Disney+ annual pricing discount a ‘mistake,’ analyst says

Disney’s investor day last week mostly drew positive reactions for the company’s streaming plans, but noted Disney critic Rich Greenfield today pointed out some potential flaws.

Greenfield, an analyst at BTIG Research, said that Disney is making a mistake with its discounted annual pricing for Disney+. The company last week announced that Disney+, which is arriving on Nov. 12 this year, will be priced at $6.99 per month or $69.99 per year. Greenfield said that the discount, which amounts to a 17% reduction down to $5.83/month, is in theory a good way to reduce churn. But he said the annual price is likely to see more uptake from higher income subscribers who are less likely to churn in the first place.

“Then add on the app store subscription tax on upwards of half of Disney+’s subscribers (we’re assuming a 15% tax, albeit year one could be higher). In turn, effective ARPU is probably closer to $6.25 in the U.S.,” wrote Greenfield in a research note. “Tough to make money at that level of ARPU.”

Disney said it expects Disney+ will grow to between 60 million and 90 million subscribers by 2024 and that the service will become profitable around the same time.

Greenfield said that Disney will likely have to greatly increase its spending on original content if it wants to hit those growth levels both in the U.S. and internationally.

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“We suspect Disney will realize within the first year or two after launch that Disney+ original programming spend needs to be multiple times higher than what they are currently forecasting. It is simply too easy to churn in a DTC world—Disney will need to give consumers reasons not to churn far more often and we simply do not believe 8-9 month old movies that have been in theaters and home video will be enough of a catalyst,” Greenfield wrote.

Greenfield also cast some skepticism on Disney’s profitability and subscriber growth projections for ESPN+ and Hulu.

Disney said Hulu will grow to between 40 million and 60 million subscribers (it’s currently at 25 million) and ESPN+ will grow to between 8 million and 12 million, both by 2024. The company expects ESPN+ will be profitable by 2023 and Hulu, which has been a significant money loser for Disney, Comcast and AT&T, is projected to see its operating losses peak this year at $1.5 billion and then achieve profitability by 2023 or 2024.

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Greenfield said that without a significant increase in the amount of content for ESPN+, his firm has a hard time believing ESPN+ can make it to 4-5 million, let alone the projected 8-12 million by fiscal 2023. He said that Disney’s subscriber growth projections for Hulu may be realistic—especially considering the recent price drop—but he said Hulu’s profitability goals could be weighed down by its “money losing vMVPD business,” pressure on ad loads, and the need to more original content spending so it can remain competitive in the streaming video market.

Despite the areas of concern around Disney's DTC plans, BTIG still upgraded Disney to neutral after maintaining a sell rating on the company since 2015.