $5.5 billion in costs and lay off around 7,000 employees or about 3.6 percent of its global workforce.
The cost reductions include about $3 billion in non-sports related content and $2.5 billion in non-content related costs, of which $1 billion is already underway, Iger said during the company's earnings conference call on February 8.
Disney will now be restructured into three divisions: Disney Entertainment, that will include its film, television and streaming businesses; a standalone ESPN unit, that will include ESPN and ESPN+; and a Parks, Experiences and Products unit.
"We must return creativity to the center of the company, increase accountability, improve results and ensure the quality of our content and experiences," Iger said.
He said the new structure is aimed at returning greater authority to the company's creative leaders and making them accountable for how their content performs financially "Moving forward, creative teams will determine what content we're making, how it is distributed and monetized, and how it gets marketed" he said.
Losses at Disney's direct-to-consumer (D2C) segment, which comprises all its streaming services, rose to $1.05 billion for the quarter from $0.59 billion in the year-ago period, due to higher losses at Disney+ and a decrease in results at Hulu, partially offset by improved results at ESPN+. Revenue from the unit increased 13 percent to $5.3 billion for the quarter.
During the call, Iger reiterated the company's goal to make Disney+ profitable by the fiscal year 2024.
The entertainment conglomerate now has around 235 million subscribers across its streaming services— Disney+, ESPN+, and Hulu—at the end of the quarter.
Overall, Disney posted total revenues of $23.5 billion for the quarter, a 8 percent increase from $21.8 billion in the same quarter last year. Net income was at $1.28 billion for the quarter, as compared to $1.1 billion from a year-ago period.