Disney+ soars to 28.6 million subscribers

Disney+ is making good on its promise to take on Netflix in the streaming wars.

Walt Disney Co. on Tuesday said Disney+ has grown to 28.6 million subscribers since its Nov. 12 launch, a positive omen for Chief Executive Bob Iger’s high-stakes bet on the future of the entertainment industry and Disney’s place within it.

Iger disclosed the figure on a call with analysts following Disney’s first-quarter earnings report, marking the first time the entertainment giant gave user numbers for the service since shortly after debuting Disney+. At the time, the company said Disney+ attracted more than 10 million sign-ups in its first day, but it remained to be seen how many people would remain past the seven-day free trial period.

Burbank-based Disney is counting on original content, such as the “Star Wars” series “The Mandalorian,” to drive subscriptions to the app, which costs $6.99 a month. The service also features shows and movies from Pixar, Disney Channel, Marvel Studios and National Geographic. Iger, for example, touted upcoming Marvel shows including “The Falcon and the Winter Soldier,” “WandaVision” and “Loki,” which were featured in the service’s Super Bowl commercial.

The success of Disney+ so far is not surprising. Ahead of the launch, analysts had estimated that Disney would surpass 20 million subscribers by the end of 2019. The app was backed by a far-reaching marketing campaign and various promotional pricing options, including free year-long subscriptions for Verizon mobile data and home internet customers. Disney is also offering a bundle of the services it owns — Disney+, Hulu and ESPN+ — for $12.99 a month.

Disney has declined to disclose viewership numbers for its shows, but “The Mandalorian” has been widely well-received, thanks in part to the viral response to the character popularly known as Baby Yoda. On the call, Iger gave a shoutout to the popular character, which is simply known as “The Child” on the Jon Favreau-created show, and teased the “substantial array” of Baby Yoda consumer products coming to market soon.

But it wasn’t just “Star Wars” puppets that drove interest in the service, Iger said. He told analysts that 65% of people who watched the series also viewed at least 10 other pieces of content on the service. He said the numbers have helped validate the company’s strategy.

“The decision we made to go with quality, and not just volume, is working,” Iger said.

Netflix remains the leading subscription streaming service, with more than 167 million paying members around the world. The Los Gatos-based company launched its streaming platform more than a decade ago and is available globally. Disney+ has so far launched only in the U.S., Canada, the Netherlands, Australia and New Zealand, and is set to debut in much of Western Europe in March, followed by other countries later this year. Iger said the company now plans to launch the service in India, a potentially huge market, through its Hotstar unit. Disney has projected Disney+ will grow to 60 million to 90 million subscribers worldwide by fiscal 2024.

Disney shares increased slightly in afterhours trading following the earnings report. The company’s stock closed Tuesday at $144.73, up $3.41, or 2.4%.

While the streaming numbers were the focus of Hollywood and Wall Street, Disney also reported first-quarter earnings that topped expectations.

The company reported profit of $2.13 billion, or $1.53 a share, which was down 17% from the same quarter a year ago. Analysts polled by FactSet forecast earnings of $1.46 a share. Revenue was $20.86 billion, up 36% from a year ago, narrowly beating analyst-predicted sales of $20.76 billion.

Operating income from the company’s films were $948 million, more than double the first quarter last year, boosted by the performance of “Star Wars: The Rise of Skywalker” and “Frozen 2.” Both movies grossed more than $1 billion in ticket sales.

The latest “Star Wars” film, directed by J.J. Abrams, received less-than-stellar reviews and its box office declined from 2017’s “The Last Jedi.” However, its performance added to Disney’s dominance of the theatrical film industry last year, which also saw the release of “The Lion King,” “Captain Marvel,” “Aladdin,” “Toy Story 4” and “Avengers: Endgame.” Iger acknowledged that the company’s run of hits, totaling more than $11 billion in box office receipts, is “not something we’re likely to repeat right away.”

Operating income from Disney’s parks and consumer products grew 9% to $2.34 billion.

However, analysts were focused on the expected impact of China’s coronavirus outbreak, which has brought the tourism and entertainment industries to a standstill there. Disney has temporarily shut down its theme parks in Shanghai and Hong Kong, which is expected to weigh on earnings.

Disney projected that the closure of Shanghai Disney Resort could reduce operating income by about $135 million in the second quarter, assuming the park stays closed for two months. At Hong Kong Disneyland, the shutdown is expected to result in a $40-million hit to operating income.

Operating income from Disney’s media networks segment (which includes ABC, ESPN, FX and National Geographic channels) rose 24% to $7.36 billion, driven by the addition of businesses from 21st Century Fox, which the company bought in March for $71.3 billion.

The company’s direct-to-consumer segment, which includes streaming services Disney+, Hulu and ESPN+, continued to lose money as Disney spends big to grow its streaming business. Iger is waging a massive effort to transform Disney to compete with Netflix, Amazon and others entering the subscription video space.

Direct-to-consumer and international lost $693 million, significantly larger than the $136 million loss from the same quarter a year ago. Its revenue ballooned to $3.99 billion, up from $918 million a year ago. Disney said Hulu’s subscriber count is now 30.7 million, up about 33% year-over-year. ESPN+ has 7.6 million subscribers, compared to 1.4 million at the end of 2018.

The report follows a week of executive upheaval as Disney moved to tighten the reins of the assets it bought from 21st Century Fox Inc.

The company on Friday said Hulu Chief Executive Randy Freer would leave the company amid a consolidation of the streamer’s operations under Disney’s direct-to-consumer division. Emma Watts, 20th Century Studios’ longtime head of film production, also resigned last week.