Monday, August 22, 2022

Disney+ Now Emphasizing Profitability Over Subscriber Additions


Disney Chief Executive Officer Bob Chapek keeps making decisions that distance himself from his predecessor, Bob Iger, reports CNBC.

As CNBC reported earlier this year, Iger hasn’t agreed with several decisions Chapek has made as Disney’s CEO, including his reorganization of the company and his handling of Florida’s controversial “Don’t Say Gay” legislation.

The latest break is the 38% price increase for Disney+, announced last week as part of a slew of announcements surrounding Disney’s new advertising-supported service, which will launch on Dec. 8. Disney+, without ads, will increase from $7.99 per month to $10.99 per month. Disney+ with ads will begin at $7.99 per month.

Chapek’s pricing strategy differs from the philosophy Iger espoused, according to people familiar with both men’s thinking. Iger wanted Disney+ to be the lowest-priced major streaming offering, said the people, who asked not to be named because the discussions were private. That way, customers would view Disney+ as a stronger value proposition to its competitors even if it felt other services’ content might be more robust. This is also why Iger argued to keep Disney+ separate from Hulu and ESPN+, a strategy Chapek has thus far maintained.

At $7.99 per month with ads, Disney+ will now be more expensive than several other ad-supported products, including NBCUniveral’s Peacock ($4.99) and Paramount Global’s Paramount+ ($4.99), though it will remain cheaper than Warner Bros. Discovery’s HBO Max ($9.99). At $10.99, the ad-free Disney+ will not only be more expensive than Peacock and Paramount+, but it will also be pricier than Amazon Prime Video ($8.99), which also doesn’t include commercials.

Disney+ without ads will still significantly underprice Netflix ($15.49) and HBO Max ($14.99). Disney’s bundled offering of Disney+, Hulu with ads and ESPN+ with ads, will be $14.99 per month, an increase of $1 from its previous cost.

Chapek’s decision to bump Disney+ by $3 per month, from $7.99 to $10.99, suggests he’s moving Disney’s strategy from maximizing subscriber growth to emphasizing profitability. The pricing decision goes hand-in-hand with Chapek’s decision not to pay for the streaming rights of Indian Premier League, the country’s top cricket league. Chapek also decided to raise ESPN+’s price by $3 per month, from $6.99 to $9.99.

Chapek is betting investors are OK with a smaller total addressable market of streaming subscribers if the paying customers lead to a profitable business. Disney’s streaming services lost $1.1 billion in its most recent quarter. The large price hikes should get the streaming business to profitability by the end of 2024 even with a lower total subscriber count, Chapek said last quarter. Still, it’s notable Disney had previously planned on getting to streaming profitability by 2024 even before the price increases.

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