DIS Walt Disney Co

Expenses rise as company builds content for the launch of Disney+

By Erich Schwartzel and Maria Armental 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (May 9, 2019).

LOS ANGELES -- Walt Disney Co. shareholders on Wednesday got a glimpse of the expenses coming to the company as it readies the launch of its streaming service in November, but it nonetheless beat Wall Street expectations for its fiscal second-quarter financial results.

The continued investment in the company's ESPN+ streaming service -- and the expenses associated with its forthcoming Disney+ service -- caused Disney's direct-to-consumer division to post a loss of $393 million for the quarter, widening from a loss of $188 million in the same year-earlier quarter. Revenue for the division, which also includes Disney's international division, climbed 15% to $955 million.

Disney+ productions like the "High School Musical" series and "Star Wars" spinoff "The Mandalorian" are part of the reason for the growing expenses, as well as losses associated with the consolidation of Hulu, a third streaming service now under Disney's control.

Disney+ will have an initial price of $6.99 a month, the company said at an investor event last month. Disney stock rose dramatically after it shared the details of the service, which is priced to serve as an affordable supplement to established rivals like Netflix Inc.

Disney has been working nonstop to ensure Disney+ launches with a deep library of programming that convinces consumers it is worth adding another subscription to the growing list of services. In addition to spending millions on production budgets of new movies and television shows, Disney also is employing engineers to build the technical guts of the service.

Disney has said it expects to have between 60 million and 90 million Disney+ subscribers by the end of fiscal 2024. Disney's $71.3 billion acquisition of 21st Century Fox's entertainment assets closed in its second quarter, giving the company majority ownership of the Hulu.

To help attract subscribers, Disney is putting an end to licensing deals with Netflix and other streamers in a bid to make Disney+ the exclusive streaming platform for the company's theatrical releases. On Wednesday, the company said its latest release, "Avengers: Endgame," will debut on Disney+ on Dec. 11, one month after the service launches.

"Endgame" set a record for an opening weekend and has collected more than $2.2 billion world-wide. It is currently the second-highest grossing movie of all time, behind "Avatar," the 2009 release that collected nearly $2.8 billion.

If "Endgame" stays in wide release for as long as its predecessor, "Avengers: Infinity War," did, that means the superhero sequel will be available for streaming about five months after it has left most cinemas.

Operating income at Disney's studio entertainment division, which oversees its theatrical releases, fell about 39% because last year's quarter featured the blockbuster successes of "Black Panther" and "Star Wars: The Last Jedi." This year's second quarter featured only the well-performing "Captain Marvel."

Disney's theme-parks division continued to post the best year-over-year returns of any segment, with operating income up 15% at $1.5 billion. Attendance at the company's domestic parks is expected to surge even further following the opening this summer of two "Star Wars"-themed attractions at Disneyland and Walt Disney World.

Disney's profit for the quarter ended March 30 rose to $5.45 billion, or $3.55 a share, from $2.94 billion, or $1.95 a share, a year earlier. The company's quarterly profit rose in part due to the introduction of Fox entertainment assets, including a gain of $4.9 billion tied to a revaluation of its additional Hulu stake. Excluding that one-time Hulu gain, a $353 million impairment charge on its investment in the online news provider Vice and other one-time items, profit fell to $1.61 a share from $1.84 a share.

Revenue rose 3% to $14.92 billion. Shares in Disney rose 1.4% in after-hours trading.

Write to Erich Schwartzel at erich.schwartzel@wsj.com and Maria Armental at maria.armental@wsj.com

(END) Dow Jones Newswires

May 09, 2019 02:47 ET (06:47 GMT)

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