So Disney had some good news recently, as the company announced in a recent investors call that the subscriber totals for all three of their streaming services (Hulu, Disney+ and ESPN+) are continuing to rise, and if you bundle the three of them together, the company technically has more subscribers than their closet rival Netflix. With the their services counted as one, Disney has 221 million total subscribers versus Netflix’s 220.7 million.
And even if you take issue with that “creative” math, then the company’s flagship streaming service Disney+ added added 14.4 million subscribers in the third quarter, bringing the total to 152.1 million and beating Wall Street analysts’ expectations of 10 million adds.
So the world’s most dominant entertainment company continues to dominate. Good for them.
But unfortunately for Disney (DIS) fans, their subscription fees are rising as well. Starting on Dec. 8, Disney+ will cost $10.99 a month, a 38% increase from its current price of $7.99. But if you don’t want to let go of that price point, you can sign up the ad-supported tier, pegged at $7.99, which will be introduced later this year.
There’s a lot of factors at play here, no doubt, but one of the main ones is that Disney is relying on TV shows based on its Star Wars and Marvel franchises to bring in new customers, and hiring Oscar Isaac for “Moon Knight” and Ewan McGregor for “Obi-Wan Kenobi” isn’t going to be cheap.
But unfortunately for budget-conscious Star Wars fans, the company knows full well they have enough of a locked in audience that they can raise prices without concern for subscriber loses.
Disney Doesn’t Fear the Churn
There’s no word that keeps the heads of streaming companies awake at night quite like “churn.”
That’s the number of subscribers who quit paying for a streaming service at any given moment. Some amount of churn is built in, as there’s always going to be customers with limited budgets who will, say, sign up for one subscription service at a time, check out whatever they’re interested in that month, and then come back when there’s a new season of, say, “The Mandalorian.”
Sometimes people begin to churn out in mass because a feeling begins to set in that the amount of quality options a streaming service offers is not congruent with the rising subscription fees. This is, to some extent anyway, one of the main headaches that Netflix (NFLX) is dealing with.
But on a recent earnings call, Disney CEO Bob Chapek indicated that even though Disney’s streaming services are going to be more expensive, he’s not sweating the churn at all.
'Plenty of Room on Price Value'
In an answer to a question from a Morgan Stanley analyst about the “decision to take these price increases, which, on a percentage basis are pretty large” and if he’s worried about an increase in churn rates.
In response, Chapek said “we launched at an extraordinarily compelling price across all the platforms that we have for streaming. I think it was easy to say that we're probably the best value in streaming,” adding that “since that initial launch, we've continued to invest handsomely in our content, as you know.
“We believe because the increase in the investment over the past two and a half years relative to a very good price point that we have plenty of room on price value. And we do not believe that there's going to be any meaningful long-term impact on our churn as a result.”
Churn? Chapek’s never heard of it, pointing to the fact that ESPN+ announced earlier this summer a 33% increase from $6.99 to $9.99, and the service had 22.8 million subscribers in the third quarter, up from 22.3 million.
Chapek notes that because subscriber numbers went up even after the price increase was announced, the hike had “really no meaningful impact at all on our churn. And we believe that we've got plenty of price value room left to go.”
Now, what does “plenty of price value room left to go” actually mean?
It’s unclear, but Chapek has indicated, arguably correctly, that Disney spending handsomely on content for its streaming services is creating a loyal customer base. It would seem that he's aware that base is willing to grin and bear it when it comes to cost increases.
So does “price value room left to go” indicate that more prices hikes are in the future? That's not something a CEO is going to go around and flaunt. But it’s almost certainly inevitable, as costs of production and talent will only rise, and Disney knows its fanbase is devoted enough to weather future price increases.
Plus, now that Isaac has indicated that he’d like to revisit his Star Wars character Poe Dameron, a no doubt quite expensive “Dameron” series will inevitably hit Disney+ in the next few years, and someone’s gonna have to pay for that.