The new details that the media giant just shared about Disney+ at its bi-annual D23 expo provide fresh reasons to think that Disney is ready to absorb substantial near-term losses for Disney+. Indeed, for now at least, Disney might be treating Disney+ as a loss leader meant to strengthen its broader empire.
At D23, Disney announced that standard Disney+ subscriptions will support up to four simultaneous streams at resolutions up to 4K. In addition, each Disney+ account will support up to ten devices, as well as up to seven user profiles featuring their own watchlists and personalized content recommendations.
Disney previously disclosed that standard Disney+ subscriptions will cost just $6.99 per month or $69.99 per year when the service launches on Nov. 12. The company later said that it will sell bundles featuring Disney+, the $4.99-per-month ESPN+ service and the $5.99-per-month, ad-supported version of Hulu (already provided for free to U.S. Spotify (SPOT) - Get Report subscribers) for $12.99 per month.
By comparison, Netflix's (NFLX) - Get Report Premium subscription plan, which supports up to four simultaneous 4K streams, costs $15.99 per month, following Netflix's early-2019 price hike. The company's Standard plan, its most popular, supports two simultaneous 1080p-resolution streams and costs $12.99 per month. Its Basic plan, which supports just one standard-definition stream, costs $8.99 per month.
As it was, Disney+'s pricing and content library -- among other things, the service will feature Disney, Pixar, Marvel and Star Wars films, The Simpsons, family-friendly Fox Networks content and a host of original shows and movies that leverage Disney IP -- made it almost a no-brainer for families with young children, as well as fans of sci-fi and superhero franchises. Now, by promising to support such a large number of streams, devices and user accounts, Disney is all but inviting consumers to "share" their login credentials with friends and relatives.
In April, Disney set a goal of obtaining 60 million to 90 million Disney+ subscribers globally by the end of its fiscal 2024, which ends in Sept. 2024. Provided the company doesn't significantly hike prices or launch aggressive efforts to crack down on password-sharing over the next few years, the number of households with access to Disney+ as of fiscal 2024 could be meaningfully higher than its paid subscriber count.
Meanwhile, though Disney hasn't forecast just how much money Disney+ will lose in the near-term, the company has said the service will see "peak operating losses" from fiscal 2020 to fiscal 2022, before witnessing bottom-line improvement. It expects Disney+'s original content spend will grow to the mid-$2 billion dollar range by fiscal 2024, as will its payments to other Disney units for licensed content. It also forecasts Disney+'s operating expenses will total almost $1 billion in fiscal 2020.
What should investors make of Disney's aggressive strategy for rapidly growing Disney+'s viewer base? One simple explanation is that Bob Iger's firm realizes that Disney+ is launching at a time when Netflix and (judging by third-party estimates) Amazon Prime each already claim more than 60 million U.S. subscribers. Getting large numbers of consumers that are signed up for both of these services, and likely reluctant to cancel either, to embrace Disney+ arguably requires going the extra mile to convince them the service is a screaming bargain for households that watch a lot of family-friendly content.
However, another explanation -- one that looms particularly large following the D23 announcements -- is that Disney could be less interested in directly generating large profits from Disney+ itself than in using the service to strengthen its brand, form deeper customer relationships and enhance the profitability of various existing businesses such as theme parks, cruises, retail stores and movie ticket sales (Disney's theatrical movies will only appear on Disney+ after a release window has passed).
"[The] real goal of Disney+ isn't the creation of a new revenue line for Disney," media analyst Matthew Ball argued in a New York Times op-ed that was published shortly before D23. "Instead, it's about giving the company the ability to know each of its fans individually, including what content and characters they like, and how much, and to sell to them directly...Monthly subscription fees are trivial if Disney can use the service to sell more $5,000 cruises. The same applies for merchandise, movie tickets and other products."
From that perspective, Disney+ looks like a cross between Netflix and Amazon's (AMZN) - Get Report Prime Video. Like Netflix, Disney+ will (from all indications) most commonly be purchased on its own or in the aforementioned streaming bundle. But like Prime Video, which is bundled with Prime subscriptions with the goal of keeping consumers loyal to Prime and avidly shopping on Amazon, Disney appears comfortable recording losses for Disney+ in order to drive greater spending on, and engagement with, various other Disney products and services.
Though they're probably not happy to see a new rival to Prime Video emerge, one has to think Jeff Bezos & Co. appreciate such strategic thinking.
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