The news: Disney announced that it will merge Disney+ and Hulu in 2026, a move that could save it $3 billion. The news came after a mixed Q3 FY25 that beat expectations thanks to high spending at Disney theme parks and growth in streaming, but saw advertising revenues fall short of analyst estimates.

• Revenues rose 2% YoY to $23.7 billion, up from $23.2 billion in Q3 FY24.
• For linear networks, domestic operating income fell $269 million YoY, caused by lower ad revenues from decreasing viewership and ad rates.
• For sports, domestic ESPN ad revenues grew 3% YoY, driven by higher ad rates that offset rising production costs and lower average viewership.

And streaming was a mixed bag.

• Both Disney+ and Hulu grew subscriber numbers modestly (up a combined 2.6 million from Q2), and Disney+ domestic average monthly revenue per paid subscriber (ARPU) rose slightly from $8.06 to $8.09 due to higher ad revenues.
• Hulu’s SVOD-only and Live TV+SVOD also saw modest ARPU increases from higher ad revenues (growing from $12.36 to $12.40 and $99.94 to $100.27, respectively), but were significantly offset by subscriber mix shifts.
• Disney also announced that it will no longer provide subscriber numbers for its streaming offerings in quarterly reports.

The earnings news caused Disney’s shares to fall 3% at market open Wednesday.

Big moves ahead: While quarterly results were mixed, Disney is already making moves to ensure a more positive outlook ahead.

• Disney CEO Bob Iger described the Hulu-Disney+ move as a key opportunity to grow profitability and margins through “expected higher engagement, lower churn, and advertising revenue potential.”
• Disney is ramping up its sports push to match competitors after a stagnant Upfront resulting from a lackluster sports portfolio. The company recently teamed up with the NFL in a landmark deal that gives Disney access to high-profile NFL content in exchange for an equity stake in ESPN.
• And ESPN is set to launch a DTC streaming platform in the US later this month that will consolidate ESPN programming under one roof and can be bundled with Disney+.

Our take: Disney’s future success depends on whether merging its core streaming offerings boosts advertiser appeal and a successful sports push that can compete on a similar level as rivals with access to tentpole live events like the Super Bowl.