Disney has “earned” latest streaming price hike, CFO says

[Karlston]

Disney is "not concerned" about blowback from higher prices, per CEO.

Yesterday, The Walt Disney company announced it will soon raise prices for Disney+, Hulu, and ESPN+. Today, it revealed that its streaming business has become profitable for the first time.

 

So if Disney is starting to make money, why has it decided to jack up prices ...again?

Disney says it has “earned” higher prices

On October 17, pricing for ad and ad-free subscriptions to Disney+, Hulu, and ESPN+ will increase by as much as 25 percent, depending on the plan (you can see a breakdown of pricing changes here). The pending price hikes follow price increases for the platforms issued in October 2023 and August 2022.

 

During Disney's Q3 2024 earnings call today, CFO Hugh Johnston (per a Motley Fool-provided transcription) said that Disney's earned the right to charge more for streaming services, pointing to current and upcoming content availability:

 

We do feel like we've earned that pricing in the marketplace, and we feel positively about that. With that will come scale benefits. The product improvements also should reduce churn and keep our consumers with us as they're evaluating their options.

CEO Bob Iger said that Disney has increased its streaming "pricing leverage" with upcoming features like new live channels and movies.

 

As Disney, like other streaming businesses, looks to shift focus from growing subscriber counts to other factors, like user engagement—or how much time users spend on the service, which can help companies' ad businesses—and profit margins, it may be more emboldened to make moves that could potentially cost it some subscribers (more on this in a moment).

 

When asked about customer pushback on the latest price hikes, Iger said in part:

 

We're not concerned. The goal is to grow engagement on the platform. And what I mean by that is obviously offering a wider variety of programming.

Disney says it hasn’t lost many customers from previous price hikes

Although price hikes across streaming platforms have driven subscribers to the web to declare cancellation plans and encourage others to cancel, Iger claimed that “every time we've taken a price increase, we've had only modest churn from that, nothing that we would consider significant.”

 

One of the biggest business challenges facing streaming companies currently is high churn rates. But it seems like other reasons for fast churning—such as subscribers watching preferred content and then canceling until the platform adds new, desirable stuff to watch—may be more pressing to Disney than frequent price hikes—which have become common among streaming services.

 

Iger also claimed that Disney hadn't seen a significant backlash to the password-sharing crackdown that the company began rolling out earlier this year and will continue "in earnest" in September.

Need for profits

Of course, the need for profitability is also driving up prices. Like any business, Disney is eyeing long-term profitability in streaming. After increasing the cost of its services for years, the fiscal quarter ending on June 29 is the first time Disney's streaming business made money. Its streaming business made $47 million in operating income in Q3 (from $6.38 billion in revenue), compared to Q3 2023, when it lost $512 million.

 

Disney isn't satisfied with this streaming profitability and has been promising investors that its streaming business will quickly reach double-digit margins. More broadly speaking, Disney is also challenged to maintain success amid a declining TV industry and pressure on other, older aspects of its business, like theme parks.

 

As noted, Disney is banking on customers thinking that its streaming content is worth the price. It has seen challenges, though, including losing about $1 billion in big-budget releases last year. Meanwhile, Disney's overall budget for content decreased from $27 billion in 2023 to $25 billion in 2024. Contrastingly, Disney's biggest streaming rival, Netflix, grew its content spending by 35 percent from 2023 to 2024 to $17 billion, per Fortune.

 

The battle for content, especially ad-friendly live content like sporting events, is heating up as indicated by Disney paying a reported $2.6 billion per year on average for rights to stream NBA games over the next 11 years, per The New York Times. That's up from the $1.5 billion/year it was paying under the current contract.

 

During Disney's earnings call, Iger noted that the company leans more on original films than original TV series, saying, "That blend of spending between films and series, we believe, gives us an opportunity to increase our margins and grow the business." The company also said that licensing won't be a big part of its strategy, putting extra pressure on Disney's ability to make original content that appeals to streamers and that it can monetize.

Leaning on bundles

We often see streaming services increase pricing for plans that don’t include commercials. This is because streaming platforms generally make more revenue on average from users who subscribe to ad tiers. However, Disney’s new price hikes extend to both ad-free and ad-tier plans.

 

Notably, the only plans that aren't getting price bumps in October are Disney's ad and ad-free plans combining Disney+, Hulu, and ESPN+. This shows the weight companies are putting behind streaming bundles. Streaming companies believe that bundling one streaming service with another—or other services, like mobile phone plans—will reduce high cancellation rates.

 

Disney's Johnston said that bundling "has had a positive impact on churn" and that bundles, along with the password crackdown, will help grow Disney's streaming business.

 

As companies like Disney continue setting lofty goals around profits, customer engagement, and ad sales while carrying limitations around content licensing and content budgets, price hikes will continue being an obvious way for platforms like Disney+ and Hulu to try to meet business expectations in the competitive streaming market.

 

Source

 

Hope you enjoyed this news post.

Thank you for appreciating my time and effort posting news every single day for many years.

2023: Over 5,800 news posts | 2024 (till end of July): 3,313 news posts

[Nuclear Fallout]

BULLSHIT