Even with Disney+ looming price hike, it’s “way underpriced,” CEO says
Disney+ first launched three years ago with the “pretty absurdly” low price of $6.99 per month, CEO Bob Chapek admitted. Now the company is preparing to raise prices again on its flagship streamer – but Disney+ still offers a better price/value equation than its competitors, he said.
“I think we’re way underpriced for the value we offer,” Chapek said, noting that the core ad-free Disney+ service will continue to be priced below several competitors. The CEO spoke on Wednesday at Goldman Sachs’ Communacopia + Technology Conference 2022.
Amid rising inflation, Disney has announced price increases coming in the fourth quarter of 2022 for Disney+ and Hulu, as well as a December launch for the ad-supported Disney+ tier in the U.S. Disney+ Basic, the name of the plan with ads, will launch on December 8 in the U.S. for $7.99 /month. That’s the price of the current ad-free version of Disney+, which at that time will increase to $10.99/month, a 38% increase, and will be known as Disney+ Premium.
Even when the price of ad-free Disney+ goes up to $10.99 per month, the media conglomerate still has a lot of leeway when it comes to raising prices, Chapek argued. “[W]I think our churn implications of raising the price … will be negligible,” he said.
The new Disney+ ad tier “will really allow us to cater to different consumer needs,” Chapek said. At worst, Disney+ Basic will be “margin neutral” compared to the ad-free version, he said, so the company is “indifferent” about which plan consumers choose. “This just puts wind in our sales to achieve [projected Disney+ subscriber] numbers we provided, Chapek said.
As of July 2, Disney counted more than 221 million subscriptions across Disney+, ESPN+ and Hulu. But on average, Disney generates far lower revenue per streaming subscription than rivals like Netflix. Improving the operating profitability of the streaming portfolio is a priority, Chapek said.
Disney is looking toward a future “hard package” that would merge Disney+, ESPN+ and Hulu into a single integrated service. To do that, Chapek said, Disney will need full ownership of Hulu; Comcast retains a 33% stake in the streamer. Comcast has the right to sell its Hulu stake to Disney as early as January 2024. As of July 2, 2022, Disney recorded Comcast’s interest in Hulu as worth $8.6 billion, but Comcast could potentially get billions more than that. “We would like to get to that endpoint sooner,” but closing a deal to buy out 100% of Hulu is contingent on reaching satisfactory terms with Comcast, Chapek said.
Disney is coming off a strong earnings report for the June 2022 quarter, with an uptick in theme park revenue and a net gain of 14.4 million Disney+ subscribers in the period, to reach 152.1 million as of July 2. The company lowered its global subscriber target for Disney+ to 215 million-245 million global subscribers by the end of fiscal 2024 (down from 230 million-260 million previously), citing the loss of Indian Premiere League cricket streaming rights as hindering the growth of Disney+ Hotstar in India. Subsequently, Disney Star got Indian TV and digital rights for both men’s and women’s global events conducted by the International Cricket Council (ICC) from 2024-27. “We are still quite bullish on India,” Chapek said.
Disney has recharged its content pipeline after covid production slowdown. At the D23 fan conference over the weekend, Disney unveiled a number of first looks at upcoming movies and shows, including for “The Little Mermaid” starring Halle Bailey, “Avatar: The Way of Water,” “Indiana Jones 5” and “Percy Jackson and the Olympians” and Marvel’s “Ironheart” series for Disney+.
“We have an embarrassment of riches in terms of the amount of content we have coming from our creative engines,” Chapek boasted. Film and TV productions still follow strict COVID safety protocols, which increase costs, but Disney is considering ways to cut production costs, according to Chapek.
Chapek touched on Disney’s early plans to roll out a membership program, which would pool customer data from Disney+ with businesses across the company, such as the theme parks. “We can now customize and personalize an experience far beyond what we’ve been able to,” he said. Disney+ “will become a platform for engagement” with all of the company’s products and services, “not just a movie service.”
ESPN will continue to remain distributed through pay TV providers for the foreseeable future, Chapek said. As he’s said before, “at some point we’ll see the writing on the wall” in terms of moving it up as a direct-to-consumer service with its full range of sports programming. “We’re not going to do anything rash … we’re following the consumer,” he said.
Last month, activist investor Daniel Loeb of the hedge fund Third Point urged Disney to spin off ESPN and speed up its acquisition of Comcast’s 33% stake in Hulu. But on Sunday, Loeb backed away from his call for Disney to divest from ESPN, writing in a tweet: “We have a better understanding of @espn’s potential as a standalone business and another vertical for $DIS to reach a global audience to generate advertising and subscriber revenue.” Third Point owned about $1 billion in Disney in mid-August.
Chapek told Variety in an interview Saturday at D23 that when “the word was out on the street that Disney might want to spin off ESPN, we had no less than 100 inquiries from people who wanted to buy it. What does that tell you? That says we have something very Good.”
Chapek took over as CEO of Disney in February 2020, succeeding Bob Iger. Earlier this summer, Disney’s board renewed Chapek’s contract until July 2025.