Disney (DIS) CEO Bob Iger said the media giant plans to “pretty dramatically” reduce its investments in linear television as the company works to make its streaming unit a consistently profitable division.
Last summer, Iger said he would take an “expansive” look at the entertainment giant’s traditional TV assets, signaling the potential for strategic options that could include a sale.
That ultimately did not come to fruition, with Iger saying Wednesday that the company determined in its analysis that linear “is not going to be a growth business but it could become an important component to our ability to engage with the consumer.”
Iger said Dana Walden, who oversees Disney’s television studios, and Jimmy Pitaro, who leads ESPN, have been tasked with reducing traditional network investments while also “seamlessly” managing the streaming businesses.
“You’ve got the same executives managing both, and their goal is to drive bottom-line growth,” he said while speaking at a MoffettNathanson investor conference.
One example of this duality includes placing episodes of “Grey’s Anatomy” and “Abbott Elementary,” which air on ABC, onto the Hulu platform “pretty quickly” — or in some cases simultaneously.
The audiences, Iger said, are different, with ABC’s being “older” than Hulu’s. “We’re basically aggregating greater audiences and we’re amortizing costs,” he added.
Although the executive said he still expects erosion when it comes to linear TV subscribers, the segment will “continue to drive profitability because we’re managing our costs so effectively.”
Overall, “We feel comfortable with our hand right now because we’re using those networks efficiently and effectively.”
Linear networks have been a pain point for legacy media giants across the board as a dismal ad environment drags on revenue, coupled with the mass exodus of pay TV consumers.
Prior to the cord-cutting phenomenon, linear advertising and cable affiliate fees had consistently boosted revenues. But as ad buyers now flee traditional TV channels in favor of digital options like streaming, companies are beginning to realize that they may never see the same level of returns.
Domestic operating income at ESPN fell 9% year over year to $780 million, dragged down by lower affiliate revenue and fewer subscribers as more consumers cut the cord, Disney reveled in its fiscal second quarter earnings results.
It was a similar story for domestic linear network revenue within the entertainment division, which fell 11% year over year in the quarter. Operating income within the segment dropped 18%. This was also blamed on lower affiliate revenue, along with a decline in advertising revenue.
Streaming, on the other hand, turned a corner with the direct-to-consumer (DTC) portion of its entertainment segment, which includes Disney+ and Hulu, posting operating income of $47 million, compared to a loss of $587 million in the prior-year period.
Still, all show business these days is tough, and the company warned it expects some DTC results in the entertainment segment to be in the red in the third quarter. But Disney expects full streaming profitability by the fourth quarter of this year.
Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.
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