Disney+ Hotstar's revenue ad revenue took a hit in the JFM quarter due to the timing of Indian Premier League (IPL) matches and the impact of COVID-19, The Walt Disney Company revealed in its Q2 earnings conference call. The ad revenue de-growth impacted the platform's average revenue per user (APRU).
Disney's financial calendar runs from 1st October to 30th September.
"We had almost 104 million Disney+ paid subscribers at the end of the second quarter," The Walt Disney Company Senior Executive Vice President and CFO Christine McCarthy told analysts during the earnings call.
"Between Q1 and Q2, Disney+ Hotstar was the strongest contributor to net subscriber additions, making up approximately one-third of the total Disney+ subscriber base as of the end of the second quarter. However, ARPU at Disney+ Hotstar was down significantly versus the first quarter due to lower advertising revenue as a result of the timing of IPL cricket matches and the impact of COVID in India. As a reminder, the majority of the prior IPL tournament took place in fiscal Q1, and there were no games in Q2. The current IPL tournament began on April 9 in fiscal Q3 and was suspended last week, given the COVID situation in India."
Disney+'s overall ARPU was $3.99 in Q2. Excluding Disney+ Hotstar, it was $5.61. McCarthy expects Disney+ APRU to improve during the fiscal due to price increase globally. "We remain right on track to reach our fiscal 2024 guidance of 230 million to 260 million subs, powered by the addition of 30 million paid Disney+ subs in the first half of the year."
Queried about the impact of IPL suspension and a possible relocation to a different venue later during the year, McCarthy said that the remaining IPL matches taking place later during the year will have a positive impact on the direct-to-consumer (DTC) segment. DTC revenues for the quarter increased 59% to $4 billion and operating loss decreased from $800 million to $300 million. The decrease in operating loss was due to improved results at Hulu, and to a lesser extent, at ESPN+.
"About half of the 60 IPL matches that were expected to be played this season have already taken place. So you're looking at the back half, 30 games to be played. So sure, if they were able to successfully relocate the tournament, we would hopefully see an impact, especially on advertising. And so there would be a positive what we're expecting. It would be better than if there were no rescheduled. The big issue is going to be when in the and if it overlaps into Q4; or if it goes into the first fiscal quarter, which starts for us at the beginning of October. So if we would have -- it would have an impact on it, it just depends on when it would come in," she explained.
The company expects fewer net sub adds in the second half of the year given the COVID-related suspension of the IPL season and the decision to move the Star+ Latin America launch to the fourth quarter.
"The other thing that's going to happen here is with the absence of the IPL games in India, that will also have an impact on advertising revenue. So you could see a decrease in the ARPU and the subs in India if that plays out like we just said. But the other thing is we did take price increases for the domestic U.S. as well as EMEA for Disney+. So our overall ARPU could benefit. So we just took the price increase in the U.S. at the end of March, and we'll see how that plays out in our ARPU in the upcoming quarters," McCarthy said.
In Q2, Disney's International Channels revenues decreased 4% to $1.3 billion and operating income increased 27% to $348 million. 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. Advertising revenue growth was due to an increase in average viewership and the timing of BCCI cricket matches. The decrease in affiliate revenue was due to channel closures and an unfavourable foreign currency impact.
"Operating results at international channels increased due to a decrease in programming and production costs and an increase in advertising revenue, partially offset by lower affiliate revenue. Lower programming and production costs in the second quarter were driven by a higher percentage of content cost being allocated to our DTC business rather than our Networks business as we continue the international expansion of Disney+ and STAR, in addition to channel closures over the past year," McCarthy said.
"Advertising revenue increased primarily due to the timing of BCCI cricket matches, which generally take place in the first quarter, or in the second quarter this year due to COVID-related timing shifts. Lower affiliate revenue at our international channels was due to channel closures as well as an unfavourable foreign currency impact."
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