Disney+ was first launched three years ago with the “pretty absurd” low price point of $6.99 per month, CEO Bob Chapek admitted. Now the company is gearing up to raise prices again on the flagship streamer — but Disney+ still offers a better price/value equation than competitors, he said.
“I think we’re way underpriced relative to the value we provide,” Chapek said, noting that the core Disney+ service without ads will continue to be priced below several competitors. The CEO was speaking Wednesday at Goldman Sachs’ Communacopia + Technology Conference 2022.
Amid rising inflation, Disney has announced price increases coming in the fourth quarter of 2022 for Disney+ and Hulu, as well as a December launch for the ad-supported Disney+ tier in the U.S. Disney+ Basic, the name of the plan with ads, will launch Dec. 8 in the U.S. for $7.99/month. That’s the price of the current ad-free version of Disney+, which at that time will bump up to $10.99/month, a 38% increase, and will be known as Disney+ Premium.
Even once the cost of Disney+ without ads goes up to $10.99 per month, the media conglomerate still has a lot of headroom in terms of raising prices, Chapek asserted. “[W]e believe our churn implications of taking up the price… will be negligible,” he said.
The new Disney+ ad tier “will really let us cater to diverse consumer needs,” Chapek said. Disney+ Basic will be “margin-neutral at worst” compared with the ad-free version, he said, so the company is “indifferent” as to which plan consumers choose. “This just puts wind in our sales to achieve the [projected Disney+ subscriber] numbers we stated,” Chapek said.
As of July 2, Disney counted more than 221 million subscriptions across Disney+, ESPN+ and Hulu. But on average, Disney generates far lower revenue per streaming subscription than rivals like Netflix. Improving the operating profitability of its streaming portfolio is a priority, said Chapek.
Disney is looking toward a future “hard bundle” that will merge Disney+, ESPN+ and Hulu into a single integrated service. To do that, Chapek said, Disney will need full ownership of Hulu; Comcast retains a 33% stake in the streamer. Comcast has the right to sell its Hulu ownership stake to Disney as early as January 2024, under which Comcast is guaranteed to receive proceeds of at least $5.8 billion and potentially billions more than that. “We’d love to get to that end point earlier,” but closing a deal to buy out 100% of Hulu is contingent on reaching satisfactory terms with Comcast, Chapek said.
Disney is coming off a strong earnings report for the June 2022 quarter, with a rebound in theme park revenue and a net gain of 14.4 million Disney+ subscribers in the period, to reach 152.1 million as of July 2. The company lowered its global subscriber target for Disney+ to 215 million-245 million global subscribers by the end of fiscal 2024 (down from 230 million-260 million previously), citing its loss of Indian Premiere League cricket streaming rights as hampering growth of Disney+ Hotstar in India. Subsequently, Disney Star scored Indian TV and digital rights to both men’s and women’s global events conducted by the International Cricket Council (ICC) from 2024-27. “We’re still pretty bullish on India,” Chapek said.
Disney has recharged its content pipeline after COVID production slowdowns. At the D23 fan conference over the weekend, Disney unveiled a slew of first-looks at upcoming films and shows, including for “The Little Mermaid” starring Halle Bailey, “Avatar: The Way of Water,” “Indiana Jones 5,” and the “Percy Jackson and the Olympians” and Marvel’s “Ironheart” series for Disney+.
“We have an embarrassment of riches in terms of the plethora of content we have coming from our creative engines,” Chapek boasted. Movie and TV productions are still observing stringent COVID-safety protocols, which add costs, but Disney is evaluating how to cut production expenses, according to Chapek.
Chapek touched on Disney’s early plans to roll out a membership program, which will bring together customer data from Disney+ with businesses across the company, like its theme parks. “We can now customize and personalize an experience well beyond we’ve been able to do,” he said. Disney+ “will become a platform for engagement” with all the company’s products and services, “not just a movie service.”
ESPN will continue to remain distributed through pay-TV providers for the foreseeable future, Chapek said. As he’s said before, though, “at some point we see the writing on the wall” in terms of moving to split it off as a direct-to-consumer service with the full lineup of sports programming. “We’re not going to do anything rash… we’ll follow the consumer,” he said.
Last month, activist investor Daniel Loeb of hedge fund Third Point urged Disney to spin off ESPN and accelerate its acquisition of Comcast’s 33% stake in Hulu. But on Sunday, Loeb backed down from his call for Disney to shed ESPN, writing in a tweet, “We have a better understanding of @espn’s potential as a standalone business and another vertical for $DIS to reach a global audience to generate ad and subscriber revenues.” Third Point owned about a $1 billion stake in Disney as of mid-August.
Chapek told Variety in an interview Saturday at D23 that when “the word was out on the street that will maybe Disney will spin off ESPN, we had no less than 100 inquiries of people that wanted to buy it. What does that tell you? That says we’ve got something really good.”
Chapek took over as CEO of Disney in February 2020, succeeding Bob Iger. Disney’s board earlier this summer reupped Chapek’s contract through July 2025.
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