At an investor conference recently, Walt Disney (DIS 2.40%) CEO Bob Chapek hinted at the possibility of integrating the company's different streaming services into a single app. Streaming companies have proposed doing the same thing. Here's why combining streaming services and bundling could be a monumental shift in the streaming wars, and how Disney can win.
A single app could accelerate subscriber growth
As it stands, Disney has three independent streaming platforms serving different demographics. For the kiddos, Disney+ contains Disney princesses and Pixar Animation movies, among other offerings. Hulu houses scripted shows, documentaries, movies, and some local sports for adults. ESPN, of course, hosts some of the most desirable sports content available.
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Personally, my family cancels streaming subscriptions all the time. I subscribe to Hulu to watch my favorite college basketball team every year, and cancel after March Madness. My wife likes to subscribe to services with the hottest new series and cancels when it's over. We're guilty of skewing the net subscriber growth that Disney and other streaming companies report each quarter. Sorry!
Disney currently has a soft bundle that profoundly affects the behavior of subscribers like my family. At the investor conference, Chapek also told investors that bundle subscribers have extraordinarily low churn, or subscriber cancellations. The thing is, a bundle would save us money, and would likely always have something for both of us. Therefore, it wouldn't make sense to cancel. By significantly reducing churn, Disney can accelerate its subscriber growth by losing fewer of them each quarter.
The impact would be so meaningful that Disney will reprice its streaming fleet in October to drive subs to the bundle. In August, the company reported that the price of Disney+ without ads would increase by 38% to $10.99, Hulu without ads will rise 18% to $12.99, and ESPN+ will be bumped by 43% to $9.99. However, a bundle of all three will remain unchanged at $19.99, a 41% discount.
Disney is not alone in combining streaming services
You might ask what the big difference is between a bundle and a single integrated app is. The obvious attraction to a single streaming app is that subscribers get a wider variety of content with a single subscription, and Disney is ahead of the pack in content. But there is more to it than that. With a bundle or separate apps, the user must close one app, scroll around, and open another. By eliminating that friction, Disney can enhance its user experience and keep users engaged with Disney's content.
NYSE: DIS
Key Data Points
Warner Bros. Discovery (WBD +0.00%) announced earlier this year that it would combine its flagship streaming services, HBO Max and Discovery+. More recently, the Wall Street Journal said that Paramount (PARA +0.00%) is considering merging Paramount+ and Showtime. With big-name streamers committed to or entertaining the idea of a single app, it seems inevitable that it will become mainstream.
Is Disney a buy right now?
Disney won't be able to complete a single integrated app until 2024 because Hulu is partially owned by Comcast (CMCSA 1.36%). In 2024, Disney has the option to purchase Comcast's stake and become the sole owner of Hulu, though Chapek notes that the two sides could reach an agreement before the 2024 deadline.
Coincidentally, Disney has announced that its streaming segment estimates it will reach 135 to 165 million subscribers, and its streaming segment will become profitable in 2024. If it doesn't close a deal for Hulu by then, a transition to a single Disney app and continued success of the bundle with all of its world-class content could vault the streaming service ahead of the pack.
Disney stock is down nearly 30% this year. As this story plays out over the next few years, long-term investors would be wise to give Disney some very serious consideration after the stock dip.
