The Walt Disney Company’s Growth Engines: Streaming

This is the third part in a three part series examining the parts of The Walt Disney Company that Bob Iger has said will be the source of growth moving forward. Today, we will take a look at Streaming.

While Disney is still losing money on their streaming business, they are taking a pretty straightforward approach to moving into the black: spend less while charging more. Can they get away with that? Obviously, Disney thinks so.

When they raised prices for Disney+ last year, they saw much less churn than they had anticipated, causing a belief that the service is still perceived as a good deal. Regarding spending less, they now know what programming works on Disney+ and what virtually no one will watch. With this information, they are able to provide a more focused investment, which differs from the original throw everything on the wall approach. (Disney Family Sundays, anyone?)

Disney still will likely have to pay Comcast over $9 billion for the last part of Hulu that isn’t under Disney control. Before that, Disney will begin closer to a one-app experience, similar to what is seen internationally with Star. By combining Disney’s branded content with Hulu’s general entertainment, the hope is that the app will increase engagement. As Disney continues to push subscribers to ad-included plans, time on the app becomes increasingly important. Now, Disney doesn’t just get paid whether you watch or not but also gets additional revenue when you view ads. While the ad-market is suppressed at the moment, Disney is optimistic about the market’s future. Expect Disney to keep raising the prices of their ad-free plans at a much higher rate than their basic plans in order to capitalize on a growing ad business.

So far, Disney has seen some early success with their ad-supported plans with 3.3 million subscribers having signed up for ad-supported Disney+ plans while 40% of new subscribers are selecting those plans. As the rollout continues, Disney+ will be expanding their ad-supported Disney+ offering to Canada and select European countries on November 1.

The situation at ESPN is a bit more complicated. Subscriptions to ESPN+ have leveled off and it is seemingly clear that ESPN’s streaming ambitions will need to expand beyond that product over the next few years. While Disney does not know when they will pull the trigger, it is only a matter of time before Disney offers ESPN’s flagship channels direct-to-consumer. Meanwhile, ESPN is also reaching out to content providers and distribution partners to determine how they will face a streaming future. Adding additional content and distribution could transform ESPN to be the de facto home to sports content. Whether ESPN’s partners will help facilitate this lofty goal, is a large unanswered question.

What is not part of Disney’s growth strategy is linear television. While Disney is evaluating their options regarding their strategy with that business, there are questions on how Disney could separate broadcast networks without having a significant impact on their streaming ambitions. They could follow the Fox formula where they separate the TV studios from the TV networks, but questions remain regarding how they could impact their worth. For example, is the Disney Channel without Disney content worth much?

Most would agree that the original price for Disney+ was ridiculously low. Disney’s quest for profitability rests on consumers being willing to pay more for the service while offering fewer original movies and series. What are people willing to pay for the service? Also, will the ad-market recover to drive revenue from those that pay less? All eyes will be on the numbers following the upcoming price increase.

Upcoming Streaming Debuts and Releases: