
Editor’s note: Can you spot the 28 Disney movies hidden in the article? Answers at the end of the page
In 2024, Disney shareholders seemed to have their wish granted as the company announced that its streaming service Disney+ had finally made a profit after seeing revenues rise but still delivering losses.
For years, Disney has seen streaming as the brave new world for the company, but disenchanted observers have wondered how they could turn it around. It has been felt among some that the proposal to make such a heavy investment into streaming was a rogue one that could lead to big trouble within the company.
Disney must report revenue and a measure of profit or loss for each reportable segment
As we’re not expecting everyone to know the details of the financial statements inside out, by applying a little splash of our own fairy dust (also known as accounting knowledge), we can see if this is a bit of hocus pocus or potentially the beginning of the finest hours for the company.
Segments
While Disney applied US GAAP rather than IFRS Standards, the cocktail of disclosures of segments are very similar to those of IFRS 8, Operating Segments. This means that Disney must report revenue and a measure of profit or loss for each reportable segment.
One of the issues is that the selection of what goes into a segment is chosen by management based on how they view the business internally. Rather than being frozen in time, this can be changed by management, which was done by Disney in 2023 when it reclassified the business into three segments: Entertainment, Sports and Experiences.
Disney+ sits within the entertainment segment, which discloses a healthy segmental operating profit of US$3.9bn. While that may be seen as an outrageous fortune, US$3.5bn of this is from Linear Networks, often regarded as the old dogs of the segment. This relates to branded TV channels and the ABC television network. While the revenue and subscriber numbers of these continue to decline, fears of Armageddon look to be greatly exaggerated, as it still clearly carries most of the success of the entertainment section.
Streaming
Only US$143m is from the direct-to-consumer part, which is the streaming element of the segment. This contains Disney+, Disney+Hotstar (a streaming service primarily in India) and Hulu (a combination of streaming and live cable in the US).
The prestige of the streaming service making profit may not be as glamorous as first thought
This profit was made on a revenue of US$22.7bn, meaning the operating margin is razor thin at 0.6%, far below the 27% made by Netflix. In the light of recent claims that Apple is losing US$1bn a year on Apple TV+, the expensive streaming wars seem to be coming no closer to the endgame of sharing the significant profits made by Netflix.
Is it actual profit?
The major thing that needs to be examined in the light of Disney+ making a profit is to recognise that the amount disclosed as segmental profit isn’t the same as actual profit. If you were to add up the segmental operating profit of all segments, this would total US$15.6bn. However, the actual total operating profit for the company is US$8.3bn, which may produce a double take among some users who are enchanted by the large profits reported in each segment.
This segmental profit measure is just the measure looked at by the chief operating decision-maker, meaning that some items can be excluded from this. This is really a management performance measure, being a subtotal that is not an actual required subtotal in the financial statements. This means that while the segmental profit figure may appear to be a pretty woman, those relying on it may be deceived.
The use of potentially misleading subtotals has long been a source of concern to users and is something that the International Accounting Standards Board has attempted to improve with the issue of IFRS 18, Presentation and Disclosure in Financial Statements. As part of this, entities will be required to reconcile all management performance measures to the nearest subtotal in the financial statements.
The vast majority of Disney’s profits have come from the park visitors, food/drink and holidays
While Disney does not use IFRS Standards and so will not be subject to the proposals of IFRS 18, it usefully reconciles the segmental profits to the financial statements. This highlights two large expenses that are not included within the entertainment segment, relating to impairments and the amortisation of 21st Century Fox/Hulu, the large media acquisition made in 2019.
Excluded costs
The impairments relating to this sector total US$3bn. Of this, US$1.3bn relates to decreases in goodwill in Linear Networks in relation to expected decline in future subscribers; US$1.5bn relates to Hotstar India, which is now to be disposed of and recorded as a joint venture; and US$187m is for content impairment. The amortisation of TFCF and Hulu (clearly related to the entertainment section) is a further US$1.4bn.
The House of Mouse continues to be built on physical assets rather than intangible content
By incorporating these expenses, the prestige of the streaming service making profit may not be as glamorous as first thought. For those running the numbers, this gives a total of US$4.4bn excluding expenses. As the segmental operating profit totalled US$3.9bn, it is very unlikely that Disney has found its way to making the streaming profitable, especially in the light of the profits that continue to be made in its Linear Networks.
National treasure
While this can feel a bit doom and gloom, all is not lost in Disneyland. The movies and streaming may not make any profit, but the theme parks’ status as a national treasure remains unbreakable. The vast majority, if not all, of its profits have come from the park visitors, food/drink and holidays.
So, what this means is that, for now, the treasure island of streaming profits may be more fantasia than reality. The House of Mouse continues to be built on physical assets rather than the intangible empire of content.
Could you spot them all?
The movies hidden within the article are: Inside Out, Wish, Enchanted, Disenchanted, Rise, Hocus Pocus, Frozen, Rogue One, The Finest Hours, Brave, Up, The Proposal, Old Dogs, National Treasure, The Prestige, Big Trouble, Unbreakable, Double Take, Armageddon, Cocktail, Outrageous Fortune, Splash, Fantasia, Treasure Island, Wish, Brave New World, Endgame, Pretty Woman and Deceived