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Disney+ is getting more expensive… unless you want ads

Disney+ is getting more expensive… unless you want ads

New York
CNN Business

Disney+ just got more expensive. Unless you are willing to see ads.

Disney+’s new ad-supported subscription tier will debut in the U.S. on Dec. 8 at a price of $7.99 a month, the company announced Wednesday. If that price point looks familiar, it should. That’s what consumers are paying for Disney+ right now without the advertisements.

The ad-free Disney+ premium tier will now jump $3 to $10.99 per month, the biggest price increase for the channel since its debut in November 2019. It raised prices by $1 in March 2021.

Disney+’s price hike comes as the service had a great quarter. The service gained 14.4 million subscribers in the third quarter, beating Wall Street expectations. The service currently has 152.1 million subscribers.

The results sent the shares up a whopping 6.5% in after-market trading.

As for the company’s overall earnings, Disney ( DIS ) achieved $21.5 billion in revenue for the second quarter, up 26% from last year, and reported net income of $1.4 billion, up 53% from a year earlier.

Disney noted that it has 221 million subscribers across its multiple streaming offerings. Netflix has 220.6 million.

Disney also revised its long-term forecasts, which were 230 million to 260 million subscribers by the end of fiscal 2024. On Wednesday, it issued new guidance of 135 million to 165 million subscribers for its core Disney+ product, and as much as 80 million for Disney+ Hotstar service in India.

“We had an excellent quarter, with our world-class creative and business teams delivering outstanding performance at our domestic theme parks, large increases in viewership for live sports and significant subscriber growth on our streaming services,” said Disney CEO Bob Chapek. in the company’s letter to investors on Wednesday.

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Disney+ isn’t the only Disney streaming service to go up in price.

Hulu, which is majority owned by Disney, will also see a price increase, up $1 to $7.99 for the ad-supported tier and $2 to $14.99 for Hulu without ads.

One plan that won’t see a price increase is the premium Disney Bundle, which bundles the company’s ad-free streaming offerings of Disney+ and Hulu with ESPN+. The cost remains $19.99.

This move appears to be Disney’s way of pushing consumers to sign up for the entire list of services instead of just one. And from a pricing perspective, it’s hard to say no to a three-service package that’s just $9 more per month than Disney’s biggest service.

Disney (DIS) is also introducing two new bundle plans: One is Disney (DIS)+ and Hulu with ads for $9.99; the other is all three services with ads for $12.99.

Linking streaming services together seems to be a new focus for media companies.

Take, for example, Warner Bros. Discovery. CNN’s parent company announced last week that it would combine its two streaming services, HBO Max and Discovery+, next summer.

If the first phase of the streaming revolution, which started around 2017, was the “Streaming Wars,” the next phase can be considered the “Rumble of the Bundles.”

So why is your streaming book about to take another hit? That’s because building a successful streaming service is very, very expensive.

Services like Disney+ spend millions of dollars, if not billions, on creating new content that appeals to old and new subscribers, as well as on the expensive infrastructure to hold it all together. Exhibit A: Disney’s loss in its direct-to-consumer unit was $1.06 billion in the third quarter — about four times what it was a year ago.

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Streaming growth has also shown signs of maturity, i.e. lower growth. Netflix ( NFLX ), the king of streaming, lost subscribers for two consecutive quarters this year.

Across the industry, attracting new subscribers has become more difficult, and if subscriptions decline, revenue has to come from somewhere. Raising prices is an easy way to do that.

And Disney can get away with these kinds of price increases considering the breadth of their library.

Disney+ is home to some of the most popular brands in all of entertainment, including Marvel Studios, Pixar, Disney Animation and Star Wars. Hulu also has feature films from 20th Century Studios and shows from FX, among other lively content.

Kareem Daniel, Disney’s chairman of media and entertainment distribution, said in a statement Wednesday that the new ad-supported offering as well as the company’s new range of streaming plans will “provide greater consumer choice at a variety of price points to meet the diverse needs of our viewers and appeal to a even wider audience.”

Disney’s strong third quarter wasn’t just on the back of Disney+.

The company’s parks, experiences and products unit had a very strong quarter, posting revenue of $7.3 billion, up 70% compared to the same quarter last year.

Disney said this was a result of “increases in attendance, occupied room nights and cruise ship sailings.”

“Our domestic parks and resorts were open for the entire current quarter, while Disneyland Resort was open for 65 days of the prior quarter and Walt Disney World Resort operated at reduced capacity in the prior quarter,” the company said.

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