With many folks stuck at home a lot more than usual in the past year, streaming services became kind of a big deal! Streaming stuff at home in your pajamas became basically THE quarantine activity (aside from baking bread and doing puzzles, of course).
Disney launched its Disney+ streaming service just prior to the global health crisis and it EXPLODED with popularity during 2020! With The Walt Disney Company suffering heavily in other sectors (namely the theme parks), Disney+’s popularity came at a critical time. Now, it might CONTINUE to be the company’s saving grace!
How Disney+ Has Saved the Company So Far
In recent earnings reports from the Walt Disney Company, Disney’s direct-to-consumer services reported about $3.5 billion in revenue, but also reported about $466 million in operating losses. In the still-early stages of the streaming service, Disney+ is actually spending more money than it’s making. (You gotta spend money to make money, right?)
At the surface level, that might make it seem like Disney+ isn’t doing The Walt Disney Company much financial good. Ya loosin’ money here, Disney+!! So, how are we saying that Disney+ has “saved” Disney? Well, profit isn’t the only measure of financial benefit.
Some analysts have called the model that Disney+ is operating under a “loss leader,” like eMarketer analyst Ross Benes told CNN Business. That means that in this launch phase, Disney may be charging much less than the service is actually worth in order to draw in large numbers of subscribers.
The price difference is clear when comparing Disney+ to other streaming services. Netflix’s basic plan is priced at $8.99 per month, while Disney+ is $6.99 per month (going up soon to $7.99 per month). But, the Disney Plus Hotstar bundle available in some countries includes Disney+ in the deal for less than $2 a month in one plan. ($2 for Disney+ is a steal!)
At a time when many things were physically closed, the Company at least had Disney+. Disney’s Executive Chairman, Bob Iger, recently noted that Disney was very fortunate that they went into this new business because when COVID hit, they at least “had something to turn to.” Iger noted that Disney+, “kept the company vibrant because there was a beacon of hope.”
Disney+ has been wildly successful since its launch in 2019. In fact, it met subscriber goals that Disney leaders originally set for 2024, by the end of 2020. As of the most recent update from the Disney company, Disney+ has over 100 million subscribers!!!! Current costs might still be exceeding the income for the service, but such marked success in terms of subscribers is important for a reason other than profit — it has helped keep Disney’s stock prices relatively high.
The success of Disney’s streaming services, especially Disney+, has been a silver lining in an otherwise rough business environment due to the global health crisis. When investors have to hear about billion-dollar losses from the theme parks every quarter, it surely helps to follow that up with big news about subscriber successes in the Disney+ area.
In fact, ahead of a recent earnings call, one analyst noted that, for investors, Disney+ numbers might matter more than the empire as a whole. The analyst noted that investors would likely want to know how the streaming service has done in light of season 2 of The Mandalorian and the premiere of WandaVision.
After Disney’s last Investor Day, where they announced TONS of new titles coming to Disney+, we saw Disney stock prices maintain ALL-TIME HIGH levels — despite the fact that Disney had also recently reported billion-dollar losses from the theme parks. A big reason for that is likely that investors felt optimistic about Disney+.
In fact, Iger has noted that Disney+ had a, “profound impact on the perception of the company at Wall Street because the stock has risen dramatically in the process.” Per Iger: “We plummeted when COVID hit because of the shutdown, and rebounded quickly because we continued to grow Disney plus.”
At a time when Disney’s theme parks around the world were closing due to COVID-19, reopening, closing again, and dealing with capacity limitations; and a time when movie theaters were closed, cruises were halted, and many other things came to a halt — Disney+ continued to survive and even thrive! When the world seemed to grind to a halt last year, everyone was in their homes with less to occupy their time. Disney+ swooped in to fill that void for many at just the right time!
Disney+ content has also inspired LOADS of merchandise releases (hello, Baby Yoda is everywhere). Disney showed that it could continue to engage its audience in new ways and be flexible as times changed.
How Disney+ Will Keep Saving the Disney Company
So, it looks like Disney+ has made a BIG difference for Disney in the past year. But what about next year? Or five years later? Will it continue to be the saving grace of the company’s business model for some time? Possibly!
Some might indicate that part of Disney+’s success may have been due to the nature of the global health crisis. With folks stuck at home, the demand for streaming was high. So, how does Disney keep up the momentum as vaccines get distributed, movie theaters open up again, and the world starts to achieve more of a “normal” state?
Well, they release an absolutely WILD amount of content, of course! Other streaming services like Netflix have grown in popularity well before the pandemic hit and it was due largely to them positively flooding their service with original content. Disney is doing the same.
Disney recently announced a TON of new content coming to Disney+ and shared that they plan to release 100+ new titles every year to Disney+ (get that popcorn ready). Many of the new shows, movies, and more constitute MAJOR draws to drive demand. We’ve seen just how many people want to tune into a Star Wars or Marvel spin-off. WandaVision fans have actually CRASHED Disney+ in the past. And now, new Star Wars and Marvel series are on their way!
Disney+ has proven that it can truly be successful. WandaVision topped the charts as one of the most-streamed original series in the US, according to Business Insider. And recently, The Falcon and the Winter Soldier made Disney+ history by ranking as the most-watched series premiere ever on Disney+ during its opening day weekend. Disney is leveraging the success of their super-popular movie franchises to power the success of their direct-to-consumer offerings.
To continue to keep Disney+ impressing investors AND to move it into a profitable space, Disney will continue funneling resources into the platform. (We said it once, we’ll say it again — you gotta spend money to make money!) In fact, Disney expects to spend between $14-$16 billion on direct-to-consumer content through Fiscal Year 2024, with $8-$9 billion of that on Disney+ content specifically.
That $8-$9 billion is actually DOUBLE the original projected content development cost. So, not only is Disney spending money, it’s spending more than it expected. That just goes to show how much faith they’re putting in this. Disney acknowledged that it will have a higher content expense in 2024 than it expected and that it expects to reach its peak year of losses in Fiscal Year 2021. BUT, Disney anticipates Disney+ will be profitable in Fiscal Year 2024.
And even if some people out there don’t think streaming is the future, it’s clear Disney does. The Disney company recently restructured some of its businesses to focus on streaming. Chapek has noted that the reorganization helps Disney better align themselves as they pivot, “to a DTC-first business model.” Chapek also said he sees the DTC business as a, “key driver of significant long-term value for [the] company.”
Don’t believe us that Disney is REALLY taking streaming seriously? Well, how about this — last year, Disney announced that, “As part of that commitment and given limited visibility due to COVID and our decision to prioritize investment in our DTC initiatives, the board has decided to forego payment of a semiannual dividend in January 2021.” What does that mean, you’re asking? The board essentially decided to not accept their semiannual “bonuses” from the company in order to channel that money towards Direct to Consumer initiatives.
It may take years for the Disney theme parks to return to the same level of output they were doing pre-pandemic, Disney Cruise Line HOPES to restart operations by this fall (but things are subject to change), and the Disney parks are still limited in terms of capacity and other things. But, Disney has shown that it can successfully pivot when it comes to movies and other entertainment to keep obtaining revenue despite what else may be going on. Some analysts even estimate that Disney+ will reach $4 billion in revenue by as soon as 2022.
Disney is betting BIG on Disney+, and as long as the service continues to draw in more subscribers and they continue to release new content, they may be able to keep up that momentum. Could we see the service and other direct-to-consumer offerings continue to be one of the more positive aspects of the company, continue to set the company up for success, and continue to be a highlight for investors during the next few years as things with the theme parks and cruises slowly return to “normal?” It’s entirely possible. As always, stay tuned to DFB to keep up with all the latest Disney news and analysis!
Do you think Disney+ will continue to be a saving grace for the Disney company? Tell us in the comments!