In its most recent quarterly earnings report, Disney announced that the number of Disney Plus paid subscribers swelled to 116 million as of July 3. Wall Street noticed, as one headline from a financial publication shouted, “Disney Stock Leaps After Earnings Blowout.” Since the introduction of Disney Plus on Nov. 12, 2019, Disney shares price has climbed from $138 to $177 as of Aug. 23.
Wall Street always wants more, and Disney will be addicted to increasing subscriptions even if it means sacrificing theatrical revenue. That’s because math favors Disney Plus. The revenue generated by the 116 million Disney Plus subscribers, at a discounted monthly subscription fee that averages $4.16 each, will generate $5.79 billion annually. This surpasses the $4.73 billion revenue that Disney achieved in 2019 from theatrical distribution. And Disney Plus is still in its infancy. This is in addition to the revenue generated by Disney’s nearly 42.8 million Hulu subscribers and 14.9 million ESPN Plus subscribers.
One chart reveals how Disney has fueled its Disney Plus subscriber addiction by expanding internationally while providing a continuous flow of direct-to-consumer films and series.
NATO chief John Fithian asserted last week at the organization’s annual CinemaCon gathering in Las Vegas that “simultaneous release does not work for anyone.” He’s wrong. It’s one tool that studios will use to gain and retain subscribers, raising revenue now to enjoy massive profits later.
For A-list talent, Disney’s addiction has made for a bumpy road. “Black Widow” star Scarlett Johansson is suing Disney for what the lawsuit calls “a promise” that the latest entry in Marvel’s MCU would get a theatrical release, which Ms. Johansson interpreted as an exclusive release.
New contracts need to compensate talent in a manner that is equal to what they would have received under the old contracts. From Ms. Johansson’s standpoint, that means a reported $50 million bonus on top of the $20 million she has already received. To achieve this, contracts need to acknowledge four potential components: a base fee, a performance percentage of the box office, a performance percentage of the premium video-on-demand receipts, and potentially an added boost for incremental subscription revenue generated by households that signed up to watch the new film.
The last component is trickier to ascertain, yet can be valuable because it represents an ongoing residual fee based on subscribers’ lifetime value. Because these four components can get complicated, Disney might take a page out of the Netflix playbook and just pay a bigger fee upfront with no performance-based pay whatsoever. Interestingly, while some talent agents have expressed concerns that Disney’s growing influence will put talent at a disadvantage during negotiations, Johansson’s lawsuit probably motivated Disney to offer Emma Stone a more lucrative deal for a “Cruella” sequel.
After the disruption settles and the industry reaches a new equilibrium, studios and consumers will undoubtedly come out as winners. Talent will probably break even. Theaters will lose. And while some may think that this was a result of the pandemic, these events were already in play because theatrical windows were already shrinking pre-COVID, consumers were already revealing a strong preference for streaming, and studios were already creating their own streaming services. The pandemic simply made the future arrive earlier, thanks to Wall Street’s expectations and Disney’s addiction.
Gene Del Vecchio is an entertainment consultant and researcher and an Adjunct Professor at USC Marshall School of Business, where he teaches entertainment marketing. He is the author of 2012’s “Creating Blockbusters!”
