Friday, August 12, 2022

Streamers Now Focused On Profits Not Growth

Faced with slowing subscriber growth in their core domestic markets, some streaming services are shifting their focus from adding users to increasing their bottom line. The result is that streamers such as Walt Disney Co., Netflix Inc. and Warner Bros. Discovery Inc. are each doing some combination of reducing costs, raising prices and creating new ad-supported tiers that offer content at lower prices to consumers but also establish a new revenue stream for the companies, according to The Wall Street Journal.

The price increases come as growth has stalled domestically, usually the most-profitable market for streamers. Just 100,000 of the 14.4 million net new subscriptions to its flagship Disney+ service in the most recent quarter came from the U.S. and Canada. Of the rest, about eight million came from India, while about six million came from other countries, including 52 new markets where Disney+ has launched since May.

“Domestically, Disney+ is tapped out,” said analyst Rich Greenfield of LightShed Partners. “Disney is operating under the belief that, just as in their theme parks, they can raise prices dramatically and count on customers not dropping the service.”

Disney said that in early December it will raise the price of its ad-free, stand-alone Disney+ service in the U.S., to $10.99 a month from $7.99, and the company will begin offering an ad-supported tier for Disney+, starting at $7.99. The company also announced increases to one of its bundle packages.

In addition, the company scaled back its projections for total global subscribers to Disney+, largely in response to lower anticipated growth in India, where Disney recently was outbid for the right to stream matches from a popular cricket league.

Investors and analysts expect higher subscription costs and the introduction of ads to Disney+ to result in higher profits from the streaming segment, but add that price increases risk alienating some customers and increasing the platform’s churn rate, or the percentage of users who cancel the service each month. The U.S. churn rate for Disney+ is already on the rise, increasing to 4% in the second quarter from 3.1% a year earlier, according to the media analytics firm Antenna.

Other companies that focus on streaming video are making similar moves. Warner Bros. Discovery, the newly formed media giant that owns the premium television service HBO and the streaming services HBO Max and Discovery+, reported last week that it had added 1.7 million new subscriptions. As with Disney, about all of Warner Bros. Discovery’s subscription growth came from overseas—its direct-to-consumer segment lost 300,000 domestic subscribers in the quarter.

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