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5 Thoughts on Disney's Eye-Opening Streaming Announcements

Following its strong start, Disney+ appears to be embarking on a more Netflix-like strategy of making large content investments that will help justify future price hikes.
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Disney’s  (DIS) - Get Walt Disney Company Report streaming-focused Investor Day event packed quite a punch.

The media giant’s stock is up 14% -- and making new highs in spite of the major impact COVID continues to have on many of its non-streaming businesses -- after it made new streaming subscriber disclosures and set aggressive new fiscal 2024 (ends in Sep. 2024) subscriber targets.

Disney also unveiled plans for March 2021 Disney+ price hikes, as well as for the rollout of dozens of new Disney+ originals and an international streaming service under its Star brand. The Star service will be integrated with Disney+ in many international markets, but sold on a standalone basis in Latin America.

Here are a few thoughts on what Disney announced:

1. Disney+’s Subscriber Growth to Date Says a Lot About Disney’s Strengths

Disney reported having 86.8 million global Disney+ subs as of Dec. 2 -- an increase of 13.1 million from what it had just two months earlier, and an increase of 86.8 million from what it had 14 months earlier.

Disney also said it’s now aiming to have 230 million to 260 million Disney+ subs -- a range that’s above Netflix’s  (NFLX) - Get Netflix, Inc. Report Q3 paid subscriber count of 195.2 million -- and 300 million to 350 million total streaming subs by the end of fiscal 2024. For comparison, in 2019, Disney guided for just 60 million to 90 million Disney+ subs by the end of fiscal 2024.

The incredible growth that Disney+ has seen to date says a lot about how well Disney has executed -- whether in terms of Disney+’s UI, streaming quality and content discovery features, Disney’s partnership work or how it has branded and marketed Disney+. And with Disney+ arguably having just one hit original to date (The Mandalorian), the subscriber growth also says a lot about how incredibly valuable Disney’s back catalog is.

Regarding the second point, it’s worth noting that Disney indicated on its call that a majority of households subscribed to Disney+ don’t have kids. That says a lot about how much broader the service’s appeal has been than what many originally expected.

2. Disney+ Now Appears to Be Entering a ‘Netflix Stage’ to Its Growth Story

Thanks to its marquee franchises and the back catalogs attached to them, as well as aggressive pricing, Disney+ has seen massive subscriber growth in spite of having a relatively small content library and just one high-profile original to promote.

But with a lot of low-hanging fruit now picked off, Disney is now set to head in a different direction.

On one hand, price hikes are arriving in March: $1 per month in the U.S. and 2 euros per month in Europe, with “similar adjustments” planned for other markets. And it wouldn’t be surprising to see additional price hikes in the coming years.

Disney's new Disney+ subscriber guidance. Source: Disney.

Disney's new Disney+ subscriber guidance. Source: Disney.

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On the other hand, Disney plans to launch a ton of original content for Disney+ over the next few years. With the help of many A-list actors and directors, Disney is promising to release “approximately 10 Star Wars series and 10 Marvel series, as well as 15 Disney live action, Disney Animation, and Pixar series, as well as 15 Disney live action, Disney Animation, and Pixar [feature films]” over the next few years, to go with content that will first appear in theaters or on TV networks before making its way to Disney+.

And for Europe and some other international regions, there’s also Star’s bundled content to account for. From the looks of things, Star will be an international version of Hulu, which Disney is reportedly reluctant to bring overseas due to the fact that doing so would increase Disney’s payout to Comcast for a 2019 deal to buy out Comcast’s Hulu stake.

One has to think Reed Hastings smiled when he saw these disclosures. Going forward, Disney+’s strategy -- one of investing billions in originals, and using those investments to help justify price hikes -- looks very Netflix-like. And though it could very well pay off given Disney’s execution and competitive strengths, it does bring with it some of the same financial and business risks Netflix has had to take on over the last decade.

3. Indian Subs Factor Heavily Into Disney+’s Subscriber Growth and Guidance

Of Disney’s 86.8 million Disney+ subs, 30% are subscribers to India’s Disney+ Hotstar service, which pairs Disney+ content with content from the existing Hotstar Indian streaming service.

In addition, Disney’s fiscal 2024 guidance for 230 million to 260 million Disney+ subs assumes that 30% to 40% of this base will consist of Disney+ Hotstar subs.

It’s worth noting here that Disney’s average revenue per user (ARPU) for Disney+ Hotstar appears to be fairly low. The cheapest Disney+ Hotstar plan costs just 399 rupees ($5.41) per year, while a more content-rich plan can be purchased for either 299 rupees ($4.05) per month or 1,499 rupees ($20.33) per year.

4. ESPN+ Is Looking Like a Low-Key Success Story

Disney reported having 11.5 million ESPN+ subs as of Dec. 2, up from 10.3 million two months earlier. Moreover, the company says it now expects to have 20 million to 30 million ESPN+ subs by the end of fiscal 2024, well above prior guidance of 8 million to 12 million.

When ESPN+ launched in April 2018, there was a lot of skepticism (including from yours truly) about how successful it would be, given that the service doesn’t feature ESPN’s most valuable sports content. But its mixture of niche/regional sports content, original films and shows, and paywalled articles from ESPN writers has allowed it to gain a meaningful following, albeit one that’s still a lot smaller than ESPN’s pay-TV subscriber base.

5. Disney’s Guidance and Content Plans Show Why HBO’s Recent Actions Were Necessary

As most of you probably know, AT&T  (T) - Get AT&T Inc. Report/WarnerMedia announced last week that Warner Bros.’ entire 2021 movie slate would be released simultaneously in theaters and on the HBO Max streaming service.

And while WarnerMedia suggested at the time that this state of affairs won’t last beyond 2021, there’s a lot of speculation that it will. Certainly, WarnerMedia CEO/former Hulu CEO Jason Kilar has hinted this is a possibility in recent interviews.

With HBO Max’s current $15-per-month price making it $8-per-month expensive than Disney+ even after Disney+’s March price hike (and also slightly more expensive than Netflix’s Standard plan), it’s pretty hard to question WarnerMedia’s decision. In light of Disney’s ambitious content-spending plans for Disney+, as well as the massive content investments Netflix and  (AMZN) - Get, Inc. Report both continue to make, WarnerMedia needed to do something drastic to make HBO Max stand out more.

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