Disney, Paramount, and Warner Brothers Discovery 1Q 23 Earnings Results and Trends

This is a recurring blog series where we dive into the details behind streaming apps across multiple platforms. We call the series Sensor Tower on the Small Screen. Let's start with some key findings:

• Disney+ total paid subs decreased 2% QoQ in FY23 2Q: though price increases to its streaming plans helped the company reduce losses, Hotstar subs fell 8% QoQ, inline with ST Hotstar MAUs  largely due to the loss of IPL games. ST data shows continued weakness for Hotstar into Aprʼ23 with MAUs down 14% MoM (-21% YoY).

• Disney plans to integrate Hulu into Disney+ for a one app, integrated experience that's set to launch in 2H23. This merged service provides Disney+ with a vast library of diversified content along with a built-out ad-supported network in Hulu.

• Declines in Warner Brother Discoveryʼs legacy entertainment business in 1Q23 were tempered by a small profit in its US direct-to-consumer (streaming) arm with reported DTC subs up 2% QoQ (8% YoY) in line with ST MAUs for HBO Max and Discovery+ (combined),  on the popularity of the hit video game-to-TV adaptation of The Last of Us.

• Paramount reported growth in DTC subs (directionally inline with ST MAUs) and improving churn: Per ST data, Paramount+ domestic (US) churn has fallen over the past three years, with average 1Q23 user churn down 2 pps vs 1Q22 and 10 pps vs 1Q21.

Disney+ Core Subs Remain Flat, Enhanced Weakness in Hotstar Weighs on Total Subs

Ongoing weakness for Disney in linear network revenue, which fell 7% YoY in FY 2Q23, was partially offset by 12% YoY growth in reported direct-to-consumer revenues; Disneyʼs DTC operating losses narrowed, improving 26% YoY due to an increase in streaming plan pricing that was implemented late last year. Sensor Tower MAU estimates for Disney+ (including Star+) were largely inline with Disneyʼs reported growth in Disney+ core paid subs (flat QoQ, +20% YoY) for the company’s 2Q FY23 results. However, Disneyʼs Hotstar platform struggled, with reported paid subs (-8% QoQ), inline with ST MAU growth estimates for the service in FY 2Q23. This decline was due to a lack of streaming viewership from Indian Premier League games in 2023, as it lost the bid to stream the games last summer. Weakness in Hotstar continued into Aprʼ23 with ST MAU estimates showing a 14% MoM decline (-21% YoY). This decline in Hotstar subs weighed on Disney+ total subs, which fell 2% QoQ.   Disney shares fell 10% last week as investors grappled with the deceleration in overall sub growth (inclusive of Hotstar) with many questioning whether the house of mouse is sacrificing sub growth for an expedited path to profitability as it accelerates cost cuts in FY23.  

Disney also announced that it plans to combine Hulu content into Disney+ for a one app, integrated experience that's set to launch in 2H23. This integrated app offering would expand the breadth and depth of Disney+ʼs streaming content library and likely capture a variety of audiences, while also providing Disney+ with a sophisticated, built-out ad-supported network in Hulu that could potentially accelerate streaming revenues and drive further user engagement. ST consumer intel data shows Hulu users registered an average 10 sessions/wk and spent 84 mins/wk consuming content in 1Q23 compared to Disney+ at 8 sessions/wk and 64 mins/wk. Huluʼs near-industry leading user engagement figures (second to Netflix) coupled with its extensive user base size would complement and enhance Disney+ʼs current offering by providing subscribers a vast content library that has wide appeal to users across both sides of the viewing aisle.

Warner Brothers Discovery Reports US Streaming Profitability

Warner Brothers Discovery missed on 1Q23 reported revenue and posted a wider-than-expected loss driven by audience declines in the company’s domestic general entertainment and news networks. The company also noted that soft advertising markets in the US drove a drop in ad revenues during the quarter. Despite declines in its legacy entertainment arm, Warner Brother Discovery turned a small profit in its US direct-to-consumer (streaming) arm. Reported DTC subscribers (which include subscribers to HBO linear, HBO Max, and Discovery+) increased 2% QoQ (8% YoY), inline with ST MAUs for the HBO Max and Discovery+ apps (combined)on the popularity of the hit video game-to-TV adaptation of The Last of Us. 


Warner Brothers Discovery noted that The Last of Us drove record levels of viewership and a swath of subscriber sign-ups during the quarter. ST MAU estimates for the HBO Max app show that MAUs reached all-time highs in both Europe and LatAm during the quarter as the broader popularity of The Last of Us became evident. This was largely corroborated by a note from Warner Brothers Discoveryʼs earnings report which touted that the show “... is the most-watched show in the history of HBO Max in both Europe and Latin America.” Looking ahead, the company’s forthcoming streaming service which combines HBO Max and Discovery+, “Max”, is set to launch in the US on May 23. Further, the company expects its domestic direct-to-consumer arm to boast a profit for FY23 on a strong expected content slate.

Paramount Reports Widened Streaming Losses Despite Strong Paramount+ Sub Growth

Paramount fell short on both its 1Q23 reported EPS and revenue as softness in the ad market weighed on the company’s bottom line. Paramountʼs DTC losses widened in the quarter (to $511 mn in 1Q23 vs $456 in 1Q22) The company significantly cut its dividend as it seeks to reach profitability on its DTC arm before the end of FY24. Despite these headwinds, the company exceeded street estimates on its Paramount+ subscriber adds (adding 4.1 mn subs vs 3 mn expected) in the quarter, up roughly 7% QoQ (~50% YoY), directionally inline with ST MAUs for Paramount+ on the back of strong tentpole content and live sports streaming. On its earnings call, Paramount CFO Naveen Chopra noted that churn has continued to trend lower for Paramount+ saying “I think the short answer is churn continues to improve. We saw that in Q1, and it's been pretty consistent theme as we see really nice improvements in engagement, the content portfolio continues to expand, we get more partnerships in place, all of those things are beneficial from a churn perspective, and that's definitely one of the key ingredients that's going to drive revenue growth going forward. So, we like what we are seeing there.” ST Churn Analysis corroborated falling churn on Paramount+ over the past three years with domestic (US) user churn in 1Q23 down 2pps vs 1Q22 and 10pps vs 1Q21 as the service has grown its library of both original and licensed content. Paramountʼs forthcoming plans to merge Paramount+ with Showtime will provide the service with an additional boost of hit content (such as Showtimeʼs Yellowjackets and Your Honor) and live sports (Showtime boxing events) that could help bolster subscriber growth and retention in the face of an expected price increase this coming summer.

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