Disney (DIS) is reining in its spending after the company reported weak fourth quarter earnings, which sent the stock plummeting to a new 52-week low as investors zeroed in on the media giant's widening streaming losses.
In an internal memo obtained by Yahoo Finance, Disney CEO Bob Chapek told division leaders on Friday that the company has established "a cost structure taskforce" to help Disney+ reach its profitability targets.
"As we begin fiscal 2023, I want to communicate with you directly about the cost management efforts Christine McCarthy and I referenced on this week’s earnings call," the memo stated. ""These efforts will help us to both achieve the important goal of reaching profitability for Disney+ in fiscal 2024 and make us a more efficient and nimble company overall. This work is occurring against a backdrop of economic uncertainty that all companies and our industry are contending with."
The taskforce, which includes Chapek, along with Disney CFO Christine McCarthy and general counsel Horacio Gutierrez, "will make the critical big picture decisions necessary to achieve our objectives."
In an effort to cut costs, the executive revealed that the media giant has "undertaken a rigorous review of the company’s content and marketing spending" and will be "limiting headcount additions through a targeted hiring freeze." Layoffs are also on the table.
"We do anticipate some staff reductions as part of this review," Chapek noted in the memo, adding that the taskforce has already conducted a rigorous review of the company’s content and marketing spending.
"I am fully aware this will be a difficult process for many of you and your teams," the memo stated. "We are going to have to make tough and uncomfortable decisions. But that is just what leadership requires, and I thank you in advance for stepping up during this important time."
Disney+, Hulu, and ESPN+ lost a combined $1.5 billion in Q4 after losing $1.1 billion in the third quarter. Average revenue per user for Disney+ also disappointed, dropping to $3.91 (vs. estimates of $4.29) amid an adverse foreign exchange impact and a larger subscriber mix.
Management said that it expects streaming losses to shrink by about $200 million in the first fiscal quarter of 2023 before profitability in fiscal 2024. The company will roll out its $7.99 ad-supported tier in December, one month after the much-anticipated debut of Netflix's ad option.
Despite widening losses, Disney+ saw net subscriber additions rise to 12 million in the fourth quarter, beating expectations of just over 9 million. The beat came after the company reported a surge of subscribers in the third quarter (14.4 million) following new market launches and a robust slate of content.
The media giant warned that it expects core Disney+ subscriber growth as well as Indian service Hotstar subscriber numbers to be lower in the first quarter of next year. Content spend is expected to be in the low $30 billion range for full-year 2023.
"Our company has weathered many challenges during our 100-year history, and I have no doubt we will achieve our goals and create a more nimble company better suited to the environment of tomorrow," Chapek's memo concluded.
Alexandra is a Senior Entertainment and Media Reporter at Yahoo Finance. Follow her on Twitter @alliecanal8193 and email her at [email protected]
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