One headline number from Disney’s quarterly earnings released on Wednesday appeared to indicate a significant milestone: The Mouse House’s streaming services have 221, 1 million total subscriptions globally. At first glance, Disney has surpassed Netflix, which concluded the second quarter with 220.7 million total paid customers.
However, the value of both subscriber bases is vastly distinct
Disney Plus made around 39% as much revenue per subscriber as Netflix in the United States during the second calendar quarter, as measured by average revenue per user (ARPU) (average revenue per user). Overseas, the contrast is even more pronounced: Disney+ Hotstar, which is available in India and other Southeast Asian countries — and reflects 38% of the overall Disney+ customer base — had an ARPU of $1.20 per month for the quarter ending July 2, while Netflix had an ARPU of $8.83 per month for the Asia Pacific region.
Netflix disagrees with the comparison of Disney’s subscribers to Netflix’s subscribers. One household subscribes to the Disneyplus.com begin, which includes Disney+, Hulu, and ESPN+ is counted as having three different subscriptions, according to how Disney measures its streaming data. A better apples-to-apples comparison would include Disney’s unduplicated streaming subscribers (i.e., homes). However, the business keeps this number the same.
When Disney+ debuted in November 2019 at the low price of $6.99 per month, the streaming service quickly gained market share. That was over half of Netflix’s then-standard package.
But because of this cheap entry cost, Disney’s flagship streaming service generates less revenue than Netflix, the historical category leader. For the three months ending July 2, Disney+ domestic ARPU (Canada and USA) was $6.27 per month, a 5% decrease from the previous year. This loss is likely due to a shift toward the Disney Bundle and the inclusion of Disney+ (and ESPN+) in Hulu’s live T.V. package. In comparison, Netflix reported an ARPU of $15.95 per month in the U.S./Canada market for the second quarter, an increase of 10% owing to pricing increases.
Disney+ is attempting to improve its profitability, as U.S. streaming subscriber growth has halted for nearly all industry players, including Disney+. Disney+ added 100,000 paid subscribers in the U.S. and Canada during the most recent quarter, bringing its total to 44.5 million.
Disney announced a 38% price increase for the “premium” Disney+ no-ads edition of the service, which will increase to $10.99 per month on December 8, 2022. The media firm will create Disney+ Basic on the same day, a tier supported by advertisements offered at the former $7.99/month pricing.
The combination of the price hike (compensated by the expected churn) and the introduction of the ad-supported Disney+ Basic tier could create better ARPU if the Mouse House can successfully monetize it at high ad rates executives have boasted, is intended to enhance Disney+’s ARPU.
Hulu is also scheduled for a price increase in Q4: On October 10, the price of Hulu with advertisements will increase from $6.99 to $7.99 per month, whereas the ad-free tier will increase from $12.99 to $14.99 per month. For the most recent quarter, the average revenue per user (ARPU) for Hulu’s subscription VOD service (only available in the United States) was $12.92 per month, a decrease of 2% year-over-year, possibly due to bundle reductions. This is greater than Disney+ but below Netflix’s average revenue per user in the region.
The ESPN+ monthly average revenue per user (ARPU) increased by 2% to $4.55 for the quarter ending July 2. In August, ESPN+ fees will increase by three dollars, from $6.99 to $9.99 per month, as previously announced.
Disney anticipates that Disney+ will become profitable in the fiscal year 2024. In the most recent quarter, the media conglomerate’s streaming losses grew. According to FactSet, Disney’s direct-to-consumer revenue for the quarter was $5.06 billion, up 19%, but below Wall Street’s forecasts of $5.22 billion. The segment’s operating loss increased to $1.06 billion from $293 million in the prior-year period. (Netflix’s second-quarter revenue was $7.97 billion, while its net income was $1.44 billion.)
“Due to this pause in new subscriber acquisitions, many in the business have transitioned to a new phase of sobriety” — focusing on streaming economics. Michael Nathanson, the chief analyst of MoffettNathanson, stated as much in a research report dated August 11. We on Wall Street have observed. The sum-of-the-parts models that utilized revenue multiples or even the metric of E.V./content spending no longer exist. From this point forward, we hope that streamers would prioritize return on investment and free cash flow generation.”
Note that while Disney expects the growth of “core Disney+” to continue on its anticipated trajectory through 2024, predictions for Disney+ Hotstar have been reduced due to the loss of Indian Premier League cricket rights. With the warning of a slowdown in India, Disney dropped its subscriber goal for Disney+ from 230 million to 260 million to 215 million to 245 million by the end of its fiscal year 2024.
