Disney misses Wall Street expectations, but posts massive gains in direct-to-consumer

'The Lion King'
Posted at 6:05 PM, Aug 06, 2019
and last updated 2019-08-06 19:05:09-04

Originally Published: 06 AUG 19 16:38 ET
Updated: 06 AUG 19 18:03 ET

    (CNN) -- Disney's crucial direct-to-consumer business posted major growth in the three months ending in June, a sign that its acquisition of a majority stake in Hulu is paying off.

Growth in that sector helped lift Disney's overall revenue 33% from the prior year, up to $20.2 billion, it announced Tuesday evening. That number was, however, lower than the $21.4 billion Wall Street had expected after the company's busy quarter. Net income was also down 51% in the quarter, a result of ongoing investments in streaming. Shares fell around 3% in after hours trading.

Disney's direct-to-consumer segment grew 366% compared to the same period in the prior year, from $827 million to nearly $3.9 billion, the company announced with quarterly earnings Tuesday. That jump is because it was the first quarter that Disney had full operational control of Hulu following its $71 billion acquisition of most 21st Century Fox assets in March. The direct to consumer business also includes ESPN+ and will include streaming platform Disney+ after its November launch. It's the business that competes with streaming heavy hitters like Netflix and Amazon.

The launch of Disney+ has been highly anticipated.

"It's going to be the most important product our company has launched in a long time, certainly in my tenure," Disney CEO Bob Iger said Tuesday.

The Fox acquisition helped beef up Disney's streaming lineup ahead of the Disney+ launch. Disney is hoping that popular titles like "The Simpsons" and "Home Alone" will drive customers to the service. Iger also announced Tuesday that a new bundle that includes ESPN+, Disney+ and Hulu for $12.99 per month will also be available to subscribers in November.

Sales in the quarter were also boosted by multiple box office blockbusters during the three months ending July, including "Toy Story 4," which has made nearly $1 billion at the box office, and "Avengers: Endgame," which became the highest grossing film from any studio in history. Those movies and others helped Disney set a record for the highest grossing year for a film studio ever, an achievement announced last week, just seven months into the year.

The company is counting on several more big films — "Frozen 2," "Star Wars: The Rise of Skywalker" and "Maleficent: Mistress of Evil" — to drive additional revenue gains later in the year. On a call with shareholders Tuesday evening, Iger called Disney's studios the "envy of the industry."

The opening of Galaxy's Edge, the Star Wars land at Disneyland in California, at the end of May was another big moment in the quarter. Net income for the parks, experiences and products segment grew just 4% because of the cost of opening such a massive park expansion. And Iger said visitor numbers to that attraction were stunted by cost increases at the Park and at nearby hotels, as well as by visitors' expectations of crowding.


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