Disney's streaming results improve as cable TV declines

For disneythe future is now.

It's been five years, but Disney nearly turned a profit in its streaming units for the first time in the fiscal second quarter, losing just $18 million between Disney+, Hulu and ESPN+. That's an improvement from a loss of $659 million a year ago.

Excluding ESPN+, Disney+ and Hulu actually made money in the quarter: $47 million. Last year, in the second quarter, Disney+ and Hulu lost $587 million.

The thesis among all the major legacy media companies has been that streaming will eventually replace cable TV as the primary money-making engine. That's why Disney, world supreme, Warner Bros. Discovery and ComcastNBCUniversal created its own subscription streaming services.

That hasn't happened yet, but this quarter finally suggests that moment is here. It's not just that Disney almost made money from streaming, but the company's traditional linear TV results were terrible.

For years, Disney refrained from making ESPN available outside of the cable package because of how lucrative the sports network was within the walled garden of traditional television. Those days are almost over too. Disney is launching a smaller package of linear cable channels with Warner Bros. Discovery and Fox in the fall, making ESPN available for the first time outside of traditional cable. Next year, Disney will launch its flagship ESPN streaming service, allowing consumers to subscribe to ESPN without any cable.

Looking at Disney's second quarter results, it's clear why the company has finally pulled the plug on ESPN. While ESPN's revenue rose 3% to $4.21 billion, operating income fell 9% to $799 million. A drop in cable subscribers and higher programming costs attributable to the College Football Playoff led to the decline, Disney said. ESPN advertising increased to offset the decline in cable subscribers.

The decline in the company's other linear networks, such as ABC, Disney Channel, FX, National Geographic and Disney Junior, was even more alarming. Linear network revenue across Disney's portfolio, excluding ESPN, fell 8% to $2.77 billion. Operating income fell a whopping 22% to $752 million.

Disney shares fell nearly 8% in morning trading.

Simply put, traditional television is dying. It is declining at the fastest rate consumers have ever seen.

Disney has been preparing for this moment for years. Streaming will be profitable in the fourth quarter, Disney reiterated, and “will be a significant future growth driver for the company, with further improvements in profitability in fiscal 2025,” the company said in its earnings release.

The big question for Disney is whether its investors will accept this new reality. That will depend on Disney's streaming performance in the coming years and, likely, CEO Bob Iger's yet-to-be-named successor.

Disclosure: Comcast's NBCUniversal is the parent company of CNBC and co-owner of Hulu.

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