Disney Pays for Past Mistakes, Moves Forward

The Walt Disney Company just held its quarterly earnings call, which was an understated affair.

Still, we gleaned a lot about the company from its earnings report and the Q&A session during the earnings call.

Disney is paying for past mistakes but also moving forward. Here’s everything we learned.

The High Cost of Oops

Venu Sports, which we initially called Sports Hulu, was a shaky idea from the start.

Disney executives were searching for ways to maintain ESPN’s relevance as the service transitioned from cable to digital.

Since ESPN generates tons of revenue for Disney, the worldwide leader’s status matters greatly to Disney’s bottom line.

Disney created Venu Sports to try to meet potential customers halfway by offering them a lower entry point.

This particular streaming service would have cost less than half the price of the upcoming ESPN over-the-top product.

Alas, everyone recognized the antitrust issues from a mile away…except for Disney, Fox, and Warner. Bros. Discovery.

Sure enough, the new joint venture got sued into oblivion, eventually leading all three parties to give up on the product.

During the latest earnings report, Disney revealed the cost of this mistake. The company has paid $50 million to exit Venu Sports.

In the grand scheme of things, Disney’s loss is a drop in the bucket, but it’s a lot of money to pay for an avoidable mistake.

The High Cost of Oops Part II

Notably, that’s not the only big check Disney had to write during its most recent quarter.

Remember all those IPL Cricket discussions I barely understood and won’t miss?

Disney learned the hard way that even corporations of its size run into trouble when they bump up against the ultra-rich.

Mukesh Ambani, one of the ten wealthiest people in the world, recognized a business opportunity for his company.

The billionaire promptly outbid Disney for cricket streaming rights and devalued Disney’s linear rights.

Realizing it’d been beaten, Disney agreed to merge its Hotstar/Star India service with Reliance.

What’s the cost of losing to someone worth $116 billion? Disney paid $33 million this past quarter to deconsolidate Star India.

During the fiscal year, Disney will lose $300 million (!) in equity.

So, Disney is paying $350 million this year for past mistakes.

To put those losses in perspective, Disney will pay roughly the price of a Marvel action film and an animated movie to recover from Venu Sports and Hotstar.

The Non-Story of Streaming

In a way, Hotstar’s demise signifies the end of a turbulent era for Disney as it transitioned to streaming services.

A few months before Disney fired former CEO Bob Chapek, he proudly proclaimed that Disney was now a digital company.

That was Chapek’s way of proclaiming that Disney was leaving its traditional distribution system behind as it switched to streaming.

Chapek did that because Wall Street heavily favored digital companies at the time, and he wanted to differentiate Disney.

The problem was that Chapek’s chief criticism before becoming CEO was that he lacked experience with creative content.

So, Chapek threw money at the problem by overspending on streaming.

Almost immediately afterward, Disney’s Direct-to-Consumer (DtC) division became a massive loss leader.

This reality crushed the stock price and the company’s market cap. Eventually, Disney threw Chapek under the bus.

Ever since then, Bob Iger has been (happily) driving said bus and trying to fix streaming.

The Non-Story of Streaming Part II

Wall Street spent Iger’s first two years pressuring him to make DtC profitable.

In November 2024, Iger scored a touchdown, spiked the football, and did an elaborate TD celebration.

The CEO announced that Disney had not only turned a profit as promised but was well on its way to netting $1 billion in 2025.

Disney stock soared on that date and has generally held steady since then.

Fast forward to this week’s earnings report. Disney very casually reveals that DtC improved by $431 million in the quarter.

At this point, DtC is pacing for $1.172 billion in streaming profits this year, well above projects.

How did Wall Street react to the news? Well, the stock fell, but that’s more about international tariff conflicts.

In reality, Wall Street had very little to say about Disney’s streaming performance. Welcome to the new normal!

Now that Disney has vanquished its invisible foe, streaming profits, DtC has mostly become a non-topic. That’s a good thing.

The Streaming Integration Plan

Had Wall Street paid much attention to the streaming data beyond the slightly lower subscriber numbers, they’d have noticed something vital.

Disney’s grand vision for its integrated streaming services is working better than anyone could have possibly imagined.

As a reminder, Disney+ raised its prices in October. Executives understandably expected some churn as a result.

As a reminder, churn is the industry term for subscription cancellations.

Services expect some churn, as it’s unavoidable. Many consumers watch everything of interest on a service and then cancel.

The goal of any subscription service is to minimize churn. Every price increase has the opposite effect.

So, people should have canceled Disney+ last quarter. Somewhat surprisingly, only 700,000 did, which is a minimal amount.

Meanwhile, the price increase enabled DtC to net $293 million for the quarter after suffering a loss during the same quarter in 2024.

Part of that stems from Hulu adding 1.6 million more subscribers this past quarter.

That three percent increase underscores a hidden part of the system.

Many of those new subscribers joined via Disney+, which now includes a Hulu tile.

That’s part of Disney’s methodical plan to create a sort of Total Disney streaming app.

The Significance of Flagship

The next piece comes later this year with the introduction of ESPN’s so-called Flagship service.

This will be the full streaming version of ESPN, including all its content, unlike ESPN+, which has a limited library.

When that product debuts, Disney+ will allow guests to add Hulu and ESPN Flagship as part of the bundle.

Users can also stream content from all three services from Disney+, the main hub, as it were.

Disney is gradually training customers to use its app primarily, and Hulu’s ascending streaming ratings reflect this tactic’s success.

Iger describes it as “convenient from a subscription perspective and also convenient from a user perspective.”

The CEO has been telegraphing this move since he came back, as Iger came up through live sports broadcasts.

He learned early in his media career that live sports drive viewership and advertising.

Now, Iger is approaching the finish line on Disney’s full conversion into what Chapek had called a digital company.

The idea is that once people grow accustomed to accessing all this content on a single app, Disney+ will have them totally hooked.

To start this conversion, Disney will introduce SC+, a daily Sports Center show exclusive to Disney+.

That’s the first step in training users to check Disney+ to watch ESPN content. It’s another masterstroke by Disney.

You may question how feasible this conversion is, but Disney anticipated this thought process.

In the latest Executive Commentary, Disney notes that subscribers have consumed more than one billion hours of Hulu content on Disney+.

More than half of Disney Bundle subscribers use Disney+ as their streaming app.

Basically, Disney has already converted Hulu subscribers. Once ESPN joins, the Bundle Trio will be more simplistic in nature.

At its core, the Bundle Trio will consist of consumers paying three times a month to use Disney+.

Wall Street is sleeping on the lucrative financial opportunities of this consumer behavior. Disney really has cracked the math here.

So, while Disney is paying several hundred million for past mistakes, it’s moving toward a bright future.

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