It ain’t easy being a streaming service. Programmers have to juggle subscriber growth and advertising simultaneously, which is proving to be a struggle.
Disney’s revenue rose 3% YOY in Q3 to $22.3 billion, up from $21.5 billion, but Disney+ continues to lose subscribers.
The streaming service shed nearly 12 million subscribers, down from 157 million in Q2 to 146 million, although most of that came from its Disney+ Hotstar service in India. But there’s a good reason for the losses, Kevin Lansberry, interim chief financial officer, told shareholders during the company’s earnings call on Wednesday.
The entertainment giant has been tightening its belt to curb operational losses beyond layoffs since the return of Bob Iger as Disney’s CEO in November, including by producing less content. It narrowed losses by $150 million last quarter.
“We’re more focused on overall [business] economics versus pure subscriber growth,” Lansberry said.
By economics, Disney is primarily referring to its streaming advertising business. Overall subscribers may be down, but the company says Disney+ with ads is growing, especially in the US.
Advertising is at the core of Disney’s ambitions to “achieve streaming profitability by the end of the 2024 fiscal year,” Iger said.
Mad for ads
Although its overall streaming subscriber count fell, ad-supported Disney+ gained 3.3 million new subscribers last quarter, Iger said, and Disney expects the momentum to continue.
Since launching ads late last year, 40% of new accounts have signed up for ads. The growth in ad-supported memberships, especially in the US, continues to drive up Disney’s monthly average revenue per user (ARPU), Lansberry said.
Disney’s global ARPU rose 2% YOY to $6.58, up from $6.47 in the previous quarter. Domestic ARPU also rose 2% to $7.31, up from $7.14.
To keep this positive trend going, Disney announced price increases coming this fall, but only for its ad-free services.
In November, Disney+ without ads will jump to $13.99 per month (up from $10.99 per month), while ad-free Hulu will be $17.99 per month (up from $14.99 per month).
The ad-supported versions of both Disney+ and Hulu will remain at $7.99 per month.
“With this pricing strategy, we’re obviously trying to migrate more subs to the ad-supported tier,” Iger said.
The company is also launching Disney+ with ads in Canada and some markets in Europe on November 1.
Another way Disney could grow ad-supported subscribers is by taking a page out of Netflix’s book. Iger said that Disney has plans to enforce against account sharing.
Iger didn’t say how many users Disney suspects are sharing their passwords, but did note that the number is “significant” when Jessica Ehrlich, senior analyst of US media and entertainment at BofA Securities posed the question. (Ehrlich is the analyst who’s been moderating Netflix’s earnings calls since late last year. Oh, the irony.)
Considering the imminent price hike to only its ad-free streaming services, Disney likely hopes that users kicked off of shared accounts will consider the (soon to be much) cheaper, ad-supported option.
Iger said Disney will implement anti-account-sharing tactics next year.
Building the Mouse House
But improving Disney’s streaming offerings is another, albeit more labor-intensive, way the company expects to increase both ad revenue and subscribers.
“We’re moving closer to a more unified, one-app experience domestically by making an extensive [amount of] Hulu content available to Disney+ bundle subscribers,” Iger said.
Consolidating content in one place should result in higher engagement (as in, longer viewing sessions), lower subscriber churn and hopefully more opportunities for advertisers, he added.
A new, ad-free bundle that includes Disney+ and Hulu will launch in the US on September 6, although Disney didn’t share a date for an ad-supported version of the bundle.
Iger also underscored Disney’s plans to move its flagship ESPN channel to a streaming model, stating that those plans are “not a matter of if, but when.”
