The Walt Disney Company on Wednesday reported strong subscriber growth across its streaming services, particularly Disney+, where executives said Wednesday that it will take a conservative approach to ads on the forthcoming ad-supported tier.
Disney reported adding 14.4 million subscribers for its Disney+ streaming service during its third quarter fiscal year 2022. That includes around 6 million core Disney+ subscribers and around 8 million for Disney+ Hotstar, it’s offering in India.
It’s domestic U.S. and Canada Disney+ sub tally now stands at 44.5 million, and a total of 93.6 million including international markets (excluding Hotstar). Disney+ Hotstar has a total of 58.4 million subs as of July 2. Including Hotstar, Disney+ now has a total subscriber base of 152.1 million.
Across all of its direct-to-consumer streaming services, including ESPN+ and Hulu, Disney’s subscriber base is now 221 million.
Just ahead of the quarterly earnings results, Disney announced its ad-supported version of Disney+ will launch on December 8, priced at $7.99 per month (while also increasing the price of the ad-free version).
Speaking on the company’s quarterly earnings call Wednesday, Disney CFO Christine McCarthy said the company is taking an “intentionally limited approach” to the ad-supported tier, meaning the AVOD version will debut with lower ad loads and frequency (compared to say Hulu), to ensure a better experience for viewers.
Part of that is because Disney+ users differ from Hulu and skew more toward families with expectations of a different viewing experience.
“Because of that disciplined lower ad load and lower frequency, and the strong advertising demand that we’ve had, that translates into…the industry-leading CPM rates at the most recent upfront for Disney+,” she said.
Disney CEO Bob Chapek touted record upfront advertising commitments ahead of the ad-supported launch.
Price hikes won’t hurt churn, AVOD tier leans on Hulu learnings
With the coming AVOD launch, the price of an ad-free Disney+ subscription is rising to $10.99 per month.
Asked on the call if rate hikes on Disney+ could impact churn, Chapek said that Disney+ launched at a compelling price point across streaming, and has continued to invest heavily in content.
“We believe because of the increase in investment over the past two and a half years, relative to a very good price point that we have plenty of room on price value,” he continued. “And we do not believe that there’s going to be any meaningful long-term impact on churn as a result.”
Executives also pointed to success and experience from the ad-tier on Hulu as helping its efforts for the AVOD version of Disney+.
While taking a conservative approach on ad load, Chapek said the company is “walking before we run in seeing what the market will bear in terms of an ad load” but added that he believes there will be more ultimate elasticity on that front going forward.
With a broader range of price point options, Disney is hoping to expand audience access.
And based on current experience with Hulu, even current Disney+ subscribers may choose to stay at the same price point by moving down to the ad-supported tier, said McCarthy.
The ad-supported tier of Hulu has more subscribers than ad-free, with two-thirds accounting for the former, she said. While it’s a different demo for Disney+ versus Hulu, it’s the best indication the company has, McCarthy said, and expects the Disney+ ad tier to be popular.
By the end of fiscal year 2024 the company aims to have between 135 million and 165 million core Disney+ subscribers. The company is separating out core Disney+ subs from Hotstar, and for the latter is targeting up to 80 million subscribers on the same timeline.
McCarthy said the company remains confident that Disney+ will achieve profitability in fiscal year 2024 – pointing to catalysts of reaching a steady state of tent pole content releases, delivering premium general entrainment and international local originals, and the upcoming launch of an ad-supported tier with new pricing.
On the content side, Chapek also called out pride in attracting fans to key franchise content from Disney, Pixar, Marvel and Star Wars.
“For example, in addition to driving engagement amongst tens of millions of existing Marvel fans, we’ve seen each new Disney+ original Marvel series attract incremental viewership and new subscribers that hadn’t previously engaged with Marvel content on the service,” he said. “The value of expanding the fanbase is tremendous and this new audience can then experience Marvel across our other offerings from consumer products to games to theme parks.”
As for Disney’s other streaming properties, ESPN+ subscriber base now stands at 22.8 million, a net increase of about 500,000 in the period ending July 2 versus Q2. Hulu’s subscriber base is now at 46.2 million – including 42.2 million SVOD only subscribers (an increase of 800,000) and 4 million Hulu Live TV + SVOD – reflecting a 100,000 decrease from last quarter.
Direct-to-consumer revenues for the quarter increased 19% to $5.1 billion, alongside greater operating loss which hit $1.1 billion – marking a roughly $800 million increase. Greater operating losses were attributed to lower operating income at Hulu and a higher loss at Disney+, and to a lesser extent higher loss at ESPN.
- Total Media and Entertainment Distribution revenues were up 11% to $14.1 billion, with operating income of $1.38 billion - reflecting a 32% decrease.
- Disney’s linear network business, revenues rose 3% to $7.18 billion, with operating income up 13% year over year to $2.46 billion.
- Content sales and licensing revenue in the segment was up 26% versus the year ago period to $2.1 billion.
- Total revenue grew 26% year over year to $21.5 billion
- Total segment operating income was up 50% to $3.56 billion
- Net income was up 53% versus the same quarter a year ago to $1.4 billion