One headline number out of Disney‘s quarterly results Wednesday seemed to show a notable milestone: The Mouse House had 221.1 million total subscriptions worldwide across its streaming services (Disney+, Disney+ Hotstar, Hulu and ESPN+). At first glance, that makes it look like Disney is now just ahead of Netflix, which ended Q2 with 220.7 million total paid subscribers.
But the value of those subscriber bases is much different.
Domestically, for example, Disney+ generated about 39% as much revenue per subscriber as Netflix for the second calendar quarter, a measure referred to in the finance world as ARPU (average revenue per user). And overseas, the contrast is even starker: Disney+ Hotstar, which is available in India and other Southeast Asian countries — and represents 38% of the overall Disney+ customer base — had an ARPU of $1.20/month for the quarter ended July 2, while Netflix had an ARPU of $8.83/month for the Asia Pacific region.
Separately, Netflix takes issue with comparing Disney’s subscriptions to Netflix’s subscribers. According to the way Disney tallies its streaming numbers, one household that takes the Disney Bundle — with Disney+, Hulu and ESPN+ — is counted as three separate subscriptions. A much better apples-to-apples comparison would show Disney’s unduplicated streaming subscribers (i.e., households), but that’s a figure the company does not disclose.
When Disney+ first launched in November 2019, it rapidly amassed market share by pricing the streamer at the low, low price of $6.99/month. That was nearly half Netflix’s standard plan at the time.
But that low entry point has meant Disney’s flagship streamer makes less money than Netflix, the historical category leader. For the three months ended July 2, Disney+ domestic ARPU (U.S. and Canada) was $6.27 per month, a 5% decline from the year earlier, likely the result of a skew toward the Disney Bundle and inclusion of Disney+ (and ESPN+) in Hulu’s live TV package. That’s compared with Netflix, which reported an ARPU of $15.95 per month in the U.S./Canada region for Q2, up 10% due to price increases.
Now Disney+ is trying to raise its profitability profile, as U.S. streaming subscriber growth has slowed for not just Disney+ but nearly every player in the biz. In the U.S. and Canada, Disney+ picked up just 100,000 paid subs in the recent quarter, to reach 44.5 million.
Concurrent with its earnings release, Disney announced a 38% price hike for the “premium” Disney+ no-ads version of the service, which will go up to $10.99/month on Dec. 8, 2022. That same day, the media company will introduce Disney+ Basic, an advertising-supported tier that will be available at the previous $7.99/month price.
That, of course, is designed to drive up Disney+’s ARPU, with the combo of the price increase (offset by the inevitable resulting churn) and the into of the ad-supported Disney+ Basic tier, which could produce higher ARPU if the Mouse House can successfully monetize it at the high ad rates execs have touted.
Hulu also is set for a price hike in Q4: On Oct. 10, the price of Hulu with ads will go up a buck, from $6.99 to $7.99 per month, while the ad-free tier will go up two dollars, from $12.99 to $14.99 per month. For the most recent quarter, the ARPU for Hulu’s subscription VOD service (available only in the U.S.) was $12.92 per month — down 2% year over year, again likely because of bundle discounts. That’s higher than Disney+, but still below Netflix’s ARPU in the region.
ESPN+ ARPU nosed up 2%, to $4.55/month, for the quarter ended July 2. As previously announced, ESPN+ rates will increase by three dollars monthly in August, going from $6.99 to $9.99 per month.
Disney expects Disney+ to reach profitability in fiscal year 2024 (which ends that September). In the most recent quarter, the media conglomerate’s streaming losses increased: Disney’s direct-to-consumer revenue was $5.06 billion for the quarter, up 19% — but below Wall Street expectations of $5.2 billion, per FactSet. The operating loss for the DTC segment ballooned to $1.06 billion, versus $293 million in the year-earlier period. (Netflix posted Q2 revenue of $7.97 billion and net income of $1.44 billion.)
“As a result of this slowdown in new subscriber additions, we have seen many in the industry pivot to a new wave of sobriety” — with a focus on streaming profitability, MoffettNathanson principal analyst Michael Nathanson wrote in an Aug. 11 research note. “We on Wall Street have taken notice. Gone are the sum-of-the-parts models using revenue multiples or even the metric of EV/content spending. From here on out, we hope the focus for streamers is return on invested capital and free cash flow generation.”
Also note that while Disney expects “core Disney+” growth to continue on its expected trajectory through 2024, the company cut projections for Disney+ Hotstar over that time period given the loss of Indian Premiere League cricket rights. With the warning about a slowdown in India, Disney lowered the subscriber target for Disney+ over to 215 million-245 million global subscribers by the end of its fiscal year 2024, down from 230 million-260 million previously.
