The Walt Disney (DIS +1.41%) investor day on Dec. 10 was full of updates for the company's direct-to-consumer streaming business. It has been 13 months since the launch of Disney+, and the service -- along with Hulu and ESPN+ -- has vastly exceeded the expectations the company laid out at its investor day in April 2019.
With this outperformance and the shifting landscape for the media industry amid the COVID-19 pandemic, Disney has made some big changes to its vision for the streaming business. Here are seven key takeaways for investors.
Image source: Disney.
1. 137 million subscribers
As of Dec. 2, Disney had 137 million total subscribers across its three streaming platforms.
|
Service |
Disney+ |
Hulu |
ESPN+ |
|---|---|---|---|
|
Subscribers |
86.8 million |
38.8 million |
11.5 million |
Data source: Disney. Chart by author.
About 30% of that Disney+ number consists of Disney+ Hotstar subscribers in India and Indonesia. Those subscribers pay much lower rates than the rest of the world.
All three services are still growing strong in the last two months. Disney+ added 13.1 million subscribers since the end of its fiscal fourth quarter on Oct. 3. Hulu added 2.2 million, and ESPN+ added 1.2 million.
2. Expect a lot more subscribers
CFO Christine McCarthy updated the company's 2024 subscriber outlook with some much bigger numbers.
|
Service |
Disney+ |
Hulu |
ESPN+ |
|---|---|---|---|
|
Original 2024 Outlook |
60 million to 90 million |
40 million to 60 million |
8 million to 12 million |
|
New 2024 Outlook |
230 million to 260 million |
50 million to 60 million |
20 million to 30 million |
Data source: Disney. Chart by author.
McCarthy notes that 30% to 40% of the Disney+ outlook consists of Disney+ Hotstar subscribers. She also expects lower average revenue per ESPN+ subscriber due to more customers getting a discount through bundled offerings.
3. Growing content budgets
Disney plans to release about 100 titles per year going forward with about 80 of them going direct to its streaming services. Its new corporate structure will allow it to remain flexible and decide the best path of distribution for each piece of content it creates in order to maximize value.
McCarthy expects the content budget for Disney+ to balloon to between $8 billion and $9 billion by 2024, up from her original $4 billion projection. That includes content for its Star and Hotstar services, which are part of Disney+ in certain international markets.
Overall, Disney will spend $14 billion to $16 billion on streaming content in 2024. McCarthy also notes the company is changing the way it attributes content expenses across its divisions in order to provide a clearer picture of the impact of content expenditures on its various businesses. She didn't, however, share whether that accounting change increased or decreased the streaming content expense numbers she provided.
Despite the growing content budgets, the timeline to profitability remains mostly unchanged.
Image source: Disney.
4. All about the forthcoming Star service
Star will be Disney's general entertainment brand in markets outside the United States, similar to Hulu in the U.S. The content will vary by region and include local market offerings as well as content from Disney TV Studios, 20th Century Studios, FX, and other properties Disney acquired in its Twenty-First Century Fox acquisition. Disney won't sell Star as a separate service in Europe, the UK, Canada, Australia, Japan, Korea, and similar markets, instead including it as part of Disney+.
In Latin America, Disney will sell a separate service called Star+. It includes similar content to Star with the addition of sports programming. While it'll be available on a stand-alone basis, Disney expects most subscribers to bundle the service with Disney+. It didn't provide any pricing details on Star+ or the bundled offering.
5. Price increases are coming
New Disney+ subscribers in the United States will pay $8 per month starting in March. In markets where Disney's adding more content to Disney+ under the Star brand, the price will increase by two euros ($2.43) or the local equivalent.
At an investor conference in September, McCarthy said the company will look to increase pricing as it adds additional content to the service. Given the increased budget and content output for the service, the announcement is no surprise. During a Q&A session after the investor day presentation, she said average revenue per user will be a focus going forward, but the primary directive is to grow the subscriber base.
6. Premier Access will stick around
Disney introduced Premier Access in September with the day-and-date release of Mulan in theaters and Disney+. Subscribers could pay an additional $30 for early access to stream the film. Management said in its fourth-quarter earnings call that it was pleased with the results of Mulan but has provided no further details.
The next Premier Access title will be Raya and the Last Dragon in March.
When asked if Premier Access has utility in a post-COVID world, CEO Bob Chapek said he believes it could. He stressed theatrical runs still have a lot of value for Disney, and the new distribution team will determine the best way to bring new films to audiences. He also noted there's just not enough data on how consumers respond to Premier Access to know how big of a role it will play in the future.
Image source: Hulu.
7. Hulu generates a lot of ad revenue
Perhaps lost in all the announcements was a small detail about Hulu's growing Live TV business. Hulu President Kelly Campbell said the company earns $10 per month on average from its Live TV subscribers.
This is a huge competitive advantage for Hulu as it allows it to provide similar content lineups as its competitors at a lower cost to the consumer. That should enable it to keep winning market share, providing support for Disney's television network business while expanding the touch points to sell Disney's other streaming services.
Hulu + Live TV subscribers can also get the bundled pricing for adding Disney+ and ESPN+. And Hulu is integrating ESPN+ directly into Hulu, allowing users to add the service in a similar way as the other premium streaming networks it sells.
Lots to love
Disney certainly impressed with its presentation. Investors sent shares of the media stock higher on the updated subscriber numbers and improved outlooks. The transition to streaming is still in its early days, and it looks like it'll be a massive business for Disney.
