Kudos to Walt Disney (DIS -0.93%). The media giant picked up another 7.9 million Disney+ subscribers last quarter, bringing the tally up to 137.7 million. Meanwhile, 41.4 million people now enjoy Hulu's on-demand service, and ESPN+ now serves 22.3 million paying customers. Both of those numbers are a little better than they were three months ago as well.

The company's direct-to-consumer (DTC) efforts certainly look like a success, particularly in light of the fact that Disney+ launched only two and a half years ago. Before celebrating, though, you should know that Walt Disney's streaming business is still losing money. And worse, its operating losses are growing rather than shrinking as its DTC revenue grows.

It wouldn't be wrong for shareholders to start asking tougher questions.

Moving in the wrong direction

In its defense, new businesses are rarely profitable right out of the gate. It took Amazon years to start turning meaningful, reliable profits. Ditto for Alphabet, when it was still just Google. It's likely that the last thing Disney's execs were sweating over in 2019 was making actual money on Disney+. Build a great product first -- tweak the price and expenses for profitability later.

A person using a calculator to add up costs.

Image source: Getty Images.

With more than 200 million unique paid subscriptions now generating nearly $5 billion worth of quarterly revenue, it wouldn't be out of line to start expecting the company's DTC businesses to add to the bottom line. But they're not; indeed, the loss is actually still growing.

The graphic below tells the tale. Last quarter's operating loss of $887 million is the biggest that Disney's DTC ventures have suffered since the effort started in earnest (and since the numbers started being disclosed) in early 2020.

Walt Disney's direct-to-consumer (DTC) businesses are suffering increasingly larger losses.

Data source: Walt Disney. Chart by author. Revenue figures are in billions of dollars. Operating income figures are in millions of dollars.

We don't know precisely why. While the operating loss is published, the breakdown of Walt Disney's DTC-specific spending isn't. It's not exactly a stretch, however, to say production costs are a key culprit. 

Although it doesn't flesh out any details, Walt Disney's most recent quarterly filing with the Securities and Exchange Commission (SEC) acknowledges the "increase in programming and production costs was due to higher costs at Disney+ primarily due to more content provided on the service, increased sports programming costs and higher subscriber-based fees at Hulu."

The company's content budget -- including exclusive content for its streaming platforms -- for the current year stands at $33 billion, up $8 billion from 2021's crimped production budget. The chart above simply reflects this change.

It's also arguable that Walt Disney is spending more to promote its direct-to-consumer platforms than it was planning to just a couple of years ago, when consumers were eager to sign up for anything that might relieve the boredom of pandemic lockdowns.

The market has certainly become very competitive very quickly since then, with Warner Bros. Discovery's (WBD 0.24%) HBO Max surfacing in the meantime, while secondary streaming services like Paramount's (PARA -0.55%) Paramount+ and Comcast's (CMCSA 0.15%) aren't so secondary anymore. Even the venerable Netflix (NFLX -2.52%) lost a handful of North American customers last quarter, underscoring streaming's new competitiveness.

To this end, Disney's SEC filing goes on to say, "Selling, general, administrative and other costs increased 21%, or $0.7 billion, to $3.8 billion due to higher marketing costs at our direct-to-consumer and parks and experiences businesses."

Two questions worth asking

Generally speaking, none of this is surprising. You have to spend money to make money. Walt Disney is just doing what all companies do.

The data raises a myriad of questions, though, chief among them: How many more paying DTC customers does Disney need to make these ventures profitable? A second question: How much more spending on content and marketing will be needed to get there?

It seems like the easy subscriber growth has been achieved. The next 200 million subscriptions could prove much tougher to get than the first 200 million were.