Despite higher subscriptions, Disney+ will raise the price of ad-free content

The Walt Disney Corporation reports positive quarterly results, adding 14.4 million new subscribers to Disney+, totaling 221 subscribers for all its streaming services. Even so, consumers will pay $3 more to access ad-free content on Disney+. Kim Masters and Puck News Founding Partner Matt Belloni review the company’s report and discuss what the price hike means for consumers and the future of streaming.

Disney “puts customers in the wallet”.

Kim: The total number of subscribers is no longer the simple measure of success. We envision a world where the amount of money you make from each person who consumes your product is greater than that number of subscribers.

Disney did very well, and they took the opportunity to put their customers in the wallet. [Bob] Chapek is known as a cost cutter and price raiser. But in this case, streaming is a very difficult and expensive game, and it just couldn’t continue in the kind of fantasy world that Netflix seems to live in: just throw more, spend more. Someone has to pay.

Mast: We knew this was coming when they announced they were going to be doing an ad-supported rip on Disney+, and lo and behold, the $7.99 price for Disney+ stays the same if you want to support the ad. But if you want to continue ad-free, you now have to pay an extra $3, $10.99 for Disney+. And there are also price increases on Hulu and the Disney bundle.

It’s reality because Disney [is] not sad about this increase in subscribers – it’s a very good trajectory, gaining 14.4 million subscribers this quarter, more than the 10 million expected by analysts. And they are now with all their services momentarily bigger than Netflix because they have 221 million subscribers, Netflix at around 220. It probably won’t last because of the situation in India where they’re probably going to lose a lot of subscribers .

Increase average revenue per subscriber

Mast: But given those gains, they’ve now pivoted to where they’re not just talking about it. They really focus on that average revenue per subscriber. Disney+’s average revenue per user has traditionally been much lower than other services, partly due to India where they don’t pay much. And partly because former CEO Bob Iger priced Disney+ very low to get in the game, to get a lot of subscribers very quickly. And now they’re going to squeeze and try to get more money out of every one of these subs.

Kim: I feel bad for parents who don’t have much choice.

Disney Trades Subscribers for More Returns

Kim: Disney has given up very expensive rights to the popular cricket. But as you say, users [in India] don’t pay that much. This applies to all services. They will talk about the total number of users, but where are the users? They don’t all pay $15 in Pittsburgh, some of them are in countries where it’s a lot cheaper, and Disney decided to trade those Indian subscribers, those aggregate numbers, for a better return.

Notwithstanding – and this is something we had seen everyone put the brakes on when it came to the whole streaming proposition because Netflix had hit a wall – those rising numbers are going to cheer some people who care. But Disney still lost $1 billion on it, despite all those good numbers.

Mast: And the $1 billion loss on the direct-to-consumer category was actually $300 million more than expected. So they gain subscribers, but they actually spend a lot more money to get them.

“This streaming game is very expensive.”

Mast: And that’s another reason why you have to raise the price, because this streaming game is very expensive, especially when you play it at the level where Disney is where the “Star Wars” series can cost nine figures and the series ” Marvel”, and you just throw them one after the other, you really have to spend. And now they’re going to try to claw back some more of that through price increases.

Kim: Every major player is in there. Warner Bros. Discovery has the expensive ‘Game of Thrones’ prequel. Amazon, of course, has “Lord of the Rings” related series, and those are very, very expensive.

Kim: There is no free ride, consumers are in a hurry.

Not all streaming

Kim: Look at David Zasloff. He said, we’re going to be streaming, but not all streaming. So we see him tamping it down a bit. But I don’t know if Disney will do that.

Mast: They have not yet indicated that they will cut spending or change course. David Zasloff’s mantra is: “We want to get paid”. And what he’s saying is, yes, we want to grow our services, but we’re going to try to monetize our content any way we can. And that might mean taking some things off HBO Max and selling them some other way.

Follow the linear path

Mast: Linear is still a huge business for all of these companies. In the last three or four years we haven’t really heard of linear because it’s a declining business, but it still makes a lot of money and that’s a big advantage that these companies have over Netflix which has no linear. And Netflix describes it as not being tied to the past. But the past still generates a lot of money for these companies. I think these leaders like David Zasloff are trying to capitalize on that to fund growth.

Kim: They walk a tightrope over some chasms. On one side is the revenue from all those old school cable channels, which is still huge but declining.

On the other side, there’s this rapacious streaming beast that wants to eat all that money, and they’re trying to figure out how to walk between those two forces and live.

Christy J. Olson