Disney+ is far different than when it launched, and it shows what's needed to catch up to Netflix
- Disney+ beat expectations in the most recent quarter, adding 14 million subscribers, Disney said.
- Its stock surged in response, but its earnings report also highlighted streaming challenges.
When Disney+ launched in November 2019 it was touted as a family-friendly streaming service that cost less than rivals. But Disney has quickly learned what it takes to compete in the streaming game and catch up to Netflix, and that includes a wider range of content as well as price hikes.
Disney wooed Wall Street on Wednesday when it reported results for the three months to July 2, with its stock surging 5% on Thursday.
Disney+ added more than 14 million subscribers in its third quarter, ahead of projections, bringing the global total to 152 million. Including Hulu and ESPN+, Disney now has 221 million subscribers worldwide — just ahead of Netflix, which has lost customers for two consecutive quarters this year.
The company also revealed it had lowered its long-term forecast for Disney+, saying it expected the service to gain 215 million to 245 million subscribers by 2024. Its previous estimate was 230 million to 260 million subscribers.
Disney also lost more than $1 billion in the quarter on streaming as it invests heavily on content, but expects Disney+ losses to peak this year.
Disney+ is growing, and investors seemed to turn a blind eye to the streaming losses and lowered forecast (likely because they feared worse, as CNBC's Alex Sherman pointed out). But streaming remains an expensive challenge.
That has prompted price rises for both Disney+ and Hulu would cost more. Notably, when Disney+'s new ad-supported plan launches in December it will cost $8 a month — the same price as the current ad-free version that will rise to $11.
That's a 38% price hike for Disney+ if you don't want ads, while Netflix's most recent increase earlier this year was 11%.
Disney+'s ad-free plan still costs less than Netflix's most popular "standard" HD plan at $15.50 per month (its basic plan is $10 and its 4K plan is $20). But when Disney+ launched nearly three years ago, it was a mere $7 and one of the cheapest streaming services.
But as streaming losses mounted, and Disney+ expanded its content library, that pricing was no longer sustainable.
"We launched at an extraordinarily compelling price," Disney CEO Bob Chapek said on Wednesday's earnings call. "I think it was easy to say that we were probably the best value in streaming. And since that initial launch we've continued to invest handsomely in our content.
"We believe, because of that increase in 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."
That expanded library includes broader entertainment options, beyond Disney's most lucrative franchises like Marvel and "Star Wars," including investment in international originals. Disney+ is now in 155 markets.
It also includes more mature content. Disney+ recently added its first R-rated movies, "Deadpool" and "Logan," which it inherited after buying the Fox film studio in 2019. It also recently updated its parental controls after adding mature Marvel shows that originated on Netflix such as "Daredevil" and "The Punisher."
Last year, Chapek said more than half of Disney+'s audience were not parents, and acknowledged it as a chance to appeal to a wider audience.
"When 50% of the people in Disney+ don't have kids, you really have the opportunity now to think much more broadly about the nature of your content," he said.
That means subscribers can expect more big changes for Disney+ as it strives to stay competitive in streaming.
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