The Q2 results also showed that even though the Linear Networks division reported revenues for the quarter decreasing 4% on an annual basis to $6.7bn, operating income increased 15% to $2.8bn.
The number of subscribers to Walt Disney Company’s streaming service Disney+ has reached 103.6m. However, the figures still disappointed Wall Street, which was expecting greater growth. The streaming service has added 8.7m customers over the course of Q2 of the current financial year.
Revenue in the quarter, which ended April 3, totalled $15.6bn and undershot the consensus forecast from analysts, who had been looking for $15.87bn. The most significant impact was at the Disney Parks, Experiences and Products segment where since late in the Q2 of fiscal 2020, parks and resorts have been closed or operating at significantly reduced capacity and our cruise ship sailings have been suspended.
The company estimated a $1.2bn hit to the parks division in the quarter due to Covid-19 and said it will spend about $1bn in fiscal 2021 to address government regulations and implement safety measures for employees, talent and visitors.
Bob Chapek, Chief Executive Officer, The Walt Disney Company, said: “We’re pleased to see more encouraging signs of recovery across our businesses, and we remain focused on ramping up our operations while also fueling long-term growth for the company. This is clearly reflected in the reopening of our theme parks and resorts, increased production at our studios, the continued success of our streaming services, and the expansion of our unrivalled portfolio of multiyear sports rights deals for ESPN and ESPN+.
Revenue for the media and entertainment distribution division fell 2% to $12.4bn as direct-to-consumer growth was more than offset by continued losses at the content sales/licensing segment. Revenue at linear networks, which includes ABC, ESPN, FX, and all other pay-TV networks, fell 1% to $6.7bn. Domestic affiliate fee revenue in the quarter was up 5%, made up of an 8-point gain from higher pricing partially offset by a 4-point decline from fewer viewers. As expected, broadcast advertising revenue dropped 21% due to lower political advertising, a timing shift for the Oscars, and lower viewership. Segment operating income margin for linear networks improved to 42.2% from 35.3% due to fewer hours of original programming and lower sports rights costs due to the timing of the college football playoffs.
The company noted that it experienced disruptions in the production and availability of content, including the cancellation or shift of key live sports programming from fiscal 2020 into the Q1 of fiscal 2021, as well as the suspension of production of most film and television content. Although most film and television production resumed beginning in the Q4 of fiscal 2020, it continues to see disruption of film and television production, as well as live sporting events, depending on local circumstances.
International Channels revenues for the quarter decreased 4% to $1.3bn and operating income increased 27% to $348m. The increase in operating income was driven by lower programming and production costs and an increase in advertising revenue, partially offset by lower affiliate revenue. The decrease in programming and production costs was driven by a higher percentage of content costs being allocated to Disney+ as we continue to launch the service in additional markets, and lower costs as a result of channel closures.
Direct-to-Consumer revenues for the quarter increased 59% to $4.0bn and operating loss decreased from $0.8bn to $0.3bn. The decrease in operating loss was due to improved results at Hulu, and to a lesser extent, at ESPN+.
The increase at Hulu was due to subscription revenue growth and higher advertising revenue, partially offset by an increase in programming and production costs driven by higher subscriber-based fees for programming the live television service. Subscription revenue growth was due to an increase in subscribers and, to a lesser extent, higher rates driven by an increase in retail pricing for the Hulu Live TV+ SVOD service in December 2020. Higher advertising revenue was due to increased impressions.
The improvement at ESPN+ was driven by subscriber growth and higher income from Ultimate Fighting Championship pay-per-view events.
The company said that revenues for Disney+ were comparable to the prior-year quarter as an increase in subscribers was largely offset by higher programming and production, marketing and technology costs. It added that the increases in subscribers and costs reflected the ongoing expansion of Disney+ including launches in additional markets.
The ESPN+ sports service ended the quarter with 13.8m customers, up 75% on an annual basis, while Hulu grew 30% annually to reach 41.6m customers. 37.8m of these were for the basic SVOD package.