By Erich Schwartzel and Allison Prang
LOS ANGELES -- The streaming boom that defined Hollywood during Covid-19 is slowing down for now.
Weeks after Netflix Inc. announced its subscriber sign-ups had slowed amid a reopening economy, Walt Disney Co. said its flagship streaming service, Disney+, also added fewer users than Wall Street had expected after months of torrential growth.
Disney+ added 8.7 million subscribers in the fiscal second quarter, bringing its quarter-end total to 103.6 million subscribers, compared with 94.9 million on Jan. 2. Analysts polled by FactSet were expecting 109.3 million subscribers after a quarter that saw massive hits on the service from the company's Marvel Studios.
Disney shares fell more than 4% in after-hours trading.
The winners of the Covid-19 economy aren't the same as those who win in the reopening, and this quarter found Disney in a messy middle. The end of lockdowns and mask mandates, while good news for Disney's lucrative parks division and studio releases, presents fresh headwinds for an 18-month-old streaming operation that has lifted shares to record highs and given the company some of its biggest hits in recent years, from Baby Yoda to "WandaVision." More than a year of quarantines and stay-at-home orders accelerated an industrywide shift toward direct-to-consumer services that made subscriber growth -- and not box-office sales -- the leading metric of studios' success.
Nowhere was that more pronounced than at Disney, where the streaming service passed the 100-million-subscriber mark in March, cementing its status as the most successful streaming entrant since Netflix defined the field years ago.
That growth had been a lifesaver for Disney shares, which plummeted to their lowest point since 2014 when the pandemic hit in March 2020 but had rebounded to record highs a year later. Shares have been on a slight downward trend since, hovering around $180.
Netflix shares are down more than 11% since the company disclosed on its earnings call last month that the reopening was leading to a slowdown in sign-ups. "There's a boost in engagement that you get when people are in a lockdown situation," Netflix operations chief Gregory Peters said at an investor event in March.
Disney has taken steps to boost its streaming revenue, increasing subscription costs by $1 to $7.99 a month in late March. The company said the price hike didn't result in any significant user cancellations.
The slowdown could present challenges for newer entrants in the streaming ecosystem, such as HBO at AT&T Inc.'s WarnerMedia and ViacomCBS Inc.'s Paramount+, both of which had splashy launches in the middle of stay-at-home orders.
Meanwhile, the company's parks, experiences and products business -- which includes its storied Disney World and Disneyland resorts -- saw a 44% drop in revenue compared with a year earlier. That division reported an operating loss of $406 million in a quarter that saw parks either closed or open with capacity limits.
Overall, Disney's total revenue fell 13% from the comparable 2020 period to $15.61 billion. According to FactSet, analysts were expecting $15.86 billion.
The reopening economy that caused the slowdown in streaming sign-ups has enabled other parts of Disney to resume some degree of normalcy. Disneyland Resort in Southern California reopened last month after being closed for 412 days.
Disney Chief Executive Bob Chapek said he expects to see "an immediate increase" in the number of people allowed inside the domestic parks in light of Thursday's announcement from the Centers for Disease Control and Prevention stating that fully vaccinated people can meet indoors and outside without wearing a mask.
"Today's guidance," he said, "is very big news for us, particularly if anyone has been in Florida in the middle of summer with a mask on."
The company's studio operations are nearing full production levels on film and TV after months of Covid-related delays and shutdowns, Mr. Chapek said, which could boost Disney+ inventories and goose subscriber rates as highly anticipated shows premiere in the coming months.
And two 2021 films, "Free Guy" and "Shang-Chi and the Legend of the Ten Rings," will premiere exclusively in theaters without a Disney+ component, he added. Both films will have an exclusive run in theaters for 45 days, or about half the amount of time afforded movies in the pre-pandemic era.
The company has two major releases on the docket for this summer, "Cruella" and "Black Widow," that will be released on the big screen but also offered for home viewing on Disney+ for an additional $30. On Thursday, Disney announced its July 30 release, "Jungle Cruise," starring Dwayne Johnson and based on a Disneyland theme-park ride, will also be released in theaters and for $30 at-home viewing.
Disney logged $901 million in net income, or earnings of 49 cents a share. A year earlier, the company's earnings were $460 million, or 25 cents a share. The company's tax expenses a year ago were higher, which hurt its year-earlier results, and the company also logged $305 million in net other income for the recent three-month period.
Adjusted earnings were 79 cents a share, while analysts were expecting 26 cents a share, according to FactSet.
Write to Erich Schwartzel at firstname.lastname@example.org and Allison Prang at email@example.com
(END) Dow Jones Newswires