UPDATE, with additional executive comments Disney said its high-stakes entry into the crowded streaming fray will cost $6.99 a month when it launches November 12 in the U.S., with a full-year option of $69.99, or $5.83 a month.
Kevin Mayer, head of direct-to-consumer and international, called it “an extremely attractive value proposition” during the home stretch of Disney’s investor day, a three-hour presentation during which a range of details were revealed.
Wall Street analysts had been expecting the price to fall somewhere between $6 and $8. There are strategic advantages to undercutting Netflix, which recently raised its subscription prices in the U.S. to $8.99 a month for basic service and $12.99 for high-definition streaming. Other platforms — notably skinny bundles like YouTube TV and DirecTV Now — recently introduce significant price hikes, while T-Mobile’s new TV offering is hitting the market at a not-exactly-bargain-priced $90 a month.
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Pricing and a launch date were conspicuously absent from Apple’s unveiling of its TV offering in Cupertino last month. In some ways, the Disney event was the inverse of Apple’s, which featured a stage packed with A-list stars and directors talking about original shows but revealing no footage or guidance about the shape of the service. Disney instead featured a cavalcade of executives, with only director Jon Favreau representing the talent community in the flesh.
Disney’s big day comes amid a reckoning for the entertainment business, which has seen the traditional TV bundle shrink and movies get threatened as tech giants pour billions into streaming. Various strategies have emerged — AT&T’s WarnerMedia, like Disney, is choosing the subscription route, while NBCUniversal and Viacom are betting on free, ad-supported services as the best lure for fee-wary subscribers who remember being able to pull signals out of the air with rabbit ears. On Monday, the front-runner by many measures — that would be Netflix — will report first-quarter earnings. The streaming giant expects to reach about 148 million global subscribers, more than 60 million of them in the U.S. The next-biggest service, Hulu, isn’t even half as large.
Internationally, Disney is seen as having an opportunity to rack up consumers quickly the lower the price point stays. No international pricing was specified during the presentation, but CFO Christine McCarthy said the company expects the ultimate ratio to be one-third U.S. subscribers and two-thirds overseas.
Addressing pricing, CEO Bob Iger said the plan all along has been to pick a price point where scale can be achieved. “We’re designing a product that we want to be accessible to as many consumers as possible,” Iger said during a brief Q&A portion with analysts that concluded the event. “The components to achieving accessibility are 1) quality and the variety of content; 2) the user interface, the technology and the app itself; 3) the brands; and four is price. We just feel that Disney is loved by so many millions of people around the world. This is our first serious foray into the space and we want to reach as many people as possible with it.”
McCarthy offered a trunkload of hard numbers during her 10-minute portion as the cleanup hitter of the three-hour presentation. She said the company will spend about $1 billion on original content in fiscal 2020, a figure that includes the acquisition of rights to film and TV titles that have streamed elsewhere. By fiscal 2024, the spend will be in the mid-$2 billion range. While that’s still only a fraction of what Netflix spends, it’s a healthy number for a targeted service and one that is trying to pull back content from third parties and forego significant licensing revenue opportunities.
In terms of subscriber growth, McCarthy said the company expects to reach between 60 and 90 million Disney+ subscribers by 2024, and 20 million to 30 in the U.S. Hulu, meanwhile, should be between 40 and 60 million by then, up from its current level of 25 million.
Asked about the impact of the growth of Disney+ on the traditional TV bundle, Iger allowed a grin. “We don’t have estimates on that that we’re going to share,” he smiled. Turning more serious, he continued, “I’m actually not sure this will have much of an effect on the trajectory of the current bundle.”
Operating losses of $650 million in 2019 and 2020 should narrow before the service shows its first profit in 2023, McCarthy said.
Streaming has been the core strategic motivation for Disney shelling out $71.3 billion to acquire most of 21st Century Fox, a major deal that followed a previous step toward an OTT future, the acquisition of BAMtech. By adding major Fox properties such as The Simpsons, X-Men, Avatar and brands like FX, National Geographic to its already healthy stable, Disney believes it can entice consumers to buy in.
Investors have been awaiting the investor day for weeks, with several analysts issuing upgrades of Disney stock over the past few days. Shares closed Thursday at $116.60, down a fraction but within sight of their 52-week high of $120.20.
“One of our core competencies at the Walt Disney Co. is creating high-quality content and experiences,” McCarthy said during her prepared remarks. “We are extraordinarily optimistic about the plans and expectations we have laid out for you today. Our direct to consumer strategy and the successful launch of Disney+ are top priorities for our company. We will be aggressive in our efforts and we believe we can succeed.”
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