Disney+ added just 2 million subscribers last quarter. Here’s why

Two years after Walt Disney Co. launched its all-important streaming service Disney+, the platform has grown into the entertainment industry’s most formidable competitor to Netflix.

But the popular app’s growth slowed dramatically in the most recent quarter.

Disney+ added just 2.1 million subscribers in the entertainment giant’s most recent fiscal quarter, which ended in early October, bringing its total to 118.1 million, Disney said Wednesday.

That’s the lowest number of new Disney+ subscribers since the service launched. In the previous quarter, which ended in July, Disney+ gained 12.4 million subscribers to hit 116 million. Analysts blamed the slowdown on a dearth of new content, a lack of cricket in India and increased competition in the crowded streaming space.

Disney shares, which ended the day at $174.45, fell 4% in after-hours trading.

“In the near term, it does raise questions, with how much things have slowed down — can they get back on track?” said David Heger, an analyst with Edward Jones. “It doesn’t sound like they’re sitting on their heels.”

Disney+ initially made streaming look like a cakewalk, growing quickly thanks to hits such as “The Mandalorian.” Disney shares surged to record heights.

Its 118.1 million subscribers are up 60% from its count at the same time in 2020. Much of that growth has come from international markets where Disney+ has launched, including in Europe and Latin America.

Recently, though, executives have warned investors not to expect rapid growth each quarter. Pandemic-related delays in production led to a slower-than-expected rollout of original programming.

Bob Chapek, Disney’s chief executive, said at a September investor conference that he expected subscriber growth in the low single-digit millions during the quarter.

Disney has a long way to go to meet its goals for the service, which costs $8 a month, or $80 a year.

The company has said it expects to grow to 230 million to 260 million Disney+ subscribers by the end of fiscal 2024, betting on juggernaut franchises including Marvel, “Star Wars,” Pixar, National Geographic and Disney’s own brand to entice viewers worldwide.

Analysts said the company needs even more content to keep growing. Launching in additional markets, including countries in Asia, should also help.

“A big theme for the quarter is what the future content pipeline looks like, and whether Disney will begin to diversify the Disney+ content offering,” Steven Cahall, an analyst for Wells Fargo Securities, wrote in a research note.

Chapek told investors Wednesday that Disney is increasing its investment in Disney+ originals and is preparing to deliver a “surge of new content,” most of which will premiere between July and September of next year.

“I want to reiterate that we remain focused on managing our [direct-to-consumer] business for the long term, not quarter to quarter,” Chapek said on a call with analysts.

This week marks the second anniversary of Disney+’s launch with a series of promotional offers and a lineup of shows and movies hitting the platform.

For the week of what the company is calling Disney+ Day, new and eligible returning subscribers can get one month of Disney+ for $1.99.

Content coming to the Disney+ app Friday includes the Dwayne Johnson-Emily Blunt movie “Jungle Cruise,” the Marvel Studios film “Shang-Chi and the Legend of the Ten Rings,” the new Disney+ original “Home Sweet Home Alone” and fresh episodes of “The World According to Jeff Goldblum.”

A significant portion of Disney+ users are in India, where the service is offered at low cost in combination with the local streaming brand Hotstar, for which sports are a significant driver of viewership. The delay of Indian Premier League cricket hampered growth in that country.

Disney is looking to better compete with Netflix, which got a massive head start in the streaming space and now has about 214 million paying members. Other competitors include WarnerMedia’s HBO/HBO Max, Comcast Corp.’s Peacock and ViacomCBS’ Paramount+.

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The Burbank company’s streaming business was a bright spot as the rest of the firm suffered from COVID-19-driven shutdowns at theme parks and a slow recovery for movies at the box office. About a year ago, Chapek restructured the company to focus on growing its streaming empire.

In fiscal 2020, Disney posted a rare full-year loss as its traditional businesses — including movies and theme parks — were hammered by COVID-19 restrictions from the government and consumer fears of the spreading virus. But the company has shown resilience coming out of the pandemic.

Disney reported a profit of $2.02 billion in fiscal 2021, compared with a loss of $2.83 billion in fiscal 2020. Full-year revenue increased 3% to $67.4 billion.

Fourth-quarter results, however, fell short of analyst expectations. Profit in the fourth quarter totaled $160 million, or 37 cents a share, up from a 20-cent per-share loss a year earlier. Revenue was $18.5 billion, up 26%.

Analysts polled by FactSet had expected earnings of 52 cents a share on revenue of $18.8 billion.

Revenue from Disney’s high-priority streaming business — comprising not just Disney+ but also Hulu and ESPN+ — increased 38% to $4.56 billion. Losses increased to $630 million, compared with $374 million a year earlier.

Hulu clocked in at 43.8 million subscribers in the most recent quarter, up 20% from last year. ESPN+ gained 66% to 17.1 million, bringing Disney’s combined streaming subscribers to 179 million. Disney has projected hitting 300 million to 350 million total subscribers by the end of 2024.

The parks, experiences and products division was profitable for the second quarter in a row. After parks were closed for much of the pandemic, attendance has improved with better vaccination rates and increased comfort among consumers. Parks generated $640 million in operating income, compared with a loss of $945 million a year ago.

Disney’s content division, which includes theatrical films, posted mixed results. The release of movies including the Ryan Reynolds comedy “Free Guy” and “Shang-Chi and the Legend of the Ten Rings” sent revenue up 9% to $2.05 billion in the quarter. But the costs of promoting movies drove an operating loss of $65 million, compared with a year-ago operating profit of $86 million.

Both movies were exclusively released in theaters, unlike films such as “Black Widow,” which was made available for $30 on Disney+ at the same time as its debut in cinemas. “Shang-Chi,” the first Marvel movie with an Asian lead, grossed $430 million at the global box office. “Free Guy,” from Disney’s 20th Century Studios (formerly 20th Century Fox), took in $331 million worldwide.

Television networks, which include ESPN and broadcaster ABC, saw revenue fall 4% to $6.7 billion, while profit shrank 11% to $1.64 billion.