Disney+ continues to lose money but gain subscribers.
The service is adding an ad-supported tier in just four months, with a US launch date of December 8.
Disney+ AVOD will be available for $7.99 a month, the same price as Hulu’s Basic plan, and the current price of Disney+ with no ads. Meaning Disney will hike the price $3 a month for viewers who want to continue avoiding ads.
“We launched all our streaming offerings at an extraordinarily compelling price, and since the initial launch [of Disney+], we’ve invested handsomely in our content,” Disney CEO Bob Chapek said on the conference call, in defense of the price hike. “We don’t believe there’ll be any meaningful impact on subscriber churn.”
Disney exceeded expectations on subscriber count for the quarter, adding 14.4 new Disney+ accounts and bringing Disney’s total subscription base to 221 million users across its streaming offerings (which includes the Hulu and ESPN+ bundle). Overall, Disney reported $21.5 billion in revenue for its third quarter on Wednesday, which is up 26% year-over-year.
Disney expects to continue adding subscribers to both its ad-free and ad-supported offerings throughout the rest of the year, said CFO Christine McCarthy.
And the advertiser demand for AVOD inventory is iron hot. Across the board, streaming offerings are claiming record advertiser upfront commitments this year.
Shares jumped 5% during after-hours trading Wednesday.
Content craze
To attract subscribers, Disney’s investing in content across multiple distribution points, from linear to box office to streaming.
Specifically, Disney touted its franchising success with Marvel in addition to a heavier focus on linear content, including sports and news.
ESPN advertising revenue grew nearly 40% YOY for the quarter, compared with 14% growth in Q1.
Sports is surging as a growth driver for Disney because of exclusive content licensing deals, Chapek said. For one, Disney’s riding the waves of a seven-year content rights deal with the NHL, including exclusive rights to the Stanley Cup playoffs.
And Disney announced exclusive rights to the Indian cricket league IPL’s 2023 to 2027 seasons.
Plus, Disney just nabbed an “exclusive, cinematic film and docuseries” on Korean pop sensation BTS.
Headwinds
With content comes quite a bit of operational cost.
The combined Disney+ bundle lost $1.1 billion in Q3, an average revenue decrease of 5% per user.
Disney blames most of this loss on content licensing costs rather than production costs. To be more efficient, it plans to “step up its investment” in original content and “scale back” on third-party content licensing, Chapek said.
Sports licensing is the exception, apparently.
Either way, Disney’s lowering its overall guidance projections for 2022 by $500 million.
