Disney gets strong quarter from Disney+


No question, Disney+ was a hit with consumers last quarter – and with the Mouse House. During an earnings call with analysts Tuesday, the company said the streaming service closed the year with 26.5 million subscribers, topping Wall Street’s anticipated 20 million subs and closing in on the 30 million goal for domestic distribution it set for 2024; as of this Monday, Disney+ had 28.6 million subscribers.

“There’s a lot of interest in this business,” said Chairman and CEO Bob Iger, during the call, adding that the launch of the service has exceeded Disney’s own expectations.

Iger also said conversion from free trials to paid subscribers and churn rate – due in part to an increase in bundling – were better than Disney’s management had expected.

Iger said consumer engagement with Disney+ was very high, with the percentage of subscriber who were weekly active users and the frequency (average days used) extremely high.

Subscribers were averaging six to seven hours a week of consumption across all three services.

“It validates the concept of putting those brands together and collecting the library,” he said.

Disney eyes global expansion for Disney+

Disney will launch Disney+ in Western Europe, the UK and Ireland March 24, with Belgium, the Nordics and Portugal following this summer. As in the US, Iger said, Disney is in talks with potential distributers of the service in Europe.

One of the most significant Disney+ deployments — in India — also is scheduled for March 29, through Disney’s Hotstar property it acquired in the purchase of Fox assets. Iger said the new product would be called “Disney+ Hotstar.” Disney is planning an infusion of locally produced content for the new service.

Disney has set global subscriber guidance at 60-90 million, two thirds coming from the international market.

“What we know about those markets is that those brands are strong, (but) interest in streaming in those markets isn’t as high as it is in the US,” Iger said. “We’re just beginning there. What we do know is that we’ve reached a number in the Unites States that we didn’t expect to get to for five years.”

More growth for Disney+ expected

While the 28.6 million subs in the US are a strong start, Iger said the streaming service had plenty of growth yet to come, most of the next growth spurt should come from an international audience, as “those brands are global brands.”

“I don’t think we need to do much adjusting to the services being offered in the US,” he said. Disney will add local programming in international markets, partly to align with quotas for local content in some foreign markets.

Iger said Disney+ has fueled an increase in interest and affinity for other Disney brands, especially among young people.

“The demographics on Hulu are significantly younger than some of our linear brands,” he said.

With the Return of the Mandalorian set for October, Disney is looking for a major burst of renewed growth in North America. And, Iger said, a raft of new originals and movies on the way will help continue that trend.

Engagement with Disney+ has been strong, he said.

About 65% of people who have watched the Mandalorian stayed with the service to watch additional content; about 50% watched movies. “There’s been consumption across a broad array of our brands,” including library fare, movies and series, Iger said.

He said Disney was “comfortable” with the volume of product it’s creating and said there were no plans to make any major adjustments right now, including to the price.

“The decision we made to go with quality and not quantity is working,” he said.

ESPN+, Hulu both grow subs

It wasn’t just Disney+ that scored with consumers, as its cousin, sports streamer ESPN+ also had a good – albeit not a great – quarter. It ended 2019 with 6.6 million subscribers, an increase of 1.4 million over the previous past 12 months. Iger said that, as of Monday, it had 7.6 million subscribers.

Hulu, which Disney acquired, also saw strong growth, closing the quarter with 27.2 million SVOD-only subscribers, up from 21.1 million a year earlier. Hulu Live TV, the Mouse House’s virtual pay-TV service, closed the quarter at 3.2 million subscribers, compared to 1.7 million a year earlier. The service is more than 50% larger than YouTube TV, it’s head-to-head competitor in the vMVPD space.

Hulu SVOD and Hulu Live TV + SVOD had more than 30.7 million subscribers overall at the start of this week.

Revenue trending upward for three streaming services

All three streaming services are delivering impressive average revenue per user (ARPU).

Disney+, which has a monthly price of $6.99 without the benefit of any deals, generated an ARPU of $5.56 per month per user.

“The fact that the ARPU was $5.56 on a $6.99 subscription (shows) we did extremely well on D2C,” Iger said. He said 50% of all subscriptions came directly off the Disneyplus.com website and required no revenue share.

“Many subscribers bought at full price,” he said, adding that just 20% of subscribers were delivered by Verizon and its one-year-free offer. The other 30% came from a variety of sources, including Apple.

Iger said the “vast majority” of the audience was domestic, with a very small contribution from Australia, New Zealand and Canada.

ESPN+, Hulu also see strong ARPU

ESPN+ ARPU was down a bit at $4.44/mo. (compared to $4.67 a year ago). Iger attributed the decline to the fact that more users opted to bundle the two services together. The same bundling dropped Hulu’s SVOD-only service to $13.15/mo. (compared to $14.49 a year ago).

But Hulu Live TV + SVOD saw a big bump to $59.47 per user from $52.31 a year ago. Hulu eventually will be launched internationally, Iger said, but all eyes currently were on deploying Disney+ first.

“We have decided the priority has to be Disney+,” he said. “We need to concentrate on those (global) launches.” Hulu likely will launch in 2021.

The bottom line

Disney is succeeding with its streaming strategy in large part because it’s committed to an evolution of its business from traditional, linear pay TV to next-gen TV. While it is offering a bundle of its three D2C offerings, unlike traditional pay TV, Disney is making it worth consumers’ while to take that bundle.

It’s challenging for a company to pivot in a new direction, especially when the pivot is as substantial as is Disney’s.

But, Iger pointed out, “we’ve made an extraordinary amount of progress.”

That’s movement that will better position Disney’s businesses to not only survive changing technology, but to lead the change of that technology.

Disney’s strategy also proves that a well-priced service will perform. And there’s no big price hikes planned for the future.

“We’re not focused on price at all,” Iger maintained. “We believed all along that we would be able to address price as we added more content.”

The price-value relationship might change as content changes, but there’s no price increase planned any time soon.

In fact, it’s reasonable price may be expanding the total available market beyond what Disney had expected. It certainly is when you add the quality of the product, the lack of competition on its level and the fact that it’s extremely differentiated from the rest of the market.

“There isn’t any competition like our product,” Iger said.


Stay tuned.

Jim O’Neill is Principal Analyst at Brightcove. You can follow him on Twitter @JimONeillMedia and on LinkedIn