Disney+ is 'relatively underpriced' for its value: CEO

Disney+’s anticipated ad-supported tier, set to launch on December 8, will cost $7.99 per month – what Disney+’s ad-free plan is currently worth. Disney CEO Bob Chapek expressed confidence Wednesday about the service’s current pricing plans.

“I think we are way underpriced relative to the value that we provide,” he said at a Goldman Sachs investor conference. “Therefore, we owe it to our shareholders to try to get that recognized.”

When Disney+ first launched in 2019, it cost $6.99 monthly. Prior to announcing the launch date for the ad-supported tier, Disney’s only bumped up the service’s price by one dollar.

“The launch of Disney+ at that introductory price was pretty absurd,” Chapek continued. “It was so attractive to the consumer.”

Once Disney+’s ad plan comes out, the ad-free plan will increase to $10.99 per month. Disney next month will also raise prices for both Hulu’s ad-free and ad-supported plans.

Chapek thinks Disney is in a good spot to implement these hikes, noting the company has “continually invested and reinvested” in its streaming product.

“The value proposition to our customers is extraordinary. I think we have a lot of room on the price value range,” he said. “And I think we believe that our churn implications of taking up the price even in the big chunks that we are doing it is going to be negligible.”

Disney is actually running a limited-time discount for Disney+ – $1.99 for one month. The offer is valid until September 19.

With the upcoming price increases, Chapek said Disney wants to incentivize people to subscribe to the Disney bundle, consisting of Disney+, Hulu and ESPN+ for $13.99 per month.

“When we took the price up, we encourage people to go to that bundle,” he said. “Why? Because the churn is so extraordinarily low in that bundle. So that’s a good value proposition for them, plus it’s beneficial to us.”

Disney currently packages the three services as a soft bundle, meaning the apps don’t coexist on one platform. The company can’t merge Hulu with Disney+ because Comcast currently has a 33% stake in Hulu.

But Disney can potentially buy out Comcast’s share in 2024 or earlier.

"We would love to get to the end point earlier, but that obviously takes some level of propensity for the other party to have reasonable terms for us to get there," he said during the conference.

Disney also operates a content hub called Star, which lets customers in markets like Latin America and Europe subscribe to more of a hard bundle of Disney+, Hulu and ESPN+ – the latter two being only available within the U.S.

The key with these different regional models, Chapek explained, is to emphasize consumer choice and personalization.

“Whether we offer something that’s a hard bundle going forward in the future when we have the ability to do that, whether we do a soft bundle or some combination of a la carte and hard bundle or a la carte and soft bundle,” he said. “We will maximize the consumer choice because we believe that benefits us and benefits our shareholders.”

Disney wants to offer subscribers more content choice as well. The company is reportedly interested in acquiring global streaming rights for the BBC series “Doctor Who,” which would complement Disney+’s library of “Star Wars” and “Marvel” titles.

As for ESPN+, its offering is still separate from ESPN’s linear programming. When asked how Disney plans to make ESPN available outside of its pay TV bundle, Chapek said the company wants to do that without “prematurely disrupting” its linear business.

“I mean everybody knows that the cable bundle is deteriorating over time,” he said. “And we’re preparing for the moment that the consumer tells us that they are ready for such a step.”

Chapek added cable is still a “significant business” in terms of cash flow.

He also shed some light on Disney’s plans to integrate sports betting with ESPN, and how that may counter headwinds “from a cable universe shrinkage standpoint.”

“A link out to a sports betting site, ESPN-branded, would have no impact on brand equity for Disney but will have a very positive impact on the brand equity for ESPN because our younger audience is demanding that,” Chapek explained.